Q3 2022 NetEase Inc Earnings Call

Good day and welcome to the net is 2022 third quarter earnings Conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to Margaret G. I.

I, our director of nut eased.

No go ahead.

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 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 that's 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 then in this discussion a general discussion of the risk factors that could affect <unk> business and the financial.

The result is included in certain filings the company with the Securities Exchange Commission, including its annual report on form 20-F, and announcements of fighting all websites Hong Kong stock exchange. The company does not undertake any obligation to update this forward looking information except as required by law.

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 2022 third quarter earnings news release issued earlier today.

Linda Congress or you can call it.

In addition, an investor presentation and a webcast replay of this conference call will be available on the net he called me website at IR E arc com.

Joining us today on the call from that he was a senior management team is Mr. William Ding Chief Executive Officer, and Mr. Charles Yang Chief Financial Officer, I will now turn the call over to Chow, who will read the prepared remarks on behalf of women.

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 based on RMB.

We saw healthy growth across our businesses in the third quarter with solid gains in each of our core business segments.

Our total net revenues for the period were RMB $24 4 billion, an increase of over 10% year over year. Despite the high base effect.

Third quarter of last year.

This demonstrates.

Billions and improving operational efficiency of Matt east through different macro cycles.

Our online games continues to be our primary growth driver with net revenues from our games and related value added services coming in at RMB 18, 7 billion for the third quarter up 9% year over year.

Our flagship titles delivered another quarter of solid growth in the third quarter with new expansion packs launched for the summer holidays, our legacy PC titles, including fantasy westward journey online and new westward journey online too continues to attract players.

Even with two decades of operations, we are constantly exploring creating and introducing innovative new elements to our games, keeping our content fresh boosts engagement levels and naturally spurious players continuous willingness to spend.

This further proves our long term operational knowhow and franchise titles.

Unique strengths of Metis games that we are hoping to replicate to our other self developed proprietary high post.

For our new titles Diablo Immortal was launched in China in July topping China's iOS downloads chart. Shortly after its release following its launch Diablo Immortal has enjoyed similar popularity in western markets.

Players are enjoining, the exciting adventure in the authentic Diablo world and a thrilling MMO RPG social experience.

Diablo immortal is of great strategic importance to us it showcases our game development expertise on the international stage and further demonstrates that <unk> has the right capabilities to produce AAA games for worldwide audiences.

As with all of our other games our team works very hard to regularly and rapidly introduce exciting new game content to invigorate, our players and ensure the longevity of our games in September we issued our first major update forgotten nightmare.

After Diablo immortal official launch introducing a new dungeon and exploration system and the Battle pass and players love.

Narrow to bleed point maintains strong popularity in the third quarter amassing a community of fans that are extremely passionate about this title.

We used the gains one year anniversary in August we released our very first major new map Hello, Ross with a wealth of new features such as weather systems interactive objective objects and new areas to explore bringing in both new and returning players in <unk>.

Large scale.

As a result.

Of active users scenario played point hit a record high in this August .

To keep this game fresh and engaging we will follow a continuous rollout schedule, adding new content updates such as more heroes weapons and new game play to this exciting game.

Now Rick played points introduces a unique neely combat style gameplay easy to learn but hard to master to bring more players into the mix, we have been introducing more picking a friendly mechanisms such as a new beginning this guide and shortcut keys for comeback by helping new.

Players quickly learn the skills to fully enjoy the fun of combat we have made the game more accessible to a wider range of players across the world.

Simultaneously we are in active development of America play point on mobile and are making very solid progress.

We are going through vigorous testing rounds to make sure we can replicate the melee combat gameplay experience on mobile screens.

On the console side, we released America Blade point on Xbox Series X S and joined Xbox game pass in June .

That team from PC to console is not an easy process involving a highly different user interface and controls we.

We are very pleased to have smoothly transitioned merica blood point into the console arena.

Greening, our users are satisfying gaming experience.

Our next move will be to make the new game available on Xbox one which will expand the fan base for this IP even further.

In addition to narrow <unk> mobile game, we have a number of other exciting upcoming games in our pipeline.

We conducted the first round of testing in October for Justice mobile game and saw very encouraging results with over 10 million players pre registered with.

With lots of exciting new technological innovations and the state of the art game design, We hope Justice mobile game can represent what our next generation game looks like and further boost the user base of justice franchise as a whole.

Equally exciting is our planned global market launch of Harry Potter Magic awakened.

Which has fascinated with the Chinese market since its launch last September .

We are putting great efforts into the global version.

Leveraging all the lessons we have learned along the way from game development to our year long operation, we are working intensely to optimize the game's Mac mechanics.

Maintain yes, Lee we are preparing expansion packs ahead of the launch to enable timely frequent new content updates after the games.

With great effort and dedication to its development, we hope to do justice to this great IP and impress fans on a global scale.

Harry Potter Magic awakened is now expected to be launched globally in 2023.

We are confident that this highly anticipated game will stand the test of time with great longevity and stability.

Turning to our licensed games.

As previously disclosed we have entered into certain licensing agreements covering the publication of several blizzard titles in Chinese mainland.

These licenses will expire in January of next year and will not be renewed.

Revenues and net income contribution from this licensed Blizzard games represented low single digits of our total net revenue and net income in 2021 and in the first nine months of 2020 to the exploration of such licenses will have no material.

Impact on our financial results.

The co development and publishing of Diablo Immortal mobile game is covered by a separate long term agreements.

In the third quarter, we continue to make great progress with our global operations.

At the end of August we announced our acquisition of Quantic Dream, which is now officially our first fully owned studio in Europe based in Paris.

Since our initial investment in a studio three years ago, we have been working very closely together and we just realized how like minded and complementary we are to each other.

Having quantic dream at the studio of our own exemplifies our vision of supporting innovation and game development around the globe.

We will continue to fulfill our promise to support Quantic dream to realize its full potential.

Also during the quarter. We are very pleased to have announced that Jonathan Maureen came on board at the new creative director in Montreal.

He will be working together with annual young and the team to build up the next exciting game.

With more than 24 years of experience, making triple a games Jonathan played a key role in shaping the critically acclaimed watchdog franchise at Ubisoft.

And was one of the main contributors to the far Cry series and many other chipotle brands.

In Japan earlier this month, we announced GP track 50 are new first party studio in Japan light by Shiro, you Qi <unk>.

Studio will primarily focus on producing high quality console and PC games with a goal of delivering our original entertainment content from Japan to users worldwide.

We've also announced our investment into startup studios, such as liquid solid in Sweden, and something we keep game in the U S.

Those are being led by top industrial veterans, who are using their creativity to forge their best titles yet to come.

After years of strategic planning, our self owned overseas studios now span multiple regions, Japan, North America, Europe and more to come.

Through investments and partnerships.

<unk> been a great number of best in class game developers worldwide, who we.

Will be pivotal to attracting more talents in their local developers and gamers community.

Our investment philosophy attaches high value to top talent and their passion for games.

We will continue to attract invest in and support these creative minds, combining talent with our powerful resources and execution capabilities.

Turning to our education business.

Net revenues of Euro dollar continues to improve in the third quarter and reached a record high of RMB. One 4 billion led by increased sales of new services and smart devices.

Net revenues of your smart devices reached RMB $356 million in the third quarter.

Up 40% year over year with robust contribution from its flagship product <unk> dictionary pen and yield our listening part.

Meanwhile, we continue to expand your portfolio with more AI empowered agitation of tools.

In August we launched <unk> Dictionary Pen X five featuring a self developed operating system that accommodates a variety of external applications, such as <unk> cloud music and <unk> to further enhance our user experience on these products.

This new version has been very popular among users and the initial batch of products quickly sold out.

In addition.

Our smart learning pad X 10, which is released in October also showcases several user oriented and customize AI functions to better serve our learning needs of different age groups.

And we expect more growth opportunities for this product.

We made additional headway with our learning services as well maintaining a healthy trajectory with net revenues, reaching RMB $888 million.

Revenues for our steam causes more than doubled in the third quarter comparing to the same period of last year.

And now accounts for over a quarter of the segment's total revenue.

In addition to further content upgrades to Europe . Our goal Costless. We have also coordinated with local board game associations to hold open tournaments for students, which has being advocated by the general administration of spot.

China for their positive contribution and expanding the popularity of ball game amongst students.

We are very proud of what <unk> has achieved in the last 12 months, which confirms that we are swift in transitioning and we are on the right track for future sustainable growth.

