Phoenix New Media Ltd (FENG) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media fourth quarter and fiscal year 2013 earnings call. (Operator Instructions). I must advise you that this conference is being recorded today, Wednesday, February 26, 2014. 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 fourth quarter and fiscal year 2013 earnings conference call. I am joined here by our Chief Executive Officer, Mr. Shuang Liu, our Chief Operating Officer, Mr. Ya Li, and Chief Financial Officer, Ms. Betty Ho. For today's agenda, management will provide us with the review of the quarter and also include Q&A session after the management's prepared remarks.

The fourth quarter and the fiscal year 2013 financial results and the webcast of this conference are available at the Investor Relations sections of www.ir.feng.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 RMB.

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 pleased to close out 2013 with another strong quarter and head into 2014 on a high note. We achieved robust top line growth of 32% year on year, which comfortably beats our guidance, and non-GAAP net income growth of 264% (sic -- see press release "257%"), which significantly beat the street consensus.

Our strong financial performance was fuelled by the growing popularity of our highly recognized brands and expanding platforms. On the portal side, daily unique visitors on ifeng increased by 23.4% year over year to over 40m in December, according to iResearch. And our daily page views increased to over 375m, making the ifeng home page now the second most visited home page among all Chinese media websites, after Baidu.

Looking beyond our financial and operational success, 2013 saw the evolution of the Company from a news-focused portal leader into a diversified news and lifestyle media company as we expanded into several new verticals such as real estate and auto as well as hosting many media events on broader subjects, further expanding our impact across China's media front. On today's call I'd like to highlight a couple of recent initiatives and our progress before we discuss our 2014 plans as well as financials.

First, in conjunction with our convergence strategy we are simultaneously focusing on the development of our mobile and video audience. Some of our recent mobile initiatives in 2013, such as the release of an updated mobile app with improved interface and usability as well as our partnership with China Unicom to offer a mobile video package to their 3G subscribers, have already begun to show encouraging initial results. In December of 2013 our mobile Internet daily unique visitors has increased 10% quarter over quarter to 24.2m, helping to further drive stickiness and viewership across our various platforms.

In late 2013 we also released another major update to our mobile Internet application, which integrates video conference, especially tailored to the iOS7, enhancing our user experience and increasing engagement on the platform. We also innovatively imported some of the best features, layouts and design from our PC website to our mobile application. Additionally, in the fourth quarter we saw mobile app sales increase an impressive 55% year over year, which now accounts for 11% of our total advertising sales.

For 2014 we will be emphasizing direct monetization of the mobile platform itself and seamless convergence with the Group's overall TV and Internet properties, further advancing our strategy to capitalize on the synergies and economies of scale inherent in our expanding media business.

Turning to our video content offering, in past quarters we launched the first parenting talk show program, Super Mummy, which offers new mothers professional advice and tips about nursing and educating babies. The show attracted more than 1m hits in the first on-air week.

In order to further advance our reputation in the documentary category, on November 13 we hosted the second annual ifeng documentary awards, which was the first documentary award in China awarded by a major Internet media company.

From a cultural and media industry perspective, we established a new and dedicated platform for identifying and promoting new artists and documentaries. From ifeng's perspective, this award ceremony along with other initiatives surrounding the expansion of our documentary content helps us to forge relationships with emerging artists and content providers as well as enrich our video content library with differentiated and thought-provoking content.

Secondly, turning to our core business focus of offering proprietary and differentiated contents and providing serious journalisms across our integrated platform, in order to improve our brand awareness and further ingrain ourselves in the Chinese media world, we continued to host a series of key marketing events during the fourth quarter.

In December we partnered with our parent company, Phoenix Satellite TV, to host the 2013 ifeng Finance Summit, which we think will shift the market and focus on identifying key drivers to help China sustain its economic growth. We were able to make this summit, which was broadcast live on both Phoenix TV and the Internet, an interactive experience for thousands of our users by allowing them to join the discussions with guest speakers through ifeng's interactive online forums and blogs.

Through these marketing initiatives and public forums we aim to capture and highlight the most pressing thoughts on China's economic development among China's government officials, economic leaders and scholars, enhancing our media influence in Chinese society.

Thirdly, our expansion into key verticals has progressed very well. In particular, our fashion channel continued to be ranked number one among all Chinese fashion websites in terms of daily coverage, according to iResearch.

