Phoenix New Media Ltd (FENG) 2014 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 2014 earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Tuesday, March 10, 2015. I would now like to hand the conference over to your first speaker today, IR Director of Phoenix New Media, 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 2014 earnings conference call. I am joined here by our Chief Executive Officer, Mr. Shuang Liu; our President, Mr. Ya Li; and Chief Financial Officer, Ms. Betty Ho. For today's agenda management will provide us with a review on the quarter and full-year numbers, and also include a Q&A session after the management's prepared remarks. The fourth-quarter and fiscal-year 2014 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 pleased to close out 2014 with strong momentum, heading into 2015. We continue to deliver robust operational and financial results even as we make heavy investments in mobile and emerging advertising solutions.

Today on this call I want to focus our key growth strategies, what we have accomplished in the last year surrounding these strategies and what we plan to do in 2015. The main areas I will focus on today are mobile expansion, Yidian investment, innovative advertisement initiatives and the verticalization strategy.

In 2014 we invested aggressively in building out our mobile platform for our users and advertisers. Over the past year we experienced significant organic growth in users on our mobile platform, with aggregate daily active users growing by 26% year over year to 30.5m in the fourth quarter. We also saw very solid progress in terms of mobile monetization, as evidenced by our mobile advertisement revenues growing by 116% (sic - see press release - 113%) in 2014.

In addition, last month we increased our investment in Yidian and became its single-largest shareholder. Yidian is a rapidly growing personalized news information app in China, which allow users to efficiently define and explore desired news and information over mobile devices. Yidian daily active users reached 6m at the close of 2014. It was also ranked the fastest-growing news-related app in China in terms of user base last year, according to TalkingData.

Our strategic investment in this powerful next-generation mobile app demonstrates our resolute determination to lead in evolution of content generation and consumption in an increasingly multi-screen world. Yidian's strong and addictive appeal for users lies in its ability to bridge search and recommendation functionalities in a personalized and user-friendly manner. Our integration with Yidian is a game changer because it will greatly enhance our users' experience, drive additional traffic and attract advertisers in a way that is completely complementary to our existing lines of mobile products.

Yidian, our ifeng news app, serves different audience demographics and enjoy different future monetization opportunities. The ifeng news app is driven by premium editorial news content and attracts reputable brand advertisers while Yidian is driven by interest-driven search and recommendation technology, and carries huge potential for performance-based advertisements. Our ifeng news app targets the affluent, white-collar reader while Yidian embraces a broader community. The synergies here are undeniable. These two major mobile engines complement each other very well.

Looking ahead into 2015 we will greatly expand our efforts to become the top mobile gateway for information consumption in China, enabling users to access our proprietary information anytime, anywhere and over any device. With this in mind, we will continue to focus on driving mobile user expansion for both our news app and Yidian.

Additionally, Yidian inked a deal with its second-largest shareholder Xiaomi to have the Yidian app pre-installed on all Xiaomi mobile phones and tablet products sold in China. As Xiaomi is the leading mobile phone manufacturer in China, this deal represents a tremendous opportunity to accelerate the growth of Yidian's already large user community and build bridges to ifeng's existing mobile news apps. Furthermore, we will have the option to consolidate Yidian's financial statements into our own once the apps' user base reaches a certain level.

The next topic is our innovative advertising solutions. Our overall ad revenue growth in 2014 remains strong despite cyclical headwinds, which negatively impacted the ad business of many of our peers. Propelled by both increasing ARPA and total number of advertisers, our net advertising revenue in fourth quarter increased by 28.3% to RMB338.9m (sic - see press release "RMB338.5m").

What was particularly impressive was the progress we made developing new innovative solutions for advertisers. When we entered 2014 our native marketing solutions were nascent. In the full year 2014 we made enough progress on native advertising to more than offset cyclical pressures in the traditional ad business. Over the course of the last four quarters we've built this offering from scratch and partnered with several reputable companies as pioneers in this field to develop some of the earliest native ad campaigns targeting the Chinese market.

Looking ahead into 2015, as we continue to improve our native marketing offerings, we will ramp up our performance-based mobile marketing solutions through mobile products such as Yidian. Performance-based and targeted ad solutions are the way of the future. Armed with Yidian's data analytics technology, deep pool of user behavior data, a large user base, we will be able to provide more targeted interest-based advertisement solutions to our advertisers based on users' exhibited preferences.

