Phoenix New Media Ltd (FENG) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Phoenix New Media second quarter 2015 earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Tuesday, August 11, 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 second quarter 2015 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 of the quarter and also include a Q&A session after the management's prepared remarks.

The second quarter 2015 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 pleased to see our investment to Yidian started to pay off in the past quarter through its operational progress. Notwithstanding the lower-than-expected ad revenue growth, the second quarter carried positive operational developments that will lay the groundwork for our long-term growth.

We remain confident in the future of our business, especially as we accelerate our mobile expansion and prepare to roll out targeted ads over Yidian and our other mobile products.

Other encouraging developments included the ongoing verticalization of our content offering and the rapid success of our video documentary creations, both of which I'll get into momentarily.

Now let me first address the progress we have made on the mobile strategy and the future plan for mobile monetization. Yidian is a core part of our evolution into an innovative media company that transforms how Chinese society consumes information anywhere, anytime on any Internet-enabled device.

We're unquestionably encouraged by Yidian's progress since we first invested in it nearly a year ago. In July, the Yidian app's total daily unique visitors reached 10m, representing an impressive year-over-year growth of over ten-fold.

Together with our ifeng News app, we are on -- we are one of the top three mobile news on the information platform in terms of user coverage according to TalkingData, a third-party mobile data monitoring company.

In addition, Yidian's robust user growth was complemented by strong organic growth in ifeng's mobile traffic, which reached 34.5m daily active users in June, up 25.5% from a year ago.

Furthermore, we're seeing very promising results with the apps we have tested on Yidian, due to the high level of app relevance, which is based on the users' exhibited interest. In particular, click-through rates for Yidian app was significantly higher than that on the PC. We are very encouraged by the stats we're seeing and are excited about the future monetization potential it carries.

In the coming months, Yidian's technology and marketing teams will be working tirelessly in a joint effort to ready the platform for monetization through introducing targeted apps in the second half of the year.

We expect Yidian will first start monetization of Android phones in the fourth quarter of this year and expand to a full-scale monetization by the first half of year 2016. In addition, we expect that Yidian's DUV will remain a strong growth momentum moving forward.

We also remain committed to continuous improvement of our apps in order to offer our users the optimal mobile experience. For Yidian, an improved iOS version was recently released that not only offers an enhanced user experience but also better employs Yidian's cutting-edge big data analytics capabilities to recommend the most suitable options which make searching, subscribing and discovering more convenient and effective.

On our mobile ifeng News app, we have launched localization channels which allows users to not only read breaking news of national importance, but also quickly and conveniently see what developments are impacting their local areas. We believe Yidian's functional enhancements and ifeng's newly-added localized news are prime examples of how ifeng strives to utilize technology to deepen our impact and bolster engagement among our loyal and tech-savvy user base.

As we march forward with our mobile and technology initiatives, we have not lost sight on the PC side. In the past quarter our PC and daily unique visitors grew at 10% year over year to 50m, and we've maintained our number [three] position as an integrated media website in China and ranked number seven among all Chinese websites in terms of daily unique visitors according iResearch.

Channel development and verticalization has also been another key priority and one on which we have executed exceptionally well. Our finance channel which we made a separated business unit this April (technical difficulty) previous quarters among such market volatility and its official WeChat account has attracted over 1m readers in the past quarter.

We saw similar growth in our fashion channel, with big-name fashion brands signing on to work with us to promote their products among our engaged fashion-specific audience.

Our finance and fashion verticals are clear models for success in terms of both user expansion and monetization. Through expanding the depth, quality and quantity of our verticals, we've further broadened our impact on users in specific sub-segments. This segmentation of our audience will allow us to enhance our marketing solutions for advertisers by more effectively targeting desired demographics.

Another exciting development relates to our video documentary strategy. In such a fragmented online video market, we have focused on original video productions, with some particular emphasis on documentaries. Our recent efforts in this area have launched us to become the number one online video documentary platform in China, occupying [30%] of the total viewing traffic for this category according to China Mainland Media Research, a leading media consulting firm.

