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Edited Transcript of YY earnings conference call or presentation 14-Mar-17 12:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 YY Inc Earnings Call

Guangzhou Mar 14, 2017 (Thomson StreetEvents) -- Edited Transcript of YY Inc earnings conference call or presentation Tuesday, March 14, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Zhou Chen

YY Inc. - CEO

* Eric He

YY Inc. - CFO

* Rong jie Dong

YY Inc. - CEO, Huya

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Conference Call Participants

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* Zoe Zhao

Credit Suisse - Analyst

* Eileen Deng

Deutsche Bank - Analyst

* Binnie Wong

BofA-Merrill Lynch - Analyst

* Natalie Wu

CICC - Analyst

* Alicia Yap

Citigroup - Analyst

* Jialong Shi

Nomura - Analyst

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Presentation

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Operator [1]

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Good morning and good evening, everyone. Welcome to the YY's fourth-quarter and full-year 2016 earnings conference call. At this time, all participants are in a listen-only mode.

With us today is Mr. Zhou Chen, CEO of YY; Mr. Rong jie Dong, CEO of Huya; and Mr. Eric He, CFO of YY.

Following management's prepared remarks, we will conduct the Q&A 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.

I will now turn the call over to the Company's CFO, Mr. Eric He.

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Eric He, YY Inc. - CFO [2]

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Thank you, operator. Hello, everyone. Welcome and thank you for coming to our fourth-quarter and full-year 2006 [sic] earnings call. I would like to address the overview and strategic highlights on behalf of Zhou Chen, our CEO, first.

We are delighted to have completed another quarter of solid results, rounding out a strong 2016 driven by accelerating growth in live streaming industry in China. YY's live streaming business increased dramatically by 41.7%, as compared with the prior year period. Our live streaming revenues for the full-year 2016 reached over RMB7 billion, which is a testament to our ability to maintain our market leaderships and capture the growth in our industry, despite a highly competitive landscape.

Looking at the excitement surrounding the live streaming industry, recent research shows that by 2020, its market size will reach RMB60 billion annually. In an industry that is rapidly evolving, the platforms that can continuously provide rich and attractive content and guarantee profitable returns for its content players are the ones that can sustainably expand their market share and win over the long term. That is why we remain committed to both our content strategy and monetization ability.

In the past quarter, we focused on expanding our product and content offerings in new, diverse market segments to enhance our content ecosystem. Our two live streaming platforms, YY Live and Huya Broadcasting, have different focus and strategics in their content development.

YY Live is a leading integrated entertainment live broadcasting platform. In addition to the successful relationship and sports content we introduced in the third quarter of 2016, in the past quarter, we focused on the development of new outdoor vertical content, including travel, wildlife activities, adventures and many others. We believe the new content we are offering on YY Live will be extremely interesting and exciting to our users as if we are opening a door for them to see and explore world via the YY Live platform.

In the future, we will continue to enhance our content offerings and expand the categories covered in the outdoor vertical.

Moving on to Huya Broadcasting, which primarily focused on contents for live game broadcasting. In the fourth quarter of 2016, we prioritized our efforts on strengthening our mobile gaming contents.

With the rapid development in the mobile gaming industry, we witnessed increased demand of mobile game live streaming contents from our users. We are well aware that in order to stay competitive, we need to continue to focus on providing quality mobile game live broadcasting content via Huya Broadcasting. And we are pleased that we have successfully occupied the leading position in this fast growing space.

Aside from our content expansion efforts, we are also actively exploring applications of live streaming in everyday social interactions. Today's young generation is more willing to showcase themselves than ever before making live broadcasting an increasing popular choice, fulfilling their social needs.

Not only can we -- not only can our users leverage our products for entertainment, they can also use their live streaming platform to share the bits and pieces from their daily lives with their acquaintances and strangers. Going forward, we will continue to encourage this type of the social sharing through enhanced user experience across YY Live and Huya Broadcasting.

