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Edited Transcript of CYOU earnings conference call or presentation 21-Feb-17 12:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Changyou.Com Ltd Earnings Call

Shijingshan District, Beijing Feb 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Changyou.Com Ltd earnings conference call or presentation Tuesday, February 21, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Margaret Shi

Changyou.com Ltd. - Senior IR Manager

* Dewen Chen

Changyou.com Ltd. - CEO

* Jasmine Zhou

Changyou.com Ltd. - CFO

* Wei Qing

Changyou.Com Ltd - Chief Games Development Officer

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Conference Call Participants

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* Zoe Zhou

Credit Suisse - Analyst

* Eddie Leung

Merrill Lynch - Analyst

* Xin Wang

Citigroup - Analyst

* Natalie Wu

CICC - Analyst

* Terry Chen

HSBC - Analyst

* Hillman Chan

Macquarie - Analyst

* Thomas Chong

BOCI Securities - Analyst

* Han Joon Kim

Deutsche Bank - Analyst

* Alex Yao

JPMorgan - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and good evening. Thank you for joining Changyou's fourth quarter and fiscal year 2016 earnings conference call. (Operator Instructions). After the management's prepared remarks, there will be a Q&A session. This conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the conference over to your host for today's conference call, Margaret Shi. Please go ahead, Margaret.

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Margaret Shi, Changyou.com Ltd. - Senior IR Manager [2]

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Thank you, operator. On the call today, we have Mr. Dewen Chen, CEO; Mr. Xiaojian Hong, COO; Ms. Jasmine Zhou, CFO; and Mr. Wei Qing, Chief Games Development Officer.

For today's agenda, management will discuss highlights for the fourth quarter and the fiscal year 2016 which will be followed by a question-and-answer session.

Before we continue, please allow me to read you Changyou's Safe Harbor statement. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. These statements are based on our current plans, estimates and projections, and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about potential risks and uncertainties, please refer to the Company's filings with the Securities and Exchange Commission, including its registration statement and most recent annual report on Form 20-F.

I will now turn the call over to our CEO, Dewen Chen.

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Dewen Chen, Changyou.com Ltd. - CEO [3]

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(Interpreted). We're pleased to report that our total revenues for the fourth quarter was $131 million, exceeding the top end of our guidance. Net income was $40 million, also ahead of our target, due to improved operational efficiency.

2016 was the year of building on our strengths and committing to developing high quality games. At the beginning of 2016, we announced our top games big IP mass marketing strategy and strictly executed it. After a year of hard work, we have now prepared a strong pipeline, with a focus on MMORPG games and supplemented by number of advanced casual games.

Two of our MMORPG games, Legacy TLBB and Xuan Yuan Jian have been exclusively licensed to Tencent and are expected to be launched this year. Our anime-style collectible card game, Hortensia Saga and our music game [VC] were featured in China, Hong Kong, Macau and Thailand app stores successively in 2016, which was the first time our products have been acknowledged by Apple.

These efforts helped us to gain more experience in producing and releasing new game genres beyond our traditional MMORPGs and prepared us for a more diversified games portfolio.

As for our other games, fourth quarter revenue was very stable compared with the third. At the beginning of 2016, our TLBB PC game experienced a relatively large drop in revenue and we immediately adjusted our operational strategy to focus on user stabilization by cutting down on the number of in-game promotions, improving in-game content and strengthening the social functionality.

Starting from the second quarter of 2016, the number of active users started to gradually stabilize and with the launch of new expansion packs, we were happy to see revenue pick up again in the third and fourth quarters. We expect revenue from TLBB to decrease by around 10% in the fourth quarter 2017 due to a seasonal downturn around Chinese New Year holiday. We will continue to offer new content in the coming years with a strategic focus on user stability in order to prolong the game's lifespan.

For TLBB 3D, the game has been operational for more than two years now. Our operational focus has now shifted to user stabilization and we have been issuing new expansion packs accordingly. In the fourth quarter, we launched two new expansion packs in which we introduced various features in games that provided more competition and social functionality and encouraged user engagement. This led to a slight increase in daily active users quarter-over-quarter.

The fourth quarter revenue from TLBB 3D decreased by around 15%, and we expect revenue to decrease by 10% in the first quarter of 2017 on a sequential basis.

Going forward, we will continue to strengthen the social functionality within the game in order to sustain user engagements and maximize the game's longevity.

