Phoenix New Media Ltd (FENG) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to this Phoenix New Media first quarter 2013 earnings call. At this time, all participants are in listen only mode. There will be a presentation followed by a question and answer session. (Operator instructions) I must advise you that this conference is being recorded today, Wednesday 15 May 2013. I would now like to hand the conference over to your first speaker today, Mr. Matthew Zhao. Thank you. Please go ahead, sir.

Thank you, operator, and thank you and welcome to Phoenix New Media first quarter 2013 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 first quarter 2013 financial results and there's a web-cast of this conference call, are available at Investor Relation sections 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 a forward looking statement.

Finally, please know 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. Liu Shuang, our CEO.

Thank you, Matthew. Good morning and good evening, everyone. We're very pleased to announce our first quarter 2013 financial results, which exceeded consensus estimated for both top line revenues and bottom line net profits. For the first quarter of 2013 we outpaced other major internet portals in terms of user traffic growth, making ifeng one of China's fastest growing internet portals. Despite the first quarter being our seasonally weakest quarter for our online advertising sales, we still grew advertising revenues by over 29% year-over-year, to approximately RMB166 million, well ahead of the internet displayed advertising market growth average of 14.6%, according to iResearch.

Our slow momentum in online ad revenues drove our total revenue growth, which increased by over 18% year-over-year to RMB283 million. With that, today I would like to discuss three key topics with you. First our significant user base expansion along with our (inaudible) offerings. Second, our efforts to further extend our mobile internet operations, and third, updates on gaining business.

First, our user growth and (inaudible). Along with China's accelerated urbanization and integration with the global community, our Chinese leaders have shown greater interest in new coverage on social and the political spheres that increasingly matter in their daily life, such as domestic issues, geo politics, diplomatic issues and global current affairs. Meanwhile, China's rising educated middle-class are also hungry for unbiased, high quality and insightful coverage and professional journalism that can helped them make informed decisions for them and their families lifestyle decisions, [developments], education and other matters.

From a broader perspective, the professional journalism that ifeng strives to provide could in turn help encourage active participation of public opinions, needs the vital development of engaged citizens in decision making associated with defining our nation's development priorities. At the end of this national (inaudible) our independence and professionalism in news coverage and our expertise in covering key verticals such as finance, auto and technology have been increasingly valued by China's mainstream audience, and is evidenced in our strong user growth that I will elaborate on later.

Our slow media DNA and prominent brand image enable us to truly stand out in China's media market, that is openly (inaudible) with homogenous media coverage. Given by users strong demands (inaudible) in the first quarter our web portal growth rate continued to significantly out-pace our peers. According to iResearch for March 2013, our average daily visitors grew 49% year-over-year to 34 million users. This is in contrast with the decline of at least 10% for the rest of major peers daily visitors in the same period.

Meanwhile, according to iResearch, in terms of average monthly user timestamps the total grew over 7% year-over-year and we remain one of the fastest growing portals in China. This strong user growth has enabled us to further capture market share from other major competitors in terms of user traffic and user stickiness and more users spending more time on our site.

Regarding our (inaudible) we remain the leader for professional football news coverage among all of China's leading sites. As discussed earlier, this rapid traffic growth is a testament of our driving influence and appeal as a reliable and respectable media source in China. It also demonstrates our huge growth potential in advertising as we continue to improve our ad solutions and monetized traffic has increased our utilization.

So in the first quarter we continued to deliver comprehensive media coverage of major news events and issues taking place around China and the world. (Inaudible) ifeng signature style that is characterized by full scope and in-depth analysis. ifeng remains the premier online destination, especially for white-collar and educated viewers who seek thought provoking and high quality coverage. Some of our most popular featured events in the quarter included Oscar awards, Paris Fashion Week, and China's two most important annual national congressional meetings in March, (spoken in Chinese).

And leveraging both our parent company, Phoenix TV and self-produced company, we were able to provide the most comprehensive, in-depth coverage of this extremely important political event. As a result, our (inaudible) special report attracted over 1.1 billion page views just in one week, on both our portal and mobile (inaudible) helping (inaudible) additional standards by advertisers (inaudible).

