Phoenix New Media Ltd (FENG) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Phoenix New Media fourth quarter and fiscal year 2016 earnings call.

(Operator Instructions). I must advise you that this conference is being recorded today, Tuesday, March 14, 2017.

I would now like to hand the conference over to your first speaker today, Mr. Matthew Zhao. Thank you, sir. Please go ahead.

Thank you, operator, and thank you and welcome to Phoenix New Media fourth quarter and fiscal year 2016 earnings conference call. I'm 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 also include a Q&A session after the Management's prepared remarks.

The fourth quarter and fiscal year 2016 financial results and the webcast of this conference call are available at the Investor Relations section at 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. I'm very pleased to report that, for the fourth quarter 2016, we delivered better than expected top and bottom-line results.

Our solid financial performance is a testament to the strengthening of our mobile platforms. We remain agile as the Chinese media landscape continues to evolve and have focused on providing our users with superior media content with cutting-edge technology.

Let's start with the updates of the ifeng news app. In the fourth quarter of 2016, we updated our ifeng news app and officially launched the algorithm-driven newsfeed for the first time. Users are now able to get more targeted and relevant recommendations that are tailored to their specific needs in their newsfeed.

ifeng's strong media DNA allows us to take the ideal balance between algorithm-driven news and professional journalism and push high-quality and personalized content to our users based on their reading records and profiles.

As a result, we witnessed strong traffic rebound after the rollout of this function upgrade during Chinese New Year when media outlets normally experience traffic drops in similar situations. This clearly demonstrates the power of our product and the stickiness of our users.

This positive user reception was further reinforced when several third parties recognized its solid adoption and growth. At end of 2016, ifeng was ranked as the number one paid news app in China in the iOS App Store and won the annual award for the most popular information app by an authoritative third party in China.

Additionally, we're constantly working to improve the operation of our products and are delighted to see our strengthening -- streamlining efforts bear fruit. Because of our new talent and our senior teams and the restructuring of our news app team, our operations have improved significantly.

Our news team's impact has been immediate and dramatic, resulting in a significant five-minute increase per day in average user time spent.

We're also working on a more cost-efficient and differentiated approach to acquire new users. Specifically, we're delighted to have deepened our partnership with Huawei, one of the leading handset manufacturers in China.

Over the past quarter, ifeng news app became the exclusive news app preinstalled onto Huawei's new flagship models, Mate 9 and Mate 9 Pro. This cooperation demonstrates that ifeng news app's high quality and popularity continue to be recognized by leading handset manufacturers.

Moving to on Yidian's developments. Unlike other personalized news app, by leveraging our advanced data connection and analysis technology, we aim to provide Yidian users with high-quality, balanced and professional content.

Yidian's total average DAUs, including both app and newsfeeds in browser, reached 45 million in February 2017. With Yidian's unique interest engine technology, its users have created more than 3.65 million keyword specific channels. This translates into user aggregated over 4.7 billion various total subscriptions in 2016.

During the fourth quarter, Yidian also made significant progress in deepening its cooperation with professional organizations. For example, as a part of our partnership with Xinhua Bookstore, Yidian will leverage its big data analysis capabilities to release up-to-date bestsellers list and readers' interest reports via the Yidian platform.

Yidian also partnered with Weather China, the official website of China Meteorological Administration, to provide users with personalized and targeted weather services.

In addition, Yidian received the China Advertising Great Wall Award for Media Marketing, which was an endorsement of Yidian's strong potential to provide more effective marketing services for brand advertisers than other media platforms.

Moving on to our collaboration with leading Chinese handset manufacturers. We're pleased that Yidian's key strategic partners, OPPO and Xiaomi, both continued to lead China's handset industry in 2016, with OPPO topping China's smartphone market in terms of shipments in the fourth quarter of 2016, according to IDC.

Together with ifeng news app's collaboration with Huawei, our combined partnership with three of the top five handset manufacturers in China have become key elements of our user acquisition strategy. Going forward, we'll continue to collaborate with key strategic partners to broaden our user footprint and establish Yidian as a leading AI-backed media and entertainment app in China.