The third area I want to talk about is verticalization, an area where we made a lot of positive progress in the past year and continue to expand upon in 2015 by increasing our focus on strengthening our urban lifestyle-related offering. As urbanization and expansion of the middle class in China continues, we are faced with emerging demands related to the new cosmopolitan lifestyles. These trends have helped propel our fashion and real estate verticals to now both rank number one in China in terms of daily unique visitors according to iResearch.

In 2015 we aim to be more aggressive and focused in capturing these market opportunities by expanding our vertical offerings either via partnership, investments and acquisitions, or organically by better leveraging existing resources and adapting to evolving market dynamics. The income level and spending power of our affluent user base provides us with great monetization opportunities, not only through our existing news, information and advertising services, but also through value-added services and O2O and ecommerce transactions.

Lastly, as I mentioned before, our strategy is to invest and employ necessary resources in order to become the number one mobile gateway for content consumption in China. With this in mind, we expect to spend more on mobile traffic acquisition for our news app, which will result in the increase of the related sales and marketing expenses. In the short term our operating margin will be slightly impacted in 2015, but over the long term we expect to benefit greatly as these necessary investments pave the way for us to rapidly expand our user base and capture additional monetization opportunities going forward.

Overall, we see a very bright future for our Company in this dynamic industry. We are proud of the evolution of the Company and our successful performance, both operationally and financially in 2014. ifeng's mission is to become the primary source of news and lifestyle content for the Chinese population across all internet-enabled devices. Looking ahead, as we pursue this goal, we realize we have a lot of work to do, but we're very confident that executing our key strategies will lead to long-term market share expansion and financial growth.

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

Thank you Shuang and thank you all for joining our conference call today. As Shuang mentioned earlier, we have been continuously having a very solid financial result this quarter. ifeng's total revenue for the fourth quarter came in at RMB438.1m, mainly driven by the strong advertising sales, with a year-over-year growth of 28.3%. Adjusted net income attributable to Phoenix New Media for the fourth quarter was RMB62.7m or RMB0.84 non-GAAP net income per diluted ADS.

Now let me take you through our financial highlights for the fourth quarter of 2014 results. The amounts mentioned here are all in RMB unless otherwise noted. The differences between GAAP and non-GAAP are the adjustments of the share-based compensation, gain on disposition of subsidiaries and acquisition of equity investments and loss from equity investments.

Starting with revenues, net advertising revenues for the fourth quarter came in at RMB338.5m, which represents a solid year-over-year growth of 28.3%. It was mainly due to the increase of the average revenue per advertiser or ARPA by 20.6% to RMB0.9m and number of (technical difficulty).

Ladies and gentlemen, your call will now continue. We thank you for your patience. I would now like to hand the conference back to Ms. Betty Ho. Thank you. Please go ahead.

Thank you. Hi. We came back. Sorry for the technical problems. Let me start over again with the revenues.

Starting with revenues, net advertising revenues for the fourth quarter came in at RMB338.5m, which represents a solid year-over-year growth of 28.3%. It was mainly due to the increase of the average revenue per advertiser or ARPA by 20.6% to RMB0.9m and number of advertisers had increased to 371.

Paid service revenues for the fourth quarter was RMB99.6m, which represents a year-over-year decrease of 26.9%, mainly due to the decrease of mobile value-added services, which was in line with our expectations. Mobile value-added services revenue decreased by 34.9% to RMB70.1m, primarily due to a decrease in revenues generated from the wireless value-added services with telecom operators. Games and others revenue increased by 3.4% to RMB29.4m.

Secondly, gross profit and margin. Adjusted gross profit for the fourth quarter of 2014 increased by 8.1% to RMB235.9m. Adjusted gross margin for the fourth quarter was 53.9% compared to 54.6% in the same period last year.

