Phoenix New Media Ltd (FENG) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media third quarter 2012 earnings call. (Operator Instructions). I must advise you that this conference is being recorded today, Wednesday, November 21, 2012. I would now like to hand the conference over to your host today, Mr. Matthew Zhao, Director of Investor Relations of Phoenix New Media. Thank you. Please go ahead.

Thank you operator, and thank you and welcome to Phoenix New Media third 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 and also include a Q&A session after the management's prepared remarks. The third quarter 2012 financial results and webcast of this conference call are available at 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 statement in our earnings press release, which applies to this call, as we will make forward-looking statements. Finally, please note that unless otherwise stated all figures mentioned during this conference call are in renminbi. 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. During a tough third quarter, although we remain by macroeconomic uncertainty which is directly affecting our advertising clients' media budgeting positions going into second half of next year, our brand advertising revenues still grew by 11%, CNY140.5m, surpassing the high end of our earlier guidance.

In addition, our video and mobile advertising businesses are increasingly becoming important new engines for future growth. For example, at the end of September, Ifeng video had become the number six online video website in China in terms of daily unique visitors according to iResearch. And of the top 10 players, we're the only platform focusing on short-form news media clips, which have significantly cost benefits as compared to longer form entertainment videos. On the mobile advertising front, we've almost doubled its contribution as a percentage of total ad revenue to over 6% this year and expect this trend to continue. We'll cover these in greater detail shortly.

With that, I would like to discuss three key areas with you today, one, our significant user base expansion along with our film and content offering. Two, our efforts to further extend our online video operations. And three, updates in our mobile business.

First, our user growth dynamics and constant offering. In the third quarter we continue to significantly outpace our peers' user growth and retention. According to iResearch in September we significantly grew our average daily unique visitors accounts by over 110% year over year to 38.2m, which continues to significantly outpace our peers. In addition we were the only top-tier portal to maintain positive month-over-month unique visitors growth throughout the past quarter.

This continuous rapid expansion of our user traffic (inaudible) on Ifeng is certainly due to our independent, high-quality content. We believe that Ifeng, with our strong core media DNA and independent, high-quality journalisms go beyond pure content aggregation, standing out among China's top portals and making Ifeng a true media leader on the Internet.

During the third quarter the major domestic and international news events that we covered included London Olympics as well as the territorial dispute between China and Japan. Regarding to London Olympic Games we attracted (inaudible) through our proprietary content with innovative web page layouts, unique perspective reports, a large number of online posts and in-depth interaction among users. Regarding to the Diaoyu Islands territorial dispute between China and Japan, we also enjoyed the advantages of exclusive video resource from Phoenix Satellite TV and our panoramic analysis of the entire story.

Looking forward we estimate our viewer traffic will moderate or slightly decline in the fourth quarter after achieving its historical high of the past quarter with those major events. We remain confident about our future traffic growth, as our extensive new coverage maintains its irreplaceable popularity among Chinese (inaudible), especially as China becomes an increasingly important player in international affairs.

Now I would like to discuss our online video business. We continue to execute a truly differentiated online video strategy by focusing on professional short-form news videos, documentaries and in-house produced video programs. This combination of high demand, quick consumption content generated a 194% year-over-year increase in daily unique visitors on our video website to over 15m daily viewers in September according to iResearch. Moreover, we believe our established brand and strength in delivering the news will provide us with a significant advantage in garnering additional advertising dollars as more money transitions from traditional TV ad budgets to online video budgets.

Currently Ifeng owns one of the largest online video libraries for documentaries in China, with more than 20,000 hours programming from many sources, including Phoenix Satellite TV, National Film Board of Canada, the BBC and many other international studios. In addition to our licensed documentaries, we are also helping to develop China's emerging talents for such content as well in an effort to help aspiring Chinese filmmakers as well as to discover new talented film producers.

We recently launched the first ever Ifeng Video Documentary Awards. This is the first time a Chinese documentary award show has been hosted on an online video website. The competition attracted over 300 high-quality productions, of which approximately 20 titles made it to the final round. Millions of users tuned in online, to watch and vote for their favorite titles. This event not only enhanced our relationship with viewers, but it also helped enrich our video content library in a very cost-effective way.

More strategically we believe that these sorts of initiatives will further strengthen our brand appeal to Chinas rising middle class, seeking thought-provoking and unique perspectives as well as provide advertising clients new and innovative sponsorship opportunities.