Looking ahead, we will continue to serve more learning needs of our users by leveraging our leading technological capabilities, while diversifying our content and product offerings.

Onto cloud music, we completed the third quarter on a positive trajectory with our key operational trends and financial performance.

During the quarter, we further improved our music oriented community and content ecosystem as well as continued to advanced our monetization efforts and gain meaningful operating leverage.

Our total Mou remained steady while the <unk> over miu ratio stayed well above 30%.

Our paying user ratio was also stable quarter over quarter.

Amid a challenging macro environment total revenues of cloud music grew by 22% year over year as we continued to expand our paying user base and optimize our pricing strategy.

We also witnessed the gradual recovery of our advertising business aided by rapid performance based ads growth, along with solid momentum and social Entertainment services.

Our strong topline growth and better operational efficiency drove solid margin gains with gross margin expanding from the fourth quarter.

Playing a role reaching 14, 2% in the third quarter.

Additionally, cloud musics net loss further narrowed in the third quarter, both year over year and quarter over quarter.

Adding to our robust music content, we continue to augment and diversify our copyright library.

Since the regulators antitrust ruling last July that is cloud music has been actively in discussion with label companies to secure best content for our music lovers.

Now we have managed to bring back most of the major labor content, including those from modern Sky and <unk> Entertainment Group, China Rapid group.

Sure sure yes.

Entertainment link fare record SM Entertainment TF Entertainment.

<unk> Entertainment and Cao Inc.

We are still working very hard to get back more titles at reasonable cost.

Additionally, we continue to nurture aspiring musicians serving more than 570000 independent artists as of today, our in house music production capabilities showcased by another hit song rule of Bonnie which recorded over two.

100 million streams within a week and top multiple music charts.

Enhancing our music inspire the ecosystem and user connections with our innovative new products continues to attract users to our community.

In the third quarter, we further boosted our community atmosphere through innovative offerings, including Star rated comments section to display high quality user comments and fans space to strengthen bonding between artists and their fans while encouraging user interaction.

We also added new offerings, such as style recommendation that brings users more personalized options in the daily recommendation function to better reflect their tastes.

Well as a Dolby Atmos.

Atmos feature, allowing users more authentic and immersive ways to listen to music.

Turning to our private label consumer brand and Shang.

It continues to build its brand awareness by constantly creating highly popular product <unk>.

For example, pork bonds and crews down debate as where some of the new top selling products this quarter in.

In Q3, we saw solid growth in sales from external e-commerce channels, particularly with short form video platforms over.

Over the years <unk> has gained increasing recognition for its excellent design and creative style.

Most recently <unk> vinegar and Oriental sand series won the prestigious tend towards for their unique and elegantly presented Chinese tayo packaging.

In summary, we are confident in our ability to realize strategic growth across our business lines.

Folio, we have curated of diverse and long lasting games in China provide a steady base for us to build further upon cup.

Coupled with our globalization strategy, our prospects are exciting and we believe we are well positioned for continued growth.

As we advance each of our businesses with innovative products and services. We will continue to use our strong cash position to buyback shares and pay dividends that's directly reward our shareholders.

This concludes William's comments.

I will now provide a brief review of our 2022 third quarter financials.

Given the limited time on today's call I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details.

Net revenue totaled four.

RMB $24 4 billion in the third quarter, our USD, three 4 billion, representing a 10% increase year over year.

Total net revenues from our games and related services, while RMB $18 7 billion up 9% year over year. The growth was primarily due to increased revenue contribution from both mobile and PC games, including our existing games, such as fantasy westward journey online.

Series, and infinitely runge as well as newly launched Diablo immortal.

Net revenues from our mobile games accounted for approximately 69% of our total net revenues from online games operation.

<unk> net revenues were RMB, one 4 billion a moderate increase from last year.

Last year's revenue contained a big portion generated from canine after school tutoring services, which was later terminated in Q4 of last year. The decrease revenue related to canine elimination is now offset by the increased revenue from your new services and smart.

Devices as a result of our successful and smooth business transition.

Net revenues from cloud music, while RMB, two 4 billion up nearly 22% year over year. The increase was mainly due to increased revenues from social entertainment services and membership subscription.

Net revenues for innovative businesses and others were nearly RMB 2 billion up 14% year over year, mainly due to increased contribution from <unk> in the third quarter.

Our total gross profit margin rose to 65 56, three in the third quarter compared with $53 two in the third quarter of last year.

Looking at the composition GP margin was 65% for our games and related VHS compared with 61, 3% in the same period of last year.

Year over year increase in gross profit margin was mainly due to more revenue contribution from our organic channels.

Our gross profit margin for <unk> was 54, 2% compared with 56, 6% in the same period of last year.

Year over year decrease was mainly resulted from the decline in net revenues from its learning services due to the termination of canine course offerings.

GP margin for cloud music continues to improve in the third quarter climbing to 14, 2% versus two 2% one year ago.

Significant margin improvement primarily resulted from strong top line growth as well as improved efficiency and content increased mill.

So our innovative businesses and others GP margin was 25, 5% compared with 27, 2% last year.

The year over year fluctuations were mainly due to changes in GP margin from advertising services.

Total operating expenses for the third quarter were RMB 9 billion or 37% of our total net revenues. If we look at our cost composition, our selling and marketing expenses as a percentage of total net revenues was 15, 4% compared with $14 one person.

<unk> for the same period last year.

The increase was mainly due to increased spending on certain new games promotion, such as Diablo immortal during the quarter.

Our R&D expenses as a percentage of total net revenue remained relatively stable year over year at 16, 2%.

We remain committed to investing in content creation and product development. We are also seeing leverage in our R&D investments.

Our other income was RMB three 5 billion for the quarter compared with RMB $785 million last year the quarter over quarter increase was mainly due to investment income arising from the disposal of certain equity investments. Additionally, the exchange rate of the.

U S dollar against RMB fluctuated over the last couple of periods also contributed to the accounting gain in other income line.

Our effective tax rate for this quarter was 19, 3%.

As a general reminder, the effective tax rate is presented on an accrual basis and the tax credits differed from each of our legal entities at different time periods, depending on applicable policies and our operational results.

Our non-GAAP net income from continuing operations attributable to shareholders for the third quarter totaled RMB, seven 5 billion or USD, one 1 billion non-GAAP basic earnings per share from continuing operations for the quarter was U S. Dollar 161.

All U S dollar 0.32 per share.

Additionally, our cash position remains strong as of quarter end, our net cash position was about 95 billion RMB compared with 86 billion RMB as of year end of last year.

In accordance with our dividend policy. We are pleased to report that our board of directors has approved a dividend of U S dollars 0.087 per share our use dollars 0.435.

Yes.

Lastly, we continued to buy back shares during the volatile period.

Under our current share repurchase program for up to <unk> dollars 3 billion, which expires in March of next year approximately $27 million has been already repurchased as of September 30th for a total cost of approximately $2 5 billion U S.

And today, our board announced the approval of a new share repurchase program of Additionally, up to U S. Dollar 5.0 billion of the company's Aes and ordinary shares in open market transactions for a period not to exceed 36.

Month means.

Meanwhile, on the <unk> repurchase program for up to USD 15 million approximately $2 $3 million has been purchased for a total cost of about USD $27 million as of September 30th.

In addition, net east purchased 0.7 million ordinary shares.

Now these cloud music for a total cost of about <unk> six 9 million during the third quarter.

Thank you for your attention we would like now to open the call for your questions.

Later.

Thank you.

We will now begin the question and answer session.

You ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press Star then.

Two.

For the benefit of all participants on today's call.

If you wish to ask your question to management in Chinese. Please immediately repeat your question in English.

Ladies limit your questions to one at a time if you will.

To have follow up questions.

Please rejoin the queue.

Our first question today will come from Kenneth Fong of Credit Suisse. Please go ahead.

Hey, Charles.

So just wanted to you and negotiate a mezz piece.

So.

<unk> you want you can pool pumps with a proven tool so I mean, <unk> put us through yet.

Wasn't he went typically you've been saying you kind of push you at ETE.

<unk> hosted on partner, what do you think.

Thank you Sir.

Thank you management for taking my question.

Today announcement about not renewing certain license with research in China does is due to expire next year can you. Please share with us the rationale behind and the subsequent arrangement that we should expect thank you.

Okay.

What will happen.

While monostrophe.

Through our tissue.