In November 2013 we hosted ifeng's Second Annual Fashion Awards ceremony to recognize Chinese fashion leaders crossing global boundaries and support the Chinese fashion industry's emergence on the global stage. The ceremony was a popular event generating hundreds of thousands of quotes and discussions by the participating celebrities as well as our users on various social networking platforms. Through attracting more female users, we have seen tangible benefits of these initiatives in diversifying our audience base and advertising verticals over the course of 2013.

Another example is our ongoing effort to enhance our real estate channel. Unique in comparison to other players in this field, we have established a well-rounded information services platform that is primarily focusing on upscale commercial property, tourist property, pension property and overseas properties. Backed by our big-data approach, our platform not only provides comprehensive advertisement solutions to realtors, but also presents the information in an organized and coherent way to help our high-end users make informed buying decisions.

In the coming year a key focus of ours is to achieve greater synergy through cooperation with our parent company, Phoenix Satellite TV. As you may have already heard, last week the Company announced that I will also be promoted as COO of Phoenix Satellite TV. In this new role I'm very excited to help spearhead this increasing cooperative effort between the two companies. Serving in these core company roles, I will lead in strategizing, overseeing and allocating resources to implement the convergence of the TV and Internet media.

Through effective convergence implementation both companies stand to gain from the mutual errors of overlapping, including the targeting and sharing of similar audiences, content providers and advertisers. These mutually vital areas will allow us to seamlessly expand user reach on each of our media platforms, provide advertisers a one-stop solution, more effectively monetize the Phoenix brand across all verticals and achieve the greater cost synergies.

On the whole 2013 witnessed a year of positive trends, concrete expansion, platform development, mobile build-out, strategic initiative implementation and strategizing regarding inter-Group convergence. Heading into 2014 we are very confident that we are well positioned and well equipped to expand our user base and meet our audiences' dynamic needs as we solidify our core platform media leadership in the Chinese market.

With this, I would like to turn the call over to our CFO, Betty Ho.

Thank you Shuang and thank you all for joining our conference call today. Let me take you through our financial highlights for the fourth quarter and whole year of 2013 results.

The amounts mentioned here are all in RMB unless otherwise noted and all numbers I mentioned here are non-GAAP adjusted numbers. The only difference between GAAP and non-GAAP is the adjustment of the share-based compensation expenses. ifeng total revenue for the fourth quarter came in at RMB400.1m, which exceeded the high end of our guidance by about 5.8%. Adjusted income attributable to Phoenix New Media for the fourth quarter was RMB92m or RMB1.19 non-GAAP net income per diluted ADS.

Let me now run through the other key financial highlights, starting with net advertising revenues. Net advertising revenues for the fourth quarter came in at RMB263.9m, which beat the high end of our guidance by about 6% and represents a respectable year-over-year growth of 36.7%. Average revenue per advertiser increased by 24.9% to RMB0.8m and advertisers number increased by 9.4% to 349.

Turning to paid service revenue, for the fourth quarter of 2013 ifeng generated RMB136.2m paid services revenue, which beat the high end of our guidance by 5.6% and represents a year-over-year growth of 24.9%. Mobile value-added services revenue increased by 12.2% to RMB107.7m, due to the Company's improvement in paid product distribution, diversification and marketing. Games and other revenues increased by 118.4% to RMB28.5m, primarily driven by the increase in revenues generated from web-based games on the Company's game platform.

Turning to gross profit and margin, adjusted gross profit for the fourth quarter of 2013 increased by 60.5% (sic -- see press release "57.1") to RMB218.3m (sic -- see press release "RMB215.5m"). Our adjusted gross margin for the fourth quarter was 54.6%, up from 45% for the same period in 2012.

There are four components of cost of revenues, which are revenue-sharing fees relating to paid services, content and operational costs, bandwidth cost and sales tax. On a GAAP basis, revenue-sharing fees as a percentage of total revenue decreased to 14% from 15.6%. Content-related costs and operational costs as a percentage of total revenue decreased to 20.1% from 24.2%. Bandwidth costs as a percentage of total revenue decreased to 4.9% from 6.3%. And lastly, sales tax as a percentage of total revenues decreased to 7.2% from 8.5%.

