Charles Eveslage – ICR, IR David Xueling Li – CEO Eric He – CFO.

Timothy Chan – Morgan Stanley Alex Yao – JPMorgan Vivian Hao – Deutsche Bank Jialong Shi – Credit Suisse Jiong Shao – Macquarie Chao Wang – Nomura Tian Hou – T.H. Capital Yu-Heng Fan – China Renaissance.

Good day everyone, and welcome to YY's First Quarter 2014 Earnings Conference Call. [Operator Instructions] At this point, I would like to turn the call over to Charles Eveslage from ICR..

Thank you, operator. Welcome to YY's first quarter 2014 earnings conference call. With us today are Mr. David Xueling Li, CEO of YY, and Mr. Eric He, CFO. Following management's prepared remarks, we will conduct the question-and-answer session.

Before we begin, I refer you to the Safe Harbor statement in our earnings release which also applies to our conference call today as we will make forward-looking statements. At this time, I would now like to turn the conference call over to our Mr. David Li, CEO..

Thank you. Good morning and good evening everyone. We have released -- we are pleased to announce the strong first quarter 2014. We enjoyed robust growth during the seasonal low first quarter and aim to carry this momentum throughout 2014.

In particular, online music and entertainment again outperformed our expectations this quarter, with revenue growth by 228% and paying user increase by 103% year over year. This robust growth was supported by our well-developed ecosystem and diverse line of content, which helped retain performers while encouraging our spending.

As such, we continue to see increasingly dynamic and interactive online activities among our expanding base of 95.5 million average monthly active users. Moreover, users continue to find new ways to socialize and interact with one another on our platform, which provides us new business opportunities and additional ways to monetize.

An exciting moment on this front was our launch of dedicated education platform 100 Education in late February. Leveraging our powerful audio and video communication technology as well as our massive real-time hosting abilities, our education services provide a real-time interactive setting of students and teachers.

By expanding our footprint in a wide range of real-time online interactive services in China, we aim to further expand our diverse online communities and user base. In addition, we made a great stride on the mobile front, delivering solid growth in user traffic and expanding our mobile advantage.

In particular, I'd like to point out that since we introduced the virtual item sales into our mobile online entertainment services last October, revenues generated from our mobile platform surged 180% to RMB29 million from a quarter ago among all the paying users of our online entertainment services.

Eight percent of users made payments exclusively through mobile devices, representing an impressive 99% -- 88% increase in numbers from last quarter.

This result demonstrates our initial success in calculating users' paying habits on mobile by allowing users to remain active with us and access our highly-demanded services through these mobile devices.

Building upon the momentum in our online music and entertainment business, we have officially kicked off star making campaign [ph] in [indiscernible] to form our own pop idol brand, 1931.

Unlike other companies that only host the contents in their own thread with very limited handshake [ph] interaction between sales and the brand, our 1931 [ph] brand performing regularly at 7:31 p.m. [ph] will be leveraging YY's real-time interactive platform to enable live and innovative interactions between the singers and users.

Through this effort, we will also be able to expand our faster-growing music and entertainment business to offline business [ph], potentially creating a new growth opportunity with the concept of idols you cannot only meet but also interact with.

With the solid foundation and strong marketing position we have established, we will continue to attract the user and optimize our monetization efforts through online entertainment, leading [ph] broadcasting, education and other verticals, we believe we are well-positioned to sustain robust growth and performance in the future.

With that, I will now hand over the call to our CFO, Eric..

Thank you, David. Good morning everyone. I would like to further elaborate on our increasing focus on our education and mobile endeavors.

First, with the launch of the 100 Education in February, followed by the introduction of branded client last month, we now have established a dedicated and branded platform for both PC and mobile access within China's fast-growing online education markets.

By enabling a revolutionary and real-time and active education experience, we differentiate our education service offerings from traditional educational service that are usually passive, asynchronous, one-way endeavors, with minimum participation from students, with the offering of a variety of highly populated live [ph] exam preparation classes and programs online free of charge to users.

Our near-term focus remains on the optimization of our product and services offerings. Through these efforts, we aim to improve user experience while attracting more teachers and students onto our platform with disciplined marketing spending.