Sure.

<unk>.

Of course, we'll update after the movie.

Unfortunately, Jim.

So let us unpack a little mental she said you've got a total knee.

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Tissue Yoshida consume.

So it's always hard EG <unk>.

Jeff listen leader congestion the hotel.

Those policy at <unk>.

Q&A.

So total shipments.

And our phase III.

Well ammonia.

Agility.

So it's over the larger while Mercury Qi chairman two hostile going forward.

We watch our productivity.

Okay.

So watch out of shelf is a chain ashish.

Thank you very much.

To continue operating Activision Blizzard games in the Chinese mainland and we have put in a great deal of effort to cheap debt.

Rather the negotiations have been much more challenging than we had originally expected and we were unable to set doesn't kitan requested Activision blizzard.

Glad to see the early announcement from Activision Blizzard and despite our best effort to prevent the deal from falling through.

The decision in.

The meantime world cloud with their best fulfill our responsibility to serve our players until the last minute ensuring the safety.

Data.

Thank you.

Sure.

Our next question today will come from Steve.

Please go ahead.

His CFO anytime additional IP backbone.

Oh no.

Jesse.

Uh huh.

Okay.

Doug.

It's more towards China.

Yes exactly.

And that way.

Sure.

Exactly.

So it goes to Japan.

If you are asking.

Yeah.

Hi, Jim.

Let's see.

Sure.

What about <unk>.

Listen <unk> teaching two shifts.

Yes.

Thank you Doug.

Yes.

Now tell me and I can't comment shortly.

<unk>.

Oh lets see if any.

Thanks management for taking my question and congratulations.

Right right.

So a couple of Infinity Grinch obtained pool.

<unk> multi device version.

No that also is multi tenant.

Can management discuss that Ching.

Okay.

And then my second question is back to Tim IP franchise.

ATM supplement based.

Based IP games.

Such as the Harry Potter.

And.

So what's the progress.

Yeah.

Except for Parker.

Net nation.

Local IP such as.

Hello, Jay.

Can they help the company spin.

Thank you.

Turning to England.

And the political appointees are women.

Going in kind of hitting important it will be helpful.

Affiliate with anyone.

So all of them in <unk>.

It will be pumping.

Pumping to look silly.

Got it.

Conducting more.

Thank you.

It was used in our leases.

We now anticipate will expand that.

Hello, I'm, sorry, the total glass facility.

Meanwhile, <unk> that is true.

<unk>.

Julian.

Sure.

Hum.

How many of its offerings in the liver.

Total so.

So far yes.

Pete.

Intuit, Lisa with condensate will go into electrification how to use it.

We'll move kind of on the intrinsic values and within the two ramping neighborhood.

Hi.

So now we can.

So Tim.

Therefore, the timing puts us in a difficult liquidity pool.

The total months.

Hello.

And I'm just translate after today's question.

So over the years of operation, we realize many of our mobile game players also I want to be able to play our game the other formats.

On PC right.

They want to be able to experience and more.

Sustaining well who are much larger screen, that's why you've seen us providing PPE simulator for many of our mobile game or creating a standalone PV value for them and this is to provide our users.

Any feeling at.

At the same time, we noticed that in certain regions. Many of our users actually on PC and mobile and conquer all at the same time and they take aims of the platform for these plants.

I would like to be able to switch seamlessly between these platform, which is why we are also looking into developing a game is developing cost cut.

Cross platform games.

For us there's no real technical barrier for developing and operating platform game. Therefore.

We will take into consideration.

You just need product features market feedback and unexpected before deciding whether we should do a multi platform vision for each of our games.

Okay.

Hello.

All of them.

Alright, Thanks, Jason.

I mean the tool.

<unk>.

Yes sure.

No.

Oh absolutely.

Okay.

<unk>.

I will attribute portfolio, such as digital footprint anyway.

Hi.

Well of course.

Sure.

Yeah.

Yes.

How are you.

Yes.

Okay.

We're moving.

She is a highly volatile Chihuahua cintra.

Right.

Okay.

Yes.

Hi.

Hello, Linda.

Sure.

Alright.

Yes.

Can you quantify.

People want to go ahead with the Lithia com.

Sure.

<unk>.

We will finish with <unk>.

Thanks.

Hi.

Yes.

To put it.

Come back to.

Yes.

Each of the totality of that car.

Let's see.

Central liquidity pool pool.

Yes.

Okay.

We do not actually have that many foreign IP company being submitted for those that vacated.

Only calling food benefit procedures.

Wyatt.

So these following IP and our self developed IP. The ultimate difference is that in a virtual world we can.

Virtual world, who can bring to gain Medicare.

Let's build a lot of games based on eventual culture, such as J J Justice in America.

She took introducing IP like Harry Potter Star Wars.

Or what's actually diversify and innovate that different world that we can create for our users, allowing them to ESPN and different things.

And of course at the cause of this IP address and the world is that different.

So Todd is going to create an additional IP that definitely for example in our Haynesville well you'll have corridor such as saw the nice <unk>.

Well, you'll have firearm. So this will actually lead to a very different.

BNS and MMO.

Until <unk>, but its Fps game in the western setting and so therefore, the reason for having orders it is the in English.

In which our pipeline and create different gaming BLA filing.

Thank you.

Our next question today will come from Lincoln.

Man sacks. Please go ahead.

Micra when pieces when you're talking about highlights.

To conclude we continue to lag.

So Tom I'll cause here.

Sure.

Let me <unk>.

And to be honest about that.

Let's see.

Hi, Daniel.

Chip.

That's apache's highlights should tell me, but then you watch it.

Finally, Scott So the question is about the overseas expansion so it would be.

We can fund that has been investing overseas market since the beginning of the year, especially including investing are applauding us a few studios. So when we think about the 223, how should we expect.

Our growth plan.

Gross catalyst.

PC and the mobile game market.

Let us just helps us.

Yes.

These updated mattresses.

The others so.

Yes.

Sure.

Good.

Right.

While I will cover that can go to <unk>.

Okay.

Yeah.

Jim.

Sure.

That's all.

Sure.

T <unk>.

Yes, I don't know if you talk to the highlights on our daughter.

Michigan.

Just trying to kind of.

Michelle.

We'll see.

Yeah.

Okay.

Sure Linda.

Understood.

Yeah John .

Doug.

Sure.

<unk>.

Shoot.

How much.

So and.

Sure.

Q2 cost strategy for overseas market, one is south development and then another is through investment so in the past few years.

<unk> seen a number of that successful title.

It was first developed.

In regions, such as identity five nice out of Japan.

And also what's been kind of a desktop PC titles in a global market as well that can add up lately that we launched last year I think in the overall it will attack.

This market I think PC, a PCL colorful probably be the main mainstream format.

And secondly is that.

Investment overseas efficacy.

More recently.

The number of studios that we have little batted overseas.

Long term, we would hope to work very closely together witnessed global union to create global Blah Blah blah blah fit for our worldwide.

Thank you.

Yeah.

Yes.

Our next question today will come from <unk> Liu of HSBC. Please go ahead.

Thank you I'm going to take our carnitas to China do you wish you well in your.

Yeah. There you go chat Wow, well Mckenna, thank you too.

<unk> showing a photo that honky sorry, Geoff Otto tissue Dolby on that now.

Nicole we thought she shall add maybe a sofa hash it became water because really if I may I will mail cannot you can seen about thoughtful education Gigi. Thank you guys.

Tony laid down a while women got some nice young.

Sure there is a cliff would actually yes, yes, yes.

And chassis like Halloween guys, Ashish coordination shall they get done got it. Thank you.

Yes.

<unk> I would like to ask about the gaming market outlook. So we observed that both the domestic and overseas mobile game market revenues declined further year on year.

Third quarter obviously.

There are some short term headwinds such as weaker consumption, but we also see the latest batch of about how came through with that positive development. How should we think about the timing and magnitude of recovery of the market as well as the long term outlook for the domestic market. Thank you.

Well, Sheila Yoshida Javier <unk>.

Sure.

Sure.

Javier.

So good.

Good.

Charter Hall.

I'll touch on dual Chi.

Youll see.

But some of the savings.

Sylvia.

Paul kind of usage for that.

So this is a couple of retirements.

Sure.

Nathan household.

Yes.

Sure.

Sure.

Sure.

So you will have each at once is hard.

Sorry, Whatsapp autos to soar.

<unk>.

They also share in them.

Sure.