Moving on to our content operations. Since joining us, Mr. Chen Tong has been leading the efforts to establish one premium content (technical difficult) for [we-media] accounts and achieve greater synergy in order for both Yidian and ifeng teams to eliminate redundancy. Currently, we collaborate with almost 200,000 we-media accounts, including approximately 3,000 sales media video accounts.

With strong channel operations, we'll be able to achieve better synergy with our 75 million combined daily users, which acts as a virtuous cycle -- which acts as a virtuous cycle to attract more leading we-media accounts to join us in the future.

In the fourth quarter of 2016, we continued to focus on reporting major global current affairs, especially those surrounding the recent political changes and current political climate in the United States that had tremendous impact on global landscape.

Our related reporting attracted a record-breaking 40 million users in data traffic in eight hours. That was the most widely-shared reporting event in Chinese social media.

Meanwhile, we're developing a differentiated, innovative and industry-leading approach to live broadcasting service. Instead of celebrity-style chatroom broadcasting, we'll leverage our recognized brand influence and media DNA to broadcast live content that is genuine, interactive and interesting.

One example of this is that we broadcast live the 67-hour train ride from northeast China to Xinjiang during the 2016 Spring Festival transport. Throughout the entire ride, our team interviewed more than 50 individuals, including train staff from different divisions, and over 30 passengers who came from a variety of backgrounds.

More than 5 million users tuned in to this event across our platform and more than 10,000 netizens interacted live on our common dashboard. In recent years, we have built up a series of marketing events in finance, fashion, entertainment and auto industry, to leverage our ifeng brand and to create native marketing platforms for our brand advertising clients.

Last November, we hosted the 2016 ifeng Finance Summit, with the theme Decision-Making and the Market. Many well-known experts and scholars from China and abroad joined the discussion and shared their lively views on Chinese and global economic trends.

Most notably, reporting coming out of the event achieved strong results with 6.5 million unique visitors for the food topic. It proves that our summit is warmly welcomed, because it is able to providing authoritatively professional content in academic fields.

Meanwhile, our events further broadened advertisers' brand influence by erecting strong recognition among high-end users. We view the summit as an all-win event for the Company, the users and our advertising clients.

To conclude, after reshuffling of our news app team in the second half of 2016, we have created more solid expertise in news app operations and user growth. Heading into 2017, we'll continue to invest in improving our mobile platform and providing our users with the highest quality of personalized -- specialized media content.

With our media expertise and branding power, we're uniquely positioned to capture the market opportunities derived from the increasing demand for premium content and fast-growing newsfeed advertising market.

As we have been investing significant effort into improving the performance of our mobile platform, we believe the Chinese mobile industry remains highly competitive. In order to maintain our leading position, we need to continue to invest on mobile user acquisition.

With the competitive market environment and China's uncertain macro economy, we believe that 2017 will be another challenging year for us. Nevertheless, we remain committed to expanding our market share, driving revenue growth rather than profitability.

Looking ahead, we're confident that we are working in the right direction to further improve our performance and deliver value to our users, advertising clients and stakeholders.

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. As Shuang mentioned earlier, we are very glad to have exceeded our guidance for the quarter and closing out a challenging year with solid financial results.

Ifeng's total revenues for the fourth quarter came in at RMB411.9 million, driven by the mobile advertising sales growth. Non-GAAP net income attributable to Phoenix New Media for the fourth quarter was RMB41.4 million or RMB0.57 non-GAAP net income per diluted ADS.

Now let me take you through our financial highlights for the fourth quarter of 2016 results. The amounts mentioned here are all in RMB unless otherwise noted. The differences between GAAP and non-GAAP are non-cash or non-operating items, which are share-based compensation, loss from equity investments, including impairments, gain on disposal of an equity investment, and acquisition of available-for-sale investments.

Starting with revenues, net advertising revenues for the fourth quarter came in at RMB353.2 million, represents a year-over-year increase of 2.0%, and beats our previous guidance high end by 11.8%.

The increase was primarily due to the 22.5% year-over-year growth in mobile advertising revenues and was partially offset by the 9.2% year-over-year decrease in PC advertising revenues.

Paid service revenues for the fourth quarter was RMB58.7 million, which represents a year-over-year decrease of 30.6%, which beats our previous guidance high end by 12.9%.

