Phoenix New Media Ltd (FENG) 2012 Q1 法說會逐字稿

Ladies and gentleman thank you for standing by and welcome to the Phoenix New Media First Quarter 2012 Earnings call. At this time all participants are in a listen only mode. Today's presentation will be followed by a question and answer session. (Operator instructions). I must advise you that this conference is being recorded today Friday, 18 May 2012. I would now like to hand the conference to your host today Investor Relations Manager for Phoenix Matthew Zhao. Thank you please go ahead please.

Thank you operator. Thank you and welcome to Phoenix New Media First Quarter 2012 Earnings conference call. I'm joined here by our Chief Executive Officer Mr. Shuang Liu, our Chief Operating Officer Mr. Ya Li and our Chief Financial Officer Ms. Lily Liu. For today's agenda management will provide us with a review on the quarter. It also includes a q and a session after the management's prepared remarks.

The first quarter 2012 financial results and a webcast of this conference call are available at the Investor Relations section of www.ifeng.com. A replay of the call will be available on the website in a few hours. Before we continue I refer you to our Safe Harbor Statements in our earnings press release. This applies to this call as we will make forward-looking statements. Finally please know that unless otherwise stated all figures mentioned during this conference are in renminbi. With that I would like to turn the call over to Mr. Shuang Liu our CEO.

Thank you Matthew. Good morning and good evening everyone. We are very pleased to announce our First Quarter 2012 Financial Results which exceeded consensus estimates both in terms of top line revenues and bottom line net profit. Despite the first quarter being our seasonally weakest quarter we remain China's fastest growing portal among the top five portals not only in revenue growth but also daily and monthly unique viewers.

For the first quarter of 2012 we grew advertising revenues by over 71% to approximately RMB129 million. This performance drove our total revenue growth which increased by over 39% to RMB239 million. Our non-gap diluted EPS which grew approximately 37% to RMB0.45. With that today I would like to detail three key topics with you.

(1) Updating you on user base extension for both internet and mobile platforms. (2) Our premium conference offerings for both portal and video sites. (3) Our recent initiatives which will help power additional growth throughout the rest of the year. First, our strong user growth dynamics for both internet and mobile.

In the first quarter our web portal growth rates continued to significantly outpace our peers. According to iResearch during March 2012 our average daily unique visitors grew 57% year-over-year to 22 million users while our monthly unique visitors grew 61% to 210 million users. This strong user growth led to a further narrowing of the user traffic gap, where the second fastest growing portal grew daily and monthly unique visitors only by 23% and 22% respectively.

Regarding our leader platform with the unique combination of private conference, exclusive select TV conference and a selective third-party conference, we remain one of the top 10 largest video sites in China and profitable. In April the number of average daily unique visitors of the ifeng video reached over 10 million viewers for the first time in a company's history. During the quarter with the path many of China's major video players including CNTV which is CCTV's website, [Crew 6] Media, 56 dot com which was purchased by Renren and PP3.

Moving now to our mobile platform. We continuously strive to improve the customization and of the accessing our conference from any mobile device. In February we officially launched our HTML5 version of mobile portal access which provides additional ease of use of our mobile platform. More importantly as of March 2012 two of our most popular free downloaded news applications, Phoenix Mobile Stations and [Big News] have been downloaded over 14 million times. This demonstrates that growth in mobile access to our conference would be a key driver to user growth going forward as our users continue to demand access to our premium and differentiated conference anytime and anywhere.

Next moving on to our [common law]. Throughout the first quarter our new reports continuously covered many of the major news events taking place around the world in our own ifeng signature style which is characterized by its (inaudible) and in-depth analysis. Some of our most popular feature coverage during the quarter included Taiwanese presidential elections in January and China's two most important annual national congressional meetings in March, called Lianghui.

By leveraging by our parent company Phoenix TV constant and self-produced constant we were able to provide the most comprehensive in depth coverage of these extremely important political events. During Lianghui our video team produced a special 10 episode series based on our most popular debate show called (spoken in foreign language). This debate included high level dignitaries such as many political leaders, law makers and expert advisors as guests to debate on today's most pressing issues in China. The show, combined with our Lianghui coverage attracted over 74 million viewers in one week on both our portal and mobile portal websites and was well received by our advertisers.