In terms of monetization for online video, we remain profitable due to our focus on short-form content as well as low-cost content advantages. Recently we completed the realignment of our internal video sales team and we believe that the streamlined efforts will allow us to better serve our advertising clients, further improving the online video contribution to total advertising revenue going forward.

In addition, our mobile video value-added services revenue increased by 110% year over year to CNY20.4m in the third quarter as our user base grew across the three major Chinese (inaudible) operator services. We believe that mobile video VAS user base will continue to grow alongside the growth in smartphone users in China.

Lastly, our mobile internet business. We continuously strive to improve the customization and seamlessness of accessing our premium content from any mobile device. As of September two of our most popular free download news applications, Phoenix News and Phoenix Mobile Station, have already been downloaded over 20m times on Apple and Android products. In addition our leading mobile news portal has reached a historical high of over 310m page views per day in September. This converged media platform provides a strong foundation to further leverage our relationship with advertisers on the mobile front.

As I highlighted at the beginning, mobile advertisings continue to grow as a percentage of total advertising revenue to 6% in the third quarter. We remain focused on working with our advertising clients on developing new means of improving our line for the advertising dollars as well as improving the targeting capabilities to reach the specific demographics that we wish to address. Going forward we'll continue to invest more on developing performance-based advertising solutions for our advertisers as we aim to further monetize our growing viewer base.

In summary, although we currently see weakness in the overall advertising sector, we remain confident in our current business strategy and execution capabilities. As the markets stabilize and begin to recover over the coming quarters we'll be well-positioned to benefit and we expect to see revenue growth recover once the macro-environment stabilizes.

With that I would like to pass it over to Lily to go over our third quarter financial results.

Thank you Shuang. Our third quarter results were mixed due to the weak online display advertising demand. For the third quarter of 2012 our total revenues grew by 5.8% year over year to CNY286m and non-GAAP diluted earnings per ADS was CNY0.17, of which net advertising revenues grew year over year by 11.4%, reaching to approximately CNY141m. Paid service revenues grew by about 1% year over year to CNY146m year over year or up 7.4% sequentially.

Let me now take you through the details of our third quarter 2012 financial results. Our net advertising revenues were primarily driven by growth in the average revenue per advertiser or ARPA. Year over year ARPA grew by 35.5% to CNY586,000 in the third quarter as compared to CNY432,000 in the third quarter. Our top five industry contributors for this quarter are auto, ecommerce, financial services, FMCG, followed by medical services.

For paid service revenues, mobile internet value-added services or MIVAS, mainly comprised of digital reading, mobile web page games and WVAS businesses, represented approximately 43.8% of total revenues in the third quarter, as compared to 49.8% in the prior year. Video value-added services or Video VAS represented approximately 7.1% of total revenues in this quarter versus 3.6% in the third quarter of last year. MIVAS in particular -- in particular, WVAS revenues will continue to decline as percent of total revenue and will in turn be offset by momentum for our 3G data services, web page games and advertising revenues going forward.

Our adjusted gross margin, which adds back share-based compensation expense of CNY0.6m, was 39.5% as compared to 44.3% in the third quarter of last year.

The four components of cost of revenues are revenue sharing fees related to pay services, content operational cost, bandwidth cost and sales tax. On a GAAP basis, revenue sharing fees as a percent of total revenues declined to 27.7% as compared to 32.9% in the third quarter of 2011. Content-related costs and operational costs as a percent of total revenues, increased to 21%, from 14% in the third quarter of last year, primarily due to increases in staff-related costs and acquisitions for new content. Bandwidth cost as a percent of revenues increased to 7% from 3.5% in the third quarter 2011, reflecting the website's strong traffic growth. And lastly, business tax as a percent of revenues decreased to 5% compared to 5.7% in the third quarter of 2011.

Next, our adjusted operating income was CNY6.3m compared to CNY49.2m in the third quarter of last year primarily due to weaker than expected top line growth and also due to increased staff-related cost, marketing and promotion events, along with increased office rental fees and professional fees.

Adjusted operating income has excluded share-based compensation expense of CNY2.6m. Adjusted operating income margin was 2.2% in the quarter, as compared to 18.2% in the prior year. Adjusted sales and marketing as a percentage of revenue increased to 18.6% in the third quarter compared to 13.2% in the third quarter of last year primarily due to increase in staff-related costs and an increase in marketing and promotional fees. Adjusted G&A as a, G&A expenses as a percent of revenues increased to 9.8% from 6.7% last year, and adjusted R&D as a percent of revenues increased to 8.9% compared to 6.3% last year.

