Phoenix New Media Ltd (FENG) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Phoenix New Media second quarter 2013 earnings call. At this time all participants are in a 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 13 August 2013. I would now like to hand the conference over to your host today, investor relations director Mr. Matthew Zhao. Thank you, please go ahead sir.

Thank you operator, and thank you and welcome to Phoenix New Media second quarter 2013 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu, and our Chief Operating Officer and acting Chief Financial Officer, Mr. Ya Li. 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 second quarter 2013 financial results and 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 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. Liu Shuang, our CEO.

Thank you Matthew, good morning and good evening everyone. We are very excited to report a strong second quarter, with revenues growing by almost 30% year-over-year, significantly exceeding our guidance and the street consensus. In particular, this outperformance was driven by a 169% year-over-year increase in mobile advertising, and a 42% increase in overall net advertising revenues. Additionally, strong gains in operational efficiency derived from a convergence model helped drive margin expansion which led to net income on both a GAAP and non-GAAP basis more than doubling year-over-year. In today's continuously involving media world, we believe that our strong performance is bolstered by two key strategic engines of growth.

First, our core media DNA of delivering high impact, differentiated content that matters most to our audiences. And second, our media convergence model that continuously delivers us top synergies. Before I start explaining our media value, let me first share with you a few user traffic metrics. In June 2013 the DAUs and MAUs on ifeng.com increased by 44% and 21% year-over-year respectively, according to iResearch. Both figures are well above the average growth rate for the top 10 internet portals in China, which was only 11% for DAUs and 10% for MAUs during the same period. Not only did we again significantly outpace our peers, we also achieved phenomenal growth relative to other internet portals which have seen slower growth in recent years due to the challenges of the social media and mobile internet.

Reflecting on this achievement, we recognize that content offering is what drives user traffic and engagement. Now let me talk about the first engine of our growth. The strategy is rooted essentially in our media DNA, a persistent pursuit of fierce journalism. One of the questions we frequently ask ourselves to know, is how can we continue to deliver users fierce journalism that is relevant and valued, as users are increasingly flooded with fragmented media formats and the proliferation of user generate content. Despite the prevalence of information free of charge, we have consistently found -- and our stronger user growth members support this -- that the significant and the fundamental demand for serious journalism -- content that is both quality and valuable to our audience. We believe that our journalist practice of re-filtering the information, re-verifying the news sources, re-editing the articles with ifeng's objectives and a balanced fashion, and which uphold truth and the journalistic ethics -- as well as respect artist's level of intelligence -- is still capable of providing a high level of thought and value in our society. To give you a few examples of the uniqueness of our news coverage during the quarter, in June we partnered with our parent company, Phoenix Satellite TV, to provide a future report for the 2013 Shanghai Lujiazui Financial Forum, which was sponsored by the Agricultural Bank of China.

We invited Phoenix TV's anchorman to hold a breakfast forum. The news had also been broadcasted through Phoenix TV's news program globally. These sorts of collaborations demonstrate our strong synergy in our emergence model, and whole hearted efforts providing higher ROIs for our advertising clients. We're proud to see our journalistic undertaking of systematic and intelligent reporting has redefined news coverage, and challenged the status quo practices of traditional media and other internet media outlets in China. Underpinned by our strong content production capabilities, we continue to provide big idea advertising strategies, further driving the creativity, imagination, and the productivity on the commercial side of our operation.

This achievement is evidenced by solid growth in our online advertising business, which was driven by the 30% year-over-year increase in the number of advertising clients, and 9% increase in average revenue per advertiser, to over RMB710,000. To give you an example of our compelling big ideas offering to our clients recently, GE launched an overall advertising campaign on our platform. (Inaudible) ifeng innovation channel, GE disseminated major news items on technology innovation through an area of distribution channels across both portal and mobile platforms, including push [phone], media clips, and mobile newspapers. Because of this strategic core platform advertising campaign, GE's apps are seen by over 10,000 viewers each day on this channel who are interested in technology innovation.

We're excited about the success of this campaign, and believe it has significantly helped enhance GE's brand perception as a leading innovator in greater China region. Both that and many other similar examples demonstrate the synergy between our editorial and the business operation that we will continue to benefit from. By leveraging our high impact and forward reaching news coverage, we attract an increasing number of middle and upper class Chinese who represent a key demographic which advertisers prefer to target. Aided by our multimedia platform, the big idea advertising strategy, our tailor made solutions continue to drive advertiser spending and strengthen our relationship with advertisers based on confidence and trust in our platform and brand.