In terms of cost of revenues, adjusted content and operational cost as a percentage of total revenues increased to 24.9% from 19.3%, mainly due to the increase in staff-related cost and advertisement-related content production cost. Revenue-sharing fees as a percentage of total revenues decreased to 8.1% from 14%, primarily due to a decrease in mobile value-added services revenues. Bandwidth cost as a percentage of total revenues remained stable at about 4.9%. And lastly, sales tax and surcharges as a percentage of total revenue increased to 8.2% from 7.2% due to the increase of net advertising revenues.

Thirdly, adjusted operating expenses for the fourth quarter increased by 27.7% to RMB176.5m from RMB138.2m in the same period last year. The increase in operating expenses was primarily attributable to the increase in expenses associated with the Company's marketing and promotional initiatives and staff-related expenses relating to technology and product development. We are expecting that the sales and marketing expenses will continue to increase in the year of 2015 as a result of the increasing investments and mobile traffic acquisition costs.

Adjusted operating income for the fourth quarter was RMB59.4m compared to RMB80.1m in the same quarter last year. Adjusted operating margin for the fourth quarter was 13.6% compared to 20% in the same quarter last year.

Fourthly, GAAP net income attributable to ifeng for the fourth quarter was RMB46.9m. Adjusted net income attributable to ifeng for the fourth quarter was RMB62.7m. The difference between GAAP and adjusted net income attributable to ifeng, mainly due to the significant increase in share compensation to about RMB16m from RMB9.1m in the same period last year and the incremental increase in loss from equity investments, about RMB7.1m. Adjusted net income per diluted ADS for the fourth quarter was RMB0.84 compared to RMB1.19 in the same period last year.

In terms of balance sheet items, as of December 31, 2014, ifeng's cash and cash equivalents and term deposits and short-term investments were RMB1.33b or approximately $213.7m. It is expected that there will be around $57.6m cash requirement on closing the investments in Yidian during the second quarter in 2015.

Let me briefly run through the key figures of fiscal 2015 -- 2014. Total revenues for 2014 were RMB1.64b, representing a year-over-year growth of 15% from 2013, out of which the net advertising revenues continue its momentum, recording an outperform market growth at 37.8% year over year to RMB1.19b. Paid services revenue decreased by 20.2% year over year to RMB447.7m.

Total 2014 adjusted gross profit increased by 18.6% to RMB872.5m, which represents a 53.3% adjusted gross margin, which increased from 51.6% in 2013.

Non-GAAP operating income for 2014 increased by 9.8% to RMB290.8m. Adjusted operating margin for 2014 was 17.8% compared to 18.6% in 2013.

GAAP net income attributable to ifeng for 2014 was RMB263.1m. Non-GAAP net income attributed to ifeng for 2014 increased by 3% to RMB305.2m or RMB3.97 non-GAAP net income per diluted ADS. Non-GAAP net margin for 2014 was 18.6% compared to 20.8% in 2013.

As compared with year 2013, there are two items in 2014 that have significant impact on GAAP net income, which are exchange gain and loss, and share-based compensation. For exchange gain or loss, which is also impact on non-GAAP net income, due to the depreciation of the RMB in 2014 we have recorded a loss of RMB6.06m in year 2014 as opposed to a gain of RMB19.7m in 2013. For share-based compensation, due to the issuance of the employee share options during the third quarter of 2014 the share-based compensation has increased to RMB53.2m from RMB16.7m in 2013.

Lastly, I'd like to provide our business outlook for the first quarter 2015. We are forecasting total revenues to be between RMB359m to RMB379m, representing an increase of 1% to 6% year over year. For net advertising revenues we are forecasting between RMB269m and RMB279m, representing a growth of 15% to 19% year over year. For paid services we are forecasting between RMB90m and RMB100m, representing a decrease of 26% to 18%. Also it is expected that there will be a loss from equity investment related to our newly acquired Yidian in the first quarter of 2015, which may have significant impact on our GAAP net income.

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

(Operator Instructions). Alex Yao, JPMorgan.

Hi. Good morning everyone. Thank you for taking my question. I have two questions. Number one is regarding the first-quarter guidance. It seems to me that the advertising business is slowing down. If we look at a sequential growth pattern and a year-over-year growth pattern, it actually has been slowing down from the previous few quarters. Can you help us to understand the weakness in first-quarter advertising revenue guidance and also what could be the (technical difficulty) outlook for online advertising business?