Turning to operating expenses, on a non-GAAP basis adjusted operating expenses for the fourth quarter increased by 16% to RMB138.2m. The increase in operating expenses was primarily attributable to the increase in staff-related costs and expenses associated with Company's marketing and promotional initiatives. Adjusted sales and marketing as a percentage of total revenue decreased to 21.6% from 22.1%. Adjusted G&A as percentage of revenue decreased to 5.8% from 9.4% and adjusted R&D as a percentage of revenues decreased to 7.2% from 8%.

Adjusted operating income for the fourth quarter increased by 382% to RMB80.1m. Adjusted operating margin for the fourth quarter improved significantly to 20% from the previous quarter's 5.5%.

Turning to net income, on a non-GAAP basis adjusted net income attributable to ifeng for the fourth quarter increased by 257% to $92m. Non-GAAP net income per diluted ADS for the fourth quarter increased by 263.9% to RMB1.19.

Turning to balance sheet items, as of December 31, 2013 ifeng's cash, cash equivalents, restricted cash and bank term deposits totaled to RMB1.4b or approximately $233m as compared to RMB1.25b as of September 30, 2013.

Let me briefly run through the key figures for fiscal 2013. Total revenues for 2013 were RMB1.4b, representing a year-over-year growth of 28.2% from 2012. Net advertising revenues grew by 41.6% year over year to RMB863.7m. Paid services revenue grew by 12% year over year to RMB560.7m. Total 2013 adjusted gross profit increased by 63% to RMB735.4m, which represents a 51.6% adjusted gross margin which increased from 43.3% in 2012. Non-GAAP operating income increased by 189.8% to RMB264.9m. Adjusted operating margin improved significantly to 18.6% from 8.4% in 2012.

Non-GAAP net income attributed to ifeng for 2013 increased by 159.6% to RMB296.3m or RMB3.81 non-GAAP net income per diluted ADS. Non-GAAP net margin for 2013 increased to 20.8% from 10.3% in 2012.

Lastly, I'd like to reiterate my business outlook for the first quarter 2014. We are targeting total revenues to be between RMB340m to RMB351m, representing an increase of 20.8% to 24.7% year over year. For net advertising revenue we are targeting between RMB230m and RMB235m, representing a growth of 38.2% to 41.2% year over year. For paid services revenues we are targeting between RMB110m and RMB116m, representing a decline of 4.3% to a growth of 0.9% from the first quarter of 2013.

This concludes the written portion of our call. We are now ready for questions. Please go ahead operator.

(Operator Instructions). Philip Wan, Morgan Stanley.

Hi. Good morning. Thank you for taking my question and congrats on a very strong result. So I have two questions. Number one, so you mentioned about your verticals strategy and touched base on your direction. I just wanted to know if you could share with us a little bit more about your -- detail given that there are already some category leaders in key verticals such as automobiles, properties and travel, and how could Phoenix New Media compete or differentiate against them? Thank you.

Thanks Philip. This is Ya. Yes, I think for these verticals you mentioned, particularly the auto and travel, we have recognized the different roles we are playing compared to those vertical leaders. Our approach is capturing both brand advertising as well as the sales promotion marketing budget.

And also we adopt a big-idea plus big-data approach. We believe brand is always a much needed asset for companies to compete beyond just price. And we have been playing the role and that's why we have seen our auto advertising contribution steadily growing. The contribution actually has grown to 32% as of the last quarter of our overall advertising revenue.

Our advertising --- our verticals strategy I think builds upon our existing leadership such as the fashion, such as in the entertainment sectors. Our goal is to further expand into the lifestyle- and consumption-oriented verticals, through internal development, through partnerships, through even investments and M&A activities. But obviously we will continue to adopt a differentiated strategy against those vertical leaders.

I think Shuang Liu have more to add to this.

Maybe I can add the few more words. I want to emphasize about the progress we made in terms of vertical areas. Our fashion channel has number one ranking among all the lead portals and entertainment channel has number two ranking. And our real estate and auto channels ranking is in line with overall portals ranking. So that provides a solid foundation for our future revenue growth.

What pleasantly surprised us is that emergence of new opportunities in ecommerce-related area in those vertical areas, like transaction-related fees and transaction-related advertising fees particularly in real estate and auto.