In 2017, we will continue to focus on our top games supply to mass marketing strategy. We expect the PC game market in 2017 to continue to decline and the growth of mobile games market brought by China's large population base is likely to fade. In such a hyper-competitive environment, the only key to success is to offer premium quality games.

On the product side, we endeavor to develop high quality in games with a long-life span by enriching social features and continuously modify our games based on test results and user feedback.

In terms of our IP strategy, we now have a solid plan of acquiring and building these IP and to match them with appropriate games based on testing results and game types.

While we endeavor to realize the vast value of our existing IPs, we are also actually looking to spend our IP portfolio to include IP from television, literature and anime. We hope to acquire these IP at a reasonable cost by partnering with IP owners and other players further upstream at an earliest stage.

In terms of publishing strategy, we'll focus more on brand building and marketing on earlier stage. If test results meet our standard, we'll adopt various measures to ensure that we maximize publicity and awareness for these games before their official launch.

Team building and talent management continue to be another key area of focus in 2017. Particularly for our R&D team, we will try to foster enthusiasm among our producers by giving them the space they need to express their creativity across game type and genres and encouraging them to stimulate their creativity with new projects.

We are confident that our efforts will start to pay off in 2017 with many new exciting products in the pipeline. We'll continue to focus on producing high quality games that will resonate with players. We plan to launch seven new games in the domestic market including like Legacy TLBB, Xuan Yuan Jian, Legend of Sword and Fairy 5 and hope these new games will deliver to our expectations.

For our next Legacy TLBB mobile games, let me turn the call to our Chief Games Development Officer to give you an update on the latest progress.

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Wei Qing, Changyou.Com Ltd - Chief Games Development Officer [4]

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(Interpreted) Our development of Legacy TLBB mobile is more or less complete. We conducted a (technical difficulty) beta test in December. Testing results so far meet our internal standards and also meet Tencent's standards for launch. As our team has high expectations for the game, we will continue to make incremental improvement based on revenue data, technical details and user interface.

We are now at the final critical stage of development and the team has moved to Shenzhen to work more closely and more efficiently to the Tencent team. We plan to conduct a large-scale beta test in the first quarter and if the results meet our expectations, the game will be launched in the second quarter.

Now let me turn the call over to our CFO, Ms. Jasmine Zhou to discuss the financial results.

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Jasmine Zhou, Changyou.com Ltd. - CFO [5]

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Thank you, Wei Qing. Now let me walk you through our financial results for the first quarter revenues. Total revenue was $131 million, exceeded our guidance, down 19% year over year and 4% quarter-over-quarter.

The depreciation of RMB against the US dollar impacted our reported financial results on a yearly basis. On a constant exchange rate basis, total revenue in the fourth quarter of 2016 would have been $9 million prior, down 14% instead of 19% year over year.

Online game revenue was in line with our guidance at $95 million, down 25% year over year and 3% quarter over quarter. The year-over-year decrease was mainly due to the natural decline in revenues of older games.

Online advertising revenue was $8 million, down 44% year over year and 28% quarter over quarter. The year-over-year decrease were mainly due to fewer games being marketed on the 17173 Website.

Cinema advertising revenues was $20 million, increased 53% year over year and decreased 3% quarter-over-quarter. The year-over-year increase reflected the strong growth of China's movie and cinema industry in general and was also a result of an active approach we took in acquiring more advertising resources.

Internet value-added services revenue were $6 million, decreased 6% year over year and increased 40% quarter-over-quarter. The year-over-year decrease was a result of lower revenues from mobile internet products in the fourth quarter of 2016. The quarter-over-quarter increase was a result of higher revenues from PC internet products.

Now let me provide some more details about our other financials. From now on, most of the figures discussed will be non-GAAP basis. As a remind, you can find a reconciliation of this non-GAAP measure in our published earnings release.

Non-GAAP gross profit was $90 million, down 25% year over year and 6% quarter over quarter. Gross margin was 69%, which compared with 74% for both in the fourth quarter of 2015, and 78% in the third quarter of 2016.

Non-GAAP operating profit was $37 million, which compares with $48 million in the fourth quarter of 2015 and $37 million in the third quarter of 2016.

Non-GAAP net income attributable to Changyou.com Limited was $40 million compared with $46 million in the fourth quarter of 2015 and the same in the third quarter of 2016.