In addition over the past several quarters we have continued to focus on expanding our audio channels in an effort to broaden our user base, improve user signals and to further diversify our overhead revenue streams. Those verticals include finance, fashion, entertainment and art. As of March 2012 according to iResearch both our fashion and entertainment verticals rose to the number two spot in their respective categories as measured by daily unique visitors surpassing all of our competitors except Tencent.

The strong increase in female and young white collar users demonstrates that our effort in providing differentiated conferences in those specific verticals is beginning to pay dividends.

As we head into the second half of 2011/2012 and the beginning of the 18th national congress of the CCP, the public's appetite for fair and balanced reporting on a country's political developments will naturally lead them to ifeng. We firmly believe this represents a great opportunity for us to further strengthen our market leadership in terms of both media influence and business performance going forward.

By nature in that (technical difficulty) and detailed political news is of interest particularly to educated individuals. Fuelled by our brand, wide reach and influence among China's top leaders ifeng is given a place where more viewers turn up at these political events with important future (inaudible). Ramifications continue to unfold.

We believe that during this time of the significant social transformation in China ifeng will become an increasingly irreplaceable media brand among China's 500 million internet users. With an increasing amount of influence and appeal to Chinese educated and middle class audiences which will only increase in numbers in coming years ifeng.com will remain a [primary] destination for online run advertisers seeking to target this high quality demographic in China's internet population.

Lastly, our recent initiative which will help power growth throughout 2012. Over the first quarter we announced a series of new initiatives we believed would enhance our (inaudible) offering and expand our -- throughout 2012. For example, in March we launched our Olympics coverage campaign in conjunction with our parent company Phoenix TV. By extension of our proprietary -- offering through multiple avenues including the leveraging of Phoenix TV's global platforms will help us continue to attract and retain viewers in a -- effective manner which will further enhance profitability.

Moreover partnerships with (inaudible) and others will provide us an effective means of strategically leveraging their significant distribution capabilities by extending our viewership reach to its 400 plus million users. We believe that these key initiatives will continue to help broaden our viewership reach and attract Chinese viewers seeking out independent and unique global perspective.

Looking forward we're excited about our increasing media influence among China's large media class as well as the increasing robustness of our convergence model across TV, PCs and the mobile internet. While the news on economic environment in China continues to evolve rapidly we believe our media DNA will continue to elevate our representation as the premium destination for cutting edge news reporting helping us to capture increasing amounts of minds and market share in China's growing internet market.

With that I would like to pass the floor to Lily Liu to go over our First Quarter 2012 Financial Results.

Thank you Shuang. Hello everyone. As Shuang highlighted our First Quarter 2012 Financial Results exceeded consensus estimates. For the first quarter 2012 our total revenues grew by 39.2% year-over-year to RMB239 million and adjusted net income grew by 66.6% year-over-year to RMB36.3 million.

Now let me take you through the details of our First Quarter 2012 Financial Results. The amounts mentioned here are all in RMB unless otherwise noted. In the first quarter of 2012 net advertising revenues grew year-over-year by 71.3% reaching about RMB129 million. Paid service revenues grew by 14.2% to RMB110 million.

Our net advertising revenues were primarily driven by growth in the average revenue per advertiser or ARPA. ARPA grew by 68.4% to RMB548,000 in the first quarter as compared to RMB325,000 in the first quarter of last year. This reflects our ability to garner a greater percentage of our advertisers' marketing dollar. Our top five industry contributors for this quarter are auto, food and beverages, financial services, eCommerce and IT products.

For paid service revenues mobile internet and value-added services or MIVAS made in compliance of digital readings, mobile games and WVAS businesses represented approximately 42.5% of total revenues in the first quarter as compared to 51% in the prior year. Video value-added services or video VAS represented approximately 3.6% of total revenues in this quarter versus 5.2% in the first quarter of last year. We continue to believe both of those components would decline as percentage of total revenues and will be more than made up by the momentum for our advertising revenues growth.