And we have --- we are determined to come up with more innovative approach to tackle to these two areas. For example, in real estate area we have partnered with very strong real estate players in the Chinese market. We have a joint venture company to boost our efforts in this area. And in auto sector we are also in the process of reviewing the internal structure. We pretty soon will come up with a new plan to boost our efforts in these areas. We believe vertical areas definitely present huge opportunities for further monetization in terms of both advertising and also ecommerce.

We are looking at also some other market opportunities to further jump-start our performance in these areas, like joint venture, like spin-offs, like bringing venture capitalists. It's all we are balancing all these options.

But we definitely firmly believe in organic growth. I think there is a huge competitive advantage that we have, which no other players have. Like we have a very strong TV presence, we have a very strong brand and our portal has accumulated huge traffic. All these I think allows us revenue synergy and cost synergy so organic growth approach is our top priority. But we don't want to rule out the possibilities of acquiring some new, small but beautiful, small enterprise which can supplement our weakness in these areas.

Okay. Thanks for the color. My second question is about your margin outlook in 2014. Given that we saw a very strong market expansion during the year in 2013 and also with the (technical difficulty) that you talked about earlier in the call, I just want to see if you could add some color on how should we look at the margin trend for this year? Thank you.

Hi. This is Betty. Thanks for the question. In terms of margins I guess you are talking about operating margin. For the fourth quarter this year our operating margin achieved 20%, which is an increase from 5.5% same quarter last year. It was because mainly due to the increase of the gross margin. Gross margin, fourth quarter this year we achieved about 54.6%. It's the highest in our record. It was due to the reason that our revenue mix has been changed. Our advertising revenue, the portion of our advertising revenue has increased from [66%] to about [60%]. That's why we increased our gross margin.

And for the full year 2013 our operating margin achieved at about 18.6% and we are looking at to at least maintain the same margin for the coming year.

Okay. Thank you.

Alex Yao, JP Morgan.

Hi. Good morning everyone. Thank you for taking my question and congratulations on a very solid quarter. I have two questions. Number one is on your advertising outlook. So you guys did a very strong quarter in 4Q and also 1Q guidance is also very strong. Do you expect such a strong advertising growth momentum can continue into the rest of 2014?

What are the key drivers that push your revenue growth? From a vertical perspective, which are the verticals that generate a lot of growth and which are the sector/verticals that underperform compared to the others?

Secondly, I have a question on the video app side, which is a pretty unique content you guys offer in the market. But compared to the commercialization of entertainment-oriented video content such as TV, drama and the movie, I think there's a [struggle] on the monetization in this video-based content. Can you help us to understand why the market, from a budget-allocation perspective, prefer to spend on the entertainment-oriented contents rather than such news-based content and how can you improve the monetization going forward? Thank you.

Thanks Alex for the questions. This is Ya. First, about an outlook, yes, in the fourth quarter we see our advertising grew by 36.7%. I do expect that to be around the same in 2014, i.e. in the mid 30s. I think that is higher than the previous communications and our own previous expectation in December.

I think that last year the key drivers for our advertising growth, first is our continued growth in our PC traffic. For the fourth quarter it was 23%. And we have right now combined PC with mobile DAU of about 64m and our homepage of our PC website is ranked number two among all Chinese media websites. I think that's the foundation for our overall advertising growth given that our user profile is regarded to be affluent and well educated.

Secondly, the mobile advertising and video advertising are the two drivers for our overall advertising growth last year. For the whole year we see our mobile advertising revenue grew by 115% and video advertising revenue grew by 58%. And we think in 2014 those two areas will also grow in high double-digit while our portal PC advertising will grow in low double-digit. That is our portal growth will still outpace our peers of other leading portals.

And when we look at the overall, the macro picture, we believe a platform like us will continue to benefit the overall economic shift to online. That is still I think setting/providing the major driver for advertising transaction or even payment-related online economic growth.

And when we look at the individual sectors, in the fourth quarter auto sector contributed 32% of ad revenue and food and beverage with wine, food, beverage and wine contributed 10%, ecommerce contributed 9% and finance contributed 7%, healthcare contributed 6%. Some of the areas like food, beverage and wine benefited from our development and leadership in fashion and entertainment sector as well as our video strategy, which fits well for sectors like wine, like regional travel, which are traditional TV news program advertisers.

And in 2014 we do expect to see continued strengths in auto sector, in finance sector benefiting from the insurance finance momentum, as well as the food, beverage and wine sectors.