Now that you have some color regarding our content and advertisement services offering, let's move on to our convergence model. As you know, Phoenix New Media has been the leader in expanding our capabilities in delivering high quality, differentiated media to reach users on a variety of devices. With an integrated multimedia platform that spans internet, mobile and media platforms, we believe in the ongoing shift from laptop to mobile and from one screen to multi screens created tremendous opportunities for our business model. The convergence platform for content consumption is increasingly attractive as content providers are benefitting greatly from advertising dollars, driving a rapid extension to mobile as internet media platforms -- a trend that we recognized early and are now directly benefitting from.

And this trend is expected to accelerate as more and more users consume content on mobile devices. By recognizing this trend, we were able to achieve significant growth in our mobile advertising business, which was driven by continued strong results in our user traffic. Our active users on mobile devices jumped 25% year-over-year, and 10% quarter-over-quarter, to over 20 million people. In addition to strong yearly growth, at the launching of a major upgrade to our multimedia, ifeng version six, our user engagement increased dramatically as well. On the video front, we continued to effectively monetize our proprietary [streaming] content, achieving an over 91% year-over-year increase in video advertising revenues for the quarter. To further leverage this growth momentum, we rolled out a revamped homepage in June that features a similar layout across PCs and mobile devices, allowing for more consistent user experience.

These initiatives have helped synchronize users' overall browsing and viewing experience, further enhancing user engagement of ifeng platform. In addition, we're actively working with several partners to develop and roll-out up to date, roll-out production aimed at serving the connected home. As these plans develop, we will be sure to keep you up to date. Our unique content advantage continues to help us expand our viewer retention, and in the end, video revenues . We're extremely well positioned to continue capturing not only our advertising revenues, but also traditional TV advertising revenue, through diversifying to include our (inaudible) news programs. To conclude, the new trend has further solidified our belief that we have the right combination of the media assets and commerce model to stay on top of this evolving media market. Going forward, our focus will be to further enhance the user experience to product improvement and expansion, helping to leverage our diverse platform and generate long term growth.

With this, I would like to turn the call over to our CEO and Acting CFO, Li Ya.

Thank you, Shuang and thank you all for joining our conference call today. Let me take you through our financial highlights for the second quarter 2013. The amounts mentioned here are all in RMB, unless otherwise noted. ifeng total revenues for the second quarter came in at RMB364.2 million, which exceeded the high end of our guidance. Non-GAAP net income for the second quarter was RMB83.6 million or RMB1.08 non-GAAP net income per diluted ADS, which exceeded Bloomberg's street consensus by over 130%. Let me now run you through the other key financial highlights, starting with net advertising revenues.

Net advertising revenues for the second quarter came in at RMB209.5 million, which beats the high end of our guidance and represents a respectable year-over-year growth of 41.9%. Average revenue per advertiser, ARPA, increased by 9.2% to RMB710,200 and total advertiser numbers increased by 30% to 295 advertisers. Our top five industry contributors for this quarter are auto, food, beverage and wine, ecommerce, medical service and financial services. Turning to paid service revenue, for the second quarter of 2013, ifeng generated RMB154.7 million paid service revenues, which beats the high end of our guidance. For the second quarter of 2013, mobile value added services, or MVAS, revenues remain stable at RMB131.5 million, due to the weak user demand 2G text message based pay-per-view services.

Games and other revenues increased by 387.4% to RMB23.2 million, primarily due to increase in revenues generated from the web-based games on our own game platform. As the consumer's interest shifts towards mobile internet, we expect traditional WVAS revenues will continue to decline as a percentage of total revenues, but that it will in turn be offset by growth of mobile video, mobile games, as well as webpage games going forward. Turning to gross margin, our gross margin for the second quarter was 52.4%, up significantly from 44.5% for the same period in 2012. The four components of cost revenues are revenue-sharing fees relating to paid services, content operational costs, bandwidth cost and sales taxes and surcharges.