In addition, (inaudible) with our parent company Phoenix TV and the Chinese Council for the Promotion of International Treaties, we hosted the year 2012 ifeng car award ceremony on January 11. At this ceremony we awarded first car model for the year, and also recognized prominent figures and enterprises which have made extraordinary contributions to the growth and development of China's smart mobile industry. This event was also broadcasted by Phoenix Satellite TV provided our sponsors with significant amount of additional quota due to our TV and internet coverage model. Going forward, we plan to continue to host these types of marketing events to further improve our brand awareness around both viewers as well as advertising clients.

Next, moving onto our efforts to expand our mobile internet operations. Although the (inaudible) portal position in the mobile internet remains intense, we think the portal offerings Are still in the very early stage. By taking a long term view we believe that eventually (inaudible) experience and supported resources that will determine the demand for any offer. At (inaudible) their focus on improving our (inaudible) portal experience, as well as accelerating the pace of product coverage. In addition we'll monitor the market evolution to determine whether this is the best time to invest more aggressively on a (inaudible) marketing promotion, allowing us to continually improve the customization and seamlessness accessing of (inaudible) from any mobile device.

As of March 2013, two of our most popular free downloaded news applications, ifeng News and ifeng Video, have been downloaded over 28 million times. Another app, ifeng FM, which offers all audio news and audio content, also continues to remain one of the most popular non-musical audio apps available for both IOS and Android devices. This demonstrates that global (inaudible) will be a key driver to user growth going forward as our users continue to demand access to our premium and differentiated content anytime and anywhere.

Second point we launched version 4.0 ifeng News to provide clear interface, simpler operation and better (inaudible) to our users. We will also be completing a major upgrade to ifeng Video and ifeng FM between May and June. In addition, mobile advertising continues to grow as a percentage of the total advertising revenue to 8% in the first quarter, which is a much higher contribution in the same period of last year. As an example of our integrated marketing solutions, (inaudible) our special coverage (inaudible) 2013 earth hour (inaudible), which included PC portal-like medium as 3G mobile portals, and generated over 270 million hits from viewers (inaudible) providing a significant amount of ad exposure in China.

Lastly, moving on to our gaming news. We are very excited about the solid progress we are achieving in our growing gaming business. Launched in the second half of last year, our gaming platform placed our ifeng.com (inaudible) offers a total of 58 licensed web games, including role-playing, strategy and (inaudible) games. (Inaudible) has enabled us to leverage our large audience of over 34 million daily users by complementing our core (inaudible) with an increasing number of entertaining options.

Although it is too early to disclose detailed operating metrics for our gaming business at this stage, we have seen very solid growth user base ARPU and a paying user conversion, just in our initial six months of operation. We are increasingly confident that this business will provide us a (inaudible) way to address our users diversified entertainment needs, and allow us to monetize our growing user traffic to create new incremental revenue streams with little cost for us over the long term.

However, although we truly believe games is a worthwhile area to explore, it will remain a fast-growing but supplemental business segment to us. Yet we have no plans to ever shift the Company's focus away from our key internet media business. In additional, please allow me to take this opportunity to thank our CFO, Lily Liu, for her expertise and dedication to ifeng. As we have announced, Lily will leave ifeng in July in order to devote more time to her family.

In addition, we are pleased to have our COO, Ya, who (inaudible) serve as COO for five years, and has been with our company since 2006, to step into the position of interim CFO position. Ya's (inaudible) and experience will enable our Company to move seamlessly through the transitioning period, for which we remain (inaudible).

Looking forward, we're excited about our increase in the inflows among China's masses and (inaudible) and mobile business, we're confident that our global conversation model of both PCs, mobile internet and TV will allow us to further leverage our media (inaudible) to stay in front of China's growing and quickly evolving digital media market.

With that, I would like to pass the call to Lily, who'll go over our first quarter 2013 financial results.

Thank you, Shuang, and thank you all for joining our conference call today. Let me now take you through our financial highlights for the first quarter 2013 results. The amounts mentioned here are all in RMB unless otherwise noted. ifeng total revenue for the first quarter came in at RMB281.4 million, which exceeded the high end of our guidance. Non-GAAP net income for the first quarter was RMB38.7 million, or RMB0.49 non-GAAP net income per diluted ADS, which exceeded Bloomberg's street consensus by over 47%.