Sundar.

David.

Sure.

Okay.

David.

Okay.

All of that means that the same market.

Bye.

The weather.

As a time, where the market is driving it depends on where the it depends on the gain.

<unk> himself in a second time, you had a number of high quality games available okay.

That would be the market.

Market while at the same time is there is a gaming content available.

It's not interesting yoga is a typical patient previous game than the market.

It's not in our in our view.

Right now, we know that market saturation, rather that the high quality game. Thank you.

Our next question today will come from Alex Poon of Morgan Stanley . Please go ahead.

Okay.

It's a smaller ticket you saw the tier one you can see it.

Yes.

When you shop.

Coaching enrolments of highway something Youll see.

<unk> Shah.

Hi, Joe.

Youll see that <unk>.

The whole world.

With Us highway Jackaway quite quickly in fact in order to set you'll see.

The other ones you Susan when you shop on each of them, but yes.

Malone challenges, Jonathan sorry on the joint Congress show the Chooser starting in Q2, when you say Ashish.

My first question is way too overseas games in the last one to two years, we have launched many new games overseas.

Management share.

Gamers feedback and longevity of this new games.

Secondly, it out.

The development.

Looking more casually genres to the tastes of overseas gamers.

About the cost structure can we talk about our head count trends and other opex trend in future. Thank you very much.

Uh huh.

Fortunately that time John .

Yes.

Genpact.

Right.

Hmm.

That's right.

Paul.

Paul.

And that is unchanged.

Do you plan to achieve.

Yeah.

Gotcha.

By the Hershey Pizza.

To do that it's out there.

Yes.

John John .

Good.

Rich.

Gotcha.

Thank you Josh.

Okay.

She joined.

Okay.

Sure.

Yes.

Deep lender to GP.

Shai for flat.

Yeah.

Yeah.

Sure.

So each entity.

Some of your past and Conoco Sea consortium.

And then switching within the total headcount.

Understood.

Good.

Paul.

Is that right.

Sure Josh.

John .

Sure.

So finally on the moment Cisco.

The near Shanghai.

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As officially launched.

Last year in all of the Xbox and G&A will be very closely monitoring that.

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And the one thing to note is that there are lot Amos.

England.

Hey, Matthew on the lower spec platforms, such as X one Theyre open hiding for for this bank. So we are now working at that team has gained onto different and different levels of devices get the level of platform.

And at the same time of automatic optimizing the behemoths right.

Is it harder.

Get into leveraging with linked with optimizing finding ways for us to kind of get into the game more quickly and this is the task that we are working on with our Montreal based so every day, we are having discussions on how to make our usage happier within again, hopefully we'll be able to bring on <unk> two <unk>.

Game players.

A more platform. Thank you.

And Alex for your second question about the overall trend of head count and operating.

Expenses.

Over the last five six quarters, our overall total head count stays relatively steady at about 31000 overall head count more specifically in the last quarter by quarter and we have.

And north of that.

One solid and overall head count.

Representing quarter over quarter about it.

Incremental 1000 head count, which is consistent with our summer recruiting.

Season of <unk>.

Campus recruiting.

In terms of the overall operating expenses for many of you who have been tracking netting for long enough. We are very very cost conscious.

And effective in expanding our investment organic investment into ourselves in a very I would say our return oriented manner oftentimes when you see increased in RMB in selling marketing that is actually.

Indication that we are developing a strong pipeline or we are about to launch an exciting new games and if we are patient enough you will see the huge reward that we are planting the seeds today, so for the future outlook.

I think we are.

We are continue to grow we will continue to invest absolute dollars of operating expenses will continue to increase but we will be hugely.

Toward that by <unk>.

<unk> leverage when we see the next cycle of product launches in both the domestic and international markets.

Thank you operator.

Thank you Alex.

Will come from Chile slew of UBS. Please go ahead.

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Thanks, and that of course, our Columbia, It actually over time will play focus.

What you should use a fashion Atlas shakeout clean Halle manually kickoff anyhow.

Thank you management for taking my question. My question is on the overseas market.

We noticed that we had to update the publishing time for her Potter so could you share more color on the market overseas market to focus on for Harry Potter and any pipeline to share after her potash launch.

And more on the longer term question is on the overseas positioning in terms of genre.

And the market.

Our market position what are these.

Congrats on markets, you will be focusing on with your extensive investments.

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Michelle.

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Amit.

Hey, Josh.

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Headquarter will hopefully be alongside him as we mentioned.

Core Elliot we scheduled for launch in 2023.

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<unk>.

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In Europe , and North American market.

<unk>.

Ambac competitive gain.

So our focus now.

Is that basically the Asia Pacific region.

European and.

In North America and market.

Okay.

Our next question today will come from Natalie <unk> of high Tong International. Please go ahead.

Uh huh.

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Can see attainment.

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Hey, Glenn you can fulfill Nancy taking and getting back with you.

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Hawkins Keith as you take a kind of a city with suddenly when dji today, you'll see.

Yeah.

I mean keep out of Brazil.

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Yes.

Regarding the country's spun yen.

Yes.

I was hoping maybe corporately so two key policy.

Yes.

Let me translate myself.

And my question is regarding the Diablo immortal.

Is the grade that is natural.

Now the latest cash revenue and user activity.

Diablo immortal so that we can better understand the game longevity and clarification.

Also you've mentioned before that Diablo immortal is covered by our subsidiary.

Tim I believe in the west.

That would be great to know exactly how many yes, that's the montney and grow that the uncertainty regarding the future cooperations, especially in overseas market for that title.

That's up off the latest change with Peter Thank you.

Ill say some sand licensees.

Okay.

Thanks, Jonathan.

Is that something you can quantify for us.

Okay.

Furthermore.

For November .

Yes.

Most of it kind of dilutive on that one.

But not super.

Donna.

We're hopeful for approval.

<unk> assumes no chemicals.

<unk> is the only one question.

They have come down so the accounting side.

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You May now Carlo Tanzi hosting local issue clearly Cisco as I said Youll petroleum.

So, although we like simple truth.

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Sure so long.

Some of our portfolio.

The one time payment or we'll put ya.

So.

But only module has actually done a really good job across the wells since launch it's been aligned <unk> launched for almost six months now in overseas market and in the China version.

About a month later.

Right now if we look at the revenue contribution that China and overseas.

It's pretty much on par with each other and going forward, we are going to.

And launched new expansion packs content suite to keep the users engaged.

And I think we're going to continue to balance the need of both the Chinese and overseas.

Yes.

Overseas users.

I've noticed that you know that the Chinese.

A lot of them.

People in India.

Yes, he is 40 OTT, mostly facing cancer.

Third or fourth tier cities for the North American uses a lot of them come from that original PC. Okay background. So going forward, we're going to teach a slow.

Discover more cases.

And then we.

Promoting <unk> to answer your question the range of audiences.

Okay.

Okay.

Please.

Yeah.

Okay.

Natalie for your second question, we can we can follow up off the line.

Okay operator, thank you.

Thank you.

This concludes the question and answer session. At this time I would like to turn the conference back over to management for any closing remarks.

Yes.

Thank you once again for joining yesterday, if you have any further questions. Please feel free to contact us directly or TPG investor relations have a great day. Thank you.

Thank you everyone.

The conference has now concluded we thank you for attending today's presentation.

May now disconnect your lines.

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Good day and welcome to the net is 2022 third quarter earnings Conference call.

Today's conference is being recorded.

At this time I would like to turn the conference over to Margaret G. I.

Our director of <unk>.

Please go ahead.

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 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 company's control and could cause actual results to differ materially from those mentioned in today's press release.

This discussion.

General discussion of the risk factors that could affect <unk> business and financial results is included in certain filings of the company with the Securities Exchange Commission, including its annual report on form 20-F.

And in Edmonton fighting on the website of the Hong Kong stock Exchange. The company does not undertake any obligation to update 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 quite definition of non-GAAP financial.

I guess and a reconciliation of GAAP to non-GAAP financial results. Please see the 2022 third quarter earnings news release issued earlier today.

Remind us of conflict.

In addition, an investor presentation and a webcast replay of this conference call will be available on our corporate website at IR <unk>.

Com.

Joining us today on the call from <unk> Senior management team Mr.

So within King Chief Executive Officer and Mr.

Yes, Chief Financial Officer, I will now turn the call over to tell who will read 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 based on RMB.

We saw healthy growth across our businesses in the third quarter with solid gains in each of our core business segments.