Now to your second question regarding the video advertising and especially comparison with the TV drama companies, we believe first the unit scale I think is still different. Because of the, I think the competition and also the abundant providers of TV drama and movie contents, the overall user base for TV drama players actually is greater than the news video audience.

And secondly, there is a better measurement from the TV drama advertisers when they adopt similar advertising metrics online. And while we as the leader and probably we're one of the very few promoter for online news video content, haven't established an industry -wide acceptance of the best measurement metrics for online news video advertising because of the different habit on TV.

However, these two types of video contents attract different type of users. I think the TV drama content attracts more households, I think households, sometimes household wives or younger audience, much younger audience, while the news video contents attracts better educated, more affluent, more influential audience. And especially in the coming convergence of the 4G mobile internet and also the internet TV in the living room, athe news video contents will be welcomed by a lot of the mainstream internet users in China and will be valued by more categories of internet advertisers.

Right now we have seen strengths being, as we mentioned before, in the wine, regional travel and some industry group sectors. These sectors are very different from those sectors for TV drama advertising. So I think with the emergence of 4G internet and smart TV in the living room we will see our news video strategy become better monetized. I hope that answers your question.

George Meng, Macquarie.

Good morning everyone. Thank you very much for taking my question. First of all congratulations on a very great quarter. I have three questions, if I may. The first one, Shuang Liu, first of all congratulations on your new role. I just wonder, because you're talking about the convergence of multiple screens, especially after you're promoted to the new role, but can you elaborate to us if you have any near term plans on that?

And also directionally, do you think that that means that you will have more video content on ifeng from the Phoenix television, and also vice versa, meaning are you going to output some of your ifeng original video content to the TV part? And can you also remind us currently how much of your video content is actually coming from the Phoenix TV. That's my first question. Thanks.

Okay. Let me answer your first question. I'm personally very excited about this new appointment. I think this appointment demonstrates Phoenix TV's determination to push the convergence of TV, Internet and mobile. If you look at all these players in China's Internet market, none of these portals has been backed by a strong traditional media powerhouse like Phoenix TV. And also look at the all these traditional media players in China's TV market, like CCTV, (inaudible) and Oriental TV, none of them has such a strong new media arm to back them. So the chemistry between our two sides there is huge. There is lots of synergy yet to be released.

I think my task is to strategize, to oversee and to allocate resources to push the convergence. So lots of things we can do on both sides, like we can co-produce content. We can run co-branded marketing campaigns. We can have co-coverage of major world events. We can provide one-stop-shop solutions to our advertisers. So lots of cost synergies and revenue synergies.

In terms of content sharing I think it's two-way traffic. Phoenix TV will dismantle all these technical hurdles between our two companies to make sure the content on both sides could be shared by each other anytime, anywhere seamlessly. So Phoenix TV could have instant access to the original programming we provide. We can have an instant access to the content library of Phoenix TV. So it's got to be two-way traffic.

But in addition to Phoenix TV's content, we also acquire content from other domestic players. So it's not that --- well, our video strategy is definitely news and documentary driven, but Phoenix TV content I think represents less than --

Less than 40%, about 35%.

Yes, about 35% of our whole content library. I think that ratio will probably remain the same. Do I answer your question?

Okay. Yes, great. And my second question is also related to your video content. So you mentioned that you launch this new program called Super Mummy in the fourth quarter. Does that mean -- because I think that's more or like a variety show rather than your traditional news or documentary. So does that mean you're taking a more diverse approach on the video content?

I think because these kind of variety shows are more or longer in terms of duration, is there any impact on your bandwidth cost?

And can you remind us what's your ad revenue contribution from video? Thanks.

Thanks George. The Super Mummy program launched in May to November and it's a long format I think, a show with some variety show elements in it. It's a strategy we adopt for those vertical areas where we can both diversify our audience base, for example in this case to include young mommies, young moms, as well as draw a lot of vertical advertising budget. In fact within I think the first day we attracted two major advertisers and currently I think we sold through half year for 2014 for this program.

We are also strategizing and also planning for other long-format vertical area shows like this all related to lifestyle and consumptions. And we hope these can enrich our video content offerings but it's still different from those TV dramas, those comedy shows produced by the other TV drama video players. We believe this is in line with both our portal strategy, vertical strategy as well as our video strategy.