Among these -- this exciting news, our app revenue fell short of our original forecast. It was due to the weaker-than-expected PC advertising demand, which was felt across the Internet media sector in China, and compounded by our internal sales leadership transition. As a result, it is expected that our full-year's ad revenue growth will be hindered.

Despite this temporary situation, we see a bright future in 2016 of new trends of premium brand advertisements combined with performance-based targeted marketing solutions across all Internet-enabled devices, especially in the fast-growing mobile platform.

In a joint marketing and technology effort, we are aggressively investing in developing these next-generation app solutions in order to stay ahead of the curve and command greater advertising revenues in future periods.

The core competencies of our business, namely content production capabilities, dedication to serious journalism, and cutting-edge technology have only gotten stronger in the recent period. We are confident that with these strong fundamentals, the ongoing expansion of our mobile user base and the development of emerging app solutions we are well-positioned to grow our business and deliver sustainable long-term value to our shareholders.

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

Thank you, Shuang, and thank you all for joining our conference call today.

ifeng's total revenues for the second quarter came in at RMB422.9m, mainly driven by the advertising sales with a year-over-year growth of 7.2%.

Adjusted net income attributable to Phoenix New Media for the second quarter was RMB40.7m and non-GAAP net income per diluted ADS was RMB0.56.

Now let me take you through our financial highlights for the second quarter of 2015. 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 acquisitions of equity investments, loss from equity investments and gain on disposal of an equity investment, and acquisition of available-for-sale securities. These are the non-cash accounting treatment and mostly related to Yidian's investment.

Starting with revenues. Net advertising revenues for the second quarter came in at RMB311.9m, which represents year-over-year growth of 7.2%. It was mainly driven by a year-over-year growth in mobile advertising revenue of 124.2%.

Average revenue per advertiser, or ARPA, increased by 20.3% to RMB1.1m, and the number of advertisers was 295.

As Shuang mentioned earlier, we are experiencing a temporary volatility in terms of the ad sales in 2015 because of the weaker-than-expected PC ad demand and the internal sales team restructuring. The growth rate of advertising revenue is expected to be single-digit this year. The non-GAAP operating margin will be declined accordingly.

Paid service revenues for the second quarter was RMB111m, which represents a year-over-year decrease of 7.4%.

Mobile value-added services revenues decreased by 3.3% to RMB88.1m.

Games and others revenues decreased by 20.3% to RMB22.9m, due to the decrease in revenues generated from web-based games on the Company's game platform.

Secondly, gross profit and margin. Adjusted gross profit for the second quarter was RMB205m, compared to RMB215.8m in the same period last year.

Adjusted gross margin for the second quarter was 48.5%, compared to 52.5% in the same period last year.

In terms of cost of revenues, adjusted content and operational costs as a percentage of total revenues increased to 23% from 19.8%, mainly due to the increase in staff-related costs and advertisement-related content production costs.

Revenue sharing fees as a percentage of total revenue increased to 15.9% from 14.4%. Bandwidth costs as a percentage of total revenue increased to 5% from 4.9%. And lastly, sales tax and surcharges as a percentage of total revenue decreased to 7.6% from 8.4%.

Thirdly, adjusted operating expenses for the second quarter increased by 30.5% to RMB164.8m, from RMB126.3m in the same period last year. The increase in operating expenses was primarily attributable to our increased efforts on the spending of the related mobile traffic acquisition expenses.

Adjusted operating income for the second quarter RMB40.2m, compared to RMB89.5m in the same quarter last year.

Adjusted operating margin for the second quarter was 9.5%, compared to 21.8% in the same period last year, primarily due to the increase of mobile traffic acquisition expenses as stated earlier.

Fourthly, adjusted net income attributable to ifeng for the second quarter was RMB40.7m, compared to RMB92.3m in the same period last.

GAAP net income attributable to ifeng for the second quarter was RMB22.5m, compared to RMB84.5m in the same period last year.