Our GAAP net income was CNY11.5m in the third quarter as compared to CNY56.8m in the third quarter of last year, adding back total share-based compensation expenses of CNY2.6m. Adjusted net income attributable to Phoenix New Media was CNY14.1m as compared to CNY61.5m in the third quarter of 2011. This resulted in adjusted net margin decreasing to 4.9% from 22.7% in the quarter of last year. Adjusted net income attributable to Phoenix New Media per diluted ADS was CNY0.17 or about $0.03 per ADS compared to CNY0.76 in the third quarter of last year.

Lastly I'd like to reiterate our business outlook for the fourth quarter. We are expecting our net advertising revenues to be between CNY166m to CNY171m, which represents an increase of approximately 10.3% to 13.7% year over year or sequential increase of 18.1% to 21.7%. Relative to our third quarter our advertising revenue is experiencing a healthy recovery from this quarter. Paid service revenues are expected to be between CNY100m to CNY105m in the last quarter.

As such our total revenues are expected to be between CNY266m to CNY276m, which represents a decrease of approximately 5.2% to a decrease of 1.6% year over year. And also for the full year 2012 we expect total revenues to be between CNY1.075b to CNY1.085b, representing a growth of 13.1% to 14.1%. For entire 2012 total advertising revenue is expected to grow between 25.2% to 26.2% and our total paid services is expected to grow between 1.4% to 2.5%.

This concludes the prepared remarks portion of the call. Operator, please go ahead.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions). Your first question comes from the line of [Julia Chung] from Morgan Stanley.

Hi. Thanks for taking my question. Can you please help us understand better the performance of different advertising sectors and the trend going into the fourth quarter?

And also can you please help us understand the impact of the island dispute between China and Japan on your advertising sales? Thank you.

Hi. Good morning Julia. This is Ya. Thanks for the question. The sector -- you can hear me?

I can hear it. Thank you.

Okay, good. Yes, the sector break up I think Lily mentioned. The top five are the auto, by 28% which is the same compared to second quarter, and ecommerce 12%, increased from 10% from second quarter mainly due to big e-commerce companies like Taobao increased spending in the third quarter. And the third sector is the FMCG, which includes the Chinese wine and beverage and cosmetics; that was 12%. The fourth is financial service, 11%. Number five is medical service for 5%.

Among all the sectors I think auto exhibited a strong strength despite the island dispute causing some of the Japanese auto makers cut back their spending in September, which is estimated to be about at least I think CNY5m to CNY10m. And so auto remained the same despite of that. And for the FMCG sector, the Chinese wine and cosmetics, and also food and beverage also showed strength I think based on our continued strengths in our verticals, like fashion and entertainment among all the portals and also our video ad strategy, which does better compared to other sectors for the video advertising result.

And for the outlook for the fourth quarter I think we did give a guidance that sequentially we expect advertising revenue to grow at 20% or more. And I think this is partly because the effectiveness of our realignment of our internal sales force, including the -- our client retention management and also the video ad sales team realignment. And also we do see slight recovery of the Japanese automaker in the fourth quarter and so the impact is not as we feared initially.

But among all these four sectors we think auto will remain very unstable and the home electronics probably will gradually recover. And the financial service and the ecommerce, and real estate will probably stay weak. And luxury goods and cosmetics, and food/beverage will be strong for us.

Thank you.

Thank you.

Your next question comes from the line of Alex Yao from Deutsche Bank. Please ask your question.

Hi. Good morning and thank you very much for taking my question. First question is regarding the operating metrics for the quarter. The advertising revenue grew by 11%. ARPU grew by 36%. So if I do the math correct number of advertisers declined by roughly 25%. Can you share more color on what are the advertising categories that you guys see the decline of number of advertisers? And from the scale of the business, are they larger advertisers or smaller advertisers?

Second question is on the 2012 advertising outlook. Can you guys comment on the visibility on advertising business? When do you expect the impact from macro or Japanese automaker to be stabilized? Thank you.