Now, I would like to turn the call to the financial parts. In the fourth quarter of 2016, we continued to see strong growth momentums in our revenues with total net revenue increased by 30.8% year over year to RMB2.4 billion. Our revenue growth was driven by the rapid growth in our live streaming business, which we believe will continue to generate healthy revenue and accelerate our growth in the future.

Our live streaming revenue increased by 41.7% year over year in the fourth quarter of 2016. In particular, revenue for Huya Broadcasting increased by 150%, which not only ensures our platform's strong profitability capabilities but also safeguards the long-term profitable returns for our content providers.

In addition, the growth in our paying users remains robust in the past quarters, with live streaming paying users increased by 91.9% year over year to 5.2 million. Specifically, paying users for YY Live increased by 63.2% year over year, and paying users for Huya Broadcasting increased by 160% year over year.

The strong growth in the number of paying users is the foundation of our continued revenue generation and the basis of our competitive advantage compared with other live streaming platforms. Importantly, despite the intent competitive landscape in the live streaming industry in 2016, our profit margin for the year exceeded 20%, which is a testament to our content strategy, as well as solid strength and long-term competitiveness of our platforms.

Looking ahead, we are confident that both YY Live and Huya Broadcasting will continue to maintain healthy financial performance in the rapidly developing live streaming industry.

Now, I will turn to our Q4 quarterly financial results.

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

Net revenue for the fourth quarter 2016 increased by 30.8% to RMB2.48 billion. The increase was primarily driven by the increase in live streaming revenues.

Live streaming revenues increased by 41.7% to RMB2.22 billion, which was mainly driven by the growth of Huya Broadcasting revenues.

Revenue from online games were RMB125.4 million as compared to RMB172.4 million in the corresponding period of 2015, which primarily reflected continued softness in China's web game markets.

Revenue from membership was RMB74.7 million in the fourth quarter of 2016 as compared to RMB80.8 million in the corresponding period of 2015.

Other revenues, mainly including revenues from our online education platform and online advertisement revenue, were RMB65.9 million in the fourth quarter of 2016 compared to -- compared with RMB81.4 million in the corresponding period of 2015.

Cost of revenue increased by 33.5% to RMB1.56 billion, which was primarily attributable to an increase in the revenue-sharing fee and content cost to RMB1.22 billion in the fourth quarter of 2016. The increase in the revenue-sharing fee and content cost paid to performers, channel owners and content providers was slightly higher than the increase in live streaming revenue due to more diverse content offerings in the fourth quarter.

In addition, bandwidth cost slightly increased to RMB168.9 billion-- sorry, RMB168.9 million -- in the fourth quarter of 2016, primarily reflecting the continued user base expansion and our video quality improvement, but partially offset by our improved efficiency and pricing terms.

Gross profit increased by 26.4% to RMB924.6 million in the fourth-quarter 2016. Gross margin was 37.2% in the fourth quarter 2016 as compared to 38.5% in the prior year period.

Our non-GAAP operating income increased by 42.9% to RMB673 million in the fourth quarter 2016. The non-GAAP operating margin was 27.1% in the fourth quarter of 2016 as compared to 24.8% in the prior year period.

GAAP net income attributable to YY increased by 59.3% to RMB572.3 million in the fourth quarter. Net margin in the fourth quarter of 2016 increased to 23% from 18.9% in the corresponding period of 2015.

Non-GAAP net income attributable to YY increased by 42.4% to RMB598.6 million from RMB420.4 million in the prior year period. Non-GAAP net margin in the fourth quarter of 2016 increased to 24.1% from 22.1% in the corresponding period of 2015.

Diluted net income per ADS in the fourth quarter of 2016 increased by 56.1% to RMB9.74 from RMB6.24 in the prior year period. Non-GAAP diluted net income per ADS increased by 40.3% to RMB10.17 from RMB7.25 in the prior year period.