Adjusted net income per diluted ADS for the second quarter was RMB0.56, compared to RMB1.19 in the same period last year.

In terms of balance sheet items, as of June 30, 2015, ifeng's cash and cash equivalents and term deposits and short-term investments and restricted cash were RMB1.03b or approximately $166.3m.

Lastly, I'd like to provide our business outlook for the third quarter of 2015. We are forecasting total revenues to be between RMB373m to RMB393m, representing a decrease of 14% to 9% year over year.

For net advertising revenues, we are forecasting between RMB290m and RMB300m, representing a decrease of 11% to 8% year over year.

For paid service revenues, we are forecasting between RMB83m and RMB93m, representing a decrease of 22% to 12%.

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

(Operator Instructions). Natalie Wu, CICC.

Hi. Good morning, management. Thank you for taking my question. I have a couple of questions here.

The first is, can you share with us a little more about the monetization plan of Yidian? You said that you are planning to carry out full-swing monetization in the first half of 2016. Just wondering how many SME number or SME types or maybe [CTC] level you are targeting. Or in the final place or maybe one, two years later, what kind of -- what level of revenue you expect that could be generated from this business.

And also about the operational data of Yidian, can you just share a little bit about maybe -- you just told us about DAU that is [1m] in July, right? But can you talk a little bit about the retention rate, user profile, or say the click-through rate? It will be better if you share with us the comparison with its peers. That's my first question.

Hi, Natalie. This is Ya. Thanks for the question. Let me first start by sharing some operational data.

First of all, certain data we consider to be confidential for competitive reasons. So the number I'm giving you are actually formally released publicly already.

As we mentioned that our DAU reached over 10m in July and also it reached just 11m in first week of August, and it's exhibiting very strong growth.

And the -- in addition also, we have seen over 220m [long tail] channels on Yidian. This is very unique compared to those limited number mostly -- limited number of channels on peers.

For Yidian, in the last quarter our focus is still on product innovation and user acquisition. Actually, the first priority was team building. In the beginning of the second quarter we had less than 100 employees, now we have 200 employees. And on product, we'll focus on both product enhancement for user experience as well as mid to long-term product feature innovation which we consider to be critical in leading the mobile revolution.

We want to become an entry point for mobile content consumption, beyond just mobile news. And we do have this Interest Engine as a technology base to expand among different dimensions for like verticalization, localization, and also to include more self-media content and also to develop and capture contents from the whole Internet including audio/video and some structured data and structured content, beyond just pure news.

So, product innovation and product feature enhancement was the focus. And in addition, we do see strong user acquisition, especially in iOS and also Android-based phones -- especially non-Xiaomi Android-based phones. We do have this strategic partnership with Xiaomi and we believe it's demonstrating successful contributions to the user growth and we believe that will be long term. But we are happy to see that the user growth on non-Xiaomi phones to accelerate.

And so beyond -- in addition to product innovation and user acquisition, we are testing with advertising solutions. We are confident because of our Interest Engine enables us to better match the advertisers' potential customer with our better categorized user base. And so, initial data from the click-through rate all those actually are indicating very positive results.

So we believe that, based -- also based on our peers' demonstrated monetization capability, we think it will become -- it will contribute significant monetization in 2016.

At this time it's too early for us to provide any guidance on the revenue level. But because of overall migration of advertising budget from PC to mobile caused by the users' consumption behavior migration from PC to mobile, and also our unique targeting capability, we think the monetization will be rather significant starting in 2016.

And also as to the economic size of Yidian Zixun, you raised a question about the future market -- the size of the future market.

Yes.

I think it's important for you guys to understand that Yidian is not another portal. Yidian stands at the crossroads of search engine, browser, navigation website, and news apps. It's going to redefine the portal landscape.