The impact on content consumption is still minimum at this time so I don't think in terms of margin pressure it will have any negative impact.

Also let me add that going forward, three-to-five-year timeframe, I think the TV station content concept itself will become relatively weaker and the content production costs significant will become stronger. So we'll definitely be well prepared for that. So we need to come with more innovative internal structure, internal incentive scheme and internal team to get ourselves ready for that kind of a mega-trend to more aggressively tap into content production area. But it's got to be step by step. In other words, we need to strike a balance between our advertising revenue growth and also our margin improvement.

Also George you also asked the video revenue contribution. Within the advertising, including mobile, the video contribution grew from 14% overall in 2012 to 16% overall in 2013. In the most recent quarter contribution was 17%. It would have been greater if our mobile revenue had not grown by triple digit last year. So within only the PC, within the PC environment advertising contribution, the video advertising revenue is nearly 20% already.

Okay. Great. And my third and also last question is regarding your mobile ad revenue contribution. You mentioned it's about 11% in the fourth quarter. Can you give us a little breakdown of this 11%, meaning how much of that is coming from your mobile portal or the mobile ifeng website, and how much is from your apps?

And also in terms of the traffic contribution, do you have any way to count how much of your total traffic is now coming from mobile now? Thanks.

Yes. First, the revenue split, we do not give that information, but we did disclose that within our RMB24m mobile DAU, a larger part is from the mobile websites, a smaller part is from mobile apps including the news apps, the video app as well the new leading app, the audio app, the ifeng FM. And right now most of the mobile advertising is still non-video as we only started to sell our mobile video apps.

And if you look at the traffic contribution in relation to 40m DAU on PC and the 24m DAU on mobile.

Great. That's very helpful. Thank you very much.

Thanks

Eddie Leung, Merrill Lynch.

Good morning. Thank you for taking my questions and congratulations on the very good quarter. We have been talking about the revenue side for quite a while so just wondering into 2014 what could be some of the key areas that you guys would put more resources or expansions behind in terms of R&D and marketing and promotion? Thank you.

Yes, this is Ya. Thanks for the question. In terms of R&D, yes, we certainly, we are accelerating our technology application into our product to enhance user experience, especially in some database-driven PC verticals, and also in our mobile apps in areas such as personalization and localization. Those are the two major application areas we are trying to increase our R&D efforts. And also R&D are helping us saving on content --- on bandwidth costs as well as the convergence with the parent company to provide a better program production and co-coverage of major events.

And in terms of the marketing we did announce that last quarter we held four major events, two in finance, one in philanthropy, one in fashion and we also spent some outdoor brand advertising in December.

In 2014 with the focus on mobile user growth and mobile user experience enhancement, our marketing and promotional cost will be smartly spent to gain users with high retain rate rather than just blindly spending on those page user growth as some of the early practice in the industry. So overall marketing cost within our overall operating expense is rather limited as we continue to leverage the users of the leading content provider and news provider in China. So event marketing and also the marketing with the parent and the new streaming marketing will still benefit us with a rather high ROI approach to the marketing strategy.

Got that. And then I have one last question about your user growth. You have been seeing very good user growth in the past couple of years so just wondering where you think you are getting these users. Are you guys getting market share in the top tier cities or are you getting more users from the lower tier cities, meaning you are penetrating beyond your core user base?

Indeed, yes. Our user growth is very comprehensive. We do see a lot of growth including from the third and four tier cities because we already have reached a scale. Our monthly user coverage is more than 60% of the overall Chinese internet population.

I think if you have to see the difference among our users against the competitors, I think major difference maybe the age. We have very few users with age under 15 or 18 while users under age 18 I think contributes more than probably sometimes even 20% of some peers' audience base. I think that's the major difference. However, we are gaining audience across different layer of the cities. And within each region we think the audience we gained are also among the high tier, the high end of those regions. For example, even for the third tier and fourth tier city, our audience are generally better educated or more affluent.

Thank you. That's very helpful.

Eileen Deng, Deutsche Bank.

Hi. Good morning Mr. Liu, Betty and Matthew. Thank you for taking my question. I'm asking question on behalf of Alan Hellawell. Actually I wonder, we noticed that the fourth quarter's margin has a relatively higher expansion than last quarter. And wonder, among the cost of sales category, why the revenue sharing fees is going down with roughly 26% Q-on-Q, such a big difference there. Could you please give me more color on this one?