Our total net revenues for the period were RMB 24, 4 billion, an increase of over 10% year over year. Despite high base effect in the third quarter of last year.

This demonstrates the resilience and improving operational efficiency of Nat ease through different macro cycles.

Our online games continues to be our primary growth driver with net revenues from our games and related value added services coming in at RMB 18, 7 billion for the third quarter up 9% year over year.

Our flagship title was delivered another quarter of solid growth in the third quarter with new expansion packs launched for the summer holidays, our legacy PC titles, including fantasy westward journey online and new westward journey online too continues to attract players.

Even with two decades of operations, we are constantly exploring creating and introducing innovative new elements to our games, keeping our content fresh boosts engagement levels and naturally spurious players continuous willingness to spend this further prove our.

Long term operational Knowhow on franchise titles.

Nick strengths of Metis games that we are hoping to replicate to our other self developed proprietary titles.

For our new titles Diablo Immortal was launched in China in July topping China's iOS download chart. Shortly after its release following its launch Diablo Immortal has enjoyed similar popularity in western markets.

Layers are enjoining, the exciting adventure in the authentic Diablo load and a thrilling MMO RPG social experience.

Our motto is of great strategic importance to us it showcases our game development expertise on the international stage and further demonstrates that <unk> has the right capabilities to produce AAA games for worldwide audiences.

As with all of our other games our team works very hard to regularly and rapidly introduce exciting new game content to invigorate, our players and ensure the longevity of our games in September we issued our first major update forgotten.

Mike Mears after Diablo immortal official launch introducing a new dungeon and exploration system and the Battle pass.

And players love.

<unk> maintained strong popularity in the third quarter.

Massing our community of fans that are extremely passionate about this title.

We used the games one year anniversary in August we released our very first major new map Hello, Ross with a wealth of new features such as weather systems interactive objective objects and new areas to explore bringing in both new and returning players in.

Large scale.

As a result.

Number of active users for America played point hit a record high in this August .

To keep this game fresh and engaging we will follow a continuous rollout schedule, adding new content updates such as more heroes weapons and new game play to this exciting game.

<unk> played point introduces a unique neely combat style gameplay easy to learn but hard to master to bring more players into the mix, we have been introducing more picking a friendly mechanisms such as our new Beginner's guide and shortcut keys for comeback by helping new.

Players quickly learn the skills to fully enjoy the fun of combat we have made the game more accessible to a wider range of players across the world.

Simultaneously, we are in active development of America <unk> on mobile and are making very solid progress.

We are going through vigorous testing rounds to make sure we can replicate the melee combat gameplay experience on mobile screens.

On the console side, we released America blade point on <unk>.

Xbox Series X S and joined Xbox game pass in June adapting from PC to console is not an easy process involving a highly different user interface and controls we.

We are very pleased to have smoothly transitioned <unk> point into the console arena.

Greening, our users are satisfying gaming experience.

Our next move will be to make the new game available on Xbox one which will expand the fan base for this IP even further.

In addition to narrow <unk> mobile game, we have a number of other exciting upcoming games in our pipeline.

We conducted the first round of testing in October for Justice mobile game and saw very encouraging results with over 10 million players pre registered with lots of exciting new technological innovations and the state of the art game design, We hope Justice mobile game can represent.

And what a next generation game looks like and further boost the user base of Justice franchise as a whole.

Equally exciting is our planned global market launch of Harry Potter Magic awakened.

Which has fascinated for Chinese market since its launched last September .

We are putting great efforts into the global version.

Leveraging all the lessons we have learned along the way from game development through a year long operation, we are working intensely to optimize the game's Mac mechanics.

<unk>, we are preparing expansion packs ahead of the launch to enable timely frequent new content updates after the games.

With great effort and dedication to its development, we hope to do justice to this great IP and <unk> on a global scale.

Harry Potter Magic awakened is now expected to be launched globally in 2023.

We are confident that this highly anticipated game will stand the test of time with great longevity and stability.

Turning to our licensed games.

As previously disclosed we have entered into certain licensing agreements covering the publication of several blizzard titles in Chinese mainland.

These licenses will expire in January of next year and will not be renewed.

Revenues and net income contribution from this licensed Blizzard games represented low single digits of our total net revenue and net income in 2021 and in the first nine months of 2020 to the exploration of such licenses will have no material.

Impact on our financial results.

The co development and publishing of Diablo Immortal mobile game is covered by a separate long term agreements in.

In the third quarter, we continue to make great progress with our global operations.

At the end of August we announced our acquisition of Quantic Dream, which is now officially our first fully owned studio in Europe based in Paris.

Since our initial investment in the studio three years ago, we have been working very closely together and we just realized how like minded and complementary we are to each other.

Having quantic dream at the studio of our own exemplifies our vision of supporting innovation and game development around the globe.

We will continue to fulfill our promise to support Quantic dream to realize its full potential.

Also during the quarter. We are very pleased to have announced that Jonathan mooring came on board at new creative director in Montreal.

He will be working together with annual Jan and the team to build up the next exciting game.

With more than 24 years of experience, making triple a games Jonathan played a key role in shaping the critically acclaimed watchdog franchise at Ubisoft.

And was one of the main contributors to the far Cry series and many other chipotle brands.

In Japan earlier this month, we announced GP track 50 are new first party studio in Japan light by Shiro Ukie Carver Yoshi.

Studio will primarily focus on producing high quality console and PC games with a goal of delivering our original entertainment content from Japan to users worldwide.

We've also announced our investment into startup studios, such as liquid saw in Sweden, and something we keep game in the U S.

Those are being led by top industrial veterans, who are using their creativity to forge their best titles yet to come.

After years of strategic planning, our self owned overseas studios now span multiple regions, Japan, North America, Europe and more to come.

Through investments and partnerships.

<unk> been a great number of best in class game developers worldwide.

Will be pivotal to attracting more talents in their local developers and gamers community.

Our investment philosophy attaches high value to top talent and their passion for games.

We will continue to attract invest in and support these creative minds, combining talent with our powerful resources and execution capabilities.

Turning to our education business.

<unk> net revenues of Eurodollar continues to improve in the third quarter and reached a record high of RMB. One 4 billion led by increased sales of new services and smart devices.

Net revenues of your smart devices reached RMB $356 million in the third quarter.

40% year over year with robust contribution from its flagship product <unk> Dictionary pen and Yoda, our listening part <unk>.

Meanwhile, we continue to expand our portfolio with more AI empowered agitation tools.

<unk>, we launched <unk> Dictionary Pen X five featuring our self developed operating system that accommodates a variety of external applications, such as <unk> cloud music and <unk> FM to further enhance our user experience on these products.

This new version has been very popular among users.

The initial batch of products quickly sold out.

In addition.

Our smart learning pad X 10, which is released in October also showcases several user oriented and customized AI functions to better serve their learning needs of different age groups.

And we expect more growth opportunities for this product.

We made additional headway with our learning services as well maintaining a healthy trajectory with net revenues, reaching RMB $888 million.

Net revenues for our steam cost is more than doubled in the third quarter comparing to the same period of last year.

And now accounts for over a quarter of the segment's total revenue.

In addition to further content upgrades to your our goal causes we have also coordinated with local board game associations to hold open tournaments for students, which have being advocated by the general administration of spot of China for the positive <unk>.

<unk> in expanding the popularity of ballgame amongst students.

We are very proud of what <unk> has achieved in the last 12 months, which confirms that we are swift in transitioning and we are on the right track for future sustainable growth.

Looking ahead, we will continue to serve more learning needs of our users by leveraging our leading technological capabilities, while diversifying our content and product offerings.

Onto cloud music, we completed the third quarter on a positive trajectory with our key operational trends and financial performance.

During the quarter, we further improved our music oriented community and content ecosystem as well as continued to advanced our monetization efforts and gain meaningful operating leverage.

Our total Mou remained steady while the <unk> ratio stayed well above 30%.

Our paying user ratio was also stable quarter over quarter.

Amid a challenging macro environment total revenues of cloud music grew by 22% year over year as we continued to expand our paying user base and optimize our pricing strategy.

We also witnessed the gradual recovery of our advertising business aided by rapid performance based ads growth, along with solid momentum and social Entertainment services.

Our strong topline growth and Thats the operational efficiency drove solid margin gains with gross margin expanding from the fourth quarter.

In a row, reaching 14, 2% in the third quarter.