And secondly is regarding the investment. You guys mentioned in the prepared remarks that in 2015 you will want to step up investment, which might have negative impact on the margin. Can you elaborate the areas of investment, what could be the magnitude on the financials and when do you expect the margin to recover? Thank you.

Hi Alex. This is Ya. I will address the first question. I think Betty will address the second question. Yes, first question regarding the Q1 guidance, I think we gave out a guidance of 14% to 19%. However, if you notice that we seek to consolidate advertising revenues from our real estate verticals, which contributed to 5% of our advertising revenue in the fourth quarter, and that real estate vertical is expected to grow at a higher rate than our overall advertising growth in 2015. So you may want to add -- if you want to compare apple to apple, then the year-over-year growth rate will be in the 20s.

I think this year, the first quarter, because of the timing of the Chinese New Year I think the sequential impact on the seasonally low first-quarter ad revenue is more severe than before. But overall we continue to expect our both PC and mobile advertising growth rate to be in par with the industry average. That's about the Q1 guidance. I don't know if that address your question.

Yes, it does. Thank you.

Hi Alex. This is Betty. Thanks for your questions. With respect to your second question, after our investment into Yidian, based on the accounting treatment, we will need to have two entries. One is the equity pick-up for their losses. The second one is very technical term called accretion, this the valuation related to the preferred shares that they issued. So, combined, they will have a quite substantial amount in terms of the loss from equity investment of Yidian. That will be after the operating income. So that's what I said in my -- earlier that it will have impact on the GAAP net income.

And it will be starting to have a significant impact on first quarter. It will go away at time when we are able to consolidate Yidian's financial statement into ours, which is expected to be maybe at the end of this year or later, the first beginning of next year.

Got it. And how should we think about the operating margin this year?

Sorry?

How should we think about the operating margin for this year?

Okay. The operating margin for the full year in 2014 was about 17.8%. And, as Shuang mentioned earlier, in order to execute our mobile strategy and initiatives, we are going to increase our spending on traffic acquisition cost and that will be around 2% to 3% impact. However, internally we are targeting to have a tighter cost control, so hopefully that will alleviate some of the impact.

Got it. Thank you very much.

Alan Hellawell, Deutsche Bank.

Thank you very much. Just a few questions around advertising. Just wanting to find out if you're seeing any growth disparities amongst your main verticals, autos etc. as we move into 2015. If you could add a little color to that.

Also, if you could just remind us when you're going to revisit your ad pricing and what your expectations might be in terms of hiking ad rates.

And then finally, would love to just get a little more color as to how much of our ad revenues will start moving toward [p-for-p] and possibly away from things like CPT and the like. Thank you.

Okay. Thanks, Alan, for questions. The first question about verticals, [you're digging] into auto or what particular verticals are you interested, or you want in general the trend?

Basically if we think about just your top three verticals, are you seeing any different growth rate or are they all basically identical? And if they're not identical, what might be driving the differences in growth rates?

Okay. Yes, okay. First, our first five categories for advertising revenue remain the same. The only difference is the percentage contribution. The auto is 32%, number one, with ecommerce becoming number two, contributing 12%. And the food, beverage and wine dropped to 8% because of the seasonal, I think a seasonal factor. And then you have the financial service at 8%; that is increase from the previous quarter. And then you have the healthcare and medical contributes to 5%. And also I did mention that real estate in the last quarter also contributed 5%.

And, however, we do notice that on mobile, as the entire advertising revenue shifts towards mobile along with the user consumption time of content, we notice that our vertical mix is a little different from probably some of the peers. For example, auto sector contribution is more than its share on PC on our platform, whereas most of our peers, they showed a performance based like downloading for games or downloading for apps. So those revenues contribute to number one factor. But in addition to auto, ecommerce and food, beverage, wine and also healthcare, these are also among the top sectors for our mobile platform.

So overall we see auto to remain very strong. And for real estate we did observe that with the evolving market condition of China's real estate market that we are encouraging some new monetization methods in addition to brand advertising. That's why we decided to cease to consolidate the vertical at the end of last year in order to give it more flexibility to experiment with some of the new initiatives and strategies, cope with the market, the change in market condition.