Our adjusted growth margin which [aspects] share-based compensation expenses of RMB0.8 million was 43.9% compared to 42.2% in the first quarter of last year. The four components of cost of revenues are revenue sharing fees relating to paid services, content and operational costs, bandwidth costs and business tax.

On a gap basis revenue sharing fees as a percent of total revenues declined slightly to 26.8% as compared to 30.8% in the first quarter of last year. This was a result of sliding scale payout ratio as our overall business volume increases. Our content related costs as a% of total revenues declined to 18.5% from 26% in the first quarter of last year primarily due to reduced share-based compensation expenses offsetting increases in headcount and content acquisition costs.

Bandwidth costs as a% of revenue increased to 4.9% from4.5% in the first quarter of 2011 reflecting our strong traffic growth. Lastly, business tax as a% of revenue increased to 6.3% from 5.6% in the first quarter of 2011 reflecting a higher contribution from advertising revenue growth which has a higher business tax rate compared to paid service revenues.

Moving on, our adjusted operating income increased by 28.5% to RMB30.6 million from RMB23.8 million in the first quarter of last year. Adjusted operating income has excluded a share-based compensation of RMB3.4 million. Adjusted operating income margin was 12.8% in the first quarter as compared to 13.9% in the prior year.

Adjusted sales and marketing expenses as a% of revenue increased slightly to 16.3% in the first quarter compared to 16.1% in the first quarter of last year due to additional spending our marketing events and sales support headcount. Adjusted D&A expenses as a% of revenue increased to 6.6% from 6% last year reflecting increased professional fees associated with being a public company.

Lastly, adjusted R&D expenses as a% of revenue increased from 6.3% to 8.2% reflecting significantly increased investment in our infrastructure and technology. Our gap net income was RMB32.9 million in the first quarter compared to a net loss of RMB26.2 million in the first quarter of last year.

Adding back total share-based compensation expenses of RMB3.4 million adjusted net income attributable to Phoenix New Media increased by 66.6% to RMB36.3 million. This resulted in adjusted net margin increasing to 15.2% from 12.7% in the first quarter of last year primarily due to increased interest and costs. Adjusted net income attributable to Phoenix New Media for diluted ADS was RMB0.45 or about $0.07 per ADS up by 36.8% from RMB0.33 in the first quarter of last year.

Lastly, I'd like to reiterate our business outlook for the second quarter of this year. We're expecting our net advertising revenues to increase approximately 46% to 50% to between RMB166 million to RMB171 million. Paid service revenues are expected to increase approximately 2% to 6% to between RMB116 million to RMB221 million.(Sic-see press release) As a result, for the second quarter of 2012 our total revenues are expected to be between RMB282 million to RMB292 million up approximately 24% to 28% year-over-year.

With that, I'd like to open the call for questions. Operator please go ahead.

Ladies and gentlemen welcome to the question and answer session. (Operator instructions). Your first question comes from the line of Gillian Chung from Morgan Stanley. Go ahead please.

Good morning. Thanks for taking my question. My first question is about your advertising sales. Can you please give us more color on how different advertising categories performed in the first quarter and what is your view on the outlook of this category? The second question is can you please share with us the number of daily users of your mobile portal, 3G.ifeng.com? Thanks.

Thanks for the question, this is Ya Li. Yeah the top five sectors, let me give you, for the first quarter is auto which accounts for 28%, food and beverage 13%, financial services 10%, eCommerce 8%, IT and communications services 5%.

The auto sector actually contributed a higher percentage partly because we have recently reorganized the auto channel -- auto centre to be under the management of the advertising sales team. They work at the same location in our new CBD office in Beijing. This significantly improved synergies between the content and sales team and resulted in better satisfaction from clients and sales results.

Our food and beverage, it continues to grow partly because our strong showing in the entertainment and fashion channel. The daily unique visitor for our entertainment and fashion channel currently ranks number two behind only Tencent among China's top five portals according to iResearch IUT for March and April data. As a result, food and beverage and also clothing, cosmetics, luxury goods sector are growing very fast.

eCommerce contribution continues to decrease actually even though the absolute sales number from eCommerce did increase but at a very low rate compared to other sectors' growth rate. We have noticed that many eCommerce companies are spending much less aggressively than last year when they were eager to compete for users in market share at a time when there are plenty of (inaudible) and the capital markets for eCommerce better or were better. We have seen some weakness in -- so enrichment in eCommerce is also real estate. However real estate accounts for only a very small portion of our revenue. So that's the sector situation.