This strategy has already begun to bear fruit as we saw the number of active monthly teachers, pay courses and free courses all increased by more than 70% in March from its launch only a month before. With the expansion of our platform, we also want to empower teachers to benefit professionally in tandem with us.

We believe this win-win arrangement with create additional monetization avenues on our technology platform in the future. We continue to see encouraging results with the growth of our mobile platform, as highlighted by the increased adoption and monetization of our mobile applications.

Monthly average users of our mobile education increased by 18% to approximately 20 million quarter over quarter. Furthermore, as David highlighted earlier, our monetization ability on our mobile platform continues to improve with revenue generated from mobile online entertainment increasing 180% to 29 million quarter over quarter.

This represents 8% of all revenues from online entertainment. In addition, 24% of all online entertainment paying users use mobile to pay for virtual items. Of these paying users, 1 in 3 use mobile exclusively to pay for music and entertainment.

As consumer adoption of mobile payment solutions remains low in China, we are very delighted that our users have quickly established a habit of spending in our new mobile ecosystem and have built trust in our company to pay via our mobile payment channels.

As China's wireless network infrastructure improves and 4G usage become more widespread, we believe that mobile adoption of YY will continue to increase and will provide ample opportunity for monetization. One last item I want to point out was that our Board of Directors approved a share repurchase program.

This authorized amount will be up to USD100 million for a period of one year, effective immediately. Now moving on to our quarterly financial details.

Before I get started -- get started presenting our financial numbers, I would like to clarify that all financial numbers we are presenting today are in renminbi, RMB, amounts, and percentage changes are year-over-year comparisons, unless otherwise noted.

First of all, I'd like to highlight that in the first quarter we were once again able to achieve results that exceeded our expectation on the top line. Moreover, we also saw net income attributable to YY almost triple year over year due to the expanding scale and leverage of YY business operations.

Net revenues for the first quarter 2014 increased by 112% to RMB666 million. This increase was primarily driven by an increase in IVAS revenue. IVAS revenues increased by 127% to RMB642 million. This overall increase primarily reflected increases in the number of paying users and increase in ARPU.

Let's look at each of our IVAS business lines more specifically. Revenue from online music and entertainment increased by 228% to RMB383 million. This increase primarily reflected a 103% increase in the number of paying users to just over 1 million and 61% increase in ARPU to RMB381 during the first quarter 2014.

Revenue from online games increased by 36.3% to RMB180. This increase primarily reflected an increase in ARPU of 241% to RMB391 and a 10% increase in the number of paying users to 461,000. Also, the number of online games increased to 139 as of March 31, 2014 from 92 last year. Revenue from others increased by 134% to RMB79.

Revenue from membership programs increased by 54% to RMB43. This increase primarily reflected a 56% increase in the members to 851,000 as of March 31, 2014. Revenues from live game broadcasting of online games increased significantly to RMB24 million from RMB3 million in the prior-year period.

Online advertising revenue was RMB24 million in the first quarter 2014, compared to RMB32 million in the corresponding period of 2013. Cost of revenues increased to RMB317 million. This was primarily attributable to an increasing in revenue-sharing fees and content costs which increased RMB179 million this quarter from RMB56 million last year.

This increase included revenue-sharing fees and content costs to performers, channel owners and content providers, and that was primarily due to higher level of user engagement and spending.

In addition, bandwidth costs increased to RMB63 million, representing 10% of revenue, down from 14% of revenue in the same period last year as we continue to manage our bandwidth costs through better allocation of bandwidth resources and infrastructure improvements. Gross profit increased by 106% to RMB349 million.

Gross margin was 52% compared to 54% in the corresponding period of 2013. The decrease in gross margin was mainly attributable to the higher portion of revenue resulting from online music and entertainment and the corresponding higher costs of revenues from revenue-sharing fees and content costs.

Our non-GAAP operating income increased 177% to RMB229 million. Non-GAAP operating margin increased to 34% from 26% in the same quarter last year. The increase in operating margin was primarily due to increased operating leverage associated with our expansion.