Let me now run through the other key financial highlights, starting with net advertising revenues. Net advertising revenues for the first quarter came in at RMB156.4 million, which also beat the high end of our guidance, and represents a respectable year-over-year growth of 29%. Average revenue per advertiser increased 25.9% to RMB690,600 for 241 total advertisers. Our top five industry contributors for this quarter are auto, food, beverages and wine, ecommerce, medical services and financial services.

Turning to paid service revenues, for the fourth quarter 2013, ifeng generated a RMB114.9 million paid service revenues, which beats the high end of our guidance. From this year, we adjusted our paid service revenue classification from previously mobile internet value added services or MIVAS, and video value added services, or VIVAS, (inaudible) mobile value added services, or MVAS, and game and others. MVAS includes all of our paid services which are offered in the telecom operators platforms such as wireless value added services, or WVAS, mobile digital meeting, and mobile games. Games and others include web based games, content sales, digital readings and other online and mobile paid services to our own platforms.

For the first quarter 2013, mobile value added services represent a decrease by 8.2% TO RMB95.9 million, due to an expected decrease in sales from our 2G text messages based pay for view services. Games and other revenues increased by 238.8% to RMB90 million, primarily due to increasing revenues generated from web based games on our own games platform. As the market in China shifts towards mobile internet, we expect traditional WVAS revenues will continue to decline, but that it will in turn be offset by growth of our 3G data services such as mobile video, digital reading as well as webpage games, going forward. We believe this new classification reflects more accurately how our paid service business is transforming from reliance on telecom operated platforms to monetize our own medias and traffic, and the transformation from 2G to 3G related services going forward.

Turning to gross margin, our gross margin for the fourth quarter was 48.9%, up significantly from 43.5% for the same period in 2012. The four components of cost of revenues are revenue-sharing fees relating to paid services, content operational cost, bandwidth cost, and sales tax and surcharges. On a GAAP basis, revenue-sharing fees as a percent of total revenues declined to 17.6% from 26.8% in the first quarter of last year. Content and operational costs as a percent of total revenue increased to 20.3% from 18.5% in the first quarter of last year, primarily due to the increase in staff-related costs.

Bandwidth cost as a percentage of revenues increased to 6.6% from 4.9% last year, reflecting the websites strong traffic growth and greater demand for live broadcasting media programs. And lastly, sales taxes and surcharges as a percentage of revenues increased to 6.7% from 6.3% last year.

Turning to operating expenses, on a GAAP basis operating expenses for the first quarter were RMB105.5 million compared to approximately RMB76.9 million from the first quarter last year. The increase in operating expenses was primarily due to increase in staff related costs, expenses associated with marketing and promotion and provision for allowing for allowance for doubtful accounts. ifeng operating margin for the first quarter 2013 was 11.4% which remained stable on a year-over-year basis but we have improved significantly from the previous quarter's 6.2%.

Non-GAAP -- for the operating expenses breakdown, non-GAAP sales and marketing expenses as a percent of revenue increased to 19.5% in the first quarter compared to 16.3% in the first quarter of last year due to increase in staff related costs marketing and promotion events costs. Non-GAAP G&M expenses as a percent of revenue increased to 9.4% from 6.6% and non-GAAP R&D expenses as a percent of revenue increased to 9.1% from 8.2% last year.

Non-GAAP income from operations for the first quarter 2013 increased by 2.8% to RMB31.4 million from RMB30.6 million for the same quarter last year. Turning to net income, net income attributable to ifeng for the first quarter increased by 19% to RMB39.2 million from RMB32.9 million for the same quarter last year. Non-GAAP net income attributable to ifeng for the first quarter increased by 6.4% to RMB38.7 million from RMB36.3 million for the first quarter of last year. Non-GAAP net income for dilutive ADS for the quarter was RMB0.49, or $0.08 compared to RMB0.45 last year.