Your second question is about?

It's about the daily users of your mobile portal?

Okay -- Lily.

Gillian I'll give you the data. For our 3G.ifeng.com our daily unique visitors in the first quarter -- by the end of first quarter reached 14 million on a daily basis. The other data I wanted to share with you is that we have for our mobile apps the total cumulative downloads for our apps has also reached 14 million by the end of the first quarter.

Thank you.

Thank you. (Operator instructions) Your next question comes from the line of Alex Yao from Deutsche Bank. Go ahead please.

Hi, good morning everyone and thank you for taking my question. I have two questions. Number one is regarding the second half outlook especially on the advertising side. Can you go through the feedback from the advertisers and how do you expect the second half to trend? Especially can you talk about the impact of the Olympics on the revenue and costs side?

The second question is on the mobile -- I'm not sure if I understand this correctly -- so the 3G.ifeng.com daily visitors reached the 14 million and your overall daily visitor reached 21 million by the end of March. Does that mean the mobile usage represents the major portion of total traffic? Can you share with us your thoughts on monetization on a mobile? Thank you.

Thanks Alex. For the first question -- also for the second half we do think that the current quarter is a very difficult time compared to I think the past quarters recently. We do expect the second half to be better. Of course the macro-economic conditions create a lot of uncertainty. But the specific reasons for our forecast for the second quarter includes the following. Our first as you notice that we continue to grow our user traffic taking market share away from other portals. This is a foundation for continuous advertising revenue growth given also the quality of our user base.

Secondly, of course the online advertising continues to take market share away from China's overall advertising dollar especially from the TV advertising because of the recent regulations. Thirdly, for our video advertising by the end of the first quarter we have reorganized also the dedicated online video sales team to make sure that the entire sales force including across all regions across all industry sectors and also the strategy and support teams will all work together to capture the great opportunity being news video advertising.

This is a differentiated strategy from the other companies focusing on TV drama and movie contents. Right now we are in the process monetizing this strategy. Traditionally news TV has demonstrated a huge market share for news program advertising and also enjoys a pricing premium. We are working with third party news TV ad agencies and advertising service technology companies and improving all our serving technology, to ensure that we are leading this transition for news TV advertising shift from TV platform to online platform. So we do expect contributions from news media advertising to improve noticeably in the second half of the year.

The fourth reason for the second half of course is from the -- you've mentioned Olympics. And in March we kick off the Olympic special coverage campaign with a high profile press conference. And advertisers have been very receptive. However it is still early to tell the specific sale up buy from the Olympics in third quarter. It certainly will be smaller impact compared to the Beijing Olympics. However, because of our [pam] media or Omni media strategy, cooperating with Phoenix TV, we are the only Chinese intra media which has a permanent reporting office in London, with sizeable professional reporting team.

Also we have accumulated very rich experiences in covering major events, incorporating text, image, video online forums, which gives us an advantage over some of the video only companies. So we do expect some offsets on the Olympics.

Lastly the mobile advertising, even though for the first quarter it didn't -- the contribution from mobile didn't increase, however because of the large traffic as Lily mentioned earlier, we have 14 million daily (inaudible) on the 3g.ifeng.com and 21 million that's from across all different mobile platforms. For the portal -- the online portal, right now, we have separately over 20 million unique visitors daily.

For the mobile -- the last question is about how are we going to monetize the mobile traffic. Right now we have a suite of mobile app products, including those for the 3g.ifeng.com website and also the (inaudible) app advertising and also for our mobile newspaper advertising. Because of our -- part of the user base which mostly use smart phones and also because of their purchasing power, we have been able to work both of the brand advertisers as well as e-commerce companies, which are very -- the e-commerce companies are eager to convert the mobile traffic into actual purchasing.

The mobile device does have the advantage to transform the user -- to transform the click into purchasing action. And we are optimistic the mobile advertising contribution will also improve in the second half of the year.

