Ladies and gentlemen, thank you for standing by, and welcome to the NetEase, Inc. First Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded today. And I would now like to turn the conference over to Brandi Piacente. Please go ahead.

Thank you, operator. Please note that discussions today will contain forward-looking statements relating to future performance of the company that are intended to qualify for the Safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase's business and financial results is included in certain filings of the company with Securities and Exchange Commission, including its annual report on Form 20-F. The company does not undertake any obligation to update this forward-looking information, except as required by law. As a reminder, this conference is being recorded. In addition, a replay -- webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. I will now turn the call over to Mr. Onward Choi, Acting Chief Financial Officer, who will read the prepared remarks on behalf of Mr. William Ding, Chief Executive Officer of NetEase.

Thank you, Brandi. Before I begin, please note that for the purposes of this discussion, all percentages are based on renminbi. We are pleased with our first quarter results, as we continue to improve our distinctive portfolio of online services that appeal to a broad community across China's dynamic Internet markets. Our revenues for the first quarter reflect year-over-year growth across our 3 business segments, with total revenues increasing 12.7%, driven by our self-developed online games. Our total online game revenues increased at 11.3%, and our advertising services business improved by 15.3%. During the quarter, we saw healthy growth across our principal self-developed games, which were partially offset by decrease of revenues from our licensed games. The increase in online games revenues was driven by Fantasy Westward Journey and Westward Journey Online II, which we introduced price increases for in February of this year, as well as the performance from Heroes of Tang Dynasty II and Kung Fu Master, 2 of our newer games that have been met with positive reception. The price increases that we implemented occurred after the 10 years of never having raised our prices for this game and our users have remained loyal. We also introduced a series of promotional packages that were designed for users to experience this move and placed in transition to the new pricing. Lastly, I'd like to mention that Tianxia III and Ghost performed well during the first quarter, following our recent promotional activities for these games. Our activities during the first quarter include launching a new expansion pack for our new Fly for Fun in mid-January and initiating large-scale marketing activities for Kung Fu Master at the end of March. We expect these marketing efforts will support the games' growth in the second quarter. For the second quarter, we have…

[Operator Instructions] And our first question comes from the line of Timothy Chan from Morgan Stanley.

I have 2 questions. The first question is, could you maybe comment a little bit more of your new game pipeline, especially the titles like Dragon Sword, League of Legends and also the existing games? What do you think the potential of these titles are? And how are they different from the existing titles that you are operating? [Chinese]

[Chinese]

Okay. So basically, to recap on the new game pipeline of the company, I think going forward, we will be rolling out quite a number of new game titles to the market, which would be in the -- in form of the game types would be quite different from what we are currently or existing operating. And first of all, like the -- we would be focusing more game types on the competition type of games and the one that we are going to launch would be the Heroes of Three Kingdoms, which, we believe, would also fuel up this space. And we would also try to develop some other types of games that would be to -- designed to tap into the different niche and the features in the game market in general. And going forward, we would also roll out some new mobile games in the market. And some of those would be an extension of our -- the existing PC games, and some of those would be some especially designed games that would be played on the mobile platforms.

My second question is on your mobile games development. Obviously, NetEase has a lot of mobile users on services like news app and also cloud notes. May I ask, would you also consider launching some of maybe the mobile game platform leveraging the success of your mobile apps. [Chinese]

[Chinese]

Yes. So basically, with regard to the company's strategies on the mobile games developments, basically, we would focus both on the platform development and also the product developments.

[Chinese]

And in the upcoming next month, hopefully, you would see something about our mobile game platforms and also some games -- mobile games in the market.

Our next question comes from the line of Eddie Leung from Merrill Lynch.

I have 2 questions. The first one is about licensing games. So just wondering how you could -- how you would look at the prospect of World of Warcraft, given a pretty big sequential decline in the first quarter supposedly. And then just secondly, you mentioned about some new trends that you will focus on. What could be some of those new trends? We have seen some quite M&As in the Internet space recently. NetEase has been growing organically in the past, like a decade or so. So will the company consider using acquisitions as part of the strategic tools to get into some of these new trends?