Turning to balance sheet items. As of March 31st 2013, ifeng's cash, cash equivalents and bank term deposits totaled RMB1.2 billion or approximately $192 million. Turning to our business outlook for the second quarter of 2013 we're targeting total revenues to be between RMB331 million to RMB341 million representing an increase of 16.8% to 20.3% year-over-year. For net advertising revenues, we're targeting between RMB195 million to RMB200 million, representing a growth of 32.1% to 35.5% year-over-year. For paid service revenues we're targeting between RMB136 million to RMB141 million representing a growth of 0.2% to 3.8% year-over-year. I also want to note here that as stated in our 20F subsequent events we issued approximately 18.7 million shares of options which is equivalent to approximately 2.3 ADR equivalent options and we may continue issue additional options in the rest of the year and we expect to incur approximately RMB12 million in total share compensation expenses in 2013.

Lastly I'd like to take this opportunity to thank all of you and my ifeng colleagues for all of your great support during my tenure as ifeng CFO. I have truly enjoyed my time at ifeng. I believe ifeng's growth potential and strong application capabilities of the entire management team will continue to provide a successful future for ifeng. There are lots of interesting developments at ifeng this year and I sincerely wish the company continued success going forward.

This concludes the [reason] portion of our call. We are now ready for questions. 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 Mr. Alex Yao of Deutsche Bank. Please ask your question.

Hi, good morning everyone and congratulations on a very solid quarter and also all the best to Lily. So I have two questions. Number one, can management share with us the 2013 online advertising revenue growth outlook and also specifically what are the key advertisers categories in this year and number two question is you guys, in the prepared remarks, mentioned increasing usage on the mobile apps and you guys are obviously making increasingly more effort on mobile internet. My question is on the distribution and the user acquisition side, given the (inaudible) marketing environment in China what are the approaches -- what are the strategies, you guys bought to gain mobile users? Thank you.

Hi, Alex. Hi, this is Ya, good morning. Thanks for the question. For the first question about the 2013 advertising outlook and the key drivers for our advertising growth, I think we did give second quarter guidance of revenue growing from 31% to 36% compared to last year. I think the main driver behind this first of course is our recovering economy compared to the same time last year, even though there are still uncertainties but we are cautiously optimistic and based on our advertising sales progress to date and the (inaudible) contract we signed, it seems we have turned all of the last year's bottom situation.

The key drivers I think for our growth include the following. First, of course, the continuous user growth of our portal keeps driving our market share gain from the peer as we are able to raise our weight [carts] and also grab budget allocation for our key clients and we do expect those (inaudible) and a number of clients to grow this year contributing to revenue growth. From a sector perspective there are certain sectors performing well. First we maintained our stronghold in auto sector, contributing 28% in the first quarter and most importantly we improved the FMCG food, beverage and the Chinese wine contribution from 15% in Q4 to 20% in Q1.

These sectors, along with regional travel, et cetera, fit well with our online news video strategy as we realigned our online video apps team and also improved the video advertising product and technology. We are seeing continuous growth in the biggest contribution to our overall revenue and also importantly our leadership in sectors such as fashion, lifestyle and entertainment helped us growing our revenues in sectors such as luxury brands, which contributed 3% in the first quarter and which was not among the top [24]. Also the cosmetics, clothes, all these will benefit from our leadership in the fashion, lifestyle and entertainment sectors which we are very strong in the portal business.

Lastly, the major driver will come from the integrated market solution coming from our convergence platform including the 18.6 million daily visitors from our mobile platform plus the 34 million on our [PP] platform and we are able to provide this integrated marketing solution to satisfy the clients' growing need to reach their target consumers across different platforms, different [swings]. We have given an example in Shuang's CEO speech and I think the growth in our portal is unique visitor and our online news video strategy and also the integrated marketing solution including mobile, all of these are the key drivers for this year's continuous advertising growth.

Alex, this is Shuang, I'll get back to your question two. Actually about user acquisition. Actually there are two different types of approach to grow mobile users. One to aggressively extending our partnership with third parties to ensure certain focus. Two, to increasing user experience for gradual but consistent user growth. Actually we (inaudible) we have adopted the latter approach which keeps the balance between investing and growth and the profitability. Approach one, I would say may lead to very rapid immediate growth in user jump in the near term but traffic growth does not necessarily translate into very loyal stickiness, which is even more important to sustain the growth in the long run.

