Earnings Call Transcript - NTES Q4 2020

Operator, Operator

Good day and welcome to the NetEase 2020 Fourth Quarter and Full Year’s Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Margaret Shi, IR Director of NetEase. Please go ahead, ma'am.

Margaret Shi, IR Director

Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the Safe Harbor from liability as established by the US Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase’s business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its Annual Report on Form 20-F and the announcement of the filings on the website of Hong Kong Stock Exchange. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2020 fourth quarter and full year earnings news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase senior management is Mr. William Ding, our Chief Executive Officer; and Mr. Charles Yang, our Chief Financial Officer. I will now turn the call over to Charles, who will read the prepared remarks on behalf of William.

Charles Yang, CFO

Thank you, Margaret and thank you, everyone for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on renminbi. We closed 2020 with a solid set of results in the fourth quarter centered around content creation and user experience. Each of our key business segments showed impressive resilience and delivered sustainable growth during the year. We generated total net revenue of RMB 73.7 billion for the whole year, up 24% year-over-year and RMB 19.8 billion in net revenues for the fourth quarter, up 26% year-over-year. 2020 was a challenging year for many businesses around the world. It was not a time to stand alone and survive, but the time to work together and thrive. While Collins Dictionary has declared the word lockdown as the word of the year, we believe the word breakthrough also defined the life and career of many in the past year. We are grateful for the initiatives our employees take to care for the impacted and respond quickly and act responsibly to help both our company and the broader community overcome these hurdles. In doing so, we are proud to have weathered the obstacles, growing each of our businesses in a meaningful way, supporting our business partners to stay safe and strong and generating sustainable returns to our stakeholders. We are also proud to have achieved a few milestones in 2020 as we celebrated our 20th anniversary on NASDAQ and completed our listing on the Hong Kong Stock Exchange. We are delighted to have seen a positive reaction from the market, especially after our dual listing in Hong Kong, a market that is closer to our roots. Turning to our Q4 results. During the quarter, the popularity of our online games business continued with steady performances from our existing titles. Net revenues from our online game services were up 15% year-over-year, reaching RMB 13.4 billion. Our legacy titles such as Fantasy Westward Journey and Westward Journey Online series continue to resonate with players. FWJ Online and New Westward Journey Online II once again reached record revenues in 2020, further strengthening their position as two of China's biggest MMO titles. On the mobile side during very effective celebrations, FWJ mobile games and WWJ mobile games once again reached the number one and number two position respectively on China's iOS games top grossing chart. Other games launched in more recent years are also enjoying impressive player traction with highly active core user bases, for example Life-After and Invincible. Following its launch in 2018, Life-After has become an iconic title since reaching its initial phase of stabilization in 2019. Gross billings of Life-After regained its growth momentum in 2020 as we launched a couple of highly popular expansion packs bringing avid players a series of new themes and innovative gameplay. Similarly, our SLG title Invincible remained steady in 2020 with strong user engagement in its own right amid increasing competitive marketing spend. Celebrating its fifth year anniversary in October, Invincible once again reached the number five position on China's iOS top game grossing chart. Based on Onmyoji, one of our flagship titles, our IP strategy has paved a smooth road for creating various IP-based pan-entertainment productions. As of today, the estimated value of Onmyoji IP exceeds $10 billion according to iResearch. Since its initial blockbuster launch in 2016, we have been seamlessly growing this important IP. To date, we've introduced three Onmyoji spin-off games in mobile, card, and simulation genre. We have two more new spin-off games in the making, Project: World, an RPG game; and Onmyoji Idol Project, another simulation game. On the overseas front, we continue to make solid progress. For the past four consecutive years, revenue contribution from overseas markets has been growing continuously as a proportion of our overall games revenue. Some of the key drivers include titles such as Knives Out, Life-After, and Identity V, all of which had a record year in 2020. Japan is a key hub for the global games industry. We deeply value these creative minds and our success in Japan has allowed us to work more closely with local partners. Initial momentum in this arena includes our established collaboration with the Pokémon Company and a series of IP collaborations between Knives Out and other famous IP such as EVA and Attack on Titan. We have also been more active in attracting and collaborating with local Japanese R&D talent complementary to our own as well as opened up our Sakura Studio, which focuses on building next-generation console games. 