So if you look at its economic potential, probably you'll want to use search engine, browser navigation sites altogether. I think the future monetization room for Yidian Zixun is huge. As Ya mentioned, we can experiment with localization, O2O, e-commerce, performance-driven apps. So there are lots of things we can experiment with, we can try. So we are very confident about the future -- the monetization potential of Yidian Zixun.

Okay. Thanks, Ya-zong and Shuang-zong. Just some follow-up question.

Can you update us the average industry level of the maybe CPC or (inaudible) of this kind of app?

Well, it's -- yes, let's get back to you after the conference call, to ensure the accuracy of what we know, yes.

Okay, thank you.

We'll take note. We'll get back to you shortly after the call.

Okay, thank you. Just the last question.

Also I noticed that your outlook for the third quarter is a little bit weak. I'm just wondering what is the reason behind that and how should we see the revenue growth for the rest of 2015, maybe 2016? And can we expect margin expansion at some point in one or two years?

Hi, Natalie. This is Betty. Thanks for your question.

As for the third quarter, actually we have provided the guidance. It was because that we mentioned in our earlier statement that it was due to two reasons. One is because of the macroeconomic is not doing well. So we are experiencing a weaker demand on PC sales.

The second reason was because of the transition of one of our senior management. She was -- used to be the CMO. So we, in our internal sales team, we are experiencing a transition and also a consolidation between PC and mobile sales team. So these are the two reasons.

And also for the outlook of the full year of 2015, I just mentioned in my script that we are looking at single-digit growth this year.

So, high single-digit, right?

At this time, we can just only give that single-digit as to that whole-year guidance, yes.

Let me just add a little bit to the second quarter ad performance and also the third quarter outlook. Actually in the past, despite the industry's decline in PC ad sales, we have been experiencing increase every quarter, and this is the first time, and actually due to larger accelerated migration from PC to mobile ads demand.

Mobile ads contribution doubled from 13% to 27% from last year to this year, for the second quarter. And so the advertisers' demand migration from PC to mobile obviously is the number one reason.

However, we are still seeing 10% growth in our PC traffic. And we do believe that our internal ad sales leadership transition and restructuring actually was another reason why we see the decline in our PC sales, which overall affected our advertising revenue in both second and third quarter.

In addition to the advertising sales leadership transition, we also restructured our mobile ad sales and integrated it with our PC ad sales team. We believe in the long run it will contribute better integrated ad sales results and synergies. But in the short term we have seen some negative impact, including the decrease -- temporary decrease in the advertising clients.

And for the second half, we have also made a major, I think, a major enhancement to our mobile monetization on ifeng News app and ifeng Video app. In the past we have always put user acquisition and product enhancement as the top priority. However, we just recently more than doubled our mobile ad inventory on our ifeng News app. And our mobile traffic on Phoenix New Media grew by 25% as Shuang mentioned earlier in his script.

And also we are working with more technology-based programmatic buying platforms, the DFPs, also to capture the trend in the programmatic buying area.

That's why we think that the temporary setback, because of the macro trend, because of PC to mobile transition, the macroeconomic softness as well as internal sales team restructuring. Hopefully, it will -- it did last longer than we previously expected and also hit us harder than we previously expected. But for the mid to long term we are still very confident because of our core competence and our unique positioning. Thank you.

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

Binbin Ding, JPMorgan.

Hi. Good morning, management. Thanks for taking my question.

My question is actually regarding the competition in the mobile news application space. I think recently some portals have increasingly put more resources or emphasis on mobile news application as a strategic direction, for example Sohu. And also Tencent, I think, it has recently added an independent news app, I think named [Paipai] which is also based on personalized recommendations.

So I think I'm really impressed by management's insight to differentiate it as an early move to differentiate its mobile news products into ifeng News app, which offers added recommended content and Yidian Zixun, which is more personalized and aggregated news content.

So my question is, with these players increasingly getting into the market, so how do you see the impact on the entire market landscape? And do you think it is more positive to [cater to] the users and advertisers or do you actually see more competitive pressure? And what could be your measures or your competitive edge in response to such competition? Thank you.