Finally, looking at the business outlook for the first quarter of 2017, the Company expects its revenue to be between RMB2.4 billion (sic, see press release "RMB2.2 billion") to RMB2.3 billion, representing a year-over-year growth of approximately 33.4% to 39.5%. These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

This concludes our prepared remarks. Thank you for joining us today, and we will now starting the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Your first question comes from the line of Zoe Zhao from Credit Suisse. You may ask your question. You may ask in Chinese first, then in English. Please go ahead.

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Zoe Zhao, Credit Suisse - Analyst [2]

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(Spoken in Chinese) I'll translate myself. My first question is regarding the revenue sharing and content cost. We noticed this bit of cost has increased by a bit, so could management elaborate on content strategy and outlook of this spending?

The second question is about our plan around Huya. What is the other revenue on the Huya related to and what's our strategy going forward? Thank you.

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Eric He, YY Inc. - CFO [3]

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Well, let me answer the first part of the question on the content cost. Yes, I think this quarter, very specifically, we have seen the revenue-sharing cost and content cost has increased a little bit higher than before. The main reason is we spent roughly maybe RMB80 million on content costs more than the previous quarters so that's why you see roughly 2 or 3 percentage points increase in this particular items.

And due to the various new different -- various new contents, such as travel and some outdoor activities, our revenue-sharing percentage is somewhat higher. Because of those two reasons, so you have seen the revenue-sharing costs and content costs increase larger than the corresponding live streaming revenue.

Moving forward, I think this could be a normal situation, which will actually be a negative effect on our gross margin on 1 or 2 percentage points. However, on the other hand, as you unnoticed that our bandwidth costs in the last years, we have saved roughly 1 or 2 percentage points. So, hopefully, these two will cancel each other. That's for the first part of the questions.

Second part of the questions, with regard to Huya's current progress and future plans, I would like to ask our CEO of Huya.com, Mr. Dong. Dong will answer the question in Chinese, and I will try to translate that in English.

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Rong jie Dong, YY Inc. - CEO, Huya [4]

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(Interpreted) In the past quarters, I think Huya has done several businesses very well. One is in mobile game broadcasting. The other one was outdoor broadcasting, and the third one is that the entertainment broadcasting. Those three areas that we have progressed pretty well, and we will continue to deepen our business in those three areas in the future.

With regard to your questions to those ad revenue, that is correct. It is generated from Huya's platform. I think that amount, it's not significant, but it is definitely something that we are -- we are starting. So we will see how it goes. But so far, it has gone very well.

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Zoe Zhao, Credit Suisse - Analyst [5]

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Thank you, management. (Spoken in Chinese). If I may just ask, what is the differentiation plan between the main YY Live and Huya? (Spoken in Chinese).

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Eric He, YY Inc. - CFO [6]

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I will ask Mr. Dong to answer in Chinese, and I will try to translate.

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Rong jie Dong, YY Inc. - CEO, Huya [7]

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(Interpreted) Okay, from the perspective of YY Inc. as a parent companies, our belief is that live streaming or live broadcasting market is a huge market. So in front of these huge markets, we would like to spend as many as much of the teams or efforts, try to occupy the market shares. So we really don't mind if we have two or three, even four, teams going out there and try to help us to increase our market shares.

So I think, however, we definitely will be focusing on game broadcasting. Huya, by its DNA or nature, is a game-broadcasting platform. So even that we try to evolve into some of the outdoor broadcasting, the focal points will be very different.

It will bring in some elements of the gamers or game-related contents. So we will say that although it looks like from the outlook it's very similar, but we are targeting at very different user base, which -- what I mean is, compared with YY Live.

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Zoe Zhao, Credit Suisse - Analyst [8]

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Okay. Thanks a lot. That's very helpful. (Spoken in Chinese).

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Operator [9]

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Your next question comes from the line of Eileen Deng from Deutsche Bank. Please ask.

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Eileen Deng, Deutsche Bank - Analyst [10]

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(Interpreted) Let me translate first. My first question is regarding the social focus in 2017. Can management share more color about how to enhance the social relationship and how is it different from other competitors in the content? Will the user spending in this kind of content be lower than other contents you have on platform, and how should we forecast the ARPU going forward?