2021 is a super exciting year for us with a number of strong titles ready for launch. We started this year with the Revelation mobile game, the long-anticipated mobile adaptation of its PC version capturing both returning fans and brand-new MMO players, including a large group of female and younger players. The Revelation mobile game quickly became a top-ranking title on China's iOS grossing chart following its launch. Additionally, in January, we brought to market Yu-Gi-Oh! Duel Links, a competitive card game on mobile calling on the nostalgia of a generation of Yu-Gi-Oh! fans. The mobile game topped China's iOS downloads chart soon after its launch. Catering to local preference, we optimized the range of items for the Chinese market including a new mode and select each new design, which is proving quite popular amongst our players. Harry Potter: Magic Awakened marks another game that has been long anticipated by our player community. We hope the hard work poured into making this game will do it the justice that this global IP commands. Featuring a blend of strategy RPG elements, players will become a Hogwarts freshman. This diversified wizard partner, learn spells, gain magic knowledge, and experience amazing wizardry life. We will also be bringing our next-generation SLG titles, Infinite Lagrange and The Lord of the Rings: Rise to War to players around the globe. Infinite Lagrange is a space-themed SLG where players can explore an uncharted galaxy, command and build space crafts, involve themselves in strategic battles, and plan the development of their own space stations. The Lord of the Rings: Rise to War is based on the famous trilogy. Set in a multilayered fantasy world, the game will recreate a visually stunning and completely faithful renditions with iconic characters and locations from the original masterpiece. With these two games, we look forward to extending our success in SLG from China to overseas markets, where we see greater potential for this thought-provoking genre. In addition, we had a handful of other exciting titles in our pipeline, all of which have received license approval in China. These include: Elysium of Legends, Nightmare Breaker, Ghost World Chronicle, Diablo Immortal, and Pokémon Quest. As we further enrich our game portfolio, we have been gradually broadening our skill sets in different areas of our R&D team, particularly over the past few years. Our sophisticated R&D infrastructure, user-centric corporate culture, and passion for games attract all kinds of talent joining us from both China and overseas. We believe our team's artistry and drive will bring to life even more great titles across diverse genres, expanding our success beyond our MMORPG world and newer successes in RPG, SLG, and so on. We are relentless in our drive to invest in and empower our people. This year, we were once again the proud recipient of the ATD Excellence in Practice Award, one of the most recognized awards in the global talent development industry. To leverage the creativity of our young producers even more, we are working to further reform our games' project initiation and review mechanism to encourage more innovative ideas and give young producers more autonomy to bring their vision to fruition. In summary, 2020 has been a strong year for our online games business and for the industry. Despite a high base, we are excited to see what 2021 will bring. We look forward to introducing more titles to our users in the coming years in China and globally. Turning to our education business. Youdao has witnessed the tremendous growth potential of China's online education industry over the past year. Faced with an influx of need across the country, we feel more responsible than ever to ensure our students receive the best quality teaching and most effective learning possible. Youdao closed the year with an impressive quarter. Total net revenue for Youdao in the fourth quarter was RMB 1.1 billion, representing a 170% increase year-over-year. Gross billings from Youdao's online courses in the fourth quarter increased by 223% year-over-year to RMB 1.1 billion, driven by rapid growth across each segment. Growth from our K-12 segment continues to lead the way, reaching a record RMB 767 million in gross billings, up 355% year-over-year, with K-12 paid enrollment expanding to over 659,000. Despite intense market-wide competition for user acquisition during the summer, Youdao's advertising strategy promoted healthy results and was ROI-driven. We made sure that our unit economics and marketing spend were positive and that our advertising content was conducted responsibly for our users and our investors. In the fourth quarter, we achieved another quarter of positive operating cash flow