Hi Binbin. Thanks for your question.

First I think this move from our peers, first, demonstrates that news and content consumption on mobile is a fundamental and high-frequency demand on mobile phones. Actually we have seen the mobile apps growth across many areas. However, news and content consumption is something almost everyone has to consume every day. And I think these first indicate this high demand of this high-frequency app on mobile phones.

And, secondly, I think we have taken a comprehensive strategic approach, using our internally developed apps as well as strategically invested apps like Yidian to address users' different demands. First, internally, ifeng News app, ifeng Video app as well as ifeng -- the audio app, they all have unique positioning.

For example in the news app of course our extraordinary brand influence, our content authority and content production capacity actually make us the most welcomed apps for the mid- to high-end users and for the most timely news and interpretations of all the daily happenings in China.

And our ifeng Video app is positioned very uniquely on the short-form news and documentary rather than the peers, which all compete in the very crowded movie and the major variety show areas. And in fact we have seen a 25% growth year over year in our internal mobile traffic.

And for Yidian of course the main strength is its technology. Interest engine technology is something unique and also it's something ifeng previously did not have internally.

And that interest engine, it allows it to expand beyond just news app, as we discussed earlier in the first question. It actually positions us to capture the market opportunities from search, from mobile browsers and from other mobile, like O2O services, especially in the search area.

In the PC area, everyone's search has no memory, because every PC user is not using search as a logged-on user. It's just a -- so everyone's search returns the same result. However, on mobile everyone on our platform has its own log-on name, has its own memory and user profile. So your search is different than anyone else's search.

And that offers value. That offers a tremendous also marketing and monetization capacity. So by leveraging this interest engine technology and a drastically enhanced search feature on mobile, it allows us to grow beyond just a news app. So the competitors' entry into this area actually validates the market's attractiveness and we do have our own competitive strengths to win in this battle.

Also let me add that ifeng News and Yidian Zixun stands for our mobile-first strategy. Actually, these two products are totally complementary to each other. Ifeng News targets at white collar, which is keen on reading what's happening in the world and their local areas. Yidian Zixun is more targeted at youngster and more to address their tailor-made, their long-term needs. So Yidian Zixun is different from ifeng News. Yidian Zixun is a catch-all portal, a wireless portal. It addresses the long-term needs of youngsters.

So if you put them together right now, as I mentioned in my script, we're already one of the top three players in the media apps arena. As you mentioned, a lot of players are heavily focused in this area, so it's very competitive.

On the one hand I think we are -- we have to say, at the end of the day, who commands good content, who have better insight into user behavior, who really commands cutting-edge technology will win. On the other hand, the market is very big. I think it's big enough to accommodate different players.

If you look at our history, ten years ago when we entered into the portal area, ifeng actually lagged behind other competitors, way way behind. Right now, we are already one of the top three, at least top three portals in China.

So in the wireless area actually we're very competitive. We have actually put together Yidian Zixun and ifeng News. We are already one of the top three players. So we think we are very encouraged by our ranking and our rapid traffic growth. So looking forward, we are confident in this highly competitive arena, we can win.

Okay. Thanks for the color. And a quick follow up on the advertising outlook.

You mentioned that the weak guidance could be due to sales executive change and some macroeconomic problems. Do you also factor in the anticorruption activities in the automobile sectors and --?

Okay. Yes. Thanks for the question. We do see lower demand from the Chinese wine. I don't -- I think probably indeed it's part probably of the government policy in terms of -- what's the terms (spoken in Chinese), I forgot [the term] -- the frugal policy.

However, for the auto sector, we are seeing that this year is a very challenging year for automakers. All the automakers are actually focusing more on the actual -- or exerting big pressure on their own sales numbers. That's why we see stronger demand from the performance based ads compared to the -- or instead of the brand ads.

And however, because of our increased monetization of the ad solution on the mobile, including the native in-stream ads, and also the technology-based PC ad solutions, including the [DFP] solutions, so we are still seeing that overall automakers' contributions remain the same. In fact, in the second quarter, it contributed 35% of our overall advertising revenue, a slight 2% increase from the second quarter of 2014.