And my second question is regarding the margin trend for 2017. How should we forecast the YY Live and Huya margin, and how do we see the consolidated one? Thank you.

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Eric He, YY Inc. - CFO [11]

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I will ask our CEO Chen Zhou to answer the first question. I will follow the second -- I will follow to answer your second questions. Chen Zhou, please.

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Zhou Chen, YY Inc. - CEO [12]

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(Interpreted) Okay, yes, we actually did mention social or SNS type of thinking in the previous quarterly reports. What we are planning to do in 2017 are in two aspects. One is on our existing line of business YY Live and Huya. We would like to enhance its social networking relationship among users with more fresh contents, more interactive contents, so that we can induce them to actually spend more money, can induce them to interact even more.

On the second part is we did mention that we had a product called ME before, and that is the product we are going to change or switch to become SNS products. However, the biggest difference between ME and the rest of the social products is that ME is going to be from the perspective of live broadcasting and video sharing type of the contents to allow people to interact with each others.

And this products is still under the beta test in our Company, so we are still trying to finalize, and we are still trying to tone up the product a little bit. So, at this moment, revenue generation, or the ARPU and that sort of questions with regard to ME is definitely not our first consideration or first priorities. So this will come much, much later.

However, as I mentioned it before, that for the existing product lines, the higher or the enhanced the social networking relationship, we believe it will definitely increase the bondings, so that the churn rate will be less. And we hope our monetization will be enhanced because of that.

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Eric He, YY Inc. - CFO [13]

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For the second part of the questions, I believe that was with regard to the profitability, the margins. I think I want to point out that our margins for the fourth quarter was very good despite the fact that the gross margin was a little off as I mentioned a little bit because of the revenue-sharing cost and content costs. We had a little bit bump up on those two items, which knocked off probably 1 or 2 percentage points.

However, on operating levels, our operating margins, I am talking about non-GAAP operating margins, was 27% versus last quarter's 24%. And our non-GAAP net margin was 24% versus last quarter's 20%. However, I must point out there are two one-time items.

The first one is a one-time gain in the fourth quarter, which is about RMB152 million. That is a disposal of some of the investments, which resulted in these gains. On the contrary, we do actually take some of the losses on some investments projects. We have five, six projects being impaired in terms of goodwills and literally the profits, and that was RMB117 million.

So if we net out this one-time gain and one-time loss, one-time gain is RMB150 million, one-time loss is RMB117 million, so net off, it's about RMB35 million. This actually amounted to probably 1.4% of operating margins. Meaning that if we take out this 1.4% one-time gain, our operating margin, non-GAAP operating margin, should be 25.7%.

Our net margin, if we take out the one-time gain contribution, 1.4%, it will be 22.7%, which is much better than the last quarter as well. So we believe the fourth quarter we have done a great job. However, moving forward, we think 2017, that the margin, if there is no too much changes, we hope we can maintain the very similar type of the margins as we are seeing in 2016.

So I think we are optimistic. We are neutral to optimistic about our margin pictures moving forwards.

With regard to your questions on Huya specifically, I think, as I mentioned a couple of times in 2016, I said that Huya is going to hit a cash flow breakeven at the end of 2016, December. I can tell you responsibly, they did even better than that.

I think moving forward in 2017, Huya is in a position to breakeven, or make a little profit, or lose a little money. I think it all depends on the strategic maneuvers that the team would like to do.

So, at this moment, we are comfortable to see Huya is in a position to at least breakeven, or if they want to be aggressive, they may lose a little bit in terms of profitability, or if they want to save a little bit, they may actually make a little profit. So I think they are in great positions in 2017 in terms of a margin positioning.

As to other, YY Live and all the other margins, I'm sorry, we have never disclosed that, and we don't think we will disclose that because it will be tremendously troublesome to disclose that. Frankly, we don't think that's very meaningful.

I think -- I hope that you can evaluate the Company as a whole. But I can tell you that the margin picture looks pretty good.

