Good day, and welcome to the NetEase 2019 Fourth Quarter and Fiscal Year Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Margaret Shi, IR Director of NetEase.

Thank you, operator. Please note the discussion today will contain forward-looking statements relating to future performance of the company and are intended to qualify for 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 in this discussion. A general discussion of the risk factors that could affect NetEase's business and the financial results is included in certain filings of the company with the 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. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2019 fourth quarter and fiscal year financial statements news release issued earlier today. And with respect to non-GAAP financial measures related to the results of our consolidated subsidiary, Youdao, please visit the Investor Relations website of NetEase at ir.netease.com. As a reminder, this conference is being recorded. In addition, an Investor Presentation and a webcast replay of this conference call will also be available on NetEase IR website. Joining us today on the call from NetEase senior management is Mr. William Ding, our CEO; Mr. Charles Yang, Chief Financial Officer. I will now turn the call over to Charles, who will read the prepared remarks on behalf of William.

Thank you, Margaret, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are now based on renminbi. 2019 was an eventful year for NetEase. We expanded the reach of our online games, grew our international presence, IPO-ed our online learning, Youdao, advanced our music platform and refined our operations in e-commerce. For the full year, we grew our total net revenues by 16% to CNY59.2 billion and increased our GAAP net income from continuing operations attributable to our shareholders by 60% to CNY13.3 billion. Online games segment is the cornerstone of our business. Despite having launched fewer games throughout the year, we continued to grow our online games business at a healthy rate in 2019 with 16% year-over-year increase in net revenues. Driven by the steady performance of our long-standing titles, we once again exceeded CNY10 billion this quarter for the past 7 consecutive quarters. Our flagship titles continue to provide solid support for our online games business with increasing longevity and user loyalty. In 2019, revenues from Fantasy Westward Journey Online and Fantasy Westward Journey Mobile both grew at double-digit rate, remaining prevalent after years of operations. Westward Journey Online and its mobile version also grew steadily in 2019. After over 15 years of operation, our FWJ and WWJ franchises have been instilled in the collective memory of a generation of Chinese players. We further expanded the reach of these IPs through the introduction of FWJ 3D in mid-December last year, captivating both returning fans as well as new audience. As another iteration of the FWJ franchise in mobile, this 3D version game reserves the classic gameplay and social system while bringing brand-new experiences to mobile users in a real-time 3D world. We are still working on…

[Operator Instructions] We will take our first question from the line of Alex Poon from Morgan Stanley.

[Foreign Language] I'll translate my questions. First is regarding music. So we are hearing the master agreements between Tencent Music and the top 3 labels are ending this year and next year? And how will this change the competition landscape, revenue growth and cost structure of NetEase Cloud Music in the next two years? And my second question is regarding the overall company, [indiscernible] has been loss-making, but it has been sold and Music already raised enough funds and the overall company margin is improving. So what's the thoughts on balance sheet, cash flow in the next two, three years?

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Thank you, Alex. For your first question, let me provide a brief translation of William's response. So firstly, label companies exclusivity arrangement in the past years has served China's overall online music industry and affects all sorts of players along the value chain, not only just the platform like us, but also app stores and hardware manufacturers, upstream and downstream players along the chain. We hope that all label companies, not just the big 3, going forward, can all comply with the regulatory frameworks serving China with aim to provide a healthy environment to the overall industry as a whole. Financially, it's definitely going to make the cost structure of the Cloud Music -- of the whole industry to return to a more healthy and normalized level because in the past, we -- the whole industry has been overpaying the content cost twice, 3x or even more to the label companies in this unfair setup. Once the cost structure can normalize, then players like NetEase Cloud Music can focus more resources in promoting innovative music content and encourage native Chinese musicians with our mission to create a vibrant, healthy and successful music culture and community in China. So that's the response to your first question. On your second question, on the cash. So first of all, let me make a comment that with a conscious effort of being more focused on our core businesses, starting from the end of 2018, and you see a series of fruitful actions throughout 2019, we are benefiting from the economies of scale. As a result, our balance sheet has been growing strong. Our cash position has been very, very strong. Along the way, we've been also very disciplined, retained dividend, increase the dividend payout ratio and have a regular stock buyback programs. All in all, we've acted in a responsible way to our shareholders. And especially in a relatively more volatile market, we think by having a strong cash flow position together with a disciplined and responsible treasury policy to our shareholders, that will make NetEase an even stronger and more defensive company throughout this macro turmoil.

Our next take our next question from Hillman Chan from Citigroup.

[Foreign Language] So my first question is on the coronavirus impact on our various business lines, positive and negative and how long the impact would last in your point of view? And my second question is on the overseas game expansion. Can management update on the time line with the major IPs like the Apple, Marvel and Harry Potter?

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Okay. Thank you, Hillman. Let me provide a brief translation for two questions. First question on the coronavirus impacts to our different business lines. Firstly, William commented that the situation definitely affects the economy as a whole. It also affects us different BUs to a different extent. But in particular, advertising segment will be more affected by the situation, whereas our online games and online education businesses are relatively less impacted by the situation for now, especially for online education given the physical restrictions of people going out and moving around. It helps to raise the awareness and the adoption rate of online education, which propels the trend of the growth of this new format of learning. For your second question on our general strategy and pipeline about overseas games. Firstly, William commented that we are very serious and very focused on overseas expansion as a major business strategy of our games BU. We've achieved first step achievements in Japan with a couple of games that's been well established, and we are hoping to further leverage this experience and expanding to mainstream Western market by offering -- by bringing more high-quality products to the users in those geographies. In the past couple of years, we've been consciously moving up the learning curves, and we think we are more prepared, more ready to reap some fruits in this year and in the coming 2, 3 years.