Okay, thank you. This is Ya. I think regarding the number of advertisers we did see reductions in total number of clients in third quarter. However, direct brand and clients remained most the same. The clients sold through third-party agencies did decrease. The brand -- within the brand and direct clients we do see weakness in these following sectors. The auto sector, including quite a few Japanese automakers. And the ecommerce sector, some of the smaller ecommerce players because we took proactive approach to protect our finance requires tightened payment terms from the smaller ecommerce players. And thirdly the real estate sector because our relative weakness in terms of content within that sector.

And so the number of the dropped clients mostly from the third-party clients. And we do see some increase in the following sectors, like Chinese wine, regional travel and also the medical services as these are the sectors fits well with our news video ads strategy. And if you can see recent CCTV auction, these sectors are also the strongest sectors from the actual results. And that -- to grabbing the market share of the TV news advertising to our online news video advertising, that's one of the major driver for our future revenue growth.

So as regard to the outlook for 2013, as we mentioned earlier, Japanese automakers we already see some recovery. For, however, for the most of other sectors, the auto sector we do see continued pressure, industry policy costs continued pressure because of the limit in some major cities. Home electronics, because of the, also this countryside home electronics subsidy policies, in 2012 we saw some weakness. But 2013 we expect some recovery. And for the Chinese wine and regional travel, FMCG in general, we do see that strong area both macro-wise and also because of our news video strategy.

Overall I think we remain cautious on the economic outlook because we attribute some of these strong advertisement coming in the fourth quarter partly due to the effectiveness of our internal sales-force realignment we did earlier this year, which also caused temporary setback in our advertising growth in the third quarter.

Got it. That's very helpful. Thank you very much.

Thank you.

Your next question comes from the line of Jiong Shao from Macquarie. Please ask your question.

Thank you very much. Good morning all. First a follow up on your comments on the outlook for 2013. I was wondering could you remind us sort of how the annual contract negotiations, when that start, when that's going to mostly end, so you'll have a pretty good idea about your business for 2013?

And do you have any indications, if any, right now from talking with your advertisers for their budget for next year. That's my first question.

Okay, thank you. This is Ya. Normally we would start the framework contract negotiation in full almost in the same time as the CCTV auction. So we have to talk to the direct clients first and then finalize some of the direct client contracts, and then back to the agencies to sign bigger agency contracts.

In 2012 we did observe this push back, in terms I mean delay of framework contract because the economic slowdown in the second quarter at the time when we expect to finish the, to complete these framework contracts. And these agencies ask for higher rebates from many of these video platforms and also portal players. And also the direct clients hesitate, were hesitating, cutting back their ad spending or delaying their ad spending. So it has caused some unusual timing for 2012.

For 2013 we had two different approaches. First for the video ad sales we started very early because we want to target some of the TV advertisers. And we did successfully sell some of the next year's major video ad inventory to some typical TV advertisers. For example, we did sell our daily news program to a Chinese wine advertiser for nearly CNY10m. We also sold our documentary channel to another FMCG advertiser. And so for these media advertising we started this direct framework contract or even completed contract very early.

However, for the portal advertising and we are following a normal process, but we hope for the 2013 things can -- shouldn't be getting too much worse than 2012. So the normal timing would be starting from now and expect to sign most contracts in the second quarter.

Do you expect the commission rate to go up further in 2013 from the agencies?

No, because we have strengthened our direct sales capability. And for the last two years we have maintained a rather stable rebate rate and for 2013 we do not expect any hike in average agency rebate.

Okay. Thanks Ya. My second question is on your number of advertisers. I noticed it was down year over year and I was just wondering what sort of -- what are some of the reasons behind? Thanks.

Okay. Thank you. Yes, again I think there are two major reasons. First because the way we count the number of advertisers did change a bit especially for the third party, for the clients sold through third parties. Some of the small third parties have very low total revenue contribution so we counted all of their clients as one just as because -- the third-party agency as one client instead of all the small clients. That reduced the third-party clients significantly.

However, our direct clients, brand advertising clients didn't increase much. I think because of our internal sales force realignment and the transition in this put our sales-force focus first on existing clients, not on securing new clients. However, as we implement strategies like news video and mobile advertising we do expect the brand advertising direct clients to increase steadily going forward.

Okay. Thanks Ya. Yes, and my last question is on your pricing. It looks like in Q3 your steady unique visitors went up quite a bit year over year but your revenue growth was a lot more modest, that basically implying your ROI has gone up, your effective CPM has come down. So I was wondering when you plan to raise your price and by how much. Thank you.