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Eileen Deng, Deutsche Bank - Analyst [14]

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Thanks a lot.

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Operator [15]

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Your next question comes from the line of Binnie Wong from Merrill Lynch. Please ask.

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Binnie Wong, BofA-Merrill Lynch - Analyst [16]

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Hi. Thank you for taking my questions. I have two questions here. The first question is on the ARPU trend. It looks like it has been down this quarter. And was this more due to the diversification of the content with newer content vertical as you have mentioned earlier which probably has lower ARPU in the beginning, and it will take time to ramp up, or is that because of other reasons?

And second is that with more intensifying competition, and thanks for the color you have shared on the social element that we are going to be in place this year. What do you see as the major differentiations versus our peers now? (Spoken in Chinese).

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Eric He, YY Inc. - CFO [17]

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Okay. I would answer your first part of the questions. Maybe Chen Zhou or Dong would like to add more later on. And the second part of your question, I will defer to Chen Zhou to answer the question.

So for the first part, I think the ARPU, yes, has come down a little bit, but we are very comfortable with our ARPU because ARPU is not something that we are focusing on. I think the most important business metrics that we are focusing on is user expansions. We would like to see users expand as many as we can, as you know that we have expanded a lot of mobile users.

Mobile users has a very interesting characteristic in terms of their spending habits needs time to accumulate. So at the very beginning, you see that mobile users will spend less. That's number one.

Number two, our ARPU is somewhat being diluted by the tremendous growth of game broadcasting business. As you know, that for game broadcasting business, in nature the ARPU is less than the entertainment business. So with Our Huya is growing very, very fast, with their users expansion being so explosive.

So if you look at the ARPU as a whole in our company, you will, by definition, see that ARPU is declining. But we believe that we are in a very healthy trajectory. We are not to worry about lower ARPU. Once again, we want to focus on user expansion.

Zhou Chen, for the social part of the questions?

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Zhou Chen, YY Inc. - CEO [18]

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(Interpreted) To be answered, differentiation between our social products and our -- the one that's in the markets, I think I mentioned that in the last question a little bit.

I think the current products in the markets, mainly it's been generated on text or pictures. So the user normally will use those means to check out the stranger's profile. Whereas ours is different from those, because we are going to utilize live broadcasting or live streaming, or videos, to allow our users to communicate or even chat with someone else.

We think that this is going to be natural in actions among peoples. And we believe that live broadcasting and videos being utilized is going to be a major differentiation point among our products and others.

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Binnie Wong, BofA-Merrill Lynch - Analyst [19]

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(Spoken in Chinese)

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Operator [20]

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Your next question comes from the line of Natalie Wu. Please ask your question.

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Natalie Wu, CICC - Analyst [21]

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Hi. Good evening, management. Thanks for taking my question, and congratulations on a very solid quarter.

So, my first question is about Huya game broadcasting. So, Huya this quarter is exceptionally strong, especially in terms of user growth. So I'm just wondering how much of the 56 million monthly active users are constituted by Huya, and how should we expect the revenue growth of Huya business this year?

Also, Eric, you mentioned that the ARPU of Huya is lower than music. But is the paying conversion ratio of Huya by nature much higher than music as well? So, can you share with us the ultimate paying ratio we are targeting for Huya game broadcasting business.

You mentioned that for YY music business that maybe the ultimate paying ratio may reach to 5%. So I was wondering, is the case different regarding Huya?

So I'll just translate this part of the question myself. (Spoken in Chinese). So this is my first part of the question.

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Eric He, YY Inc. - CFO [22]

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Okay. Thank you Natalie. Let me answer the questions. First question, with regard to the mobile MAU that we announced, it's RMB56 million. You know, for this part, YY and Huya, at the end of last year, YY is still slightly bigger than Huya.

However, in judgement of the trend, Huya's increase, or Huya's growth momentum in terms of the MAU, is bigger than YY. So to answer your questions, as of the fourth quarter of 2016, YY is slightly bigger than Huya. How much bigger? I think you can just use a single digit number as difference. So it's not going to be too big of the differences.