Non-GAAP fully diluted net income attributable to Changyou.com Limited per ADS was $0.75.

Next, moving on to the balance sheet and cash flow statements. As of December 31, 2016, we had net cash of $831 million, compared with $755 million as of December 31, 2015.

For the fourth quarter, we had net operating cash inflow of $62 million.

Now let me walk you through our 2016 full year financials very briefly. Total revenues was 525 million, compared with $762 million in 2015. Non-GAAP gross profit were $360 million, compared with $545 million in 2015. Gross margin was 68% compared with 72% in 2015.

Non-GAAP operating profit was $139 million compared with an operating profit of $176 million in 2015. Non-GAAP net income attributable to Changyou.com Limited, was $153 million compared with $228 million in 2015. Non-GAAP fully-diluted net income attributable to Changyou.com Limited per ADS was $2.85.

Finally, for the first quarter 2017 guidance. We adopted a presumed exchange rate of RMB71 equal to $1. We expect total revenue to be between $110 million and $120 million. This implies a sequential decrease of 8% at the high end or decrease of 16% at low end. Within total revenue, online games revenue could be between $80 million and $90 million. That implies a sequential decrease of 5% at the high end or a decrease of 16% at the low end.

Non-GAAP net income attributable to Changyou.com Limited to be between $30 million and $35 million.

Non-GAAP fully diluted net income attributable to Changyou.com Limited per ADS to be between $0.56 and $0.65. Assuming no new grants of share-based awards and that market price of our shares is unchanged; we estimate share based compensation expense to be between $1 million and $2 million.

This concludes our prepared remarks. Thank you for joining the call today. Operator, we will now like to open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). We'll now take our first question from Zoe Zhou from Credit Suisse.

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Zoe Zhou, Credit Suisse - Analyst [2]

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Hi management, thank you for taking my question. I have two questions. First one is, could you update us on the progress of Xuan Yuan Jian as well as Legend of Sword and Fairy 5?

And second question is, given we're going to record like net revenue from the new TLBB games, and Tencent will probably like bear most of the sales and marketing cost, so what is our margin outlook for the year of 2017?

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Dewen Chen, Changyou.com Ltd. - CEO [3]

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(Interpreted) We've conducted couple of small beta tests for both Xuan Yuan Jian and [Xianjian] and as you know when we (background noise) to Tencent typically we have four to six rounds of testing before the game can be officially launched. So, the principal for us is to continue testing, making sure we have a good enough game before we can officially launch them.

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Jasmine Zhou, Changyou.com Ltd. - CFO [4]

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Hi, this is Jasmine, I'll answer your second question. Regarding the margin for the full year, actually we don't have the forecast for the full year, but we think that there will be impact on our margin the TLBB Legacy launch, and what we can say for Q1 the margin will remain very stable.

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Zoe Zhou, Credit Suisse - Analyst [5]

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Okay, thank you.

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Jasmine Zhou, Changyou.com Ltd. - CFO [6]

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Thank you.

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Operator [7]

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We'll now take the next question from Eddie Leung from Merrill Lynch.

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Eddie Leung, Merrill Lynch - Analyst [8]

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Hi, good evening. Thank you for taking my questions. I have one question about your R&D. As the management has been talking about being more efficient in running the business and we have seen the headcounts are being quite stable in the past couple of quarters. So, just wondering whether we should expect hiring of new engineers as we launch more games into 2017 and any update on the current total headcounts would also be very useful. Thank you.

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Dewen Chen, Changyou.com Ltd. - CEO [9]

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(Interpreted) Okay, our current headcount is around 2,800 and of that 1,200 are R&D staff and the remaining around 1,000 staff are from (inaudible) 17173 and other Chinese subsidiaries. Our 2017 headcount will be similar to 2016. Thank you.

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Eddie Leung, Merrill Lynch - Analyst [10]

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Yes. Thank you.

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Operator [11]

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We'll now take the next question from Xin Wang from Citi.

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Xin Wang, Citigroup - Analyst [12]

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Hi, management. Thank you for taking my questions. My first question is regarding cinema advertising revenue. Could you comment on the Q-on-Q trend in Q4. As it dropped 50% Q-on-Q will you actually partner with more cinemas in Q4? And going forward, how should we see the Q-on-Q in the first quarter this year and the full year train of 2017.