MVAS revenues decreased by 47.9% to RMB31.1 million, mainly resulted from the decline in users' demand for services provided through telco operators in China, which was consistent with the Company's expectations given the shrinking demand for such services in general.

Games and others' revenue increased by 10.6% to RMB27.7 million, primarily due to the increased revenues generated from online digital reading.

Secondly, gross profit and margin. Non-GAAP gross profit for the fourth quarter of 2016 was RMB205.7 million, as compared to RMB216.5 million in the same period last year. Non-GAAP gross margin for the fourth quarter remained approximately the same at 49.9%, as compared with 50.2% in the same period last year.

In terms of cost of revenues, non-GAAP content and operational costs as a percentage of total revenues increased to 33.9% from 26.4% in the same period last year. It was mainly due to the increase in general operating costs and advertisement-related content production costs.

Revenue-sharing fees as a percentage of total revenues decreased to 4.2% from 10.8%, primarily due to the decreased sales of MVAS products. Bandwidth costs as a percentage of revenues decreased to 3.7% from 4.6% in the same period last year. Sales tax and surcharges increased to 8.3% from 7.9% in the same period last year.

Thirdly, non-GAAP operating expenses for the fourth quarter decreased by 1.4% to RMB182.7 million from RMB185.4 million in the same period last year. Non-GAAP operating income for the fourth quarter was RMB23 million, as compared to RMB31.1 million in the same period last year.

Non-GAAP operating margin for the fourth quarter was 5.6%, as compared to 7.2% in the same period last year. The decrease in operating margin was mainly due to the increase in advertisement-related content production costs and mobile traffic acquisition expenses.

Fourthly, GAAP net income attributable to ifeng for the fourth quarter was RMB39.8 million, as compared to RMB41.1 million in the same period last year. Non-GAAP net income attributable to ifeng for the fourth quarter was RMB41.4 million, as compared to RMB44.9 million in the same period last year. Non-GAAP net income per diluted ADS for the fourth quarter was RMB0.57, as compared to RMB0.62 in the same period last year.

In terms of balance sheet items, as of December 31, 2016, the Company's cash and cash equivalents, term deposits and short-term investments and restricted cash were RMB1.34 billion or approximately $192.8 million. Restricted cash represents deposits placed as a security for banking facility granted to the Company, which are restricted as to their withdrawal or usage.

Let me briefly run through the key figures for fiscal year 2016.

Total revenue for 2016 were RMB1.44 billion, as compared to RMB1.61 billion in fiscal year 2015. Net advertising revenues were flat at RMB1.23 billion, out of which mobile advertising revenue increased by 53.8% year-over-year. However, it was offset by the decrease in PC advertising revenues.

Paid service revenue decreased by 44.4% year-over-year to RMB212.7 million. The decrease was mainly due to the decrease in revenues generated from mobile value-added services with telco operators.

Total fiscal year 2016 non-GAAP gross profit margin -- non-GAAP gross profit decreased by 9.2% to RMB713.7 million, which represents a 49.4% non-GAAP gross margin, as compared to 48.9% in fiscal year 2015.

Non-GAAP operating income for 2016 was RMB37.3 million, as compared to RMB113.3 million in year 2015. Non-GAAP operating margin for 2016 was 2.6%, as compared to 7% in fiscal year 2015. The decrease was primarily due to the increase in mobile traffic acquisition expenses.

Non-GAAP net margin for 2016 was 5.8%, as compared to 9% in 2015. Non-GAAP net income attributable to ifeng for 2016 was RMB84.3 million or RMB1.17 non-GAAP net income per diluted ADS.

Lastly, I'd like to provide our business outlook for the first quarter of 2017. We are forecasting total revenues to be between RMB285 million to RMB300 million. For net advertising revenues, we are forecasting between RMB239 million and RMB249 million. For paid services revenue, we are forecasting between RMB46 million and RMB51 million.

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

Thank you. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions).

Our first question comes from the line of Wendy Huang from Macquarie. Please go ahead.

Thank you, Management. This is Joe asking the questions on behalf of Wendy. I have two questions, if I may.