Yes, indeed. Thank you. CPM did decrease slightly in Q3 as we experienced much stronger traffic growth than our peers. And we have changed our rate hike date from the third quarter to the beginning of the new year. For January 1 increase we have two rate hikes categories.

One is for the video advertising. The daily video advertising inventory is to be increased by 48% mainly driven by increased video ad products or new video ad positions, and partly by the rate hike of the same ad positions. For example, the A-plus video, existing video ad position the rate card will increase 15%. But overall the video ad daily inventory will increase by 48%, which will be a strong driver for next year's revenue growth. The non-video or portal ad inventory the average increase is about 10% and the A-plus category of the non-video portal inventory will increase by 18%. I think this is how we guide, we discussed last quarter, how the non-video part will increase in the mid-teens.

So -- but overall, I think that our CPM increase relative to our peers still shows a huge potential because of our influential brand, our valuable user base. I think we will gradually increase our CPM to indicate our brand value and also, however, to take market share from the portal peers and the other video players. And so overall the rate hike for January 1 is back to a healthier track and we do expect a second increase in the middle of next year. Thank you.

Great. Thanks Ya. That's helpful.

Your next question comes from the line of Martin Bao from CICC. Please ask your question.

Hi. Thank you for taking my question. My question is about our strategy and recent performance of the mobile internal internet. Could you provide us the percentage of revenue coming from the mobile internet, either from the mobile client of your web page, and your ongoing mobile strategy and future monetary vision plan on your mobile products? Thank you very much.

Yes, well, it's definitely a key strategic focus for us. There's three parts of the business in our wireless business. The first business is traditional SP business. The traditional SP business is experiencing a difficult transition. Because of the China Mobile's policy or telecom operators' policy changes under new market constraining, the traditional SP business is dropping recently and I think the trend will continue.

The good thing is our wireless reading and wireless video, and wireless game business is picking up and, as we mentioned, this year's growth rate is pretty high. And I think this trend, this increase in wireless reading, wireless gaming and wireless video, will to a certain extent offset the drop of the traditional SP business.

Our major, the key strategic focus of our wireless business is wireless applications and wireless portal. As we mentioned in our script, our portal is experiencing very high growth year over year and the same thing for our wireless downloads, wireless applications. We have wireless news applications, we have wireless video applications and also wireless video. Right now we have more than 20m downloads and over 1m active users. And the monetization efforts have been very encouraging. We achieved above the market advertising dollar growth.

But the challenge is to take a balance between the market share expansion and the financial discipline. And there is so many -- there is a proliferation of wireless application players and they outstand other players in terms of their channel extension, marketing and bundling with manufacturers, handset manufacturers. We believe at the end of the day the brand, the content will finally dictate the traffic growth. So we want to be more focused, improve our usability experience, to improve our content and product. So we want to take a step-by-step approach in terms of developing our wireless application and downloads.

And also in terms of the next year strategy I think that the traditional SP business will go down gradually and the wireless reading, wireless gaming and wireless video, yes, will continue to grow. But to achieve the same kind of growth rate as we have experienced this year is a little bit hard. Our focus will be on wireless downloads, wireless applications. We'll maintain the current growth rate and to achieve bigger market share, and to speed up our monetization process.

Thank you. You mentioned that you will do some monetization in your operation of wireless gaming. Do you plan to distribute mobile games or do you plan to host and operate those mobile games?

Okay. Yes, our plan is that we -- currently we do not have R&D capabilities in the gaming sector. However, we have rather large user base and also the users' consumption power to support distribution and operating model. And also I want to add that among these wireless services, some of these new emerging service like wireless video, we mentioned earlier that already account for 7% of our total revenue in the third quarter. And wireless advertising steadily grew to 6% of our advertising revenue in the third quarter. These are both expected to continue to grow into next year.

Thank you very much.

Your next question comes from the line of Joyce Zhou from Barclays Capital. Please ask your question.

Thank you for taking my question. So my first question is just a follow up from a previous question. So you mentioned you changed your price increase from previous October to January 1. So does that mean that this October you didn't actually increase the price because last quarter conference call I think you mentioned that you will increase by low 10s? This is my first question.

Yes, that is indeed correct, yes. Because of the softness in the economy we decided to push back and also we want a better video ad sales strategy and pricing strategy to be implemented.

Okay. Thank you.

So starting from next year we will have the increase on January 1 and July 1.