Our difficulty is about ad pricing. Last year we increased mainly twice, but first in January and secondly in July. This year we did increase. We did have our first rate hike in January and the overall PC rate increased by 5% with A-plus category inventories increased by 9%. And our video advertising rate in average increased by 13% as our video ad inventory actually -- our video ad sell-through rate relatively is higher than our non-video ad inventory sell-through rate. Our overall mobile advertising rate increased by 20% with the A-plus category increased by 33%. So we still see very strong demand on our mobile platform on top of the three-digit growth in 2014.

And so our pricing strategy is, first, we need to increase the ad inventory through continuous increase of DAUs, both on PC and on mobile. In 2014, we increased our PC DAU by 22%, much higher than our original expectation of 12%, or against industry average of a slight drop on PC platform. And also our mobile DAU is expected to increase significantly this year as we ramp up user acquisition, marketing spending and also R&D spending on our mobile apps.

So first, the ad inventory is through increased DAU. Secondly, is improved advertising technology or solutions. On PC in 2014 was mainly through the native marketing approach. And on mobile in 2015 and going beyond we are providing the performance-driven ad technologies and solutions.

So especially with the investment in Yidian technology, in Yidian it's technology based on the combination of recommendation engine with search engine, we will be able to offer the so-called interest apps, which will provide significant better performance measurement because of the better targeting technology matching users' needs to the advertisers' target demographic.

So going forward the CPT model probably will remain on PC as we continue to leverage our native marketing solutions to capture the brand advertising revenue on PC. And on video advertising we are still using the CPM-based pricing model; as a pre-roll will be, along with the sponsorship advertising, will be the main vehicle for video advertising monetization. But on mobile, yes, we are seeing the increasing trend of pay for performance both for our own in-stream ads, our mobile apps as well as for the future advertising on Yidian Zixun.

Thank you very much. That's a very, very exhaustive answer. I appreciate that. Interest ads, are they a different form factor or your interest ads, you're just referring to the back-end technology which better targets the ad, or it's not a different form factor, is that right?

Well, form-wise I think it's probably mostly the same. However, first, we are launching these ad solutions in association with Xiaomi and we are going to provide the most innovative advertising technology based on the enormous user data, probably not only based on the Yidian user behavior, but also Xiaomi's user behavior insight. And with that technology we are able to deliver better results.

In addition, I want to mention that the interest engine is different from the, some of the peers' technologies in terms of personalization. Most of the peers providing personalized news and information feeds is based on recommendation technology. And in many cases they recommend a lot of like entertainment or even tabloid news information for people to fill their fragmented time.

However, by interest engine we combine user-subscribed keywords and micro-channels to provide valuable content, not really like tabloid content, which can also generate user traffic. But by interest engine, especially in lifestyle verticals like baby, like healthcare, like fashion, these will be better monetized compared to just recommendation based on a user's exhibited behavior. But rather by user consciously subscribed keywords, micro-channels, we will be able to provide the advertising solution similar to search advertising. And so for that we are very hopeful to improve our monetization on mobile in the future.

Okay. And is it by -- is it in 2016 that that vision becomes more than 10% of revenues in and of itself or how do you think that that grows?

We haven't calculated this number internally, but we will start monetization on Yidian in the second half of this year. And we do believe based on the current growth rate of Yidian's DAUs that in 2016 it will, sure, contribute significantly to our overall mobile advertising revenue.

Fantastic. Thank you so much Ya.

Thank you Alan.

Alice Yang, Macquarie.

Hi. Good morning and good afternoon management. Thank you for taking my questions. I have two questions. The first one is still (inaudible) around your first-quarter 2015 guidance. I understand that there is a deconsolidation of real estate business and also (inaudible), and why you expect and you guide a little bit down in the first quarter. So if you're excluding these two effects, what is the normal growth in the first quarter? Can you share a bit on that?

My second question is about your gaming business. We see in the fourth quarter the revenue growth slowed down. Probably this is because you are transferring from web-game-based to mobile game. So what is your full-year 2015 expectation for your mobile games [going forward]? Thank you.

