Ladies and gentlemen, thank you for standing by and welcome to YY Incorporated First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, we will have a question-and-answer session. Please note, this event is being recorded. I would now like to hand the conference over to your speaker and host today Mr. Matthew Zhao, IR Director of YY. Thank you, sir. Please go ahead.

Thank you, operator. Good morning, and good evening, everyone. Welcome to YY's first of 2019 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman and CEO of YY; Mr. Bing Jin, CFO of YY; and Ms. Ting Li, COO of YY. For today's call, management will first provide a review of the quarter, and then we will conduct a Q&A session. The first quarter of 2019 financial results and webcast of this conference call are available at ir.yy.com. A replay of this call will also be available on our Web site in a few hours. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in renminbi. I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li. Please go ahead, sir.

[Foreign Language] Thank you, Matthew. Hello everyone. Welcome to our earnings conference call for the first quarter. Before we start to discuss this quarter’s performance, I should mention that some of you may have already noted that I have been recently appointed as the CEO of YY by our Board. After almost two years as the company’s Acting CEO, I’m very excited and honored to lead the new YY Group, which consist of our YY, Huya and legal business. [Foreign Language] After the completion of the Bigo acquisition, YY has become a global social media platform with over 400 million in global video and live streaming average mobile MAUs in the first quarter of 2019. Amongst these MAUs, more than 75% of the market were outside of China, which stands to the robust that we have achieved in our globalization strategy so far. Additionally, the composition of our user base is very diverse. Of over 400 million average MAUs, 192.4 million come from our short form video and live streaming services. This large proposition of users has enabled us to strengthen our leadership in both short form video and live streaming sectors around the world. In addition, 211.8 million MAUs came from IMO, a global video communication application. Going forward with the global strategy and focus on AI technology, we are confident in our ability to bring YY Group into a new stage and solicited by our position at the global video based social media platform. [Foreign Language] We started 2019 with a strong first quarter result upon completion of the acquisition of Bigo on March 4, 2019, we began to consolidate the financials. Our total revenues increased by 47.1% year-on-year to RMB4.78 billion during the quarter. According to consolidation of Bigo’s financials, our top-line results do outperform the high-end…

Hello operator?

Hi. You are now back on line. Thank you. Please go ahead.

Okay. Yes. We will go back to the conference. Thank you.

[Foreign Language] In addition, our overseas short form video and live streaming video user base also continue to expand rapidly in the first quarter as the average MAU for Bigo’s short form video and live streaming services increased by 160.6% year-over-year 78.7 million. This increase was primarily driven by the user growth of Like. Originally, Like was a short form video editing platform that allow users to add special effects into the original video works. In the second half of last year, Like has developed into a leading global short form video social platform. We believe that we are still at the early stage of the competition in the global short form video market which has tremendous growth opportunity. Currently, the majority of short form video content in the market whether generated by user called UGC or professional called GDC is mostly in entertainment or lifestyle category. So, we also realized that short form video is an efficient way to help people acquire knowledge in the future. In fact, a variety of knowledge of users in lifestyle can be taught and learned from short form video effectively. This reflects the tremendous commercial and social value of short form video. Recently, Like started a program to support high quality, talented PUGC or we media performance to further enrich the content offerings. Moreover, through the efforts of industry-leading AI experts and algorithm specialists, Bigo has further enhanced user thickness and viewing experience. In addition, our overseas live streaming business Bigo Like maintained healthy user growth and further include this monetization system embedded in our global leadership in the first quarter. Bigo Like has accumulated expansive monetization experiences in these live streaming offerings through years of successful operations in the international market. This operational experience will set Like apart from the competition by…