On a GAAP basis, revenue-sharing fees as a percentage of total revenues declined to 18.7% from 25.7% in the second quarter 2012. Content and operational costs as a percent of total revenues decreased to 17.6% from 17.8% in the second quarter. Bandwidth costs decreased to 5.6% from 5.9%. Lastly, sales taxes and surcharges decreased to 5.8% from 6.1% in the second quarter. Turning to operating expenses, on a GAAP basis operating expenses for the second quarter were RMB120.2 million compared to RMB91 million from the same period last year. The increase in operating expenses was primarily due to the increase in staff related costs and expenses associated with marketing and promotions.

ifeng operating margin for the second quarter of 2013 increased to 19.4% from 12.4% in the second quarter of 2012, mainly due to the increased revenue contribution from advertising, mobile game, mobile video and web-based games. Adjusted sales and marketing costs as a percentage of revenues increased to 17.3% in the second quarter, compared to 12.8% in the second quarter of 2012, due to an increase in staff related costs and marketing promotion event costs. Adjusted G&E as a percentage of revenues decreased taxpayer 7.4% from 10.7% and adjusted R&D as a percentage of revenues decreased to 7.1% from 7.8%. Non-GAAP income from operations for the second quarter of 2013 increased by 102.3% to RMB76.8 million from RMB38 million for the same period last year.

Non-GAAP operating margin for the second quarter increased to 21.1% from 13.4% in the second quarter of 2012. Turning to net income, net income attributable to ifeng for the second quarter increased by 121.1% to RMB77.4 million from RMB35 million for the same period last year. Non-GAAP net income attributable to ifeng for the second quarter increased by 120.4% to RMB83.6 million from RMB37.9 million for the second quarter of last year. Non-GAAP net income for diluted ADS for the second quarter was RMB1.08 or $0.18 compared to RMB0.47 last year. Turning to balance sheet items. As of June 30 2013, ifeng's cash, cash equivalents and term deposits totaled RMB1.15 billion or approximately $188 million.

Turning to our business outlook for the second quarter of 2013, we're targeting total revenues to be between RMB367 million to RMB382 million representing an increase of 28.2% to 33.4% year-over-year growth. For net advertising revenues, we're targeting between RMB207 million to RMB217 million, representing a growth of 47.3% to 54.4% year-over-year growth. For paid service revenues, we're targeting between RMB160 million to RMB165 million, representing a growth of 9.7% to 13.1% year-over-year. This concludes the written portion of our call. We are now ready for questions. Please go ahead, Operator.

Ladies and gentlemen, we will now begin the question and answer session. (Operator instructions). Your first question comes from the line of Alan Hellawell of Deutsche Bank. Please ask your question.

Congratulations, guys, on the numbers. One big picture question and one more detailed. The strength in your numbers in the second quarter and the relatively robust guidance for the third question, in your mind, do they reflect a recovery in overall digital ad spend or does this more reflect -- or does not reflect that and does that mean advertisers are spending more wisely and you are beneficiary of that? So that's my first question. The second quarter would be really just to give us some sense as to how we should think of margins over the next couple of quarters, given the beat in the quarter and the various other moving parts. So yes, those are my two questions. Thank you.

Okay. Thanks, Alan for the questions. This is Ya. The first question, the answer is both. That's a short answer. I think that first of all, we are cautiously optimistic at the current digital ad market recovery. While visibility definitely improved from the same period last year, that's why we can keep the guidance of nearly 50% for the third quarter and also, I think, it does reflect our internal execution capability of ad sales and also our convergence model. I think both factors contributed to the outlook of our own and in more detail, I think, the key sectors contributing to our advertising revenues, such as auto, food, beverage and wine and ecommerce, et cetera, I think we do see the actual ad budget remain robust for our clients and especially for the auto sector.

We have seen the number of auto clients, within our top 10 clients, increased in Q2. Of course, I think this is all based on our continuous growth of our own number of unique user per month. That's why we have been able to improve both our ARPA and more importantly, it's the first time we are increasing the number of new advertisers in about more than a year, which grew by 30% in the second quarter compared to last year. So I think this is -- the factors are, I think, are both reflecting the market condition, despite that there are uncertainties remain, but also our organizational improvement, based on our convergence model.

Your second question regarding the margin outlook, we actually, at this time, we are planning to invest more [things] but while balancing our margin expansion for the second half of the year. We are planning to spend more in product development, especially for the wireless internet in marketing and promotion, in bandwidth costs and also staff remunerative costs for the second quarter. However, we do expect the overall, the whole year margin, to expand to hopefully around 16% compared to barely 10% of last year. So that is a significant improvement.