My second question is that you mentioned that the DAU of TLBB 3D picked up slightly in Q4, while revenue down 50% Q-on-Q. So how do you see the Q-on-Q training number of paying users and ARPU respectively. Thank you.

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Jasmine Zhou, Changyou.com Ltd. - CFO [13]

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This is Jasmine. Regarding your first question about cinema advertising. For Q4 there is actually a slight drop, but not very, very dramatically. So, compared with like Q3 that's almost sustained, so just very seasonal because of very similar impact. And for this year, we'll continue to increase the cost, the cinema [accounting stores] is purchasing, so the cost for cinema advertising will increase. And we also believe like the revenue from the cinema advertising will have increased accordingly. Thank you.

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Unidentified Company Representative [14]

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(Interpreted) Okay the two reasons why we saw an increase in DAU and a decrease in revenue and the first reason is that, from the third quarter of 2016, we cut down dramatically on number of promotions we have in the game.

The second reason is that we mentioned that within the game, the large paying users and the low paying users were having very different experiences which meant that neither group of players had incentive to [play within the game].

Thank you.

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Xin Wang, Citigroup - Analyst [15]

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Thank you.

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Operator [16]

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We'll now take the next question from Natalie Wu from CICC.

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Natalie Wu, CICC - Analyst [17]

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Hi, good evening, management. Thanks for taking my question. So, I have two questions here. The first question is several housekeeping questions regarding current game portfolio. So, what's the contribution of overseas portion to mobile game revenue in the first quarter and what's the mobile game contribution in the first quarter and how much revenue comes from TLBB PC in the last quarter?

And also, what is the management's expectation of the scope of revenue decline regarding TLBB 3D and TLBB PC in 2017?

And my second question is that, at Shenzhen you have mentioned that for quality games, if all the test data tends to be very satisfactory, you will try to level off regarding sales and marketing spending. So, does that mean still a portion of the marketing expenses regarding TLBB Legacy will also be billed by Changyou? Thank you.

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Jasmine Zhou, Changyou.com Ltd. - CFO [18]

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This is Jasmine. Regarding your first question, the first is overseas game revenue from mobile game and actually the number is very minimum, so we don't disclose that. And you can disregard it.

And the second question regarding the ratio of the mobile games is on 20% and 20% of the total revenue and also for the TLBB PC game and TLBB 3D, we mentioned it in the conference call that TLBB PC game for the Q1 will be 10% decreased and also for TLBB 3D a 15% decrease and we are expecting we'll be pretty stable and we are hoping to do this. Thank you.

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Dewen Chen, Changyou.com Ltd. - CEO [19]

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(Interpreted) So for the Legacy TLBB and Tencent will obviously be responsible for all the marketing expenses.

These other games in our portfolio will -- if their test results are satisfactory, we'll adopt a lot more -- a larger variety of methods to market the games at a much earlier stage, but it doesn't necessarily mean that it will have -- that that will be -- that we will have a pressure on marketing expenses.

Also, we want to hire the right people and to define the right strategy and to do -- to market the game more effectively. Thank you.

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Natalie Wu, CICC - Analyst [20]

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Great, thank you, Dewen and Jasmine. So, hi, Jasmine, so what's the revenue contribution from TLBB PC in the fourth quarter again?

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Jasmine Zhou, Changyou.com Ltd. - CFO [21]

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You mean the TLBB PC game but actually we don't disclose specific numbers.

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Natalie Wu, CICC - Analyst [22]

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Okay, thank you.

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Jasmine Zhou, Changyou.com Ltd. - CFO [23]

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Thank you.

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Operator [24]

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We'll now take our next question from Terry Chen from HSBC.

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Terry Chen, HSBC - Analyst [25]

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Hi, thank you, management, for taking my question. I'm just wondering whether there is any initial feedback from your gamers in the last round of testing on your legacy TLBB mobile games. In particularly I think in last earnings call, you mentioned the monetization model would be the focus of the last round of testing. So I'm just wondering whether you think you'll make this game, more like a high ARPU MORPG or more of a community, focus on the community feature and maybe the ARPU be lower.

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Dewen Chen, Changyou.com Ltd. - CEO [26]

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(Interpreted). So in the -- we've carried out a lot of PC game experience onto designing and producing the legacy TLBB mobile games. And a lot of them have a very heavy social element, a lot of game plays are based on PVP type of game play. So in the December test our core target players, which are the old PVP games -- TLBB game players gave us excellent feedback.