We continued to deliver solid financial and operating metrics during the first quarter of 2019. Our total net revenues for the first quarter increased by 47.1% year-over-year to RMB4.78 billion, specifically our live streaming revenues for the first quarter increased by 47.9% year-over-year to RMB4.49 billion, accounting for 93.8% of our total net revenues this quarter. Even excluding the effects of the consolidation of Bigo, we exceeded the high-end of our previous guidance mentioned by over 5% due to the strong financial performance for both YY and Huya segments. In the first quarter mobile contributed 69.6% of our live streaming revenues, while mobile live streaming MAUs of YY Live, plus Hago increased by 65.6% to 59.8 million as compared to the same quarter in 2018. Live streaming paying users of YY increased by 17.1% to 4.1 million in the first quarter of 2019. Cost of revenues for the first quarter increased by 56.8% year-over-year to RMB3.16 billion. Revenue sharing fees and content cost paid to the performance, guilds and content providers increased to [RMB2.52] [ph] billion in the first quarter reflecting the growth of live streaming revenues in YY, Huya and Bigo. In addition, bandwidth cost for the first quarter increased to RMB297.4 million primarily reflecting continued overseas user base expansion. Gross profit for the first quarter increased by 31.4% year-over-year to RMB1.62 billion Gross margin was 33.9% compared to 38% in the prior year period primarily due to the increase in revenue sharing fees and content costs. The decrease in gross margin was also attributable to the impact caused by the relatively low gross margin of the Huya segment as its contribution to our net revenues increased significantly year-over-year. Operating expenses for the first quarter were RMB1.2 billion compared to RMB649.1 million in the prior year period primarily due…

Thank you so much. [Operator Instructions] And our first question comes from the line of Daniel Chen from JPMorgan. Daniel your line is now open.

[Foreign Language] I would translate myself. Congratulation on a very solid quarter. So, my question is on the AI. So, we now have about 400 million of global user base which is huge. And there’s a lot of user data globally. So how are we going to utilize this data for our global products in the next few years? Thank you.

[Foreign Language] This is Ting Li. Let me answer your question. So, thank you for your question regarding to AI technology. So, AI technology actually is one of our major strategy for the cooperation amount to strategy which is one globalization under the AI technology. So, starting from 2018 actually we have applied a lot of approach to apply AI technology into the daily operations for the company. Firstly, we actually use AI technology into the content management, so that part not only including short form video, but also including live streaming as well as many games and et cetera. So, we actually using the AI technology to better match of the users when the play games or from our platform also watching live streaming content in our other live streaming platforms. So, in conclusion, the content management definitely were using the AI technology to apply into that. Then, the second part is base capabilities related to the AI technology. For example, like a facial recognition, audio recognition and et cetera. So, that part will purpose not only it's better to manage the content, but we also had some of the requirement from the content censorship as well as content management. So, we actually using the AI technology to better sensor as well as manage our content in all. In the next one to two years, we think and we truly believe the major battlefield for the AI technology improvement will be focused on the short form video content management, because for the short form content, most of them is quite fragmented coming from the different kind of projects. If we can use the better AI technology to provide users a better experience in 1 to 2 years’ time period with united theme or united topic, which is a lab-related content, so definitely that will be further improve the thickness for our short form video content. So, as I mentioned in the future definitely the short form video will be one part, we will put our more focus in terms to improve the AI capability. And second part was to mention is in terms of our AI focused personnel’s. For the whole YY Group this year, we actually had accumulate and attracted more than 230 of engineers and AI experts which is focused on the algorithm as well as AI capabilities. So, in terms of the scale of the AI teams, we’re actually one of the biggest one we think of the China Internet companies. So, in the future we'll further leverage those talents capability to continue improve our algorithm calculations. That has a one correction, our AI teams total people is 320 not 230, sorry. Thank you.

Thank you so much. And our next question comes from the line of Eileen Dang from Deutsche Bank. Eileen, your line is now open.

Thank you very much management for taking my question and congratulations on the strong quarter.

[Foreign Language]

[Foreign Language] My question is really is maybe on the second quarter guidance, can management give us a breakdown of how much is from Bigo and the YY Life? And the second question is more Bigo operating metrics. Can we have more color on key metrics such as paying users and ARPU? And also for the both key products Life and Like, what is the outlook for the full year revenue growth and margin outlook and also the monetization plan? Thank you very much.

Eileen, thank you. Let me address those questions. The first question regarding the breakdown of the second quarter guidance, we provide guidance RMB6 billion to RMB6.2 billion. That includes both YY, Huya and Bigo. Now for YY’s number, I think you can refer to the Bloomberg consensus. And I think last week we have announced the result and also their guidance. So, you can refer that and then you deduct post one Huya from the guidance that would give you the number for Bigo, right? That's a breakdown. For Bigo’s operating metrics, they have different product, obviously, the main monetization comes from Bigo Like. In terms of their paying ratio for Bigo Life is still relatively lower compared with YY Life in China because a lot of market are still in the early stage. In terms of ARPU actually is very high because a lot of the donors they are from Middle East and obviously Middle East have very high purchasing power. So, the ARPU in Middle East very high. But the ARPU in other emerging markets such as Southeast Asia and other parts of the world tend to be low. So, we do think there will be a lot of room for both paying ratio and APRU. For the revenue and margin as we told investors that last year Bigo generate close to U.S.$500 million revenue. This year we're still seeing very high growth rates. For the margin, we also mentioned previous that last year Bigo was loss making. This year, I think Bigo will continue to be loss making. But be careful with that Bigo Life is already making handsome money. So Bigo Life have some margin. But Like as David mentioned that still in the early stage on short form video market. There will continue to be…

Thank you very much.