of RMB 129 million. To meet our growth needs and ensure our teaching quality, we continue to expand our high-quality servicing team, which now comprises 240 instructors and over 3,700 tutors. Learning devices are another component of Youdao that gives us a competitive edge with a mission to make learning more efficient. They have proven to be very popular among users, generating total net revenues from learning products of RMB 237 million in the fourth quarter, a significant increase of 254% year-over-year. In December, we released our new Dictionary Pen 3.0, which features two exclusive new experiences. The Tap and Check function and the Interactive Reading function. Through the support of advanced AI technology and cooperation with multiple authoritative publishing houses, it keeps learning options fresh and progressive. Moving through 2021, we will continue in this vein and invest in content offerings and technology to bring our students optimal learning experiences and realize sustainable growth with compelling smart education products and services. In February, Youdao raised US$232 million through a follow-on offering. We are determined to extend Youdao's competitive edge in this highly promising intelligent learning segment in China. On to our music capabilities, NetEase Cloud Music has been in operation since 2013. Based on our passion for music and our understanding of music lovers, we created a unique product and community to give our users an unprecedented music experience. Seven years later, we now have more than 200,000 independent musicians and over 800 million registered users, while over 90% of them are born in the 1990s or even younger. In our newly launched version 8.0, we focused on bringing our young users elevated personalized experiences to express themselves. It extends the playlist mode capabilities to videos and podcasts and offers new karaoke functions in the app. On the content side, we have witnessed some important changes in the industry. For the third time, we reached a direct nonexclusive agreement with UMG. Under the new agreement framework, we can give our users a wider range of benefits and choices. We further enriched our content library during the year, reaching agreements with Studio Ghibli, Rock Records, and BMG, among others. Most importantly, we continued our efforts to invest in and cultivate independent musicians. In 2020, approximately one million original soundtracks and music tracks were uploaded to our platform and the total play time of all the music tracks on our platform exceeded 300 billion. As one of China's most influential music streaming platforms for original music, we continue to empower independent musicians, giving them the tools and audience to help them create more hit songs. In terms of monetization, we have been setting up this effort since 2019 and continued its journey in last year. As a result, during the year, we saw strong growth in all three forms; membership, live broadcasting, and advertising. Given our somewhat fixed cost structure, we continue to see improvements in margins as we further scale up the music business. For Yanxuan, we have firmly established its position as our private label consumer brand targeting young professionals who are looking for trendy, high-quality, and at the same time affordable living. Centered around this notion, we have increasingly built up our brand recognition among these target consumers. We are developing products that revolve around their needs, particularly in household products, personal care, food, and pet supply. During the year, we launched a number of super-popular products with annual sales exceeding RMB 100 million. This product popularity furthers our confidence in our design capabilities and understanding of user needs. With the right content and product offerings, we were able to attract an increasing number of membership subscriptions in 2020. One of our main focuses moving forward is to continue improving the benefits of the shopping experience we offer to these loyal customers. All in all, despite the difficulties the world faced in 2020, we are grateful to have achieved continued growth and are standing strong in the new year. With a solid ground regained across our online games, online education, online music, and e-commerce businesses, we are poised to build on this growth in 2021. Our focus on content creation and elevating users' experiences with NetEase products and services remain at our core. We continue to innovate, diversify, and expand our reach to generate value for our users and investor communities. This concludes William's comments. I will now provide a brief overview of our 2020 full-year and fourth quarter financial results. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for more details. Total net revenues for the year were RMB 73.7 billion or US$ 11.3 billion, representing a 24% increase year-over-year. Net revenues for the fourth quarter were RMB 19.8 billion or US$ 3 billion, representing a 26% increase year-over-year. For 2020, our net revenues from online game services were RMB 54.6 billion, up 18% from 2019, and RMB 13.4 billion for the fourth quarter, up 15% year-over-year. The year-over-year increases were primarily due to the increased revenue contribution from Fantasy Westward Journey H5, Sky, Life-After, and Invincible as well as PC client games such as Fantasy Westward Journey Online in the fourth quarter. Net revenues from our mobile games accounted for approximately 72.4% of net revenues from online games in the fourth quarter. Youdao's net revenues reached RMB 3.2 billion for 2020, up 143% year-over-year. On a quarterly basis, net revenue increased 170% to RMB 1.1 billion in the fourth quarter, driven by fast growth of both Youdao online courses and sales of intelligent learning devices. Net revenues from innovative businesses and others were RMB 15.9 billion for the full year, up 38% year-over-year and up 41% year-over-year in the fourth quarter to reach RMB 5.3 billion. This is mainly due to the increased contribution from NetEase Cloud Music, NetEase PC live streaming, and Yanxuan. Our total gross profit margin in the fourth quarter was 50.2%, with the breakdown as follows: GP margin for our online gaming services was 63.1%. As a reminder, this number is generally stable with some narrow fluctuations based on the revenue mix of mobile and PC as well as self-developed and licensed games. Gross margin for Youdao for the fourth quarter was 47.5% compared to 29.8% in the same period of last year. The significant growth was primarily attributable to improved economies of scale and continuous optimization of our faculty compensation structure. Gross profit margin for innovative businesses and others was 18% compared with 20.6% in the fourth quarter of 2019. While the margins for NetEase Cloud Music and Yanxuan have improved year-over-year, the impact was offset by the decrease in GP margin from NetEase CC live streaming, which covered a longer period of the annual celebration event in 2020 compared with 2019. Additionally, gross profit margin of innovative businesses and others also fluctuates based on the revenue mix of this line item. For the fourth quarter, total operating expenses were RMB 6.9 billion, 35% of the total revenue. Our selling and marketing expenses, as a percentage of net revenue, were 15.6%, down from 18.5% in the prior quarter. The quarter-over-quarter decrease was mainly due to lower marketing costs related to Youdao. Excluding Youdao, our selling and marketing expenses as a percentage of net revenues were 12.2% compared with 12.9% in the prior quarter, which is relatively stable. R&D expenses were RMB 3 billion, up 9% from the previous quarter. We remain committed to investing in content creation and product development, which is core to our future revenue growth. On a full-year basis, R&D expenses as a percentage of full-year net revenue were 14.1%, compared with 14.2% in 2019. Other income loss was RMB 1.5 billion for the fourth quarter, which included a net investment loss of RMB 272 million and a net foreign exchange loss of RMB 1.8 billion due to the US dollar's exchange rate continued depreciation against the RMB. The net investment loss and the net FX loss, both mainly booked loss in nature and most of them did not impact our cash flow. On a full-year basis, total net foreign exchange loss for 2020 was RMB 3.1 billion compared with a net gain of RMB 25 million in 2019. The effective tax rate was 37.2% for the fourth quarter and 19.8% for the full year of 2020. The effective tax rate represents certain estimates by the company regarding the tax obligations and benefits applicable to it in each quarter. Non-GAAP net income from continuing operations attributable to our shareholders for the fourth quarter of 2020 totaled RMB 1.6 billion or US$ 244.9 million. Our non-GAAP diluted earnings per ADS from continuing operations were RMB 2.34 or US$ 0.36 for the fourth quarter of 2020. We would also like to point out with the rapid growth of Youdao, it is having a much more material impact on our NetEase group financials. For 2020, Youdao generated total revenue of RMB 3.1 billion and a non-GAAP net loss attributable to Youdao's shareholders of RMB 1.7 billion compared with net revenue of RMB 1.3 billion and non-GAAP net loss of RMB 612 million in 2019. Our cash position remains strong. As of end of 2020, our total cash and cash equivalents, current and non-current client deposits, and short-term investment balance totaled RMB 100.1 billion compared with RMB 74.4 billion as of the end of 2019. In accordance with our dividend policy, we are pleased to report that our Board of Directors has approved a dividend of US$ 0.012 per share or US$ 0.06 per ADS. As a reminder, we changed our ADS ratio on October 1 from one ADS for every 25 ordinary shares to one ADS for every five ordinary shares. And finally, under our current share repurchase program for up to US$ 2 billion, as of December 31, 2020, approximately 21.1 million ADS has been repurchased under this program for a total cost of US$ 1.6 billion. On February 25, 2021, our Board announced the approval of a new share repurchase program for up to US$ 2.2 billion of our outstanding ADS and ordinary shares for the next 24 months, beginning on March 2, 2021.