Additionally, cloud music net loss further narrowed in the third quarter, both year over year and quarter over quarter.

Adding to our robust music content, we continue to augment and diversify our copyright library.

Since the regulators antitrust ruling last July that is cloud music has been actively in discussion with label companies to secure best content for our music lovers.

Now we have managed to bring back most of the major labor content, including those from modern Sky <unk> Entertainment Group, China record group.

Sure sure.

Entertainment linked their records.

SM Entertainment TF Entertainment.

<unk> Entertainment and Cao Inc.

We are still working very hard to get back more titles at reasonable cost.

Additionally, we continue to nurture aspiring musicians serving more than 570000 independent artists as of today, our in house music production capabilities as showcased by another hit song rule of Ami, which recorded over two.

100 million streams within a week and top multiple music charts.

Enhancing our music inspire the ecosystem and user connections with our innovative new product continues to attract users to our community.

In the third quarter, we further boosted our community atmosphere through innovative offerings, including Star rated comments section to display high quality user comments and fans space to strengthen bonding between artists and their fans while encouraging user interaction.

We also added new offerings, such as style recommendation that brings users more personalized options in the daily recommendation function to better reflect their taste as well as Adobe Atmos.

Atmos feature, allowing users more authentic and immersive ways to listen to music.

Turning to our private label consumer brand and Shang.

It continues to build its brand awareness by constantly creating highly popular product for.

For example, pork bonds and goes down debate.

Where some of the new top selling products. This quarter in Q3, we saw solid growth in sales from external e-commerce channels, particularly with short form video platforms.

Over the years <unk> has gained increasing recognition for its excellent design and creative style. Most recently changed the vinegar and Oriental sand series won the prestigious tend towards for their unique and elegantly presented Chinese style packaging.

In summary, we are confident in our ability to realize strategic growth across our business lines. The portfolio, we have curated of diverse and long lasting games in China provide the steady pace for us to build further upon.

Coupled with our globalization strategy, our prospects are exciting and we believe we are well positioned for continued growth.

As we advance each of our businesses with innovative products and services. We will continue to use our strong cash position to buy back shares and pay dividends that directly reward our shareholders.

This concludes William's comments.

I will now provide a brief review of our 2022 third quarter financials.

Given the limited time on today's call I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details.

Net revenue totaled four.

RMB $24 4 billion in the third quarter, our USD, three 4 billion, representing a 10% increase year over year.

Total net revenues from our games and related.

Services, while RMB 18, 7 billion up 9% year over year. The growth was primarily due to increased revenue contribution from both mobile and PC games, including our existing games, such as fantasy westward journey online series and infinitely runge as well.

As newly launched Diablo immortal.

Net revenues from our mobile games accounted for approximately 69% of our total net revenues from online games operation.

<unk> net revenues were RMB, one 4 billion a moderate increase from last year last year's revenue contained a big portion generated from canine After school tutoring services, which was later terminated in Q4 of last year, the decrease revenue related to <unk>.

<unk> combination is now offset by the increased revenue from your new services and smart devices as a result of our successful and smooth business transition.

Net revenues from cloud music, while RMB, two 4 billion up nearly 22% year over year. The increase was mainly due to increased revenues from social entertainment services and membership subscription.

<unk> revenues for innovative businesses and others were nearly RMB 2 billion up 14% year over year, mainly due to increased contribution from <unk> in the third quarter.

Our total gross profit margin rose to 65 56, three in the third quarter compared with $53 two in the third quarter of last year looking.

Looking at the composition GP margin was 65% for our games and related VHS.

Paired with 61, 3% in the same period of last year the year over year increase in gross profit margin was mainly due to more revenue contribution from our organic channels.

Our gross profit margin for <unk> was 54, 2% compared with 56, 6% in the same period of last year.

A year over year decrease was mainly resulted from the decline in net revenues from its learning services due to the termination of canine course offerings.

P margin for cloud music continues to improve in the third quarter climbing to 14, 2% versus two 2% one year ago.

The significant margin improvement primarily resulted from strong top line growth as well as improved efficiency in content increase mill.

For our innovative businesses and others GP margin was 25, 5% compared with 27, 2% last year the year over year fluctuations were mainly due to changes in GP margin from advertising services.

Total operating expenses for the third quarter were RMB 9 billion or 37% of our total net revenues. If we look at our cost composition, our selling and marketing expenses as a percentage of total net revenues was 15, 4% compared with $14 one.

<unk> for the same period last year they.

The increase was mainly due to increased spending on set of new games promotion, such as the <unk> and motto during the quarter.

Our R&D expenses as a percentage of total net revenue remained relatively stable year over year at 16, 2%.

We remain committed to investing in content creation and product development. We are also seeing leverage in our R&D investments.

Our other income was RMB, three 5 billion for the quarter compared with RMB $785 million last year.

Quarter over quarter increase was mainly due to investment income arising from the disposal of certain equity investments. Additionally, the exchange rate of the U S dollar against RMB fluctuated over the last couple of periods also contributed to the accounting gain in other income line.

Our effective tax rate for this quarter was 19, 3% as.

As a general reminder, the effective tax rate is presented on an accrual basis and the tax credits deferred from each of our legal entities at different time periods, depending on applicable policies and our operational results.

Our non-GAAP net income from continuing operations attributable to shareholders for the third quarter totaled RMB, seven 5 billion or USD, one 1 billion non-GAAP basic earnings per share from continuing operations for the quarter was U S. Dollar 161.

Or U S dollar 0.32 per share.

Additionally, our cash position remains strong as of quarter end, our net cash position was about 95 billion RMB compared with 86 billion RMB as the year end of last year.

In accordance with our dividend policy. We are pleased to report that our board of directors has approved a dividend of U S dollars 0.087 per share our use dollars 0.435.

Yes.

Lastly, we continued to buy back shares during the volatile period.

Under our current share repurchase program for up to <unk> dollars 3 billion, which expires in March of next year approximately $27 million has been already repurchased as of September 30th for a total cost of approximately $2 5 billion U S D.

And today, our board announced the approval of a new share repurchase program of Additionally, up to U S. Dollar 5.0 billion of the company's Aes and ordinary shares in open market transactions for a period not to exceed 36.

Month means.

Meanwhile, on the Medici Audas repurchase program for up to USD 50 million approximately $2 $3 million has been purchased for a total cost of about <unk> 7 million as of September 30th.

In addition, <unk> purchased 0.7 million ordinary shares.

<unk> cloud music for a total cost of about <unk>, six 9 million during the third quarter.

Thank you for your attention we would like now to open the call for your questions.

Later.

Thank you.

We will now begin the question and answer session.

You ask a question you May press Star then one on your telephone keypad.

If you are using a speaker phone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then.

Two.

For the benefit of all participants on today's call.

To answer your question to management in Chinese Please immediately repeat your question in English.

Please limit your questions to one at a time.

I wish to have follow up questions.

Please rejoin the queue.

Our first question today will come from Kenneth Fong of Credit Suisse. Please go ahead.

Hey, Thank you Charles.

So just wanted to you and negotiating these please.

No.

<unk> <unk> one.

Pumps with a proven tool so I mean, <unk> put us through yet.

It wasn't to incur because of your franchisees have pushed.

<unk> hosted on partner.

Do you find yourself.

Thank you management for taking my question.

Announcement about not reviewing certain license with research in China does is due to expire next year can you. Please share with us the rationale behind and the subsequent arrangement that we should expect thank you.

Yes.

Great.

Alright.

While monostrophe.

Our tissue.

Partially it was.

<unk>.

Rich will update accordingly.

And of course, she led us to Jim.

So let it sometimes a little mental she said Taco meat.

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So you should assume.

Sunglass Hut EG Lodge ablation leader congestion in the hotel.

<unk>.

<unk> will cover total policies shelf will go toward achievement Amit.

Kind of based on the year.

Yes.

Sort of agility.

So it's over the larger well known quick training to hostile neutral.

We watch our productivity.

Porter ranch on the shelf as a chain Ashish.

We had hoped to continue operating Activision Blizzard games in the Chinese mainland.

We have put in a great deal of effort to cheap. It. However negotiations have been much more challenging than we had originally expected and we will.

Unable to set doesn't kitan requested by Activision Blizzard.

We are glad to see the early announcement from Activision Blizzard and despite our best efforts to prevent the deal from falling through.

The decision.

In the meantime, we will travel their best fulfill our responsibility to serve our players until the last minute ensuring the safety of the.