Thank you so much. [Operator Instructions] And our next question comes from the line of Ashley Xu from CLSA. Ashley, you may know ask your question,

[Foreign Language] I will translate myself. So, I have two questions. One is on YY Life, we see that first quarter shows a better result than expected, so once you have management guidance for the full year YY Life and what’s Hago’s monetization progress? Do we have any target for the full year as well? And second question is on recent credit rating by S&P. It reported that the drop -- company’s request, just want to check the background of this? Thanks.

Question regarding the full year prospect for YY Life core business. You see that the first quarter our revenue on YY Life grows more than 10% that is better than we expect because I think there are several reasons. One is due to our operation expertise, we do have a better edge compared with some of the competitors particularly in the first quarter, the government tend to very stringent in terms of content screening. So that affects some of the smaller players. But, it actually benefits the big platform like YY because we have been very stringent in the content screening and monitoring. So, the Hago system, the expertise really helped. Secondly, the Chinese New Year, spring festival, we do see a very healthy returning pattern for the user and the host. So, we continue to benefit from that I would say recover of the user demographic and then host demographic. So, looking ahead for the rest of the year, we do think that the similar pattern will continue. So that's the full year kind of the prospect. Secondly, you asked about the dropping of the rating. I think there are several reasons. One is, we have a public credit rating from S&P 2015, we maintain a regular dialogue with the rating agencies. But given we don't have immediate plans for fixed income products or bond offering in near term. So, we don't think there is emerging need for continuing a public credit rating. That's the first reason. Secondly, our business has been going very fast particularly recently we acquired Bigo. And then, in terms of this -- in context of this fast-growing business, constantly upgrading -- updating agencies can take a very meaningful share of management time resources. So, as such we believe that is more efficient to withdraw our credit rating at this point, so that we can focus effort on our business to optimize results. But that's the key reason. Thanks.

Thank you so much. [Operator Instructions] And our next question comes from the line of Natalie Wu from CICC. Natalie, your line is now open.

[Foreign Language] So, I will translate it myself. So, we have a question on IMO, which country has user base already. My second question is, those of the users, second is to increase short video and live streaming presentation. I wonder, how should we think about the positioning of this product. Should it ask for independent app, and how should we think about the future monetization model of IMO? Thanks.

[Foreign Language] Thanks for your concern. This is David. So, IMO beginning, it actually has very simple functionality, which is to focus on video call especially started in the Android phone. So, you can think actually IMO handle traffic time in the Android phone, so because of the app is very simple and very simple functionality, so actually they have to accumulate very significant user base because feature of the Android phones as well as feature in Apple phone and Android phones, the people who are using IMO having the video call to each other, so that’s the major reason IMO has accumulated a large user base. And now, our monitoring is IMO user base has entered towards a most stabilized of the three, so the next step we will focus on the -- that also actually provide us a lot of opportunities to continue bringing more different kind of services as well as content into IMOs product to enable IMO continuing evolving into a super app. So, another thing worth to mention, actually the user thickness was very high, per user spend over 40 minutes in IMO every day, so that also provide us a lot of opportunities to expand into the other different kind of content as well as the services in the future. From the higher end, we truly believe IMO, we actually help the YY Group to complete of user closed loop because based on the -- we actually already had the large short form video platform which is Like, provide a huge amount on the short form video content on the data base. But, through IMOs platform, we actually have the better distribution, true of the video moment as well as other functionality embedded into IMO to better distribute of the short form video content…

Thank you very much.

And your next question comes from the line of Hillman Chan from Citigroup. Please ask your question.

[Foreign Language] Thank you for taking my questions. My first question is on the overseas strategy for Bigo, could management share more on the localization and marketing strategy going forward? And also on the bottlenecks or challenges that we face so far in some of these overseas markets? And regarding IMOs super app strategy, could management share more on the new features to be introduced in the second half of this year? Thank you.