Alex, this is Shuang. I want to emphasize that our current focus is not on -- is not monetization of mobile [apps]. Our focus on mobile phones is to further expand our market share to enrich our [accounts] and to build up our infrastructures and to better improve yearly [appearance]. So we believe they are well positioned to capture opportunities widespread. But our current focus is not monetization on mobile phones.

Got it. Is it fair to say about two thirds of your traffic now is on the mobile devices?

No Alex, as I mentioned earlier. Over 20 million unique visitors are from the online portal daily. Only 14 million from the 3g.ifeng.com. Lily, do you want to add?

Alex, basically these two numbers are calculated independently. So there may be some overlap. But the overlap is difficult to determine. So these are two distinct user bases.

I got it. If I may follow up with a one very quick question. How do you guys think about the unique characteristic of a mobile device which is left screen size. So that means a left [real estate] state for advertisement with some more extra features like a location base feature. So how do you guys think about these attributes and how -- what's your, in terms of the commercial product and monetization how would you like to leverage these attributes? Thank you.

You know indeed actually the mobile device has several advantages over the PC, because it's mobile, it's always with you and it's -- the location base feature allows users and different situations in work or in office or on the street to -- and so we can push the advertisement at the best timing of the user's behavior, during the day.

Secondly is transaction ability of the mobile device is also superior to the online device. And certainly we have been able to construct mini site for our mobile advertising clients. So they can easily measure quantitatively the result of our mobile advertising campaign in terms of the traffic sent to their mini site and also actions taken, including the actual purchasing.

So with the expansion of smart phone and also low cost smart phone in China and especially our users quality and purchasing power and also the brand influence of Phoenix and we are eagerly -- we are working with the e-commerce company as well as the brand advertisers to actually monetize on the large traffic on our mobile platform.

And if I am to add also, in the first quarter, in February particularly, our Phoenix news app -- (inaudible) -- actually ranked number one under the news category for the android app market in China. That is just one of the indication as to how I think we as Shuang mentioned, that we are focusing on first growing our mobile traffic, which we believe we are at the same starting point as any other companies in China. And then we will be able to monetize it because of our high quality user base.

I've got it, that's very helpful, thank you. I'll get back to the queue thank you.

Thank you. Your next question comes from the line of Chenyi Lu from Cowen and Company. Go ahead please.

Great than you. I have two questions. One on (inaudible) as my first question. I have a question regarding the brand advertisement. I know that the Company expects the second half should be better than first half. And also I see the data for the ARPA which is the highest over the last five to six quarters. So I like to see you know, over the next few quarters is you know how you guys going to drive your brand advertisement revenue growth? Is it mainly from ARPA or also from a number of advertisers? And that is my first one and then I will come back for second question after the answer, thank you.

Okay, thanks Chenyi, yeah. First let me just -- you know let me just point out. I think for the first quarter, the gross up for advertising revenue is actually -- is several times I think higher than most other portals as you can -- 70% -- 71% in advertising growth. And the second half we do see the difficulty as affected by the macroeconomic condition. And so for the growth of our advertising, the first quarter we grew the ARPA by 58%, number of advertisers only by 3%.

That's mainly because we mentioned earlier, I think last time, that we started a strategy to work more directly with clients. So we've reduced cooperation through third parties and that work is almost completed right now. So first factor driving our revenue growth will be a steady increase in the number of advertisers, particularly showing from the second half.

Secondly because also as we expand our content into more vertical categories and also establish leadership in these vertical categories -- as I mentioned earlier entertainment channel, fashion and female channel and also some other channels which we are working on right now. For example the channels for regional and the CDs-- reading and CDs and also tourism -- the travel channel, educational channel, parenting channel. All these will bring us a broader base of different categories of advertisers.

So the number of advertiser will be first factor and hugely contribute to more than 20% of our overall revenue for this year, even though it's only increased 3% in the first quarter. Secondly for the ARPA as we -- right now our (inaudible) pricing is about 60% for our front page. (Inaudible) price is about 50% of (inaudible). However, our user quantity comes our purchasing power and application level actually is better than most of the Chinese internet companies.