The first one is regarding Yidian's competitive landscape. Could Management comment more on your competitive advantage against some of your key competitors? And also, what's our thoughts on potential M&A for Yidian?

And second question is on the ad market outlook. Your 4Q ad revenue came better than expected, but 1Q guidance is quite weak. So, how should we think about full year 2017 ad market outlook? And where do you see advertisers shifting budget away to and away from? Thank you.

Hi, Joe. Hi, this is Ya. Thanks for the question.

First of all, Yidian's competitive landscape and our competitive advantage, when we look at this mobile newsfeed sector, we realize with both Youxi and Baidu's joining the competitive landscape, and also the demonstrated monetization capacity by some of the peer companies, this becomes most contended, one of the most contended area in mobile Internet because of its relatively better business model because of limited cost structure.

And also high revenue potential, and especially the high frequency daily usage and big data user graph, which provides potential for many more innovative revenue streams in the future.

So that's the first point that I want to make, that this is a very attractive sector and very competitive.

Secondly, when we look at the newsfeed players, I think most players provide similar contents, which easy to copy from each other. And also user acquisition costs continue to increase, as users switch their mobile handsets every 12 to 18 months, I think the user acquisition becomes, you know, most important capacity among different players.

That's why I think we have a unique advantage here in the way that we acquired, we secured the strategic alliances with two of the top four handset manufacturers, especially with OPPO, came out as the number one handset manufacturer in 2016 and also growing very strong, while Xiaomi continues to be the most Internet-active, I think, users' handset.

So with these two strategic alliances are preinstalled on all their new handsets, and in addition, we also provide exclusive newsfeed on their browsers. The browsers, the basic application cannot be removed by the users. These two handsets combined has over 240 million daily users.

And our newsfeed embedded in the browser service actually is helping us to already become the number one news service provider on both handsets. When we combine the app with the browser, we are the number one news service provider on OPPO as well as on Xiaomi already. As we only started OPPO's preinstalled handset shipments I think only a couple of months ago. So this is the most important area for competition, user acquisition.

With many other, I think, players coming to the field, I think number one challenge in 2017 is how each of the user -- each of the player will grow their user base, especially when their contents are more or less the same.

That's where our second differentiation point comes to play. We have a rather unique product positioning and content positioning. We'll provide beyond breaking news and leisure or tabloid entertainment news. We want our content to be not only newsworthy or interesting but also useful and tasteful.

But for content to be useful, it demands highly-personalized capability from the platform. And we have a different product positioning based on our unique technology, the interest engine, which combines the search engine with the artificial intelligence recommendation engine.

In 2016, we -- our users subscribed over 3.65 million keyword channels. The total user subscription exceeded 4.7 billion on our platforms. This unique feature demonstrates how we successfully I think encourage people to express their genuine interests, so that we can capture user interest beyond those that are related to entertainment or hot news.

This provides a more accurate and useful user interest graph, allowing us to better provide more comprehensive content and also provides a better targeted consumer for advertisers, because we understand the consumers better about what their real interests are in their work life, related to their health, education, travel, consumption, investment, or spiritual pursuit in all different areas.

So this product positioning also allows us to differentiate from the peers, which creates active barrier for our -- the high-end users and also provide a reason to attract user to use our services in already saturated market when people are mostly used to use one certain brand.

I think, so these two are the most important factors. And thirdly, we also provide premium content and sophisticated media operations based on, first, the original content from Phoenix provided for Yidian, and also the supreme content operation team led by Chen Tong and [Chong Guang], and also the synergy between ifeng and the Yidian platform, especially in the area of the self-media, the we-media, as Shuang illustrated in his opening remarks.

So that's the main areas. The channel -- the channel partnership, the technology or product positioning, and also the unique premium content, these provide unique I think sustainable competitive advantage for Yidian.

Second question about ad market outlook. Indeed, yes, we provided a rather conservative outlook for the first quarter. I think as we see from the recent National People's Congress, that the government also adjusted the growth -- economic growth rate to below last year's outlook, to be only 6.5%.

And also we do see a lot of uncertainty in macroeconomic environment. But most importantly, this year is the seasonal factors, this quarter, the Spring Festival actually is earlier than previous years. That's why we'd like to be more careful and conservative.