But for some other players they're not -- with other players particularly those coming from ARPG games the feedback was not as good. So right now when we are adjusting our games between December to March our focus is to increase the -- to improve the experience for the non-core target players.

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Terry Chen, HSBC - Analyst [27]

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Great, thank you very much.

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Operator [28]

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We'll now take the next question from Hillman Chan from Macquarie.

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Hillman Chan, Macquarie - Analyst [29]

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Good evening. Thank you for taking my question. I also want to follow up on the upcoming beta testing in March for the legacy TLBB. So what are the enhancements that we are making in this beta testing? And how long will it last?

And regarding the December beta do you have a sense on the percentage of gamers that participated in the beta compared to -- that are overlapping with our PC version of TLBB and also the legacy version of TLBB.

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Dewen Chen, Changyou.com Ltd. - CEO [30]

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(Interpreted). Our March beta testing will probably be around three weeks. It might be slightly longer given the test results then. In the past, the test results have not exceeded three weeks. The test will mainly be focused on some key metrics such as today our retention for some of our non-core target players. And then typically in the past the results from these non-core players were not as good. So we are going to have --.

In the December test, we brought different type of groups, different types of users into the testing process. Some of them came from in the past TLBB 3D mobile games. Some came from the TLBB PC games. And the results is that all those who came from TLBB 3D were probably among the worst and that meets with our previous expectation as they are not the typical players for TLBB legacy mobile games. Thank you.

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Hillman Chan, Macquarie - Analyst [31]

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Thank you very much. Just one last question if I can, could we also talk about the PC game pipeline for this year including [Yuan So Zen Shui]? Thank you.

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Dewen Chen, Changyou.com Ltd. - CEO [32]

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(Interpreted). So for (inaudible) so if the test results meet our requirements it should be launched around June. If it doesn't we will probably need to do more adjustments on the game. Thank you.

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Hillman Chan, Macquarie - Analyst [33]

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Thank you thank you very much.

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Operator [34]

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We'll now take our next question from Thomas Chong from [BOCS].

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Thomas Chong, BOCI Securities - Analyst [35]

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Thanks, management, for taking my question. I have a quick question about our VR and AR games strategy down the road given the lump of mobile gamers is now fading out in growth. Thanks.

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Dewen Chen, Changyou.com Ltd. - CEO [36]

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(Interpreted). We have two VR -- we have -- we started working on two VR projects in 2016, one is RPG-based, another one is arena based. One of them we are going to be working with Sony and we are going to license that game to Sony who will be responsible for marketing that game. And the second game we are also -- we've -- we've worked with Tencent and it's likely now we'll be working with Tencent on that game. All good.

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Operator [37]

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We'll now take the next question from Han Joon Kim from Deutsche Bank.

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Han Joon Kim, Deutsche Bank - Analyst [38]

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Great, thank you very much for the opportunity to ask questions. Just two quick ones, one for legacy TLBB testing can you explain if there has been any difference between IOS and Android users.

And then the second question is just a little bit of confusion on my end. I think we've always noticed less positive response from TLBB 3D users versus TLBB PC users for legacy TLBB. So that conclusion does not seem to have changed for the past six months. I'm wondering why it continues to surface and why we need to focus on both core and non-core. I thought we were focusing more -- mostly on a core audience. So do you feel that there is not enough critical audience for the core audience for this game and you need to expand it to the more casual base? So if you can elaborate on what the incremental finding has been that would be very much appreciated.

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Jasmine Zhou, Changyou.com Ltd. - CFO [39]

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Han Joon, your first question was that -- which -- was that TLBB 3D or legacy TLBB?

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Han Joon Kim, Deutsche Bank - Analyst [40]

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Oh no (multiple speakers)

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Dewen Chen, Changyou.com Ltd. - CEO [41]

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(Interpreted). So Han Joon, your first question, what we find is that for IOS users ARPU is typically higher. And then amount they consume a single transaction is typically higher. So Android users the amount they pay with a single transaction is typically lower and their age group is a bit younger as well.

And for your second question for legacy TLBB mobile if, we didn't have high expectations of that. We think the game is ready for launch to target our core game players. But because we work with Tencent and Tencent's platform is big enough for us to reach beyond our traditional core players we think we can maximize our reach and do a better job with the game. Thank you.