So we are confident that we can increase you know, our (inaudible) pricing and also the ARPA -- as our traffic gap -- overall traffic gap between our entire site and the other portals reducing. And as some of the verticals -- as we become the recognized you know traffic leader and we will be able to capture a larger percentage of advertisers project in categories -- for example in the luxury goods, in auto sectors, in financial service sectors, IT and communications services.

See ARPA will still be a major contributor to our overall revenue boost, more than 70% and a number of advertisers will come from more than 20%. And of course (inaudible) advertising strategies execution of this will hopefully accelerate our revenue growth in the second half.

Great. So that was my first question. My second question regarding the gross margin, also operating margin. Given the weak economy growth in China, do you -- does the Company have plan in place to manage the cost to ensure that you know, even though the revenue growth slowing down this year, you know just want to see what are you (inaudible) to maintain your operating margin, gross margin targets? Thank you.

Chenyi, I'll take that question. In terms of our gross margin and operating martin, for gross margin we are expecting a small pick up on gross margin this year compared -- overall compared to last year. And on the operating margin side, as you can see the overall -- the outlook has become more uncertain. What we do internally is that we actually monitor and adjust our budgets on a more frequent basis. So we are in the process of adjusting our budget and we are -- essentially have a very tight budgeting -- budget management system in place.

So in effect, our goal is to make sure that our net bottom line will be affected less by the macroeconomic factors. So our bottom line, whatever happens to our bottom line will have a smaller effect compared to our top line impact.

Okay thank you. That's all my questions.

Thank you. Your next question comes from the line of Karen Gu from Macquarie. Go ahead please.

Hello. Hi, thank you for taking my questions. Actually can you -- can management give us more stats on the video -- video site? So for example daily movie and daily TV. That's my first question.

Okay, thanks for the question. Right now our video traffic continues to grow as was mentioned by Shuang. The ranking of our video traffic has steadily improved in the first quarter. Also in terms of the TV unique visitor for our online video and its overall increase actually is higher than our overall portal traffic. We have right now is 100 and -- I'm sorry. Right now our -- sorry I mixed that number with our mobile number.

Yeah our daily unique visitor for our mobile video is over 10 million. And the monthly is about 400 million, according to our researchers IUP number. That's the first time we exceeded 100 million, which is a very large scale. And I think it was mainly because of our uniquely differentiated video strategy, while others all competing for the same undifferentiated TV, drama and movie content. But we focus on the news content.

And news actually is very important content category, especially in fast changing Chinese society, given all what's happening in the society and also in the individuals of families.

Thank you. Another question is as Lily mentioned, the Company -- the margin will be under control. But apart from the Olympic campaign, is the Company going to take any other initiatives to (inaudible) the softer advertising market in the second half, for example, like increasing sales force? And also can the management share more with us on investment in (inaudible) as well, the micro blog platform. Thanks.

Yeah let me just get back to question on (inaudible). Actually (inaudible) is not our strategic focus. It's a supplemental product to our overall portal. So, we want to leverage this product to strengthen our users' interaction with our main portal. So the investment on (inaudible) is quite limited. For this whole year, the investment will not be more than -- will be less than RMB20 million this year. Then, yeah ARPA probably will get back to your question on--

Okay yeah. So your first question. For the second half, I think I did mention earlier there are several strategies. First because of our traffic growth and expansion into different vertical categories we are able to expand our advertising base, in terms of different sectors. For example into more into food and beverage, clothing, cosmetics and the luxury goods which are traditionally preferred to be targeted towards the female audience.

However right now if you look at the unique visitor of our fashion or female channel, it's about twice the daily unique visitor of all the other portals, excluding Tencent. The average unique visitor of other three portals. That established leadership actually is driving our revenue growth in these new categories as I mentioned. Other categories includes like travel, parenting, education. And so the vertical strategy is wanting to help us in expanding our client base.

Secondly the news video advertising -- the executing of it and the recent re-organization of the dedicated news video ad sales team, hopefully will generate a fruitful result in the second half and -- because the news TV advertising is a huge market untapped and best suited for us to take the lead in transform the news TV advertising to online news video advertising.