[Chinese]

[Chinese]

So first of all, with regard to Eddie's questions on the licensing games and the company's will to it, basically, we are licensing not only the World of Warcraft but we are also licensing the StarCraft II. And we believe that those 2 game titles are of very good qualities, and we feel happy that we got a very good business partners as such, like Blizzard Entertainment. And with regard to our will on the new trends or the potential acquisitions, investments or mergers and things like that, basically, NetEase would uphold a very open attitude to asset, and we would be very open to enter into potential acquisitions, investments or mergers and things like that as we see fit, especially when those targets can fit in to the company's business developments or can create some strategic values to the whole group.

And our next question comes from the line of Jialong Shi from CLSA.

I have one question. I remember William mentioned over the past -- over the last conference call that doing mobile games is relatively easy compared to [indiscernible] games and that maybe it had found a good way to do mobile games. Now that 3 months have passed, just wondering if you are still the same confident or even more confident about your -- about the prospect of your mobile games. And also can you give us an update on your mobile game initiatives so far into the year? [Chinese]

[Chinese]

So basically, with regard to our progress in terms of the mobile games development, I think the company is still fairly quite positive to it, and the progress so far has been smooth. And we also got the confidence that, in the long term, we would create some positive results in terms of this new business development. And we also hold a positive will across the long-term development in this business sector.

And our next question comes from the line of Tian Hou from T.H. Capital.

This is Gina calling in for Tian. My first question is for NetEase, as a game developer, developing mobile games shouldn't be an issue but the success of a game is dependent on the mobile distribution. Can you give us your thoughts on your mobile distribution channel strategy?

[Chinese]

[Chinese]

So basically, with regard to the company's strategies in terms of the mobile games' distribution, in a word, we would take a very diversified approach in achieving this aim. First of all, we believe that we got a very good products settings because you would see that in terms of our mobile news applications, we have a very high numbers of installations and we also got some other types of new mobile applications like the EaseRead and also some other dictionaries and cloud notes and things like that, which means that we have a very wide array of mobile applications in place already, which we also believe would set out a very good growth for cross-selling capabilities of our upcoming mobile games or other stuff like that. And secondly, we also got a very strong email platform and also news platform, which we believe we'll be able to get reach to our targeted consumers or the users of the potential mobile games applications. And thirdly, we would also make good use of doing some pre-installations of those applications on certain handsets in order to enable a much wider and extensive distributions of our mobile games. And having said that, we believe that we already got a very solid foundation in distributing the products and services alike for NetEase. And say, for example, we are very -- we got a very good performance or the stand in the PC games development, and we also foresee and believe that the people could make good use of the fragmented times by experiencing the mobile games as well and somehow, we would also make some efforts say, for example, by extending certain game play from our existing PC games to the mobile platforms, so that people can experience different kinds of things on different devices or different platforms. And in the end, we do feel that this is just a matter of how the people would be making good use of their time, both their core times spent while they are playing the PC games or the fragmented times when they are playing the mobile games. And basically, we are quite positive to it.

And our next question comes from the line of Jiong Shao from Macquarie.

William, Onward and Brandi, this is George calling on behalf of Jiong. I have 2 questions. The first one is on your MMO games. So I remember that you actually increased the pricing -- unit pricing for the time-based games by 50% in February. So I wonder what the results are kind of like in terms of like user churn or a pushback from users and also in terms of the point card that you sell. Actually, we found that you actually cut the discount rate to the distributors. So can you also elaborate a little bit more on that? [Chinese]

[Chinese]

So basically, we believe that the -- lately, the price increase, the performance of each or the trends are still be within our expectations and in terms of the time frame, because the price increase was announced and implemented in -- on the 10th of February, the effective date. And so far, the time frame is not that long. But so far, we still believe that the feedback and also the responses will be within our expectations. And in terms of the changes of the discounts of the -- to the distributors, which is just a 1% or so, were agents. We believe those 2 factors would not be very significant impact to our overall gaming performances. And as always, we believe that we've got a very strong capability in developing research -- and doing the research and developments of our new games.