So compared with this aggressive and expensive strategy, at the current stage I think our main focus will be on product improvement, user experience improvement, maybe the approach to represent the more proven and long term oriented strategy to grow the user base with disciplined investments. You look at our history we had a major [business event] in the year 2006. At that time all the other portals had gone public. In just five or six years we (inaudible) a market, enjoyed very rapid user growth through our very strong front reception, (inaudible) and deep understanding of user behavior and unique approach towards aggregation. So we are confident because it keeps the same kind of success on a (inaudible).

Got it, thank you very much.

Thank you. The next question comes from Gillian Chung of Morgan Stanley. Please ask your question.

Thank you for taking my question and congratulations on a solid quarter and my first question is about the advertising price hike. You raised the price for your advertising time slot earlier this year and I just wonder what's the client feedback for your advertising price, is that direct (inaudible) and do you have any plans to increase the price in coming months and (inaudible).

Hi, Gillian. Hi, your voice is a little bit low but I think your question is regarding the advertising rate cards and yes, we are just about to allow the most recent rates increase for the (inaudible) site and the overall price rate is 5% of premium advertisement positions price increase over 20% and on January 1st, we raised our price for both video and non-video. The video increase overall daily inventory value by 48% and for the July 1st we decided that the video rate cover was staying the same. For the mobile part we also had a recent rate increase on April 1st as the [APT] and the mobile website each increased over 80%. I think our strategy is to gradually increase our rate cards with the goal to maximizing the budget allocation and market share gain from the peers.

What's your pricing level compared to your peers?

Okay, yes. Yes, because there are just so many different advertising products and positions and one of the key measurements now is the front page top banners about two-thirds of the leading -- of the market share leaders in display advertisements, about two-thirds. And, of course, we use integrated marked solutions so difficult to measure the absolute CTM.

So do you see different advertising profile for your video advertising?

Your voice is too low. It's difficult to hear you.

Do you see different advertiser profile for your video advertising?

Yes, indeed, as we mentioned before, we adopt a different video strategy. I think instead of competing for the TV drama and movie content, we focus on short form professional news content and the micro documentaries. So there are project advertiser, those who are typical TV news advertisers, such as in the Chinese mine sector, the regional travel sector and some government agencies.

These sectors actually fit well with our newsreader strategy and also we are combining certain vertical channel, (inaudible) channel, with our video channel to provide integrated solution for these categories of advertisers. And that's what's driving the contribution of the food, beverage and wine sector in the first quarter and continuously. I think while the other video conference revenue to grow, but profitability remains elusive. So our model is to be sustainable and profitable and to grow our video advertising revenue targeting the TV news (inaudible).

Thank you.

Thank you. (Operator instructions) The next question comes from Jiong Shao of Macquarie. Please ask your question.

Good morning, guys. Thank you for taking my questions. Very good results and, Lily, have a great time with the family.

Thank you.

Two questions. First question is following up on your comment on video. Sorry if I missed it earlier in your prepared remarks. How much is the video revenue contribution to your advertising business and how much is sort of PC versus mobile and of that revenue, how much is banner versus pre-roll? That's my first question.

Okay, first, overall contribution, yes. We have over 16% from video and over 8% from mobile and these demonstrate strong growth from first quarter of 2012. And for the actual pre-roll we do not give out that number. As we mentioned, we provide those pre-roll and also integrated marketing solutions including sponsorships including entitlement which, I think, are best utilizing our convergence platform.

Okay, so just to clarify, when you say 8% from mobile, that includes the mobile banners not just mobile video, right?

Yes, at this time most mobile advertisements are now video. It includes formats like (inaudible) page, like minified, like banners, like texts, like floating advertisements but mostly are not video.

Okay, would you be able to elaborate a bit more on the video, just give us some rough idea in terms of the loading rate or basically inventory ratio or sales through ratio, just so that we have a better understanding on the potential upside revenue opportunity for you from the video business?