Thanks a lot. (Inaudible).

Thank you.

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

Hey, good morning, guys. This is George calling on behalf of Jiong. Thank you very much for taking the question. Congratulations on a very great quarter. So I have two questions regarding your non-advertising business. The first one is for your mobile value added service revenue, it is flattish year-on-year. But still, higher than what was implied by your prior guidance. I'm just wondering which part of the MVAS was actually stronger than what you had expected and how should we think about this revenue going forward? Is it going to be more or less similar to the second quarter's level and I have a follow up. Thanks.

Hi, this is Shuang. Thank you for the question. I think the mobile value added services in the transitional period and this quarter, we do see the traditional [LP] business like Ethernet, like wireless newspapers is down, so it is offset by the rise of wireless video and wireless game on IVR. So overall, you will see modest growth of this business. Going forward, I think it's basically fewer telecom operator dominated business. So in terms of operator's policy has a huge impact on this business, so for the next two quarters, I'm confident the business will remain stable, will maintain the same kind of pace. But for the coming year, I think, there's still some uncertainty.

Okay. Great. Thanks. My second question is related to your game and others' revenue. So I guess, the web game platform is a key driver for this business line, but given the ramp up of mobile games lately, especially low selling smart devices, like the iPad or the smart phones, do you think the growth of your web game business will start to slow down or it's just -- in the very beginning, you're thinking it will still grow from here? Also, what is your plan on the mobile game business? Especially, not from the telco operators' part, but the more, like, a smart device mobile game business? Thanks a lot.

Okay. Thanks for the question. First of all, our games revenue did grow very strongly compared to last year. However, the absolute number and the contribution to overall revenue remained, you know, small and right now, we are only running the licensed games and we are considering exclusive licensed games on the PC side, but we don't have a timetable yet. We are very cautious about carefully selecting the right games targeting our right user. On the mobile games front, especially the smart phone devices, we are also considering all different possibilities, because it's still at the early stage compared to the PC web game and we are looking at all possibilities and but this time, it's still a little too early.

For our second half projection of revenues, we haven't included a strong revenue growth from this mobile games or our very high web game growth. It's based on a very conservative outlook for our existing web game revenue growth.

Let me answer, for the web game, we're seriously considering investing in this area, but still at the stage of internal evaluation, I think we have very obvious competitive advantages. We have a very strong presence on PC platforms. We have the right personnel and team. Our VP (inaudible), he has more than five years' experience in gaming area. So that's something we could leverage, but right now, we cannot, because too much -- because too much details on the wireless game. But that's something we are very -- very high on the list, we are seriously thinking about, but that's something for next year.

Okay. Great. Thank you very much. You're very helpful. Congratulations again. Thanks.

Thank you.

Your next question comes from the line of Gillian Chung of Morgan Stanley. Please ask your question.

Hi. Thank you for taking my question and congratulations on the robust quarter's numbers. My first question is about the mobile. And can you please give me some color about your mobile revenue and percentage of the total (inaudible) sales and what is the percentage of profit that the mobile as a percentage of total traffic? I have a second question. Thank you.

Okay. Hi, Gillian. Thanks for the question. On the mobile, I think one important number, which I would look at, is the 3G business revenue contribution. The smart device space, 3G revenue contribution. That includes all the paid services, such as mobile games, mobile reading, mobile digital reading and our -- of course mobile games includes those operator and also, more importantly, our self-developed mobile game center. In addition, mobile ads. If we add that together, it's already 22% of our total revenue. Over 20% of our total revenue. So that's already a significant part. If you look at the -- within the paid service, I think the 3G paid service also right now exceeded the traditional legacy of wireless web services as peak revenues already.

My second question is about the games and [others] revenue. Is it possible to share with us some of the operating statistic about that part of business? For example, how many things are there on the platform and how many users are on the platform? Thank you.

We haven't disclosed those detailed numbers regarding the unique players or the ARPAs. However, I think we did disclose that the number of online games in the past. By the end of second quarter, we have about 55 webpage games on our platform. On the mobile side, we definitely have more games. Over 150 games on the mobile side.

Thank you.

Thank you.

Your next question comes from the line of Alex Yao from JP Morgan. Please ask your question.