Okay. Thank you for the questions. The first one about the, still on the revenue guidance for the first quarter, first, I want to provide that I think during our CFO's [prepared remarks], Betty mentioned the -- or maybe not. But we do expect the whole year advertising revenue growth rate to be between 25% to 30%, and that's excluding the real estate advertising revenue. So if we add back real estate advertising revenue contribution it would be 30% to 35%, which is similar to last year's guidance. And we did exceed our last year's guidance in 2014.

So through the guidance we don't see any significant change in the advertising environment or in our own monetization capability. And that's -- I think the last quarter 28% revenue growth in our overall advertising revenue, 113% growth in our mobile advertising or the entire year's 38% growth rate for advertising revenue in 2014. All these numbers I think mostly outgrow our peers' growth rate in 2014.

And in terms of 2015, we mentioned that we expect both PC and mobile advertising revenue to grow with the industry average. And, however, if we are able to consolidate the revenues from Yidian earlier, in the last quarter of this year, then we might see even stronger revenue growth from Yidian's contribution.

In terms of the game, indeed that web game remains the same in 2014 compared to 2013 as the industry, it is going through the same transition as content consumption. And we are very carefully experimenting with exclusively licensed mobile games this year. So far we have licensed three games and we are cautious in terms of predicting the revenue impact as this is relatively a new area to us.

However, in addition, we also announced I think with this earnings release that we are investing RMB34m in an entertainment company in Shanghai, which will focus on the entire intellectual property value chain by developing mobile games, book publishing, TV, opera and movie, and animation based on the IP value chain. And we think that could alleviate the risk in just the mobile game alone as we leverage our overall brand and the experience as a content player in China and also enormous user base. And I think as the year goes, yes, as the year moves on I think we might be able to provide better guidance in terms of mobile game revenue contribution.

Thanks very much. Can I add on a little bit on your RMB34m investment in an entertainment company in Shanghai? Are you taking the major stake or it's just a minority interest? And what is the business for this partnership?

Yes, it is a major ownership through this RMB34m investment. And we are investing in the top talent and associated some intellectual properties for these efforts. And that's -- we realize that there is tremendous opportunity along with the connected multi-screen devices and we want to better monetize on our user base. And that's one of our strategy along with or after our priority in mobilization and verticalization.

Okay. Great. Thank you very much. Cool.

Thank you.

Amanda Chen, Morgan Stanley.

Thank you. Good morning management. I have two questions regarding your mobile business. Firstly, could you please share your upstream traffic sources for all of your mobile products and especially the mobile traffic contribution from Xiaomi app store? That's my first question. Thank you.

Yes, let me address your first question. I don't know if my team will amend. First, the traffic acquisition for our mobile apps so far is processed through our existing user base plus some typical user acquisition methods like pre-installation, like online app promotion and spending. And we have a mobile website which has more than 20m daily active users and that 3G.ifeng.com mobile website is the major, first major contributor to our mobile app user acquisition.

And secondly, of course our PC platform also provides the existing user base and the loyal users to our mobile apps.

And in addition, we are spending, especially starting in the fourth quarter of 2014 we are spending on pre-installations with top hardware manufacturers as well as online app stores.

And so far Xiaomi has the [leading] contribution to our own app user growth at this time and we do want to increase strategic partnerships with the major manufacturers as well as telecom operators in the future to leverage our premium content. And also in the case of some two other products, the ifeng video and ifeng FM app, they are in a unique position as short-form news-video product or the audio platform. So strategic acquisition -- no, strategic partnership will be important going forward for us as a user acquisition vehicle.

Hi. This is Shuang. Let me also add that right now our total mobile users is more than 30m, excluding Yidian. If you're adding into Yidian the total mobile users will represent more than 50% of the total users. I think with the accelerated pace of investment in mobile area, the mobile users percentage in our overall users will growing significantly.

The nice thing about our user growth is I think the growth is across the board. It's on all different kinds of screens. PC growth is still very stable. I think that has a lot to do with our strong media DNA, our premium content and our unique editorial-driven approach, and also our unrivalled influence over the -- in the portal area.

And we have to admit that the strategic alliance with Xiaomi certainly will make a good contribution to our Yidian-associated apps user growth. Going forward I think the strategic alliance with Xiaomi will be further strengthened. I think we are confident in next two or three years we'll become the top mobile information gateway in China.