Okay. That's helpful. Thank you.

Amanda Chen, Morgan Stanley.

Hi. Good morning, management. Thank you for taking my question.

My first question is regarding the outlook of 2015. I guess you guys already commented on the macro trend in 2015, but could you give us more color on how it impacts our advertiser breakdown? For example, you already commented auto, you didn't see significant impact. But for other sectors, which sector is most impacted by the slowdown of macro economy? That's the first question.

And also second question is regarding the mobile application, your Yidian Zixun application. I think for a mobile news app content is important. Another thing is user traffic. I believe you guys have enough strength to generate very high-quality content based on users' interests. But for the user acquisition, I think some competitors, they have their own advantage. Therefore you guys maybe need to acquire some [better] traffic.

And if we look at (technical difficulty) this quarter, it's (technical difficulty) a little bit actually, and in the future if our revenue continues to see some pressure, how should we solve this problem? I mean how can we attract traffic more efficiently than [our competitors]? Thank you.

Okay. Hi Amanda. Thanks for the questions. First of all, the advertising trend, the demand, in the second quarter we see some weaker demand in sectors like financial services and these living, house living goods and some personal FMCG goods.

And for the stronger area, we are seeing, including first these new, emerging -- what do we call it -- Internet plus sectors, like this private or dedicated car driver, this like Zhuanche, these are what we all call Internet plus sectors. Maybe because of their capability of raising lots of money and also they are spending a lot on user acquisition. And especially our mid- to high-end users are very good target users for these dedicated car services. So the Internet plus category is a strong sector.

And also we have this game internally. Game is also our emerging sector, because in the past we have restricted any gaming, gamers' advertisements on our own platform. However, we are also reevaluating our game business and our positioning and opening up gamers to advertise on our platform. So the Internet plus and game, these are the two we are seeing growing demand on our own platform.

And for your second question about user acquisition, I'll talk about Yidian first. And I think, as we mentioned, that in the second quarter we are seeing very strong growth, especially in non-Xiaomi users and including iOS users and also other Android phone users. We are seeing triple-digit growth in the last month alone.

However, we haven't really started our extensive marketing campaign yet. We are planning a very extensive marketing campaign, starting from the end of August, and also it'll continue to -- at least for the first round, four months. And we expect our brand recognition as well as user acquisition to accelerate in the next few months for Yidian.

And we are able to acquire our users because of this differentiated technology and this -- our core function that provide core value to users. Because of this interest engine, it provides content to users, not just popular or like some of the peers, which tend to provide tabloid news and entertainment-related or social-related news without real value to peoples' work and live, health, consumption, education. And our interest engine allows us to do otherwise.

This value proposition, this value to the readers allows us to also enjoy a higher user retention rate than our peers. So this user acquisition for Yidian will be based on both strategic cooperations with manufacturers like Xiaomi as well as our own unique product feature and its value to our users.

Got it. Thank you. Very helpful.

Thank you.

(Operator Instructions). Gregory? Zhao, Barclays.

Hi. Morning, management. Thanks for taking my question. I have two quick follow-up questions.

The first one is about the (inaudible) in the second half, particularly for the property sector. I think in the last quarter or the quarter before last quarter you mentioned about the restructuring of our property vertical sectors. So I just want to get some color about the progress there.

My second question is about our margin outlook and the operating expenses budget. So I see in this quarter our operating expenses increased about 31% year over year, as you mentioned due to some mobile user traffic acquisition, and at the same time we see all these Internet companies actually are investing in mobile, so actually I think compensations for the R&D staff also increased significantly. So I just want to get your views about the R&D expenses and the marketing expenses in the second half and the impact on our margins. Thanks very much.

Yes. Let me first get -- this is Shuang. Let me first get back to the question relating to property. Actually, currently we're still at the stage of reviewing this business and we held numerous meetings.