Hi. Good morning, everyone and thank you very much for taking my question and congratulations on a very solid quarter. I have two questions. Number one is can you forecast through your mobile user acquisition strategy? Given that the app distribution channel in China is consolidating, how would you expect this will change the market dynamic and hold would you position yourself in the market? Second question on the video advertising side. Can you tell us your key customer verticals? How do they differ to your overall advertiser verticals thank you.

Hi, Alex. It's Shuang. Let me answer your first questions. Actually, there are two different approach about the mobile advertisement, mobile users acquisition. The first approach is to actively partnering with manufacture -- mobile health manufacture and using cash to acquire users. The second approach to relieving organic growth to basically let the customer let their word of mouth to enhance your market share. I think, for us, for -- we are -- what we have is a media driven apps. At this stage, we are focusing on our user experience, product development, so we -- at the present stage, we are basically focusing our organic growth.

But with the development of product, we're definitely need to invest more in partnering with mobile handset manufacturer, telco operators. We have a very big shareholders' telecomp -- China Mobile. That's something we could better leverage, so going forward, we are very confident about our user extension. I think currently, we feel very comfortable with our market share and user growth. At the end of the day, I think what really matters is your content, your user experience, your brand. It's a long battle. I think by leveraging our strong brand, strong presence on PC side, we're confident we can win the this spot -- this battle.

Yes. Let me just also add that to give you some color of the number. Right now, we do have about 20 million [PA] users on wireless internet. Approximately 38 million unique visitors on our PC ifeng.com we can leverage our internal cross promotions in addition to our cross promoting with all the different channels, all based on our competence to win mobile users. Let me answer the industry factors for video advertisement. Mostly, it's a -- it also has auto and food, beverage and wine and also medical service, financial service and ecommerce as the top categories. However, in addition, I think, we do have first the food, beverage and wine, especially the Chinese alcohol, that's something well suited for our news driven video content.

As people seeing from CCTVs annual auction. These Chinese alcohol tend to be the top bidders for the top spots of the CCTVs ad time slots and that works well. Also for our news focused media strategy. There is also regional travel and government agencies, which are also very often seen on the CCTV news advertisements. Our goal is to target -- is to win the ad budget from the TV news program, rather than the TV drama or movie advertisement. So overall, it resembles our news centric portal and however, with certain factors, you know, like the Chinese wine, regional travel and government agencies and so that's the factor for our media advertisement.

Just a very quick follow up for the 20 million DAU on the mobile side. Will you be able to share with us the mix between app versus the 3G website? Thank you.

Yes. We have not disclosed that [bit] and however, we are able monetize on both the web and the (inaudible) the [APP] platform and with our integrated marketing solution. We found advertisers are actually utilizing both platforms, especially for example, our mobile web, with sponsorship apps for our breaking news, special coverage of feature events are very welcomed combined with our -- the traditional banner or (inaudible) advertisement on the mobile handset. Especially, given the fact our mobile webpage is different from the traditional players. Ours have more smart phone device 3G based users rather than those feature phones.

That's why we are focusing on the APP development this year, while balancing the overall wireless internet as they go for the total user growth on mobile site.

Also let me add then, after launching a major product upgrade on our video apps. I think the v-clips used by our users jumped significantly. I think that that also demonstrates a very enthusiastic reception of our upgraded product.

That's very helpful. Thank you very much.

Thank you.

The next question comes from the line of Alicia Yap of Barclays. Please ask your question.

Hi. Good morning. Thanks for taking my question and congrats on the strong quarter. My first question is actually I wanted to ask a little bit on your sales team. So just wanted to get a sense that your current sales team are selling the advertising solution as a package on both the PC and the mobile. Then, have you seen any increase after budget allocating to mobile or will that be actually some of the budget taken out from the PC budget?

Yes. Right now, we actually have two teams starting on the PC and the mobile separately, while we're working together to provide the integrated solutions. Now, we have internal policies in terms of resource and also advertising strategy, planning, execution. We still have a centralized system for this and many of our clients actually are looking at this integrated solutions across marketing streams as a unique advantage we can provide to their marketing mix. We do find that with integrated solutions actually increased the budget allocation. We went from over our competitors to our clients, and actually the mobile internet growth of 169% in the second quarter over last year is a strong contributor to the overall ad revenue growth. But more importantly it also provided the reasons for the integrated solutions to be adopted by many advertisers. So we definitely see the convergence model working very well.

I see. Thank you.