GAAP net income attributable to YY increased 187% to RMB184 million from RMB64 million in the same quarter last year. GAAP net margin increased to 28% from 20% in the same quarter last year. Non-GAAP net income attributable to YY increased by 153% to RMB208 million, while non-GAAP net margin expanded to 31% from 26% in the same quarter last year.

Diluted net income per ADS increased to RMB3.06 or USD0.49, from RMB1.11 in the same quarter last year. Non-GAAP diluted net income per ADS increased RMB3.46 or USD0.56 from RMB1.42 in the corresponding period 2013.

For the second quarter of 2013, we currently expect our net revenue to be between RMB745 million and RMB755 million, representing a year-over-year growth of approximately 82% to 85%. This concludes our prepared remarks for today. Operator, we are now ready to take questions..

[Operator Instructions] Your first question today comes from the line of Timothy Chan from Morgan Stanley. Timothy, please go ahead..

Hi, good morning. Thank you very much for taking my questions. I have two questions. The first one is actually a follow-up on your education business which shows really a promising start.

Could you maybe talk about your next step and target this year? For example, the student volume that you are going to sign up or whether you have plans to expanding your offering to other categories. And I have another question. Thank you..

Yes. Sorry. Let me just translate a little bit to our CEO. I think this question will be answered by CEO, David..

[Interpreted] Yes. We were - we are very pleased to announce our endeavor to education business. We use a new brand name, 100 Education. We use very different ways to enter into this market, which is different from previous traditional ways. I think at this moment of time, our focus is not on the number of students or number of courses.

We want to focus on delivering the best courses, the best service to our students and to our teachers. We are very glad to see that the first course that we conducted a couple of weeks ago, we got a very good -- satisfactory or good ratings of 97, which is very rare. We intend to maintain that kind of rating.

So we want to emphasize at this point of time, number of students or number of courses is not the most important metrics. In fact, we want to actually deliver the best user experience and the satisfactory service to our students and teachers..

Thank you. Great. My second question is related to the change in government policy on online content recently. I want to ask, is there any impact on YY? And if there is any, what are you going to do to minimize the impact? Thank you..

We will direct this question to the CEO David to answer..

[Interpreted] Yes. I think, first of all, we would like to state very clearly, we are in supportive of government's regulations and government's crackdown on inappropriate and pornography content on the internet.

We believe the government's control and monitoring will bring a lot of the good side effects to the industry, especially which will actually make competition, make long-term development of the industry very good -- in very good direction. So we actually support government's monitoring and regulations.

Number two, I think we want to emphasize that YY is a company, actually has been long time try to crack down on pornography and inappropriate content. So this government regulations or new monitoring policy actually is in consistence with our policy and strategy.

So at this point of time, we will continue to our strategy to monitor and control in appropriate and pornography content as before.

Number three, I think because of our policy has been very much tried to eliminate all this pornography content, so you may actually have seen that in our first quarter and our second quarter forecast, you don't see that much of the impact on our business levels.

So we don't think that this government crackdown will affect or impact our business line or operations too much.

Number four, we want to emphasize that we have been in constant communications with government relevant agencies and we actually would like to report and interact with the government, and try to tell them that what's going right, what's going wrong on our platform.

If we find out any inappropriate cases, we usually will report to government voluntarily. So the dialogue and the communication between us and the government has been very good. So far we have never been inquired or asked for any inappropriate content at this moment..

That's very helpful. Thank you, David and Eric..

Thank you..

Your next question comes from the line of Alex Yao from JPMorgan. Alex, please go ahead..

Hi, good morning, David and Eric. Congrats on a solid quarter. I have two questions. Number one is on the web game outlook for this year. It seems to me the overall web gaming market is slowing down.

How do you guys drive this part of the business growth in this year? Are all the recent games such as Fung Ying [ph], Wu Shang [ph], etcetera, helping to further drive the business? I stop here, and I have a second question. Thank you..

Okay, sure. Thank you, Alex. I -- let me answer your first question regarding this web game business outlook. As you can see that in 2013 our web game business has grown at a clip of 80%, which is roughly twice as fast as the industry average. The industry was estimated to grow at about 40%.