The overall approach is to make the business more lean, more focused in specific areas, rather than very comprehensive, very comprehensive information provider like services. So we are determined to make the team more lean, more focused and targeting at an area, which can fully leverage ifeng's brand and existing resources. That's all I can disclose right now. So once we finalize the game plan, we'll let you know.

Hi, Gregory. This is Betty. For your second question about the margin outlook, I've mentioned earlier that, because of our full-year revenue is expected to be grow at a single-digit and also that because we have committed in the increased efforts on the spending on the traffic acquisition expenses and also due to the increase of the revenue share of the paid services, together with the increased project costs for the native advertisement project. So all these combined, it will actually affect our margin at the second half of the year.

Had all these factors been held constant as previous year, actually our margin would have been the same as in 2014. But all these are fixed costs in a way, because we cannot control it. So -- I mean variable cost. So as a result, the margin will further be affected at the second half of the year.

Got it. Thanks very much.

(Operator Instructions). Julia [Giang], Macquarie.

Hi. Thank you for taking my question.

You mentioned that your (technical difficulty) of your mobile advertisement has [grown to] 27% of the total advertisement revenue. Could you please give us some guidance in the second half of the percentage for mobile and PC for the revenue? And could you please mentioned -- could you please give us some color on mobile advertisement in March? Thank you.

Thanks, Julia, for the question. And, yes, in the first half we have seen triple-digit growth for our mobile advertisement revenue year over year. In the second half, the comparison will be a little tougher, because last year in the second half we did very well on mobile advertising itself.

So overall, we are seeing very strong growth still on mobile ad revenue. But at this time we are not giving any specific numbers. And, as mentioned, we did add many new mobile ad inventories in August that more than doubled these inventories. So we are expecting continued strong growth in mobile ads.

And in fact, actually, we are also shifting the entire Company's focus from PC more to mobile, from R&D, from marketing expense and from the purpose of content production. We are actually realigning our business to allow us to focus more on mobile. And this whole strategy really is to embrace this overall user migration to mobile.

I think this year we are investing more in mobile compared to the previous years. And these investments will provide, should provide handsome returns I think in mid to long term. And this integration of mobile ad sales team with the PC ad sales team will also provide the synergy and contribute to higher growth, I think, next year. I don't know if that addressed your question?

Thank you.

Thank you, Julia.

Charles [Chan], (inaudible).

Hi management. Thanks for taking my question. So I just had one small, just out of the way question. So I think now everybody is talking about mobile. So what do you think would be the next step, the step beyond mobile, maybe five to 10 years out? And what's your position on that?

Well, that's a very (inaudible) question I think. Right now, for us mobile is big enough. I think the mobile battle is a battle for us that we have to win. So in addition to mobile, I think there are a couple of areas we need to probably -- might expend more efforts like the mobile's relation to the e-commerce and the O2O business and the mobile distribution of our content. And also -- yes, that's the three area we've been thinking. But our top priority has been given to mobile, definitely.

Yes. Let me just add little bit. We have positioned ourselves to be the designated, the number-one media platform for people to consume anytime, anywhere, by any devices, which includes mobile and also for people like in their cars or at their home. A lot of our media apps actually will work well -- for example our video apps actually will work very well with these Internet TVs and also our [FM], the audio apps work very well with people in their cars.

I think that our core competence is our capability in providing the most influential and the most original and the most high-quality content. That's the root of our confidence. And we are embracing these new technologies. You call it big data. You call it artificial intelligence, the search, the personal recommendations. These technology will allow us to better distribute our quality contents to the users with particular interests of that content.

And so the media [gene] plus the technology [win] will provide us, make us to be a competitive force, to continue to be the most influential media platform in China, regardless of the hardware evolution in five to 10 years.

Okay. Thank you.

Thank you.

There are no further questions on the line at this time. I would now like the conference back to Mr. Zhao for closing remarks.

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. We thank you for your participation. You may now disconnect.