Yes, I think to best understand the potential side of our video business first is to understand the market side. China's TV news advertisement has got RMB30 billion market a year and the annual (inaudible) TV auction actually demonstrates the majority of the programs actually are news related. And we adapt our positions and we are the leader in online news video because of the exclusive TV news program from Phoenix TV and our regional video or content program produced in-house, as well as our strong leadership in our long video portal news channels (inaudible) portal.

And I think the challenge is to accelerate, speed up the market adaptation process to capture the ad budget, as the viewers' already shifted their viewing patterns from the living room to their PC and mobile devices. And right now, (inaudible) for our video ad as well as for our (inaudible) it's mostly over 30%. So we still have potential to increase the viewer rates and also to capture the bigger market share.

Thanks, Ya. My second question is on your mobile. You talk about you have now three apps. I want to clarify that you have both the Android versions and IOS and, also, you mentioned the DAU of RMB18.5 million, if I remember. Is that the DAU for your mobile apps or is that mobile apps plus whatever you get through your news portal from any kind of mobile browser?

Actually, I think you are right. The RMB18.6 million includes DAU from downloaded apps as well as 3giphone.com mobile portal side.

Okay, great, and could you elaborate, I know in early days probably monetization would not be your key focus, but I was wondering could you elaborate a bit on the longer term how you think the key apps can be monetized, subscription based or ad based? And, other than these three apps, what else in the other areas you are considering to launch to leverage your very broad and high end user base?

At the front stage, our main focus is improving the user experience and product experience of these three acts. Our flagship apps will be iPhone use and right now the monetization is pretty encouraging, I think. It enjoys very high advertising growth. But monetization is definitely our top focus right now.

We will continue to improve brand awareness, user experience to further, and later we will monitor the market development to see when is the best timing to invest more rapidly in terms of the product promotion.

Thinking of the monetization method, I think all of the (inaudible) regionals are paid or advertising or some other type of method. But, right now, our focus is on the user experience, focus is on our main flagship apps which is iPhone use.

Thanks, Shuang. I also want to follow up on what you mentioned earlier in your prepared remarks about your gaming business. I think you mentioned that iPhone will always be focusing on the content creation on the gaming side, but for the PC side (inaudible) but for the mobile, if you don't really have a big platform yet for your mobile, how are you going to host the third party mobile games? And how many games do you have on your PC, by the way, for the web game portfolio? Thank you.

Jiong, I'll take that question on gaming. We have two parts of gaming related revenue right now, both in paid services. One part is in what we call mobile value added services. That includes our mobile games. And the other is in games and other. Games and other are web page games hosted on our own platform.

Mobile games currently for us is primarily mobile games working with telecom operators. So we have just started our own mobile game platform, but for now that's still very small. So, going forward, this part of the revenue will continue to grow. So for now, essentially to answer your question in short, our mobile games currently is still primarily working with telecom operators.

Okay.

On your question regarding the PCM web page games, right now we have approximately 60 web page games like this on our platform.

Okay, thank you, Lily. Thank you, all, for the helpful answers.

Thank you.

Thank you. Your next question comes from William Huang of Barclays. Please ask your questions.

Hi, good morning. Congratulations, great quarter and best wishes to Lily. This one's a follow up question about mobile monetization. Obviously, your mobile platform is growing very nicely. I just wonder in terms of the existing monetization such as banner ads and mobile video ads and maybe even mobile games, what is the customer feedback so far and, in particular, what kind of customer seems to have higher interest on placing budget on mobile in the current stage? I have a second question. Thank you.

Hi, William. This is Ya. I'll answer the question. The mobile monetization right now, the mobile advertising enjoys the highest growth rate and while, as Lily mentioned, the non-operator related mobile game sector should grow in 2013 and next year. For the mobile advertising, the sectors actually include some of the typical brand advertising such as we enjoyed very strong local mobile advertising in Q1 and, of course, e-commerce services, especially last November the double 11 day promotion from the giant (inaudible) also contributed most to the mobile advertising.

We are working -- similar to our PC advertising, we are working both on the branding effectiveness and also the sales promotion effectiveness of the advertiser result and we are working with almost all industry sectors. We believe that as we are able to step by step develop better mobile products including improving EBIT and expanding the active users, we will execute the mobile revenue strategy systematically to leverage overall monetization capability.