In terms of revenue growth for Huya, I think, because we recently had some internal discussion, I think Dong, as a CEO, he is pretty aggressive. We are hoping that we can repeat a triple digit percentage of growth rate in 2017 again. That's our goal. No promise, no guarantee.

And in terms of paying ratio, yes, you are right. Overall, our paying ratio is roughly 4% above Huya specifically. Just like you said, their ARPU is lower for the game broadcasting business. But the paying ratio is very low as well. That's why you see that Huya's revenue is much less than YY Live. Huya is, in 2017, is barely reach RMB800 million, right? So there is huge room for Huya to grow.

Of course, we would love to see that Huya's paying ratio to reach 5%. If we can do that, we're going to do very well in the next two to three years.

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Natalie Wu, CICC - Analyst [23]

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That's very helpful, Eric. So my second part of the question is related with YY Music. So I heard that you've had some kind of restructure going on last year regarding this business line. So I was just wondering can management share us a recent update of the restructure, and also your expectation regarding this business line this year?

(Spoken in Chinese).

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Zhou Chen, YY Inc. - CEO [24]

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(Interpreted) Well Natalie, Zhou Chen says he is very puzzling about your management team reshuffle. He didn't know it. He is not aware of any as you mention.

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Natalie Wu, CICC - Analyst [25]

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Let's just forget about that part, then. How about YY Music's revenue guidance this year?

(Spoken in Chinese).

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Eric He, YY Inc. - CFO [26]

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Well, normally we only give out the quarterly revenue guidance. So at this time, you can probably see that in the first quarter of 2017, the overall revenue guidance for the entire company, in my belief, is much better than consensus.

So I think we are very confident that 2017, although the competitive landscape is pretty intensified, we still believe that we should grow very, very nicely. Of course, you cannot expect music, with such a large revenue base, to grow a triple digit percentage in 2017. I don't think even I tell you that, you are not going to believe it, so I don't think you should expect that.

But I would say that the first quarter 2017, we have seen that our revenue is growing at a very healthy pace. So I think you probably can use that to extrapolate the whole year growth rate, and hopefully you can -- with your smart ideas, you probably can derive some of the growth rate on our YY Live.

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Natalie Wu, CICC - Analyst [27]

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Got it. Thanks, Eric.

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Operator [28]

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Your next question comes from Alicia Yap from Citigroup. Please ask.

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Alicia Yap, Citigroup - Analyst [29]

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Hi, and good evening, management. Thanks for taking my questions. Two quick questions. Number one is regarding your new outdoor content offering. Can you share with us some of the current metrics in terms of MAU? Are these mainly new users, or some existing users already on your platform, and also the average time spent on this content, versus for example the Huya and the YY Live? Also, the future monetization model.

Then, second question is regarding new user expansions. There is a lot more competitors out there are stepping up the sales and marketing to attract new users and penetrate into lower tier cities this year. What are our current sales and marketing spend budget, and also, expectations for this year?

(Spoken in Chinese)

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Eric He, YY Inc. - CFO [30]

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Okay, I will refer those two questions to Zhou Chen first. If Rong Dong wants to chip in, he can always do that. For the first question and second question, Zhou Chen please.

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Zhou Chen, YY Inc. - CEO [31]

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(Interpreted) I will translate the first question first. In the last seven or eight months, in terms of outdoor broadcasting, we have four different categories, four verticals -- four different verticals.

Among those four verticals we have seen different types of growth rate, but all of them has grown very strongly, although we have to point out from a very small base. We have seen from 200% to 400% type of growth rate within seven months, so that gives us a lot of confidence that these categories might be an interesting area.

On the other hand, you asked about the user base. Since all those outdoors activities are the ones that we have not spent too much of the sales and marketing efforts to promote, so we believe most of the users to be on these four different verticals are those existing users, or the new natural users who are interested in these areas.

But we do see that those new users, or those users that are in those four outdoor verticals, has relatively less churn rate. So we believe this is probably a reflection of a very different type of the categories, which are different from the existing entertainments or singing or dancing type of content.