As you can see the first quarter, our web game business has grown on a year-over-year basis to roughly 40%, to be exact is about 36%. This is actually very much in line with what I had been expecting. We had communicated with the investment community, telling people that, A, the web game is growing but it's slowing down.

The web game business as a whole perhaps is not growing at 40%, now perhaps it's 15% to 20%, as I told or communicated with the community. So if we can continue to grow 2 times as the industry, we should get somewhere around 30% to 40%. That's exactly what we are delivering in the first quarter.

And your question is, moving forward, what's the outlook for this business? In fact, I think the outlook for the whole industry is not changing too much. I think it will continue to grow but at a slower pace. And we continue to believe that we should outperform the industry average.

On top of that, we are somewhat optimistic or cautiously optimistic about our web game business, because in this business we not only actually have web game business behind us, we also are exploring some of the new markets. We believe it will bring in additional growth for us.

So for overall this year, we still believe that we should be achieving quite a decent growth rate on a year-over-year basis..

That's very helpful. And secondly, your online ads business declined by 25% on year-over-year basis this quarter. Can you help us understand why is the business underperformed in the quarter, and what's the outlook going forward? Thank you..

Your question is about advertising?.

Yes..

Okay. Yes. I think this online advertising business, they actually declined from the first fourth quarter's level. First of all, I think it's seasonal, because as you know that the first quarter is the slowest season of the year. But on a year-over-year basis, we do actually -- we did actually slow down.

The reason was because we had changed our sales strategies. Last year 2013, we have a strategy to concentrate to have a packaged deal with ad agency. Now we are trying to diversify our usage of agency -- ad agencies. So the first quarter of 2014, just last quarter, it's right in the midst of it. So we are adjusting our strategy.

So when we adjust our strategies, we try to break down this very large so-called contracted number from last year to this year so we will lose some momentum, we'll lose some revenue. From what we can see now, is that this online advertising revenue should come back.

For the -- on a whole-year basis, 2014, the whole-year basis, our estimation for our online advertising business will be flat with the number of 2014. I believe in 2014 we delivered somewhere around RMB160 million in revenue for the whole year.

I think this year we're going to, you know, deliver very similar numbers, despite the fact that the first quarter was a little below, at normal or average, I think second quarter, third quarter, fourth quarter, this business will pick up, will come back.

So the whole year, on an annual basis in 2014, we should look online advertising business should be very much in line. The total dollar amount or contribution will be very much in line with what we have in 2013..

It's very helpful. Thank you very much..

Your next question today comes from the line of Vivian Hao from Deutsche Bank. Vivian, please go ahead..

Hi, Eric. Thank you for taking my question. I have one question. Recently we noticed that some of the monetization functions for particularly the high rollers in the chat rooms have been required to -- I don't know if it's required or just to be removed. Trying to understand what's the expected impact from such changes..

Thank you. Vivian, I will ask our CEO David to respond to the question. [Chinese language spoken].

[Interpreted] Yes. I think recently you mentioned that some game like Kicking People [ph] game or Dancing China [ph] have been closed. I think that is in the normal course of business operations.

Because, you know, and in fact, in February and March of this year, we voluntarily banned a game called Slave Trading [ph], because we think there are some problems in that game so we actually stopped it. So I think we want to emphasize again, at this time we voluntarily again banned some of the features and the games in our channels.

And I think what we are trying to do is we try to actually stipulate a better management regulations or methodology so that once we have it - once we have that installed or in place, we would again re-initiate that futures or games or channels. I think what you just mentioned is exactly what happened to us..

Understood.

May I just have one quick follow-up? Could you please remind us, what is roughly the contribution from high spenders in the music community?.

Well --.

-- revenue. Thank you..

Yes. As I mentioned before, that in our music, entertainment business, for example this year -- sorry, this quarter we have over 1 million paying users, right? Usually in the item-based monetizations, smaller amount of paying user will account for large percentage of the revenue. For us it's more in that general direction as well.

Roughly 5% of our paying users account for roughly 70% of the total music revenue. That has been pretty consistent in recent quarters..

Thank you..

Your next question today comes from the line of Jialong Shi from Credit Suisse. Jialong, please go ahead..