William Ding, CEO

ADS will convert from one ADS for every 25 ordinary shares to one ADS for every five ordinary shares. Additionally, as of December 31, 2020, we have repurchased approximately 21.1 million ADS under our existing share repurchase program, costing about US$ 1.6 billion out of a total planned amount of US$ 2 billion. On February 25, 2021, our Board approved a new share repurchase program to acquire up to US$ 2.2 billion of our outstanding ADS and ordinary shares over the next 24 months, starting March 2, 2021.

Margaret Shi, IR Director

I'll help translating. China probably has the highest revenue sharing ratio among all the markets around the world, up to as high as 50%. It's true a few of our native games enjoy a more favorable sharing around 30%, such as FWJ. We think the way we are seeing in China right now is unhealthy and probably unsustainable because it's about 20% higher than what Apple charges content providers. We would like to see Chinese Apple partners being more in sync with our international peers to charge content providers a more reasonable rate. We want to work closely with our channel partners to create a healthy environment for the gaming industry.

Charles Yang, CFO

And Jialong to supplement your earlier part of the question, on our channel split, roughly half of our game revenues were generated through iOS, which again is only a very, very few game content providers in China that can have such a high percentage contribution from iOS channels. Roughly one-third is coming from Android channels, and the remainder coming from our official channels. That's a ballpark split of the channel.

Jialong Shi, Analyst

Thanks for the color.

Margaret Shi, IR Director

Thank you.

Charles Yang, CFO

Okay. Operator, the next question, please.

Operator, Operator

We will take our next question from the line of Alex Poon from Morgan Stanley. The line is open. Please go ahead.

Alex Poon, Analyst

Roughly one-third is coming from Android channels, and the remainder coming from our official channels. That's a ballpark split of the channel.

Unidentified Company Representative, Company Representative

2021 will definitely be an important year for NetEase in terms of internationalization. We have a number of games we're making, such as Harry Potter and Infinite Lagrange, which are expected to be launched during the year, and we hope to see fruitful results from those games. Thank you. Thank you, Alex.

Charles Yang, CFO

And Alex, regarding your second question about our strategy for introducing games overseas, we are not pinning our future on just one or two genres. Instead, with our strengthening and increasingly diversified R&D capabilities, we aim to introduce multiple game genres across various geographies and user demographics. Shooting games like Knives Out have shown success in Japan, while SLG games such as Infinite Lagrange and The Lord of the Rings demonstrate our ability to translate domestic success into international markets. Additionally, games like Harry Potter, which falls under the casual card RPG category, will also be part of our portfolio. Our goal is to target multiple genres for different regions and cater to a variety of user needs. This is our overall approach to internationalization.

Margaret Shi, IR Director

Thank you, Alex. Next question.

Operator, Operator

We will take our next question from the line of Alicia Yap from Citi.

Alicia Yap, Analyst

Hi, thank you. I appreciate management for addressing my questions. My inquiry pertains to the main growth driver for Cloud Music in 2021. Was that growth mainly fueled by the increase in subscription revenue, or could online advertising revenue or live streaming potentially grow at a faster rate? Additionally, I have a follow-up question regarding the one billion dollar investment in video content; could management explain the reasoning behind this decision? Do you anticipate that this initiative will enhance online advertising revenue or further advance the growth of the NetEase media business? Thank you.

William Ding, CEO

Could you clarify whether the growth in Cloud Music for 2021 was primarily due to the increase in subscription revenue, or do you see online advertising revenue or live streaming potentially growing at a faster rate? Also, could you explain the reasoning behind the recent one billion dollar investment in video content? Do you anticipate that this initiative will boost online advertising revenue or contribute further to the growth of the NetEase media business? Thank you.

Margaret Shi, IR Director

Yes, I'll assist with the translation. Alicia, you are correct. The three primary ways to monetize music are through memberships, advertising, and live streaming. A major focus for music moving forward will continue to be about creating our own content and aiding independent musicians in producing original content on our platforms. In this regard, memberships will be a significant driver of our monetization growth. Regarding radio, we've observed that music is fundamentally about listening. However, the consumer habits have shifted from listening to watching, which explains the rise in popularity of short-form video platforms in recent years. When considering the production of short to mid-form videos, we aim to leverage our existing expertise. For instance, we're interested in creating short to mid-form videos related to gaming or educational content. We actually have a project within NetEase called NetEase Information World. During the Chinese New Year, we noticed that viewership of our videos increased by one to two times compared to earlier periods. Looking ahead, we will persist in developing short to medium video content focused on our core businesses, including games and music. Thank you.

Alicia Yap, Analyst

Thank you.

Margaret Shi, IR Director

Thank you, Alicia. Next question, please.

Operator, Operator

We will take our next question from the line of Alex Yao from JPMorgan.

Alex Yao, Analyst

My question is about your perspective on the PC gaming market. What is your outlook for this market in both China and globally? Additionally, how do you position yourself within this industry? Are you continuing to invest in new R&D for PC gaming development, or are you focusing on maintaining your current PC portfolio? Thank you.