[Foreign Language] Thank you for your concern. This is David. So, firstly, I think your first question is more related to the Bigo Live business. So, for Bigo Life business which is our leading best streaming platform in overseas, we truly believe going forward, our major goal is still focus on to be with global users community as well to users relationship into the one by one different country or regions. Because in the past decades experience in China, we actually had a deep understanding in terms of the live streaming content as well as live streaming ecosystem. So, going forward we'll continue to leverage those kinds of experience into the overseas expansions. Another thing is worth to mention is, what we monitor is a live streaming content, it is not only popular within the developing countries, but also is very popular within the developed world. For example, our revenue contribution coming from American plus European has been increased into 14% of the total revenues in the first quarter of this year. And the total overall Tier 1 countries around contribution has reached to 20%. So that's also demonstrating in the Tier 1 of the developing world, we also had a strong demand for the live streaming content from the user base. So going forward, in conclusion, for Bigo Life we will continue to focus on live streaming expansions from global wide. Your second question related to IMO, so the IMOs nature is -- we truly believe is still focus on the social communication as well as social relationships. In the future, as I mentioned before, so the IMOs major role still how we comeback and distribute our short form video content through the IMOs platform. We actually gave the different kind of growth for our different kind of products, for example like, Like, which is the short form video platform going forward will continue focus on producing the short form video content. By contrast, IMO will be more focused on the distributing of the short form video content. So, going forward, we think one of the key focus for better development of social relationship with IMO, we will continue to focus on the development of the broad functionalities. So, the group will start from the -- three to five people, then it turn to dozen. And then, even into 100 or even 1000s. So, we will try to build up a better relationship between those kinds of different interests based group. And we can better distribute our short form video content within those kinds of group. So that is our thinking in terms of the IMOs future strategy. Thank you.

[Foreign Language]

Thank you so much. And our last question comes from the line of Tian Hou from TH Capital. Tian, your line is now open.

[Foreign Language] So, going abroad is a great thing because the users are really haven't started to adapt to what we have already feel familiar within China. However, those countries are much smaller than China. So, the marketing effort has to be country by country even then when you were doing that in China one advertisement can be seen or accessed by millions of millions of youngsters in China. So, in that case the marketing iceberg must be difficult than when you were in China. So how do you envision the marketing experts going abroad? And also, how your margin is going to be throughout the year? Thank you.

[Foreign Language] This is David. Let me answer your first question. So, in terms of our sales and marketing expenses in the overseas market, firstly, as you may notice, so in terms of the sales and marketing directly related with the brand promotions, it actually is quite low as a percent to total sales. We only have some of the branding contents in the major countries with large populations. For most of the smaller countries, we actually using performance based advertisement, that’s a major channel to promote our product. And another thing was to mention is currently -- we actually also using AI technology to monitor and manage the overall performance from the performance what advertisement have. And going forward, as our AI technology continue to become more mature and comprehensive, we truly believe that continue our better ROI, through AI managed of the performance based promotions. Thank you.

And also, I want to add two additional points, one is, in some of the foreign markets actually ROI for advertisement can be better than in China, because in China you have a lot of advertising agencies. So, they each of them take a cut on the total budget. I think in foreign market, there are basically Google Play and Facebook. So, it's relatively transparent. And as David mentioned, we'll use AI to closely monitor the ROI. That's a first thing. Secondly, you asked about the margin profile for Bigo, as I mentioned before Bigo has different business unit. Bigo Life definitely is making profit. Like will be a key area for sales and marketing because we do see Like’s user base doubled in the last half year and we see even more good opportunities. So, we need to make sure that when we spread content globally, we need to make sure that more and more is aware of this product. Now for IMO even though it has over 211 million MAU, it actually doesn't do a lot of sales and marketing. It has very little sales and marketing spending before. The users basically come organically. As David mentioned because IMO provide very seamless video communication tool, an environment. Going forward, as we implant more content, we might also do some of the sales and marketing and branding for IMO as well. So, those are the two spending areas for Bigo. So, in total, Bigo will still be loss making, but I think we're very encouraged by the future prospect of this business. Thanks.

Thank you so much. I would now like to hand the conference back to the management team for the closing remarks.

Thank you, operator. Thank you all for joining us today. That close our call today. We're looking forward to speaking with you in the coming quarters. Thank you.

Thank you.

Thank you.

And that does include our conference for today. Thank you for participating. You may all now disconnect.