So that's where it is now. So mobile, we do right now and also we are working the monetization model and also the advertising mobile. For the pad, for the video on pads, our pricing level is the highest compared to the peers (inaudible) confidence in our own video advertising model pricing over mobile with video advertising. So we are working on different screens of mobile video trying to first amortizing and we expect that to contribute meaningfully in the second half of this year.

Okay, I just wanted to follow up in terms of your guys selling the banner ads or video ads to customers, do you sell them as a package or you sell them separately? And in terms of customer profile, do you see different customers versus PC? Thank you.

As we mentioned earlier, we do see different customers in addition to our portal advertisers and also in addition to the typical video companies advertising base. And we sell them, pre-roll is one sale and actually among all the different formats it contributes most to our video advertising revenue. We do have integrated marketing solutions providing both vertical channel banner advertisements as well as the video pre-roll (inaudible) to certain advertisers depending on the advertisers. It's actually the typical TV news advertiser, typical online advertiser or a different industry sector.

Hi, this is Liu Shuang. Let me emphasize that. We think that (inaudible) concentrating our guidance, but it does not necessarily mean that our PC side traffic growth and advertising growth is (inaudible). While we are experiencing different other players, we enjoy very robust user growth and the advertising dollar growth across the board, actually our PC side growth is leading other portals, so the PC side advertising contribution still represents a significant part of our total ad revenue. Given the fact that our traffic growth is -- on PC side is still very robust, it demonstrates very strong monetization potential in this regard.

I think after all we are living in a multi-screen world, particularly with the traffic migrating from PC to other platforms. I believe that's my observations on the portals, but that's not what we're experiencing. We are experiencing very robust traffic growth both in (inaudible) devices. So I think we have a very nice portfolio in the (inaudible) which will support our future monetization.

Thank you, very helpful.

Our next question comes from Mr. Eric Qiu of Guosen Securities. Please ask your question.

Good morning, ladies and gents. Thank you for taking my call, and we've seen very strong across the quarter advertising results and also you have estimates from Q2 and you just mentioned that you also enjoyed very strong PC side user traffic. I just want to follow up on that. Can you give me some more details, data about the user traffic on PC side and for the mobile side, like what's the PC's PV and the UB also on the mobile side?

My second question is regarding the video (inaudible) network for your video side and also the (inaudible) for your video side? Thank you.

This is Liu Shuang. Let me answer your first question. Actually, as I said in my opening remarks, PC side is experiencing very rapid growth. We achieved 49% year over year user growth to 34 million users. Our user (inaudible) is also one of the fastest growing among major Chinese portals. That demonstrates that we continue to grab shares from other competitors. I think that has had a lot to do with external factors like, as I mentioned in my opening remarks, accelerated migration of countryside workers to metropolitan area, China's further integration with outside world and tighter (inaudible) control. It also has a lot to do with our internal strengths of very strong brand adaption, (inaudible) our unique approach in dealing with copy ad agents and the (inaudible).

Mobile side, here the traffic growth is also very encouraging. We have more than 80 million downloads apps, but for mobile side the traffic growth is not our top priority. We are still at the stage of improving our user experience, our product experience. I think it's a long battle. It's a long battle. So we're going to monitor the market to see when is the best timing to invest more rapidly in terms of the marketing promotion.

Firstly, most of the data we use are from (inaudible) services, especially for both PC and video, and we actually gave more details than what we normally disclose. For example, we also showed that our home page, iphone.com, enjoyed the highest TV and video (inaudible) top five in China for the last two quarters. And also it gives us the ranking about all the video sites. So in addition to our leadership in news video, we are also ranked top 10 among all the video sites in China.

For the mobile part, the [IUT, MUT] is, right now, less reliable as I think the different operator (inaudible) on the mobile platform is difficult to have a consolidated measurement. I think that may be, I think definitely our firm can follow up with after the call to provide you with more detailed numbers.

Okay, got it. Thank you.

Thank you.

Thank you. (Operator instructions) There are no further questions at this time. I would now like to hand the call back to today's speakers. Please continue.

We have come to the end of today's conference call. Please feel free to contact us if you have any 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 participating. You may all now disconnect.