Data.

Thank you.

Sure.

Our next question today will come from Chi Tsang.

Okay.

Yes.

Please go ahead.

She's CFO anytime additional IP backbone.

Do you know.

Just two real.

Real quick.

Goodbye.

No.

It's not a concern.

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Yeah.

Hi, Joe.

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A word about how ACH.

Sneak up on Hudson teaching two shifts and beyond.

You may just IP.

This is Doug.

I feel just yet.

Tony and I can't comment shortly.

<unk>, yes.

Let's see if any.

Thanks management for taking my question and congratulations.

Alright.

Email for copper Infinity Grinch obtained approval multi device version.

No thats all.

So it's multiple.

So can management discuss lecturing.

Uhm.

And my second question is back to Tim IP franchise.

Thanks, guys.

Supplement based IP games.

Harry Potter.

Yeah.

So what's the progress.

Our approval for that conversion.

Parker.

Havas net nation state.

Back east and local IP such as <unk>.

Tableau Jay.

Can they help the company spin in the longer term.

You.

Transient.

During the political appointees are.

The women side.

Union I'm hearing in questions Donna Youll figure out politically ultra anyway.

So elements, which we'll talk about them.

Hope to see clear.

Pumping time and to look to sit here now.

Jean <unk>.

So now when we initially anticipated.

They wouldn't spend that you do.

Manville under the total west Quito.

Meanwhile, <unk> exclusive through <unk>.

No.

This is a sequel.

How much of it.

Total so.

So far yes.

<unk>.

<unk> of lasers with condensate for bolt ons to the attrition and how to use it.

Okay.

What kind of an intrinsic values and within the two ramping neighborhood.

Sure.

So now.

We continue of course, Brazil.

Therefore, the timing puts us in this regard.

Liquidity.

I mean, the total month.

Great.

Similar.

So let me just translate after today's question.

So over years of operation, we realize many of our mobile game players also I want to be able to play our game the other formats.

On PC. They wanted they wanted to add experienced a more immersive gaming wells to a much larger screen. That's why you've seen us providing PPE simulator for many of our mobile game or creating a standalone PV value for them and this is to provide our users.

At the same time, we noticed that in certain regions. Many of our users actually on PC and mobile and conquer all at the same time and they play games of the platform for these plants.

The license to be able to switch seamlessly between these platform, which is why we are also looking into developing a game is developing cross cut.

Cross platform games.

There's no real technical barrier for developing and operating cross platform games.

Paul.

We will take into consideration of users' needs product features market feedback and other factors before deciding whether we should do a multiplatform version for each of our games.

Okay.

Hi.

Sure.

All of them with <unk>.

Alright, Thank you Jean Paul.

Cool.

<unk>.

Sure.

No.

Oh absolutely.

In nitrogen.

<unk>.

I will attribute portfolio, such as digital footprint anyway.

Hi.

Well of course.

Sure.

<unk>.

Yes.

Hi, Phil.

Yes.

We're moving <unk> in Hollywood.

By law Cintra.

Right.

Ashish.

Hello, Linda.

Toyota.

Sure.

Alright.

You'll see quite a bit.

What's your thought with the Lithia corn basis Youll see that.

This includes a dozen.

We will finish with <unk>.

Okay.

Hi.

Yes totally.

Yes.

Come back.

Yes.

It's the totality of that car.

Obviously the U C.

Central liquidity pool pool.

Okay.

Do not actually have that many following IP company being submitted for those that indicated we are currently going through the benefit procedures.

Wyatt.

For these following an.

And our self developed IP. The ultimate difference is that in a virtual world we can.

Well it can bring to <unk>.

And the public filled a lot of games based on our rental culture, such as J J Justice and <unk>.

But she took introducing IP like Harry Potter Star Wars, what to actually diversify and innovate that different world that we can create for our use it allowing them to ESPN and different things.

Of course at the cause of this IP or different worldview.

Todd is going to can create on the different IP.

For example, in our Haynesville, well Youll have co towards such as sold and nice.

In the Western World, you'll have firearm. So this will actually the two are very different.

Yes.

MMO for all that.

Basically that is Fps game in a western setting.

So therefore, the reason for having orders it is to enrich our pipeline and create different gaming swallowing.

Thank you.

Our next question today will come from Lincoln.

Of Goldman Sachs. Please go ahead.

In contrast, micra when pieces.

Jonathan will highlight.

Let's turn now to conclude from Canadian <unk>.

So I'll ask for Tom <unk>.

Bob.

So what we said.

Let me <unk>.

To be honest.

I think look we want to see.

Johan.

Jacob.

That's about two shall highlights with all these different cultures.

Finally, Scott. So the question is about the overseas expansion. So we can fund that <unk> has been investing overseas markets since the beginning of the year, especially.

Could be impacting our acquiring us acutely soft studios. So when we think about the 2023, how should we expect.

Our growth plan.

Scott.

About PC and the mobile game market.

Well, Jeff ill, let us just helps us.

Yes.

These updated mattresses.

Most of the others.

So borrowers.

Sure.

Good point.

Right.

I will cover that can go to <unk>.

Okay.

Sure.

Whether the rock chips.

Chip.

Got it.

That's all guys.

T.

Total lithium metal piece of it.

I don't know.

Those are the highlights.

Okay.

We should think versus just trying to kind of.

Michelle.

We'll see.

Cool.

<unk> either.

Sure.

Sure.

Understood.

Yes.

Doug.

Sure.

Shoot.

Hi.

Yes.

So.

<unk>.

In short order.

Two cross strategy, our overseas market, one is south development.

Whether it's through investment so in the past few years.

<unk> seen a number of that successful title.

It was first developed.

In regions, such as identified nice out in Japan.

And also what's been kind of a desktop PC titles in a global market as well that can add up a great point that we launched last year I think in the overall, if we look past the overseas.

Market I think PC, a PCL council will probably be the main mainstream format.

And secondly.

Our investment overseas as you've seen.

More recently.

The number of studios that we have invested overseas.

Long term, we would hope.

<unk> worked very closely together witnessed global studios to create global Blah, Blah, blah blah offset for our worldwide.

Thank you.

Yes.

Yes.

Yeah.

Our next question today will come from Sterling Liu of HSBC. Please go ahead.

Thank you I'm going to take <unk>.

<unk>.

Yeah. There you go chat Wow, well Mckenna, thank you too.

Look like either <unk> or <unk>.

How do we thought on Cheetah shall Adnan shellfish it becomes a lot because really if I may we will mail cannot gene can seen about thoughtful education. That's Asia Gigi. Thanks, guys I'll now turn the lights out in Ohio woman guys I'm actually yes.

So there you go quick photo she is yes, it's Angela chassis like Halloween guys are a huge coordination shall they get done got it. Thank you.

Yes.

<unk> I would like to ask about the gaming market outlook. So we observed that both the domestic and overseas mobile game market revenues declined further year on year.

Third quarter obviously.

There are some short term headwinds such as weaker consumption, but we also see the latest backtracked on how came through.

That positive development, how should we think about the timing and magnitude of recovery of the market as well as the long term outlook for the domestic market. Thank you.

Well sure.

Sure.

Sure.

Sure.

Canada.

So good.

Sharp energy Hall.

Two three.

Youll see.

But some of them.

Sylvia.

Neil you got all kind of usage for that.

So this just have to live with that.

Sure.

Maybe the household.

Yes, with GSO shot.

Sure.

Sure.

So you will reach at once is hard.

Sorry, Whatsapp autos to soar.

Full shifts.

Sure.

Yes.

Sure.

Sundar.

David.

Sure.

Hi.

David.

Okay.

So all of that means that the daily market.

Bye.

The weather.

Whether the market slightly depends on where the it depends on the gain.

Qualitative himself in a second time, you had a number of high quality games available like that won't be there.

Mark.

Market while at the same time is there is a gaming content available.

It is not interesting yoga is a typical patient previous game than the market.

It's not in our in our view.

Right now, we know that market saturation, rather that the lack of high quality game. Thank you.

Our next question today will come from Alex Poon of Morgan Stanley . Please go ahead.

Okay.

Charles smaller ticket you saw the tier one you can see.

Yes.

When you shop.

Got Ya man and woman that highway something boasted a yossi.

Sure Jonathan.

Hi, Joe.

Youll see that <unk>.

The whole world.

With US highway Jackaway weekend saw some data to set you'll see.