And in terms of budget transition, I think it still is continue on the pace of transitioning from PC, away onto the mobile market. I think last year, I think we experienced the PC revenue drop, and this year that drop will probably continue and be even worse. But we continue to believe our mobile revenue growth will be in line with the industry outlook.

Thank you. Our next question comes from the line of Alex Yao from JPMorgan. Please ask your question.

Hi, good morning guys. Thank you very much for taking the question. Two quick ones.

One is regarding the user acquisition strategy. So you guys talked about the partnership with the manufacturers for user growth. And I'm just wondering, beyond that, what are the other user acquisition strategy you guys have in mind and how do you think about the financial impact for the user acquisition in 2017.

A related question is can you give us the top three channels in terms of efficiency in user acquisition?

The second question is on the self-media which you guys talked a lot in the prepared remarks. I think, [Ja Jun] just mentioned, to make the company move forward (technical difficulty) media is very important and in the market consistent on this (technical difficulty) intensive, I think every major media platform have their self-media strategy, Baidu have the [Bai Jia Hao], [Todiao] has the [To Diao Hao], TenCent has actually multiple [similar] initiatives, how are you guys going to position yourself in the self-media market and how do you plan to incubate your content supply? Thank you.

Okay, thanks, Alex. Yes, on your first question, I think when we answer it for just both, I think Yidian and also ifeng's perspective. First is on, ifeng, I would like to add that we also have some exclusive relationship with Huawei, especially on their high-end handsets, like Mate 9 and also the -- except the new handsets, high end handsets they launched in the recent Barcelona exhibit.

And so the pre-installation with the handsets is important because as I mentioned, the user switching handsets is important point of time to capture new users. Of course, secondly, really, the content and brand perception is very important and so for ifeng, I think we have seen our user acquisition to rebound especially after this year's Spring Festival, we launched a new version of our ifeng News App to with some new recommendation technology to help our service attract a broader range of users.

But overall, I think for ifeng, it's quite of original content, it's recognized brand image, especially in the era when social media, when self-media become so prevalent, I think, a lot of users are also very, I think, interested in this authoritative content in a world when there is so much change, so much uncertainty, so many breaking news.

And we have demonstrated our ability to always attract and retain new users whenever a breaking news or event takes place. I think that's, for ifeng, the content and the brand is also an important way for user acquisition.

And thirdly, for ifeng, we will also continue to innovate products like the live broadcasting of events is one example, I think that is where we differentiate from the chatroom live broadcasting events and that's also very valued by our advertisers. So it becomes a complete cycle for us towards this -- circle for us to provide this valuable service.

And back on Yidian, I think in addition to the strategic alliances with OPPO and Xiaomi, for IOS, this is a very important area for our Yidian user growth in 2017. I think first we have to continuously enhance our product experience and content quality and so that the idea of not only newsworthy interesting, but also, useful and tasteful (spoken in Mandarin) in Chinese, and I think that product account positioning has to be easily proved and easily experienced by our users.

That is how we can persuade you to try our service, relying on the word of mouth, relying on the friend's recommendation and relying on some virus marketing in addition to some -- integrated strategy of enhanced brand recognition, our unique product positioning recognition and also many localized events to make the brand better recognized especially among the third and fourth tier cities.

Last October we launched a roundup of brand campaign among the first-tier cities and we did receive very good results. But this year, we are going further down to the third-tier cities.

So their combined effort of brand in recognition enhancement and also channel investment. Channel investment, of course, we rely on technology like Deep Link, like SEM to basically, to acquire users based on our product feature so we are able to do large scale or super DIY for encourage users to subscribe to millions of keyword channels, that is where we can acquire users based on specific personalized interest they care about while we provide the kind of content services to satisfy that -- which goes beyond breaking news and tabloid news.

Breaking news and tabloid news is difficult to differentiate. It's difficult to persuade users that we can provide a better breaking news or tabloid news on Yidian platform, but for highly personalized useful and tasteful interest area, our product uniqueness is the way we establish our news acquisition strategy.

On the financial impact, I think we are first to look at the overall market. If the overall market is still going after the user market share, we have to also -- we cannot just pursue profitability this year. So both for Yidian and ifeng, I think we are based on our strategy and investment on the overall market sentiment and market -- the competitive -- competitors strategies.