Got it. Thank you. Very helpful. My second one is regarding the mobile-related revenues. Could you please give us a breakdown of mobile-related revenues, including mobile digital reading and mobile video, and mobile games? Thank you.

Hi Amanda. This is Betty. Under the paid services there are wireless value-added services, games, digital reading and mobile video. So for wireless value-added services it consists about 11% of the total paid services. For digital reading and video combined they have about 6% of the total paid services. And for games and others they represent about another 6% of the total paid services. So as a total they consist of about 23% in fourth quarter, which means that it further decreased from last quarter from 25% to 23%. That means our advertising revenue has been growing in terms of total revenue.

Got it. Thank you.

Natalie Wu, CICC.

Hello. Can you hear me?

Yes.

Yes, we can hear you Natalie.

Hi. Great. Hi. Good morning management. Thanks for taking my questions. So I have, basically I have a few questions. The first one is a follow up with Alan's question on advertising. So can you share with us your maybe short-term target, like 2015 target, for mobile contribution on advertising?

Also how do you feel about your current CPT level of your mobile ads? I mean compared with some peers in 2015 I'm wondering will feed ads be launched this year.

And about Miaoqiu, can you give us some color on the profile of other external investors. Any color on that would be appreciated.

And the last is regarding our Yidian collaboration. Can you share with us the synergy that could be achieved with Yidian in this collaboration? Thank you.

Okay. Thanks for the questions. I will try to answer the first few questions and I think that Shuang will answer the Yidian cooperation question.

First of all, the short term, our target in terms of mobile contribution, we do expect the mobile contribution for the whole year in 2015 to catch up with the video contribution to the entire advertising revenue.

In last year, particularly in the last quarter, in the fourth quarter, our video revenue growth slowed down a little bit I think partly due to the reason that our video advertising sell-through rate reached very high level. And so we are in the process of increasing our video ad inventory and increase video ad insertion frequency, as well as adding mobile video ads, [premium] ads in 2015. So the video ad growth rate will be expected to be slower than the mobile growth rate.

And the mobile growth rate we do expect to grow at high double digit, which is in par with the industry average. And that's excluding any contribution from Yidian. So overall we think that the mobile contribution will probably reach to near 20% or slightly under 20% for the whole year in 2015.

Your second question about CPT level pricing, sometimes it's difficult to compare the entire pricing, but if you compare the cover page premium location, the CPT pricing level, we still have about a 30% discount to the peers of some of the leading portals. Even though we have the largest daily active users on our cover page on PC, our DAU on PC ranks number one among all the portals and it's only after Baidu among the media-natured Internet sites in China.

And we believe that this pricing strategy is enabling us to capture larger market share instead of simply increasing the price. That's why we observe a faster PC portal advertising growth in 2014, much higher than the peers' PC portal growth. And the pricing difference also enable us to increase the price going forward.

Then thirdly, about feed advertising, we have revamped our PC and are also in the process of revamp our mobile website in the beginning of this year. And we do plan to experiment with some form of feed on both our PC and mobile product platforms this year. And that [exercise] probably will be helped and enhanced by some of the acceleration from Yidian. We think that brand advertising plus performance advertising will constitute the so-called big idea plus big data strategy unique to ifeng's strength.

And on Miaoqiu investment, can you repeat your question again? I don't get exactly what you're trying to ask.

It's the profile of some other external investors. You said you're (multiple speakers) right?

Yes, we will be the majority shareholder of that project or of that subsidiary. And the other part of share will be, another significant part, about 25%, will be for the top talent we attracted for this subsidiary. And so we will be, initially we will be the sole investor in terms of providing financing to this subsidiary. And these top talents we recruited have some amazing track record in the past in China, but we hope that they will provide similar pleasant surprise going forward. However, at this time we are factoring some losses in the first year as we take a long-term approach to this subsidiary.

That's great. Thank you very much.

Okay. Let me add, regarding Miaoqui let me add that Miaoqui's founder, [Jiang Li Jun], is a top talent in China's gaming. Miaoqui's founder is a top talent in China's gaming world and he has developed an industry hit in the last couple of years. So his recruitment demonstrates the top talents' endorsement of our gaming strategy.