Hi. Good morning, David, Eric. Thanks for taking my question. I have a follow-up question on the education business. I understand that you guys might not be in a hurry to monetize this business. But just wonder if the management can share with us any potential monetization models for this business in the future. I have one follow-up. Thank you..

Okay. Let me translate this question a little bit..

[Interpreted] Yes. We will emphasize that in the education market or business or industry, there are many aspects. Learning is one aspect. Interaction is one aspect. So we want to emphasize that we are not going to let everybody get a free lunch on everything, meaning that it's not free-of-harge for everything.

In fact, we at this moment, we want to use a free of charge strategy on certain part of the business. This certain part of the business is the part that is students care the most. What students care the most at this moment is what we believe is crash courses. Those crash courses is students care the most and where the focus is.

However, students do have other needs, do have other area they care. So when student, being attracted to our platform, we deliver very good services. Then we will let teachers to design very individual courses or the point of sales for them to make money.

So our business model is to use this free-of-charge crash courses and attract large volumes or traffic onto our platform. We will let teachers to design their individualized courses and services so that they can charge people for money and for their services. So that's our business model..

Thank you for that color. My second question is about 1931. Just wonder what's your long-term goal for this business. Is it aims to grow in the talent agency business like YE Brothers [ph], so that YY might make money from the paid performers both offline and online? Thank you..

[Chinese language spoken] I'm translating the question to our CEO David. David is going to answer your question. Thank you..

[Interpreted] Okay. We think that 1931 is very important for our online music and entertainment business, because it's very strategical, very important. The purpose to have this group is to cover from upstream to downstream of the music business. We already have a very strong following on so-called grassroots people, grassroots singers.

Now 1931 is to help us to go up to the value chain. So we also want to be able to create a chain or channels to create superstars. So on YY platform, there are so many grassroots singers. But once upon a time or sometimes we will have a very talented, very reputable performer.

We want to make 1931 become the exit of those believed performers, so that they will one day become a household name in the entertainment business in China. I remember that before we mentioned AKB 48's [ph] business model in Japan. I want to emphasize that from -- as far as I understand, AKB 48 [ph] actually is making tons of monies.

If I'm not mistaken, it should be somewhere around USD300 million on an annual basis. So this business will be a very good supplement to our current business, and also help us to broaden our user base and to make YY entertainment become a mainstream entertainment in a long-term basis. That's our purpose and goal..

Thank you..

Your next question today comes from the line of Jiong Shao from Macquarie. Jiong, please go ahead..

Thank you for taking my questions. My first follow-up is on the government regulation on the sort of online UGC video content. I was just wondering sort of what licenses a company like your typically will need to sort of broadcast UGC content online. And how many license does YY have right now to do this music business? That's my first follow-up.

I have a second follow-up. Thank you..

[Chinese language spoken].

[Interpreted] YY has been in business for so many years. It's actually since 2005, close to 10 years. We have so many permits and license which allowed us to do all sorts of internet broadcasting. I think specifically we have two license which is very relevant. One is called audio and video permit.

I believe that is from GAPP or -- it's from SOF [ph] actually. Video and audio permit is from SOF [ph]. And also we have internet performance permit which is promulgated from Ministry of Culture. So those are the most critical ones. And those two license enable us to do all this content broadcasting on internet.

Of course I want to emphasize, it's not just those two. We actually have many other licenses in a company. So I think in terms of license, we are equipped with all necessary if not more than necessary license to do the business in China..

Okay, great. Thank you, David and Eric, for the answer. My second follow-up is on the mobile business. You have already shared some of the metrics for your mobile in terms of the MAUs and the revenue contribution.

I was wondering, could you talk about, in terms of the user behavior, like the time spent on mobile, the monetization, sort of the differences, what items mobile users buy or not buy. Any additional sort of color you can share would be great. Thank you..

Sure. I think, yes, we are very pleased to see our mobile initiative actually has bear some fruit. I want to emphasize that we started the mobile monetization in the fourth quarter of 2013. As we just reported, the mobile monetization is doing much better than we expected in terms of number of users, in terms of dollar amounts.