However, we want to base our user acquisition based on our unique strengths; our content strengths, brand strength, product uniqueness, and also we look forward to establish further strategic partnerships with many more -- not only hardware players but also software players like for Yidian, we also establish some partnerships with some major like social media short video player and also big data players.

These are all different ways to provide a unique strategy not relying purely on the budget itself. And you want us to provide three top user acquisition channels. I would like to probably -- we don't want to share that in the public spaces as we think it is competitive information for us. I hope you understand.

Also, Alex, let me add that the Yidian and the ifeng news double team actually give us better competitive advantage while Yidian enter into deep cooperation with Xiaomi and OPPO. ifeng news has just started pre-installing with Huawei like I mentioned in my opening remarks, Mate 9 and Mate 9 Pro. So basically, three of the top five handsets manufacturers has endorsed our brand and products. So that gives us a very big competitive advantage.

In addition to that, we also are talking to other online shops but we have very rigorous tests internally. So we are going to monitor the operating metrics month by month to make sure the ROI of these [pre-installment] or online collaboration will generate better results.

But as you mentioned that user acquisition is a highly competitive market. For the time being, I think our top priority is given to extend the market share rather than maintain profitability.

I think that is -- this strategy is in the best interest of our overall shareholder interest.

Just like Ya mentioned for competitive reasons, we cannot elaborate exact top three area in terms of user acquisition but definitely, pre-installment and online shop and deep link is three of the top priorities to be taken into account by all these players in the market.

And the second question regarding the self-media, yes, it is an intensive market. All the players announced huge subsidies for the self-media organizations and the writers. Last year, 2016, Yidian also announced its plan called Yidian [Pu Liow] meaning that we are actually providing all the advertising revenues generated on the self-media landing page to -- back to the self-media themselves.

We do not keep any of the revenue. And that is still the case, I think, for the 2017. And also there is I think, when we combine the ifeng self-media with Yidian's self-media platform, we have overall, 150 million daily users across the PC and mobile platform of these two products.

That is a huge platform no self-media can ignore, even just because of the overall influence and the reach. So I think the scale provides competitiveness and also we -- our product technology which can help us to really provide essentially some vertical, some more targeted content to the interest of consumer. That capacity also help us attract the high quality and more diversified writers from the entire self-media organization.

Thank you. Our next question comes from the line of Thomas Chong from BOCI. Please ask your question.

Hi, thanks Management for taking by question. I have a couple of questions. The first question is management of [Envia] talked about the advertising outlook. Can we talk about the trend for each of the advertising key categories?

And my second question is about the price hike for this year if there is any.

And thirdly is about the price gap between PC and mobile. Thank you.

Okay, thanks, Thomas. Yes, the first question is about the ad outlook for each of the categories. Second is the price hike, okay, and the third is the price gap. Okay. Let me address -- Okay, first our top five categories mostly remain the same with the auto industry followed by e-commerce and by financial service, by communication service, and by food beverage and wine.

Among these five, we think that although for ourselves - I'm just talking about our self, I think for the auto industry, it will continue going to be the number one category for us. And we don't see much change because I think the advertisers are looking for both performance driven and also brand enhancement.

And for ecommerce, we believe that will continue going to grow as the overall economic activity shifts on line, the trend continues. For financial service, we did mention last quarter that we have recruited more smaller advertisers from asset management, from insurance companies and from traditional banks.

When I say smaller, I mean their budget is probably smaller, but the financial service, we are having more clients. But the overall contribution probably this year will be the same not growing much because of the -- I think, limited growth from the internet financial service providers or the P2P providers.

And for the communications sector, the mobile operators especially the handset manufacturers, continues to spend money to acquire consumers so we think that area will still be strong.

For food, beverage and wine, we are targeting -- we are hoping that especially the white wine, Chinese baijiu industry to continue to rebound and so we are also optimistic about -- in addition we see the internet service companies like the O2Os, the sharing economies, that is still going to provide new opportunities for us.

About the price hike, for PC rate, 2017 is about the same as last quarter. And for the mobile web, we increased our rate by 32% and for the news app, we increased our price by 25% in the first quarter compared to the fourth quarter of last year.