[Operator Instructions] We will take our next question from the line of Alex Yao from JPMorgan.

[Foreign Language] So, I would like to follow up with a question regarding the impact of coronavirus breakout on the gaming side of the business. So from a consumers' perspective, are you guys seeing increasing usage and a better monetization during the coronavirus breakouts? And then secondly, from content development perspective, is the current situation making internal content development more difficult? Would that potentially affect the new game launch in China this year?

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Thank you, Alex. I'll provide a brief translation for everyone's benefit on the call. So in terms of the user metrics, William commented that Chinese New Year period is always a high season for online entertainment as a whole for our games. This New Year period is obviously being affected by the coronavirus situation, so it is a longer Chinese New Year period. User metrics has been stronger than the previous similar quarters in Chinese New Year. And for your question on the R&D impact. So now we do not see any significant delays or impacts to our R&D development progress as well as the planned pipeline launch schedule. Obviously, the virus situation is evolving, and we will continually to assess the impact on the game development, if any. And William also further supplemented the virus impact on the online learnings in particular, we are a firm believer that online learning actually offers a better user experience overall vis-à-vis the traditional off-line learning. I think with the virus situation, more and more people are now more receptive and adaptive to the online lending model. And for a lot of learners, it is also an opportunity for them to be more outreaching to a more variety of knowledge that is only available and offered in a convenient way online. So all in all, we think this virus situation is probably a catalyst to propel the overall online learning industry as a whole.

We will take our next question from the line of Natalie Wu from CICC.

[Foreign Language] I would translate myself quite quickly. My question is regarding the Cloud Music. Just wondering, despite that you launched several features last year including the Cloud Village, so you emphasized on the highlights broadcasting features on the Cloud Music app. But according to the Quest model, the daily time spent per user dropped by around 20% in the second half of last year. Just wondering what's the reason it's high. Or it's just simply because the Quest model data is not acting right. Can you give us some color on the Cloud Village business contribution for the Cloud Music? And also what kind of the new features that we should be anticipating this year?

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Thank you, Natalie, for your question. Let me briefly translate William's comment. So Cloud Village as well as the other features such as live streaming, et cetera, this is overall -- this is our way of thinking how, as a music platform, we can enhance value-add to our users. Most of them are very vibrant music enthusiasts. We want to provide an integrated experience, not only just listening, but from listening to also spending more time watching the streams as well as interactions. So many of the initiatives and the strategies are around us building a more vibrant community on our NetEase Cloud Music platform, but the mission of us tapping into the online music segment is really to provide the most conducive channel of promoting native songs, native IPs for the Chinese independent musician artist. With regard to your second part of the question, on the Quest mobile data. Again, I think you are referring to the average daily user time spent on the app. Again, we do not know how external third-party data channels track this number. But based on what we are seeing in the second half, there's no decline in the user activity and the user time spent on our platform as a whole. So that's probably something you can further verify and double check with the external channel.

We will take our next question from the line of Shi Jialong from Nomura.

[Foreign Language] I have two questions. My first question is a follow-up on the overseas expansion. Just wondering how much of NetEase mobile gaming revenue is currently generated of our overseas market? And the management mentioned earlier on the call, this year will be a harvest year for NetEase online gaming business in the overseas market. So I just wonder what is the growth potential for the revenue contribution from the overseas game market going forward. My second question is about regulation. I just wonder how management think of the regulatory environment this year for China's online gaming industry. Last year, the authorities suspended new game approvals for certain number of miles. So I just wonder what management think of the regulatory trend this year for China's game market.

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Okay. Thank you, Jialong, for your questions. Let me provide a brief translation and further supplement to some of the number related answers. Firstly, William commented that I think as all of us have noticed that over the Chinese New Year period, Apple iOS App store has also implemented more stringent requirements, requiring developers who upload their content onto Apple iOS would -- needs to provide evidence of approvals, which is in line with the regulator's more emphasis in regulation or IP protection. In a way, we think that this is going to be more beneficial to first tier players, big players like NetEase. We have over 50 game studios, over 10,000 in-house developers working in a very compliant way of creating premium content. So when the whole environment, whether it's the iOS App Store, whether it's the regulators that's putting more emphasis in protecting IP and also encouraging regulated content to only regulate content to be uploaded and also having more punishment on the IP violations, that is longer-term beneficial for the whole industry, in particular, towards upstream content providers. On the top of our emphasis on in-house development, we are also putting more focused on collaborating with global developers. Joining hands strong hands together hopefully in making a joint effort to provide some exciting content to the global audience that naturally brings to your first part of the question. For 2019, on a full year basis, this is the very first time that NetEase overseas game revenue has accounted for more than 10% of the overall game revenue. First time in NetEase's history as bringing us closer to a global premium game operator. Like William commented earlier on, I think this year and the next couple of years, we are going to see more fruit. We are going to bear more fruit in our international expansion.

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

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

Thank you, everyone.

That concludes today's conference. Thank you, everyone, for your participation. You may now disconnect.