Yes, hi. This is Betty. As mentioned before, the rise of the gross margin this quarter from 49.2% last quarter to 54.6% this quarter is largely because of the change of the revenue mix. The advertising revenue has been increased from 60% to 66% from last quarter to this quarter. As a result the paid services revenue has been decreasing as well as the cost of revenue has been decreasing because the cost of revenue share related to the paid services. That's why the margin, the gross margin, has been improved over the fourth quarter this year. Does that answer your question?

Yes. Thank you very much.

George Wu, Legends Asset Management.

Hi. Congratulation for the very strong quarter. I would like to ask two questions. My first question is regarding on the internet advertising market in general. Do you see any acceleration in the reallocation of budget from traditional media to new media especially on the online video side especially in the first quarter?

Okay, yes. Combining our observation and also our understanding of the industry expectations, we believe that the market is expecting probably, relevant to our business, the PC portal to stay stable in 2014 while the video advertising to grow at around 40% while mobile planned to grow about 80%. For us I think we do see the video and mobile advertising to grow, as we mentioned, in high double-digits while our PC portal will grow in low double-digits versus the peers staying relatively stable.

From traditional media to online media transition actually is very transparent through last couple of years. First of course in the online video space of course TV advertising budget has continued to shift including for our own news video programs. We do see the wine and beverage companies, the regional travel budget and also some of the auto, even auto budget are transferring to our news video driven content. And also for sectors like luxury brands we do see the trends the advertisement budget migrating from print media, such as high-end fashion magazine advertising, to our fashion vertical advertising.

We believe that trend will continue. Especially with accelerating ecommerce, internet finance, all those online-to-offline transactions, all these mega-trends will further drive traditional media advertising spending to online. And we, with a strong and high-quality user base across China, will benefit from that.

That's very helpful. My second question is regarding on the rate card as well as advertising inventory increase. Can you give any highlight on that?

Yes. In January we did increase our premium PC advertising rate by 20% while video enterprising rate by 30%. We plan to increase our mobile advertising rate later in March. Overall last year the mobile advertising rate increased by about 50%. We think that will be a similar for 2014.

Thank you.

Yong Tong Lans, private investor.

I am a new investor to the Company and I have three, I believe, simple questions. Number one is what are the resources that make the Company different from the competitors in the industry?

Number two is in view of the management what are the major challenges for your continued growth?

And the last one is do you have plans to provide English version at iPhone.com to expand your audience base as well as keep more investors better informed? Thank you.

Yes, hi. This is Liu Shuang, CEO of the Company. Welcome onboard first of all.

Thank you.

I think there's a couple of resources we have that distinguishes us from other players. First of all, our very strong brand. This brand stands for Greater China context in respect of individual rights and advocate of the market-oriented reform. So we have a very strong DNA. We respect the value of editing and serious journalism. So this strong brand and the media approach toward content aggregation set us aside from other pure tax-driven companies in the market.

And secondly because of the parent company, Phoenix TV, we have exclusive content, which is very unique in China's market. So it's a key asset which is irreplaceable by other players. That also sets an entry barrier for other players which want to enter into news- and documentary-related media market.

And thirdly, we have a very strong shareholder, China Mobile. So that give us a very good, solid foundation to enter into future-related 4G-related business.

And also I strongly believe in convergence model. As I said, my new appointment as COO of Phoenix TV enable me to better allocate resources to achieve greater synergy among both sides to accelerate the convergence of TV side and mobile side.

I think the future challenge lies in separating wireless world and vertical areas. Simply because we have very strong presence in portal doesn't necessarily translate into success in mobile world. We've got to be humble. We've got to pay attention, pay respect for the differentiated needs on the mobile world. We've got to aggressively recruit top talent in wireless industry. We've got to come up with more innovative approach towards ecommerce-related vertical areas.

As to English channel, in the foreseeable future we do not have this planned. We are mindful of our advertising revenue, the balance of advertising revenue growth, the further expansion of our market and also the improvement in margin. So balancing to these three factors in the foreseeable future we do not have English channel plan. That's the simple answer. I recommend you to have this offline discussion so you can know more about this Company. Okay.

Ladies and gentlemen, I would now like to hand the conference back to today's presenter, Mr. Matthew Zhao. Thank you. Please continue sir.

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 do 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.