My second question is regarding your mobile games. So first of all, is those mobile games developed by your in-house team or, actually, you acquired some mobile game studios to do that? And also, in terms of the genres, because when you mentioned that there will be some of this -- the extensions from these PC MMORPG games but also there will be more some mobile-only ones. So do you still -- are you going to focus on those more heavier mobile games or you will also do like some of these [indiscernible] mobile games? And also -- because you mentioned extension from PCs, so will you consider doing cross-platform, meaning PC plus mobile, the same account, the same character or you will still keep a separate mobile game? [Chinese]

[Chinese]

So basically, the account's verification process were basically the same for both users playing on the PC or on the mobile platforms. And basically, they would be adopting the cloud synchronization approach in achieving this aim. And in terms of the playing genders or the types, basically, we would also consider the features that can better utilize the fragmented times of the players while they are playing on the mobile handsets. And in -- thirdly, in terms of the overall strategies in doing our -- in achieving our mobile game strategies, we would not consider both our in-house developments and also the investment and also the potential acquisitions.

And our next question comes from the line of Andy Yeung from Oppenheimer & Co. Andy Yeung - Oppenheimer & Co. Inc., Research Division: My question is actually about your mobile apps. You obviously have a number of very popular mobile apps right now. Can you also let us know what other mobile app products are you developing right now? And also what's your go-to-market strategy and monetization strategy for those apps?

[Chinese]

[Chinese]

Okay. So -- well, with regard to the company's mobile application strategies, basically, we would take a diversified approach in achieving these strategies. So far, the applications that we have launched to the markets were covering the information categories like -- applications like the news, the news read and also the music. And other categories like the utilities type of applications, we've got the Youdao Dictionary and also the Youdao Cloudnote. And in terms of the education categories, we have our open education applications. And for the social networking applications, we have got another online dating application, so-called the Huatian. And in the future, I think our -- one of our main focus would be on the mobile games development. And we believe that, as always, our strategies would be a very full-coverage approach and also make sure that the products or services will be of the highest quality.

And our next question comes from the line of Thomas Chong from BOCI.

I have 2 questions. My first question is regarding your overseas expansion strategy. Is there any time line we should expect you guys to license your games to the overseas market, as well as any updates about your further cooperation with Blizzard, such as the Diablo III? And then I have a follow-up.

[Chinese]

[Chinese]

So basically, as for our overseas expansions or business developments, we would be marketing 2 ways. One would be, we have already made some success to certain of our game titles and in particular ways, one, which is Ghost II, which we believe that it has already recorded a [indiscernible] of the markets. Look forward of also pushing this product to the market. And secondly, with regard to our cooperation with Blizzard side, we would still deepen our goal overseas by considering our future licensing of our game titles that we consider fit and appropriate to the China market.

My second question is regarding marketing expenses. Given you have a lump of expansion packs going to be launched in the second quarter, how should we look at the market expenses in the second quarter compared to the same period last year?

With regard to the selling and marketing expenses, I think, basically, we're at the benchmark so to call because we do not give out any specific guidance about our financial results. But as the -- and you're asking for a benchmark, we do see that we will upkeep around 10% of our total revenues would be set aside for the selling and marketing services. And across the year, because there would be also different seasonalities and different seasons throughout the year and usually, first quarter will be the lowest one and you will also see that there has been a trending down in terms of the selling and marketing spending in the first quarter and -- but we will see that in the upcoming quarter, starting from Q2 or so and, especially, more stuff would be coming out in the Q3. We would expect that more -- certainly, marketing spending would be happening in the upcoming quarters. But in the general case, we do believe that on an annualized basis that we would try to strike a balance of upkeeping the -- a stable overall percentage of the -- our spending out of our total revenues.

And our next question comes from the line of Karen Tai from Piper Jaffray.

This is Karen calling in behalf of Mark. I have 2 follow-up questions, one is regarding your 10-year anniversary expansion pack for Fantasy Westward Journey. When do you expect this launch to take place?

[Chinese] So basically, the roll-off of the new expansion pack will hopefully be happening in the second half of the year.

And when is the annual dividend going to be paid?

I think, so far, the company has already got the board approvals in terms of the -- hopefully, the annual dividend policy. And I will give you more color when it comes to the more appropriate time when we determine the timing.

And at this time, I'd like to turn the conference back over to management for closing comments.

Thank you once again for joining us today. Please feel free to contact us. Cassia Curran is NetEase's IR manager based in Hangzhou, or The Piacente Group, if you have further questions. Have a wonderful day. Thank you.