And of course thirdly, the other action we have taken recently for example are to reorganize the auto channel because of the commercial nature to be under management of the advertising team. This policy will continue to accelerate the synergies and also the result of our ability to serve the client better. And we do hold also our Omni media strategy for Olympics will also drive the second half's advertising revenue growth.

Okay, thank you.

Karen one more thing I want to add. This is Shuang. The beauty of our -- this motto of [Life in Convergence], we can significantly leverage a Phoenix TV platform and resources in terms of covering the major events, in terms of the marketing initiative, in terms of the concert co-production. So our video front, because we focus on short form -- short clip video form, so the cost structure is fundamental different from other video sites.

And our items are [palm-sized] because we have a lot of abandoned resources from Phoenix TV leverage to leverage. So the cost structure also different from other portals. So the beauty of the platform driven business is when we reach certain point, the count and increase will gradually lower than the advertising sales growth. So that will -- fundamentally will be good to our margin improvement. That's the overlooked judgment of our going forward the margin trend.

Sure, thank you Shuang.

Thank you. Your next question comes from the line of Martin Bao from CICC. Go ahead please.

Thank you for taking my question. I have a quick question regarding your mobile internet strategy. As we see from various news reports that our key competitors are increasing their investment in--

We couldn't hear you. Can you speak louder?

Can you hear me now? Let me check out my handset.

Yes.

Yep, just a minute. Yes actually yes, we heard from various news reports that our key competitors are stepping up their investment in the mobile internet and I would like to know our marketing and other strategies on how to maintain and transfer the users to our mobile applications and mobile -- the 3G mobile site? Thank you.

Yeah thank you. This is Shuang. Whereas internet is definitely our strategy focus, as we mentioned before we think we are very well positioned in this area because of our leading wealth portals position among other competitors, because of the very -- the huge downloads of our news applications and also our leading position in wireless newspapers. We are well positioned.

But currently our focus is to expand the market share, not to monetize too early. We are still at the stage of forming our wireless internet strategies. So at the current stage we don't want to elaborate too much on this. But given our very strong brand and the very unique content we offer and the strategic alliance with major telecom operators, we do believe we can make a big difference in this area.

Thank you very much. Just one quick follow up. Regarding strategic alliance, besides our operators -- telecom operators, so we plan out where we see any kind of operations with other internets or other service companies?

Yes actually I think on the mobile front and so as Shuang mentioned, firstly focus on the quality of content which is very sought after by the partners. That's how we develop our partnerships. We do work with the handset manufacturers, the operating system in the developers, the mobile app developers and also the app store operators. And so from all different fronts and we work with these different channels to provide them with the quality and exclusive content and they also treasure -- they also value the brand of Phoenix and also our quality user base.

So that itself, actually relies less on actual marketing data, marketing spending by our mutually beneficial relationship. That's why we have been able to see the number of app downloads and also the 3G ifeng traffic to continue to increase. So we do work much more beyond the operator. Also within the operator we also work all operators, not just our strategic shareholder, China Mobile. Because we have the operators to compete for the high end 3G users in this mobile internet area.

Thank you very much.

(Operator instructions). We have a follow up question from the line of Alex Yao from Deutsche Bank. Go ahead please.

Hi guys. Can you give us an update on China Mobile's new policy and would you expect the policy to affect our business? Thank you.

Yeah we do experience some slowdown in this in cooperation with China Mobile due to some personality shuffle and internal agendas. But I think this is a temporary -- temporary setback. Yeah, I think the worst is over. The margin, the business will gradually return to the equilibrium -- this on the telecom operator side. But also we are gradually extending our independent 3g.ifeng.com. as we mentioned it's already number three ranking wireless portal in China. Also aggressively push our news app initiatives.

So, overall we are very optimistic about the market. But it's still a little early to tell when we'll be together with other wireless players to bounce back from the current telecom operator's internal reshuffle and business rebound.

Got it, thank you.

(Operator instructions). Thank you, it seems we have got no further questions at this time. I'll hand back to you Mr Zhao.

We have come to the end of our Q&A session our conference call. Please feel free to contact us if you have any further questions. Thank you for joining us on this call. Have a good day. Thank you.

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