Also I want to emphasize that what we are experiencing is different from other players. We see very robust traffic growth on both platforms, PC and mobile. So the advertising dollars on both sides up -- are both growing. So that is a surprise for us. I think we are confident this kind of momentum will remain.

Yes, the number of our PC advertisements grew over 35% in the second quarter. That's excluding video, excluding mobile. If you compare it to the other display in banner display, add players in the market. You will see that number is very strong. That's why I think it's strong. Added that there is no cannibalization within our platforms.

I see. That's helpful. Second question is regarding the third quarter guidance. In it you mentioned that some of the operating efficiency, despite some of the macro-environment that you guys are still able to grow very solid. Just wanted to get a sense, also as we heard into the second half of the year, do you see this momentum actually will continue and actually get better? What industry categories that will be driving most of the growth for the third quarter?

For the third quarter and the second half of the year, as I mentioned earlier in the year we are cautiously optimistic. But I think certain factors that contributed to our second quarter strong growth will remain effective. Given that, well of course, on the bottom line I didn't mention that, we plan to invest more in private development and the marketing promotions and bandwidth cost technology, things like that. However the margin (inaudible) will continue and in terms of the advertising sector or the overall advertising growth, we can look at it from different dimensions.

First the number of user growth is back, driven by first the high growth of mobile and also the high growth of video. The second quarter video ad grew by 98.1%. These two screens -- these two platforms also contributed to the overall ad growth, and then we also mentioned certain sectors -- especially sectors well suited for our news focus video strategy. Also certain factors like cosmetics, luxury brands, clothes -- these are -- we are also seeing very high growth given the fact that we have remained our leadership in verticals like fashion and entertainment across -- compared to other portals.

So the traditional strong sectors, traditional strong hold of auto e-commerce plus the video-centric -- the video friendly sectors of food, beverage, wine, regional travel, government spending, and then plus these strong vertical sectors like cosmetics, clothes, luxury brands. I think adding all of them together we are hoping for the strong, over 50% growth in the first quarter compared to last year.

Great, thank you. Very helpful.

Thank you.

You next question comes from the line of Haofei Chen of CICC. Please ask your question.

Many thanks. We are happy to see the persistent act of the management got rewarded by the very encouraging results. I have two questions. The first is about our unique content. I think our unique content can bring us a very good pricing power in the future. Can we talk a little bit about the future plan about the price along with our inventory? I also believe the unique content may bring a better opportunity for cooperation. We used to cooperate with operators but now maybe we can cooperate with OTT players or like a set on top box or smart TV. Do we have (inaudible) on that? I have follow up.

Yes, let me just get you on the first question. We actually have increased our ad rates rather aggressively given the current economic conditions. I think first we announced a price increase on January 1 and then followed on July 1. These two increases on the PC advertising. Also we had a strong video advertising rate card increase on January 1, resulting 48% ad inventory increase, mainly from new video ad products and the new video ad positions as well as a rate which now is -- the actual starting rate of our video ads is I think not far from the top selling rates by [our vehicle]. The PC ad rates, you can -- this overall effect I think in the first increase we increased the premium ad rate by 15%. The second increase on July 1, the premium ad [position] increased by 20%. So that's the increase on non-mobile.

On the mobile side we have increased our mobile ad rates in three quarters consecutively since last October. That just demonstrates not only our pricing power but more importantly, the actual effectiveness of our ad solution in terms of branding effectiveness as well as the self-promotion to advertisers.

Let me get back to the second question. OTT marketing is definitely a very big market. The whole market is undergoing very fundamental transition. The viewership is migrating from traditional TV to OTT sites, including smart TV, set top box, et cetera. Phoenix TV has a very strong presence in China's TV news market. I think this brand is well respected and this program is very popular. That's something -- Phoenix TV is our parent company. We have long-term (inaudible) cooperation with them. We can fully leverage this (inaudible) library and gradually expand into this market. Right now we have separate teams to aggressively push into OTT markets, but at this stage from a competitive point of view I couldn't provide too much data. We'll keep you up to date.

I see, I see. That's already encouraging. My second question is about the gaming. I think for the web game and leisure games it's quite niche, our user base. But the thing is do we have any specific strategy how to improve the awareness or the visibility of our gaming platform? If we go to the iPhone, our major website seems -- it's not any kind of very clear linkage to our gaming platform. Do you have any (inaudible) in the future?