So this new content definitely has very interesting attractions with those users who are utilizing those content now.

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Zhou Chen, YY Inc. - CEO [32]

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(Interpreted) Well, I think it's -- it has been our belief that we will put in some efforts in sales and marketing. Specifically in 2017 we do plan to spend some money in this area. But you know, we have a tradition, or we are under DNA that when we spend money onto promotion, to do ads, we would like to target a very specific user base, or very specific geographical locations, or very specific contents.

We are not going to spend tremendous amounts to buy traffic, or to spend a lot of campaign ads. This is not our tradition, and it is not in our DNA. So we will pretty much follow what we have been doing in the past. Maybe put in a little more efforts in 2017 to try that out, to see if we can expand our user base a little bit faster.

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Alicia Yap, Citigroup - Analyst [33]

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Thank you.

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Operator [34]

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Your next questions comes from the line of Jialong Shi, from Nomura. Please ask.

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Jialong Shi, Nomura - Analyst [35]

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(Spoken in Chinese) So I have three quick questions here. So my first question is what are the new categories of contents YY will likely introduce into YY Live going forward in addition to the online game live broadcasting content.

My second question is about the G&A expenses. I just wonder, what was the driver for the strong sequential and annual year-for-year growth for the SG&A expenses.

My last question is, how many overlap audience between YY Live and Huya? Thank you.

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Eric He, YY Inc. - CFO [36]

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Okay, well, with regards to the first question on those new verticals on outdoors, as Zhou Chen has just mentioned, we have had four different verticals or four different categories. But in 2017, I think the chances are we're going to increase a little bit more. But in terms of is there any specific verticals, I don't think so. We don't disclose something that we haven't done.

But there are a lot of things that are in our roadmap. I believe that we are going to introduce a little more.

The second question is, with -- having questions with regard to G&A. Yes, you are absolutely right. Our G&A has increased quite a bit, but I already answered the question in the second question.

That was related to one-time charges, as I mentioned it. In the G&A expenses in 2016 fourth quarter, we incurred RMB117 million goodwill impairments, and losses that we disposed some -- we marked off or marked down some of the investments.

So if you take out that RMB117 million, our G&A expenses actually was lower than the third quarter. Third quarter was RMB82 million. The fourth quarter G&A, actually, if you take down that RMB117 million, it is roughly RMB80 million. So G&A itself did not actually increase at all.

The third question is referred to the overlapping users between Huya and YY Live. You know, for this part, we know the overlapping percentage is quite low. We don't have a specific number, but roughly, it's around 10%.

So I think Huya and YY Live, interestingly enough, we don't share too much overlap in users at this point of time.

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Jialong Shi, Nomura - Analyst [37]

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(Spoken in Chinese) My follow-up question is whether, in the future, Huya maybe interested to partner with big online game operators?

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Zhou Chen, YY Inc. - CEO [38]

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(Interpreted) I would like to answer the second question first. With regard to the cooperation with the game company, you know, in your words, it's large game companies, we welcome any sort of collaborations, and we actually do not exclude any possibility. Even including the capital collaborations or investments, we would welcome these types of collaborations, and so that's our basic attitude.

In terms of cooperation with specific or smaller game developers such as client-based game developers or mobile game developers, that's something that we have been doing all along.

I would say that the cooperation between us and all those game developers has been very good, because all those game developers recognize the value of a game broadcasting platform which is very complementary to their operations, which will help their business, so the welcome our very close relationship with them. So I see that will continue, and we see that is a very complementary force to those game developers.

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Jialong Shi, Nomura - Analyst [39]

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(Spoken in Chinese)

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Operator [40]

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There are no further questions at this time. I would now like to hand the call back to today's presenter.

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Eric He, YY Inc. - CFO [41]

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Thank you, everyone. This will now conclude our fourth quarter 2016 and whole year earnings release conference call. Thank you. See you next quarter.

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Operator [42]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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Editor [43]

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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.