The price gap, I think, right now, the mobile -- some of the premium positioning of the mobile platform already exceeded the premium position for PC and our -- I think the trend is -- will continue. And also, another area affecting price is our expansion of programmable by the DSP performance app as it contributes to 20% of our revenue in 2016.

We believe that performance is a better management for advertising online. So as we continue to provide important marketing -- brand marketing including related marketing services, the performance driven DSP app will also increase steadily. But since we are still going to sell our premium positioning using brand advertising, so the DSP growth will be -- I think, just rather, it will not be too steep this year.

Thanks.

Thank you, our next question comes from the line of [Diao Long Xu] from Nomura. Please ask your question.

Hi, good morning, Management. Thanks for taking my call. I think, Management talked about your collaboration with smartphone makers in the beginning of the call. So I just wonder, how do you get those handset manufacturers for such channel services. Is it a revenue share model or you pay a fixed money per smartphone to those handset makers?

And also, I just wonder how long is your contract with such smartphone makers?

And also, for Yidian Zixun, I just wonder what are the major advertising verticals for the advertisers, are they mostly SME or multinational advertisers? And also, I just wonder what is Management's view on the competition for ad budget for this year for Yidian Zixun given the fact that we have some new entrants like Baidu and Youxi newsfeed entering this market?

Thank you.

Okay, thank you, okay. First about our relationship with the handset manufacturers. It's all different. I think for Huawei, I think it's standard market practice but we value our premium content for their premium flagship handsets. They think that fit their target audience. And also, we think that phone also gets to our target audience. So it's mostly, it's pre-installment using payment -- using cash. And for the Yidian, I think we have long and strong relationship. As Xiaomi and OPPO combined, they are significant shareholders of us.

And also, the relationship also is strengthened by additional revenue sharing schemes. And as I mentioned, we are already -- each of these two handsets, Yidian is already the number one news service provider in combined browser -- newsfeed in the browser and with the independent news app.

So I think this strategic relationship is rather unique and Xiaomi already is entering into the third year of such exclusive cooperation with us. So we believe this arrangement will grow even stronger and will be very long.

And the second question about SME and multinational, I did not hear clearly what, can you repeat that question?

The second question, right? I just want to, Ya, what are your major advertising verticals for Yidian Zixun. So the big advertisers, like multinational advertisers or SME advertisers and also wonder what is your --on the competition landscape for advertising budget for Yidian Zixun.

Okay, yes, I think, for Yidian Zixun, we provide both performance ad and also the brand advertising. For brand advertising, the auto industry is again, also the overwhelming number one sector. For performance driven, we do have a lot of SME customers.

And in terms of the computation for ad budget, it all comes down to the ROIs for the advertisers. If we can have better ROI based on the advertisers' purpose, and so we have to improve our advertising effectiveness based on -- as Shuang mentioned, illustrated, we have a better user interest graph.

We understand the user better, we know that the user specifically subscribes or search or share or favorites, what kind of content beyond -- especially those content beyond the breaking news or leisure tabloid news.

This unique product positioning allows us to better capture the interest and also generate better ROIs going beyond the click through rate. Because click through rate can be somewhat manipulated by enhanced advertising -- ad creation or you know, however, if you have to deliver better results in terms of conversion, then the user interest has to match the advertisers target consumer.

That is something I think our product positioning will enable us in the long run. As we also innovate our performance ad platform, we launched the [Lingzhi] ad platform last June. And also, we are expanding our performance at sales team this year, so we are looking at a faster expansion of SME clients this year.

And in terms of big international multinational advertisers, we have been -- I think, rather successful even in just during the first year of full year operation, asset operation. We achieved the highest award in last year's annual Chinese ad festival in Haikou. And we received more than 80 -- I think, different awards on that festival.

So I think the competition for ad budget will be based on our unique product and also by our enhanced sales team.

Got it, and further color, may I ask a very quick follow up? (Inaudible) correct, SME advertisers contribute the majority of the ads revenue for Yidian Zixun at least for now. And also for the SME advertisers, I just wonder what are their major industries? Are there like service providers or from some other verticals?