<unk> kind of when you show up on your tongue, but found yet.

Johnny's Jonathan walnuts.

While the joint Congress show the Chooser SKU.

In Q2, we like you say Ashish.

My first question is way too overseas games in the last one to two years, we have launched many new games overseas.

Can management share.

Gamers feedback and longevity of this new games.

Secondly about.

The development.

Developing more casual genre.

The case of overseas gamers.

About the cost structure can we talk about our head count trends and other opex trend in future. Thank you very much.

Uh huh.

Fortunately that time John right.

Right.

Genpact.

Right.

<unk>.

That's right.

<unk> Corp.

Cool.

No assumptions.

We shipped one two.

True.

Sure.

Yeah.

Which in our country.

Hi, the Hershey Pizza.

To do that it's out there.

Sounds good.

So in China, China.

So that's interesting.

Gotcha.

Thanks Michelle.

Okay.

Vantage on.

Okay.

She has brought us a few times.

Deep lender GTT Tai Chi book less.

Jonathan.

Yes.

Yes.

Sure.

So each entity.

Jonathan.

Conoco Sea consortium.

And then switching acetyl bottleneck.

Yeah.

Okay.

Good wishes.

Sure Josh.

<unk> Dot com.

Sure.

So finally on the phone Cisco.

Yes.

Shang Guang John agenda this year.

So chipotle countless simple end of January so you'll have.

Sure Jonathan.

They hold up.

Okay.

Sure.

Both of them.

As officially launched.

Last year in <unk>.

<unk> will be very closely monitoring and that the actions of the app on the gaming community.

So for <unk>, we think that plays out.

But with this with our game with it.

<unk>, mainly come back and use it.

Appearance and kidney failure.

Our next game.

Good.

One is I noticed that there are a lot of payment.

They met you on the lower spec platforms, such as at Columbia Open hiding for for this bank. So we are now working at that team has gained onto different and different levels of devices given level platforms.

And at the same time of automatic optimizing the Big Behemoths Guide if the game is it harder to get.

Into the leveraging with linked with optimizing finding ways for <unk> to kind of get into the game more quickly and this is the task that we are working on with our Montreal Office every day and we're having discussions on how to make how are you said half yet within again, hopefully we'll be able to bring on our tablet to mark.

Players.

A more platform. Thank you.

And Alex for your second question about the overall trend of headcount and operating expenses.

Over the last five six quarters, our overall total head count stays relatively steady at about 30000 overall head count more specifically in the.

<unk> quarter by quarter and we have.

And also.

31, solid and overall head count representing quarter over quarter about.

Incremental 1000 head count, which is consistent with our summer recruiting season of campus recruiting.

In terms of the overall operating expenses for many of you who have been tracking.

Tracking net is for long enough, we have very very cost conscious and effective in spending.

Investment organic investment into ourselves in a very I would say our return oriented manner oftentimes when you see increased in RMB in selling marketing that is actually an indication that we are developing.

Strong pipeline or we are about to launch an exciting new games.

And if we are patient enough you will see the huge reward that we are planting the seeds today, so for the future outlook I think we.

We are continue to grow we will continue to invest absolute dollars of operating expenses will continue to increase but we will be hugely rewarded by operating leverage when we see the next cycle of product.

Launches in both the domestic and international market.

Thank you operator.

Thank you Alex.

Come from Felix Liu of UBS. Please go ahead.

Oh, My God <unk> console Wilmington handler about op.

Go ahead, if you again take all of that.

What sounds like Julien our mcclain.

Yes.

So Alan what kind of additional.

Comparable sales for the consumer.

Highly volatile.

Yes sure Dan.

So he founded tissue.

Remind me what many patches patches, however should count on us yet.

How do you protect your whole.

Jo Mill Creek, hone that F&B outlets.

The pipeline.

HOKA clinical I'm, telling you again, it doesn't when Tito sure plenty on the C&I side.

Sure.

Thanks, and that of course, our Columbia It actually helps all tomo play focus that is absolutely a sluggish it is fashion outlets shakeout clean Halle manually kickoff anyhow.

Thank you management for taking my question. My question is on the overseas market.

We noticed that we had to update the publishing time for Harry Potter. So could you share more color on the market overseas market to focus on for Harry Potter.

<unk> pipeline to share after a product launch.

And more on the longer term question is on the overseas positioning in terms of genre.

And market.

Our market position what are these.

Exactly right that in markets that you'll be focusing on with your extensive investments right now thank you.

However, as others.

Hi.

Sounds good.

I think the top line if that's okay with us.

Ladies and.

We are hopeful.

Okay.

Sure.

Goodbye.

Okay.

Sure.

Okay.

Cool.

Meanwhile, monthly they.

They may.

Okay.

I see.

Okay.

Well, it's that robot.

Okay.

The amendment NGL bunker.

Sure.

Michelle.

Yes.

Yes.

Thank you.

Okay.

Okay.

Firstly.

HOKA will hopefully be alongside him as we mentioned in our call earlier, we scheduled for launch in 2023.

Currently we offer the jacket.

We have a pretty.

<unk>.

A plentiful of games to be launched that with this market.

Three games in Japan market that include boneless like CPG raising animals.

And we'll have a full games in.

In Europe , and North American market with Pts BCG.

Comeback competitive.

So our focus now.

Basically the Asia Pacific region.

European.

In North America and market. Thank you.

Yes.

Our next question today will come from Natalie will of high Tong International. Please go ahead.

Any questions.

Thank you.

Go see them.

Uh huh.

Well with the route to Mexico.

Hum.

How about <unk>.

Please go ahead Sanjay.

Thanks for that.

Taking a person that goes on the legacy CECO, Jason I just showed you.

Yes.

I'll say, just a range of <unk> 10 fulfillment.

And getting.

So excellent you can go to tell them and then go to John .

How can you make sure that you take a kind of a city recently for Wendy today.

Hello, Timna and keep out of Brazil.

Sure.

Yes, yes.

Regarding the tons you see the split in yen.

Yes, yes.

I was hoping maybe corporately so keep you posted.

Yeah.

Let me translate myself.

And my question is regarding the Diablo immortal.

Is the grade that you mentioned.

About <unk>, let me take the cash revenue and user active minutes of Diablo immortal. So that we can better understand the game longevity and contribution.

Also you've mentioned before that Diablo immortal is covered by our subsidiary <unk>.

Tim I believe in the west.

It'd be great to know exactly how many yes, that's the montney and grow that the uncertainty regarding the future cooperation, especially in overseas market for that title.

Good afternoon.

Ladies change with Peter Thank you.

Hum.

This is John .

Simba.

Thanks, Jonathan.

Quantifying that for us.

But.

Furthermore.

Good morning.

So I would say that.

Pardon me.

Yes.

That's about the.

Donna.

We're hopeful for approval of amendment.

Okay.

Copa.

Tina.

Sure.

OMA Hillcrest Vishal.

When we have come out of the country.

Cool.

Which is not getting any pent up.

7%.

Two weeks ago.

Okay.

Thank you Christine.

Clearly this was I said Youll potrero.

So I'm always careful to watch is.

What control.

Sure sure.

Sure.

But to add to our portfolio.

The onetime payment 14th we'll put ya.

So.

I've only module has actually done a really good job across the welcome to launch it in online <unk> launched for almost six months now in overseas market and then the China version.

About a month later.

Right now if we look at the revenue contribution that China Python overtake it.

It's pretty much on par with each other and going forward, we are going to.

Launched more expansion packs content shoe to keeping them engaged and I think we're going to continue to balance the need of both the Chinese and overseas.

Overseas users now.

I'll take that.

And after the peak.

People eat out.

It does yes.

Otis is mostly facing KSU.

Third or fourth tier cities for the North America uses about them compound.

Original PC, okay background, so going forward, we're going to teach a slow.

It is kind of a more.

Yes.

And.

And then we.

And promoting <unk> to answer quite a linear audience.

Okay.

Okay.

Natalie.

Okay.

Natalie for your second question, we can we can follow up off the line.

Okay operator, thank you.

Thank you.

This concludes the question and answer session. At this time I would like to turn the conference back over to management for.

Any closing remarks.

Okay.

Thank you once again for joining yesterday, if you have any further questions. Please feel free to contact us directly or TPG Investor relations have a great day. Thank you. Thank.

Thank you everyone.

The conference has now concluded we thank you for attending today's presentation.

You may now disconnect your lines.