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Han Joon Kim, Deutsche Bank - Analyst [42]

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Thank you very much.

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Operator [43]

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We'll now take our last question from Alex Yao from JPMorgan.

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Alex Yao, JPMorgan - Analyst [44]

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Thank you, management, for taking my question. I've got two questions. One is regarding the lifecycle of TLBB PC. There are quite a number of old games in the market that was published before 2007. And some of them are doing reasonably well in the recent quarters. Some are stabilized on year-over-year basis some even grow their revenue on year-over-year basis in recent quarters. What is different in TLBB that makes the lifecycle different compared to other older games in the market?

The second question is regarding the mobile gaming strategy in 2017. As you guys mentioned in the prepared remarks that the population dividend of the mobile gaming market has come to an end. And our understanding is that you guys will focus on the hardcore high monetization games, particularly MMORPG mobile game development and operation for this year. Beyond that what is your other strategy in such a gaming environment? Thank you.

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Dewen Chen, Changyou.com Ltd. - CEO [45]

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(Interpreted). We realized the PC games that are still performing well up until today are those games -- are the games that are number one in each of their own genre. We realize we make some mistakes in the past in terms of R&D. Back in 2015, we introduced a lot of activities within the games that encouraged consumption. And that changed -- that turned the game into a game with heavy competition.

When we first designed TLBB games, the games did not emphasize on competition but it emphasized on our social activities. In 2016, we made adjustments. And we are seeing some effects. Overall, we expect revenue to stabilize in 2017. Thank you.

There have been some -- there are big changes in mobile games market. We've seen the [CCG] type of games market share dropped from 235% to around in the teens and we probably expect in (technical difficulty( trend for MMORPG type of games. The reason is that most of the PC games with the strong PC game like we have already launched mobile versions and have performed very well in the market, which led MMORPG market share increased to around 50%.

MMORPG they are still the substantial part of mobile games market, which is why we will continue -- Changyou will continue to focus on producing MMORPG type of games. As the market has struck higher and stronger demand for quality of MMORPG type of games we think some of the smaller to medium-sized companies will lose their competitive edge, which is -- which will make -- which will allow Changyou to stand out in competition even better.

So in terms of -- if we look at PC games market MMORPG games account for about 56% whereas advanced casual games account for about 26%. And we think -- and the overall trend will be similar for mobile games, which means that -- which is why we are -- we will be trying to produce some new games based on advanced casual games. And so right now, we have around three advanced casual games. And we think they will be launched one by one throughout 2017.

And additionally, we also think our overseas market has huge potential. So since last year we've been preparing actively some new games targeted towards overseas market. We have around six games that are targeted towards overseas market in our portfolio. But as we all know, it's not an easy job to do the overseas market, so we'll be accumulating our experience in those markets and then launch those games gradually.

Thank you.

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Alex Yao, JPMorgan - Analyst [46]

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I have a very quick follow-up question. If we look back in China's PC gaming market pretty much there is no significant hit title that was published after 2008 in MMORPG game genre. So the market is highly concentrated on the early published games, the games that were published before 2008. Do you feel that mobile gaming market is entering into a similar stage where the MMORPG on mobile is maturing and the new games launched in 2017 regardless of the quality, the new elements, etc. will be difficult to gain market share from the existing mobile MMORPG? Thank you.

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Dewen Chen, Changyou.com Ltd. - CEO [47]

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(Interpreted). I agree with your thoughts and I think that's [all the] trend. So I don't think we've reached that stage yet. We've noticed that some of the game metrics for MMORPG have started to drop since they've been launched. I do think we still have a lot of potential in MMORPG market. So this will be why we are going to branch into advanced casual games.

In terms of market share MMORPG mobile games is similar to MMORPG PC games. In terms of the quality of MMORPG games, it hasn't reached to the same level as PC MMORPG games. Thank you.

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Alex Yao, JPMorgan - Analyst [48]

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Thank you very much, very helpful.

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Operator [49]

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As there are no further questions at this time, Margaret Shi please continue.

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Margaret Shi, Changyou.com Ltd. - Senior IR Manager [50]

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Once again I would like to thank you for joining today's call. If you have any follow-up questions, please don't hesitate to contact us. Thank you.

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Operator [51]

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That concludes our conference call for today. Thank you for participating. You may now disconnect.

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Editor [52]

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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.