Okay, let me get back to your question on Yidian synergy. I want to emphasize that our goal is to become the top China's information mobile gateway. To achieve this goal we have two strategic pillars. One is ifeng news. The other is Yidian's information apps.

These two apps are complementary to each other. They are targeted at different demographics, as I mentioned in our opening remarks. They use different approach. One is editorial-driven. The other is content-recommendation- and search-engine-driven. And both they leverage different kind of attack analytics advertising technology. Ifeng news is more brand-advertising-driven while Yidian Zixun is performance-app-driven.

So the synergy is huge. Basically on ifeng side we have very strong premium content, a deep insight into user, white-collar user behavior and very strong media DNA. So we can definitely contribute these kind of resources to Yidian Zixun. And Yidian is particularly strong in analytics technology, performance-driven technology and product-execution capabilities. And we can also team up in content procurement and also other areas. So also by teaming up with Yidian we're also building up strategic alliance with Xiaomi. So ifeng could, I think going forward could easily tap into Xiaomi's platform to promote ifeng's other wireless products.

So the synergy is huge. So with our shared mobile vision and complementary resources, and also top-class teams, we are confident that Yidian and Xiaomi will enable ifeng to become the top mobile information gateway in China.

Thank you. Thank you, Shuang-zong and Ya-zong. That's very helpful.

Alicia Yap, Barclays.

Good morning everyone. Thanks for taking my questions. I just have a very quick two questions. Number one is regarding the auto advertising. So how is the ad budget and the sentiments of the spending been trending? I know auto is one of your top category. I wanted to get a sense, have you seen increasingly the OEM demanding more of the transaction-based ad budget, that they are switching or are more inclined to switch to the vertical portal?

And then second question is that with your step-up investment, how much of the margin drops that should we expect for this year?

Hi Alicia. Let me answer your first question regarding our auto advertising trend. Yes, as I mentioned that in the fourth quarter if we combine both PC with mobile advertising revenue, auto's contribution actually increased. While we also observe industry-wise that the transaction or performance-driven approach is also being adopted by many of the OEMs, many of the manufacturers, auto companies. However, we believe part of our strength lies in our successful native marketing strategy, which enabled us to capture larger budget allocation from some of the larger advertisers.

As these companies demand better results from brand advertising, our strength in terms of content production capacity and our leadership in native marketing actually enabled us to be picked and to be more -- I think to be treated even greater than before. That's why I think on the one hand we do observe this trend moving towards better quantitatively measurable results and, on the other hand, brand advertising is always, will always be an important budget allocation and will always be an important factor for auto industry. And actually for all the industries. Otherwise all companies will only be able to compete on the basis of pricing.

So brand advertising is here to stay, especially as the advertisers reallocate the brand advertising budget from traditional off-media campaign to online. So our native marketing initiative, led by our Sales VP Andy actually, which enabled us to grow native marketing revenue to almost 20% in 2014. And we do expect that our leadership in advertising in auto industry, especially with the major auto dealers -- auto manufacturers to remain in 2015.

Hi Alicia.

So can I --

You have further questions on that or shall I address to your second question?

No, I'll just quickly follow up on Ya's comment is that -- so is that fair to say the big portal like us as well as the vertical continue to take shares from the offline? Is that mainly from let's say the print and the TV? And then also probably we are also taking share from some of the older general portal. Is that fair to say that?

Yes, I would say so. Yes.

Okay. Great. Thanks.

Okay. So addressing your second question regarding margin impact, in order to become the top mobile gateway we are actually spending more on traffic acquisition cost in order to execute this strategy. So looking forward the non-GAAP operating margin will be -- have around 2% to 3% impact for the year 2015. However, as I mentioned earlier, that we are actually targeting a tighter cost control internally so as a result we are hoping that that will alleviate the impact of the drop.

So can we summarize that for the full year we are still trying to maintain the 2014 level, but potentially there could be plus or minus 1% or 2% lower? Is that fair to say?

Yes.

Okay. Great. Thank you.

Amanda Chen.

Morgan Stanley has already asked questions.

Ladies and gentlemen, I would now like to hand the conference over 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 have any further questions. Thank you for joining us on this call. Have a good day.

Thank you.

Thank you.

Thank you.