Okay. Thank you very much. And my second question is on the paid service revenue. So if we looking at your fourth quarter guidance, since you guided around 30% quarter-over-quarter decline so this is more than we have seen for the last few years. So besides the seasonality is there any other reason for this? Thank you.

Hi. This is Shuang. As I mentioned, because of the new policy changes from telecom operators all the players in the SP-related areas have experiencing the revenue drop this quarter. And also in coming quarters I think this will be the trend. But we are confident we are going to outperform the other competitors in terms of delivering revenue in traditional SP business. But the overall trend is definitely going down. After all it's, traditional SP business is a low margin business so its impact upon our earnings per share is not very significant.

Okay. Thank you.

Did I answer that question?

Your next question comes from the line of Mi Zhou from UBS. Please ask your questions.

Okay. Is sequential growth mainly driven by your, the alignment of your sales team or is there any change in your product mix?

And I also wonder in terms of vertical do you see growth coming from across the board or from a few industries? Thank you.

Okay. Thank you for the question. The first question's about the sequential growth, is it from new product or -- for the advertising it's because of, if you look at it it's because of the new sectors and also new categories. When I say new sectors it's those like FMCG, which is based on our strengths and our continued leadership in fashion and entertainment vertical, and the luxury brands. And also auto, which continues to be strong as we improve our advertising ROI to our advertisers because of our user base consumption power, purchasing power.

And when I say category, I mean the video ad. For example, for the fourth quarter we are seeing already over 50% of sequential, quarter-to-quarter sequential growth of our video advertising revenue up to date. And we do expect video advertising contribution to improve significantly next year from the average of below like 14% this year to be about 20% next year. So these new sectors and also new categories, they are driving our advertising revenue growth. Is that answering your question?

Yes, that's very helpful. And in terms of verticals do you see the growth concentrate on a few sectors. You mentioned like fast-moving consumer goods. Is that the only sector that you see the strongest growth from?

We also have like luxury brands, which was not among the top 10. Right now it's 2% contribution. And also we have regional travel and local government, which also became 2% contributor in the third quarter. And I think these are all pertaining to some new sectors, not traditional internet advertising, probably some TV advertising or magazine advertising.

Okay, got it. Very helpful. Thank you very much.

Your next question comes from the line of Eric Qiu from Guosen Securities. Please as your question.

Good morning. I have two questions. First is, we just see the CCTV bidding results. I wonder if it is agreed to promoting for next year's expectations, which means that next year the scenario may not that bad as we expected before?

And also the pricing strategy, what do you expect to next year's price increase would be? Thank you.

Okay. Thank you for the questions. The first about the CCTV auction, first of all I want to say that the CCTV auction is no longer the single indicator for the advertising sector anymore. Prior to that some of the local satellite TV also did their auctions. We did observe that some of the major TV companies from Hunan to Anhui to Zhejiang, they didn't increase their rate much. However, they did see their auction total results to grow rather significantly. I think that is one strategy or approach to take market share but without a significant price hike at a difficult economic time.

But overall I think that the over 11 to 12% increase in CCTV's auction and also these near triple-digit growth in other major satellite TV auctions indicate that since that advertising spending is stabilized. It's not getting any worse and that's very encouraging.

Secondly, the CCTV auction also showed some strong sectors. The first sector is Chinese wine, 32%, and beverage, 12%. These two sectors fits very well with our top sectors and also our online news video advertising strategy.

And with regarding your second question about the price hike, we did address that we are going to increase our price twice next year, one on January 1 and second on July 1. And the first increase, video ad will increase 48% in ad inventory and long video portal part is about 10%.

Okay. The second question is how much of the revenue will be coming from the performance-based revenue like CPC, how many from CPM, and are you going to shift your strategy to more focus on performance-based revenue? Thank you.

Yes, the answer is no, we are not shifting. I think value of brand advertising will always be here in any economy. And if you look at video advertising it is very difficult to track those CPC or CPF, CPA. I think the value we provide is our brand's influence and also the value-per-user consumption power. And so but at the same time we are improving our data analytics and advertising solutions and technologies to provide more targeted advertising both online video and also on mobile so that the sales promotional ads will -- can also be invested on our site at difficult times.

Okay. Thank you. Thank you for your answer.

Thank you.

(Operator Instructions). Ladies and gentlemen, we have now come to the end of our question and answer session. I would now like to turn the call back to Mr. Matthew Zhao for closing remarks. Please go ahead.

Thank you operator. We have come to the end of our Q&A session and 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.

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