Thanks for the good questions. Actually we -- gaming in our business actually receives lots of attention. If you, I think, look more carefully, you will see we have provided many resources. Those are content resources as well as the advertising inventory resources, including the ones on the front page, on the iPhone front page, to guide users, to attract users to our game center. We have also developed these games at iPhone.com, which only in a couple quarters is already now the top 10 gamer user information site in China. We have also held our first electronics sports -- like a game competition, sponsored game competition, in the last quarter with live video broadcasts. We do plan to work with more third parties as well as more effectively using our large internal traffic, both online and also mobile, in order to provide more users to our iPhone games.

Okay, got it, thank you very much.

Okay, thank you.

The next question comes from the line of Jialong Shi of CLSA. Please ask your question.

Hi, good morning, thanks for taking my question. I have a quick follow-up. Management just mentioned you guys are seeing quite good advances from auto sector. I'm just wondering whether this is because you guys are grabbing market share from your competitors, or it is mainly because the auto sector as a whole is ramping up spend from Q2, and also for auto (inaudible) is growth mainly from your video or from your portal front? Thank you.

Okay, yes, I think -- actually the last question probably answered it. We do see strong auto ads across the mobile, the video, as well as the PC advertising. I think compared to the past which only mostly concentrate on the PC side, I think it's also one of the first video sectors. We are seeing strong ad demand on the mobile side as well as on our video side. I think that's -- definitely I think we are growing our market share because our growth is higher than the budget growth of these auto makers. However I think we have grown our user base and also the user demographic into such an extent that we have now deserved such -- or actually even more, even higher market share. In the meantime I think we grew our other sectors. So we are seeing all sector contribution. I think it's going to be a balanced act. We want to grow other sectors as fast, as effectively as we are grabbing the auto market share.

Is that answering your question?

Yes, thank you very much.

Okay, thank you.

Your next question comes from the line of David Lee of Daewoo Security. Please ask your question.

Yep. Hello, can you hear me?

Yes.

First I want to congratulate the solid performance of the second quarter and I just wanted to ask a question. Can the management tell us the reasons why the total number of advertisers achieve rapid growth and can we maintain this growth rate in the future?

Yes, I think there are several factors contributed to the number of user growth. First off there are new sectors, including the ones we mentioned, well suited for our online news focused video strategy, such as the Chinese wines, regional travel, the government agencies. Secondly is from the integrated marketing solution of our convergence platforms across multiple screens. The advertisers on mobile and advertisers on video, even though the major sectors remain the same, there are also new additions of new advertisers. At least it helps us attract the advertisers to try our integrated market solution.

Thirdly of course we have been able to complete a very successful internal sales realization and sales training. Our sales execution capability also gets a lot of improvement over the year. I think that's why we are seeing these 30% in number of advertiser growth. We do expect the number of advertisers to grow at a meaningful rate year-over-year for the remainder of this year.

Okay, thank you. My next question is that all these new advertisers, they advertise on which platform? iPhone.com or videos or the 3G website?

Yes, as you can see from the numbers we grew mobile advertising by 169%. We grew the video advertising by 91%, while the PC advertising also grew by over 35%. So I think all different platforms are enjoying robust growth rates compared to the industry average of these platforms. That's why I think the new advertisers are from each of these platforms, and also are from the integrated solution provided by the combination of these three platforms.

Okay, thank you and I will just stay on the line. Thank you.

Thank you.

The next question comes from the line of Eric Qiu of Guosen Securities. Please ask your question.

Good morning management team. I have one follow-up question. The mobile user traffic, what percentage of it accounts for the total user traffic for now, and what's the percentage of revenue contributing to the total advertising revenue? Besides what's the number of mobile advertisers and the -- can you give me the upper values of the mobile advertising? Thank you.

Yes. First of all we did disclose that the mobile DAU is 20 million, while the PC DAU is 38 million. If you measure by PV, the mobile is about one third of the overall page views. The mobile -- the (inaudible) regarding mobile growth rate, 169% growth rate, and the contribution of that for the last -- for the recent quarter is 9% compared to the first quarter's 8%, or the 4.5% of the second quarter in 2012. We do not further disclose the ARPA or number of advertisers on the mobile site at this time.

Okay, thank you.

Thank you.

There are no further questions at this time. I would now like to hand the conference back to Shuang Liu.

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 participating. You may all disconnect.