I think in terms of the behavior, this is what we look. If you look at the numbers, you can see clearly at this point of time the ARPU from mobile users or mobile spending is smaller. I want to go back to the numbers again to you. Our mobile monetization dollars is only 8% of our total entertainment revenue.

However, in terms of people who use mobile devices to pay for their virtual items, it's 24%. If you interpreted that, you can clearly see the ARPU for the mobile purchase is smaller than the normal one from PC. So that's one clear evidence.

Number two is that, from what I can see, on a very consistent basis, that our users usually will interact long hours with our services on PC. As you know that most of the mobile users, they use this service in a much shorter time spent.

So those are the two very clear differences in terms of the user behavior between the mobile users and the PC users..

Great. Thanks again, Eric. Thank you all..

Yes..

Your next question today comes from the line of Chao Wang from Nomura. Chao, please go ahead. Hello, Chao, your line is now open..

Hello? Can you hear me?.

Go ahead..

Hi. My question is regarding deferred revenue. Could you roughly break it up between game and music? And also I noted that it's up 5% quarter over quarter again after 22% sequential increase in last quarter. So how should we think about the seasonality of deferred revenue versus revenue? Thank you..

I'm sorry.

Can you repeat your question? You said to break down the revenue between the game and music?.

I mean deferred revenue..

Oh, deferred revenue..

Yeah. And also want to understand the seasonality of deferred revenue versus revenue..

Okay, good. Okay, for deferred revenue, as we all know, that it's a balance sheet item. Deferred revenue is derived because that, according to U.S. GAAP, some of the services is not being rendered completely as of the quarter-end, so we have to defer to next quarter. We actually do not actually disclose the details of deferred revenue.

But I can give you some kind of guidance. The largest part among our deferred revenue is on the music side. That actually is a little more than one-third of the total amount. The second largest one is the gaming deferred revenue. That is also in the 30-some percentage. And the third one is membership. It's in the high 20s, close to 30s.

So those three items actually account for 95% or 96% of the deferred revenue. So they are pretty much evenly spread over from 30% to 38% or 39%. So in terms of the seasonality, I don't think there is too much seasonality, other than that deferred revenue usually goes in tandem with the revenue of the particular line of business.

Say, if the music business go up, revenue increase, if everything goes normal, deferred revenue will go up with it as well. So usually that is the case..

Thank you very much. Very helpful..

Your next question today comes from the line of Tian Hou from T.H. Capital. Tian, please go ahead..

Morning, David and Eric. Thanks for taking my questions. A couple of questions. One is regarding your music business. I saw that in this quarter it went up a lot, and that's actually follow the high growth in 2013.

So I wonder, what's the outlook for this part of the business in 2014? And how do you drive this business continue to grow at high speed? So that's on the musical side. And on the education side, and I know you're investing heavily in this part of the business and aiming at recruit users and recruit sticky users.

And I wonder what's the total investment are you planning to put in place, and how should we think about your gross margins going forward? That's the two questions..

Okay. Well, first of all, for the music business, as you have seen, that our music business has grown very rapidly, very strongly. I think the way that we grow our music business are in many folds. We have a very strong music team. They don't actually just grow revenue, they also try to grow user base.

So for the short term, on a quarter-over-quarter basis, our music team has sponsor or has done a lot of the marketing campaigns surrounding all these holidays. I think this strategy has been proven very effectively. They will continue to use that.

For example, in the first quarter we have Valentine's Day, we have Chinese New Year, we have February, you know, there is a day called Once in a Life or something. Those kind of holidays or those kinds of days will be the special day for them to do their promotion. That's on a short-term basis.

On a long-term basis, we try to build a very solid user base. Not only that we are looking at monetizing in a short-term manner, but we also want to broaden our user base.

I think 1931 is one of the long-term efforts or endeavor, so we don't expect 1931 to create huge amount of traffic or user base in the short run, but in three quarters, a year or two, it actually can broaden our user base on a long-term basis.

So that's going to help us to allow our platforms to have a better or stronger capabilities to help our performers to monetize in a long-term basis. So that's our music strategy.