William Ding, CEO

My question is regarding your view on the PC gaming market. How do you think about the future outlook for this market in both the domestic China market and the rest of the world? And then how do you position yourself in such an industry? Do you still allocate new R&D resources into PC gaming development, or do you just want to strategically maintain the current PC portfolio? Thank you.

Margaret Shi, IR Director

Yes. The contributions from William and our mastermind behind many key titles in NetEase are significant. We place a high value on PC gaming due to its unique specifications and the user experience it offers to our gamers. We will likely continue this approach, maintaining our existing titles on PCs while also developing new ones. In May, we plan to launch a game that features a distinctive and creative concept. Around mid-year, we expect to introduce another PC game that meets high competitive standards. Additionally, in conjunction with our self-developed titles, we offer a range of popular PC games from Blizzard, including Overwatch, World of Warcraft, and StarCraft. We believe we will have the richest collection of PC games in China, making PC an essential component of our gaming strategy.

Operator, Operator

We will take our next question from the line of Thomas Chong from Jefferies. Your line is open.

Thomas Chong, Analyst

Thank you to management for addressing my questions. My first question concerns overseas game operations. Are we considering speeding up our progress through mergers and acquisitions or in-house development? Additionally, my follow-up question is about regulations. Can management provide insights into the regulatory environment surrounding online games, live streaming, and music? Thank you.

William Ding, CEO

Thank you management for taking my questions. My first question is regarding overseas game operations. Will we consider accelerating the pace through the use of M&A or in-house development? My follow-up question is about the regulations. Can management share their thoughts regarding the regulatory environment in online games, live streaming, and music? Thank you.

Margaret Shi, IR Director

In terms of the overseas expansion, we're interested in both, and talked about these self-developing games as well as through M&A. For example, with Harry Potter, we are leveraging the use of a very famous UK IP and using our own internal R&D to develop things for the global markets. On the M&A side, yes, we are obviously very interested in achieving greater success through collaborations with different partners around the world. We've actually always been active in investing in good content globally.

Charles Yang, CFO

And Thomas, on your second question asking for the regulatory environment for game broadcasting and music. Well, in general, we see that this is becoming a more and more popular format of entertainment. E-sports has been now qualified at the Asian Games, and there are rumors that it could even potentially be eligible for the Olympic Games. Game live streaming is important. NetEase CC live streaming is building on our unique edge of self-created game content, and it is developed sustainably. Music, obviously, is becoming an increasingly important entertainment content, and it is not only restricted to the enjoyment of our ears by listening, but just as William previously mentioned, watching is becoming an even more popular and trendy format of enjoying music as a form of entertainment content. We think everything takes on a progressive way of developing. But in general, the regulatory environment is also becoming more and more encouraging for innovation and catering to user preferences and behaviors in general. So we are very confident and we have our own plans for investing ourselves into these areas.

Operator, Operator

We will take our next question from the line of Kenneth Fong from Credit Suisse.

Kenneth Fong, Analyst

I will translate. I would like to ask about the timing and pace of launching the key IP games, including Diablo, Immortal, Pokémon, and Harry Potter. Will these be spread out across different quarters to minimize competition, or will they be launched as they are ready? Thank you.

Charles Yang, CFO

Thank you, Kenneth. For our pipeline, first of all, we are very confident and excited about our lineups for 2021, including just now William and Junxiong just introduced a couple of exciting PC games. On the mobile side, as you have all noticed, Harry Potter, Diablo, Immortal, and Pokémon have now all received their license approvals. All these games are developed with the intention for a global launch. Now that we have got the approval for the China part, as to the exact timing point of these game launches, we do not rush our producers and our studios. If we are confident that these high-quality games are developed and designed for long-anticipated longevity, we are not overly concerned about whether launching this game in this particular month or the next. But all in all, I think we have more confidence, now that the license approval has been obtained, that many of these highly anticipated games will be introduced to the gamer community within this year, some might be potentially as early as the first half of this year.

Kenneth Fong, Analyst

Thank you very much.

Operator, Operator

Due to time constraint, that concludes today's questions-and-answer session. At this time, I will turn the conference back to Margaret Shi, for any additional or closing remarks.

Margaret Shi, IR Director

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or TPG Investor Relations. Have a great day. Thank you.

Charles Yang, CFO

Thank you, everyone.

Operator, Operator

That concludes today's conference. Thank you everyone for your participation.