On the education side, yes, this year is a year of investment for our education business, because we already say -- we already said that this year we don't pay attention to monetization, we don't even pay attention to number of students.

We want to make sure that the quality of service or the quality of the content are up to the satisfaction of our students and teachers. That means, yes, we need to actually have a very strong team. I think our education team at this moment is doing very well. We will continue to support them. So we will add headcount in that team.

Secondly, we did actually mention we want to invest RMB1 billion into the education business. So a lot of people or investor will start to worry that RMB1 billion is a lot of money. But if you look at the history or the tradition of YY, we don't usually will conduct a massive marketing campaign.

I think most of that money will be used to invest or acquire meaningful education outfits or business model, meaning that all those money will be spent onto so-called balance sheet items, becoming investments. So I think in the short run, I don't see that our spending in education business is going to impact our P&L or income statement that much..

That's very helpful. Eric, I have a follow-up question. You mentioned about the sponsorship in the music performance. So I wonder how important those sponsors are to the performer and to the music business..

Tian, can you say that again? I don't understand that. Because I thought you've already asked two, so I didn't expect you asking any question.

Can you repeat your question again?.

Yes. It's about the sponsor. So you've mentioned about the sponsorship for the musical performers. So I wonder how important those sponsors to the performance -- to the performers and also how important those sponsorship to your revenue growth..

Can you say sponsor in Chinese? Because I don't really understand what sponsor means..

[Chinese language spoken].

Okay. Now I understand. Again I think you missed to understand our business. Our business, we don't have what you call sponsor. Our term is called channel owner. We have channel owner who is running a channel. And the channel owner will have contract with hundreds of singers. So they would have relationship with a lot of singers.

So they don't actually sponsor. The business model you're talking about could be related to some other companies. It's not -- it doesn't have anything to do with us. So we have channel owners who will actually share the revenue, the music revenue, with the performers. So the more performer they have, the more money they're going to make.

The better their performers they can contract with, and then the better business will be in that specific contract. So I don't think we call them sponsor..

That's helpful.

How important they are to your business?.

Can we go to the next question please? Next question please..

Your next question comes from the line of Yu-Heng Fan from China Renaissance. Yu-Heng, please go ahead..

Hi, good morning. Thanks for taking my question. My first question is regarding the student acquisition. You mentioned now you'll stay disciplined in marketing for your education.

I just wonder, so far since the launch of 100.com, how much of your -- how many of your students were acquired organically, what you're planning in the future? Then I have a follow-up for the next question..

Yu-Heng, can you repeat question very, very quickly again? Because I was a little preoccupied, sorry about this..

Sorry about it. You mentioned that you'll stay disciplined on your marketing spending for your education business. I just wonder, since the launch of 100.com, how many of your students that signed on so far were acquired organically, what's your plan in the future? And then I have a follow-up. Thank you..

Yes. I can tell you, as of now, it's all -- they all come to 100 Education organically. We do not actually purchase any traffic or anything. Because that is just out of one press conference. So I will say that the 20,000 student we signed up is just because that press conference.

And that press conference is what I mentioned as disciplined marketing strategy, because obviously the press conference will cost us some money, right? So we haven't actually tried to use other means to attract other students..

Thank you. And then for the -- for lots of pay teacher you hired, I just wonder what's your compensation structure for those teachers, if that was based on fixed annual salary or is there any incentive title compensation? Thank you..

It's very interesting. Right now we do have six teachers conducting the courses at 100 Education. But you know what? All of them are volunteers. When we actually announced that we are trying to recruit some teachers to teach on their particular courses, there are hundreds of teachers -- hundreds of teachers trying to apply for that position.

And we just picked one of them to become the teacher who is teaching the course. So at this point of time we have not spent money to hire teachers to conduct courses yet..

Okay. Thank you. That's helpful. Congrats on strong progress. Thank you..

Ladies and gentlemen, this concludes the question-and-answer session for today. I would now like to hand the conference back to management for closing remarks..

Thank you very much for everyone. Now we conclude the conference call. Thank you..

Thank you..

Ladies and gentlemen, this concludes the call for today. Thank you all for participating. You may all now disconnect..