Okay, I think in fact for 2016, I think SME is about the same with the larger corporations contribution to Yidian Zixun's advertising. And so for the SME sector, [it is all] different from real estate to financial service, e-commerce, internet service, it's -- many of them are local advertisers. As we expanded our localized services or ad sales operations into 45 different provincial and municipal areas across China.

Got it. These are all my questions. Thank you very much.

Thank you.

Thank you, our next question comes from the line of Natalie Wu from CICC, please ask your question.

Hi, good morning, this is Greg, I'm asking the question in behalf of Natalie. Thank you for taking my question. I have some questions and the first is for housekeeping. Can the Management give us more color on the mobile contribution and advertisement revenue?

The second question is about the positioning between the ifeng news app and especially when you guys mentioned you would launch the newsfeed on the ifeng news app in the last quarter, what is the different positioning between that and Yidian?

And in terms of user behavior on both platforms, what kind of trend in user time spend do you guys observe? Because for competitors, we observed a lot of them are using a video driven strategy. Are you using short videos to increase the time spent on the platform to increase the ad inventory and what is the EDS strategy on that front? Thank you.

Okay, thanks, Greg. This is Ya.

First of the mobile revenue contribution for the last quarter, and also for last year is both 43% for the mobile platform versus 57% for the PC platform. I think it's due to our relatively better performance of our PC ad. But we do believe that our mobile ad revenue contribution will exceed PC sometime this year as we -- as the mobile revenue continues to grow rather strongly. And the second question, can you repeat again?

Let me answer the second question, yes, this is Shuang. As I have mentioned in our opening remarks and in our previous quarters, ifeng news and Yidian Zixun are totally different products. Yidian target more grassroots users and more algorithm driven and more product driven catered to the user's [long-term] interests and not necessarily their time sensitive information -- general entertainment media.

ifeng news target the white collar elite and has very strong DNA, and focus on (inaudible) and more timely sensitive information. As you nicely mentioned that we just -- ifeng news just adopted AI backed algorithm to cater to user's personalized information needs. But even the -- but I have to say that the algorithm adopted by ifeng news is different from Yidian.

First, it has stronger media DNA and it more emphasized on the journalism, the editing, and also because of the different user demographics.

So the big data collected by these two platforms are fundamentally different. So the different user behavior, different demonstrated users interest, and also different entertainment consumption habit.

So then because the algorithm is based on deep learning. So the learning -- the massive data collected by these two platforms is different. So their algorithm pattern is also different. I also want to emphasize that both these two products have adopted short video. It's definitely a [killer] application on these two apps to enhance user stickiness.

We -- ifeng news, just like I mentioned in my opening remarks, we have achieved four minutes extension of user stickiness. Especially given the fact that we just -- it's a low season, it's Chinese New Year festival so this achievement is quite significant. That definitely demonstrates the success of our new product upgrade.

Thanks.

Yes, Greg, and also on the user behavior, I think it's because also the product positioning is different in propositioning. That's why we do see that Yidian has a longer time spent per day per user as we provide more comprehensive content. And after people reading or finishing the most important and interesting news content, you know, they can dig further into the area which they find useful to them.

And I think that is why we see the Yidian time spend actually ranks, I think, among the top, especially when we exclude -- if we exclude the video time spent, we believe that Yidian's app has among the -- I think, the highest time spent on non-video content compared to all the players in the market.

While for ifeng, it has a very healthy over 30 minutes time spend per user per day and as we provide mostly newsworthy contents to this. And going forward, we do plan to enhance the application of -- or the service of video -- short video contents and also news video content. Not only in these apps but also in the newsfeed in the OPPO and Xiaomi browsers so that we provide a complete package of newsworthy, interesting, useful and tasteful.

And let me also add that even for even high end user like me, it's pretty natural for me to use both these two apps for different reasons. Ifeng use provide me with most efficient access to current affair news; most authoritative related, most reliable, most professional coverage of the global events. While Yidian Zixun give me you know, tons of choices to kill my time. If you have longer time, I can get very quick access to personalize entertainment related or lifestyle related information.

So even for elite users, these two apps can address your different needs. So I don't think there is any cannibalization between these two apps.

Okay, thank you.

Thank you. There are no further questions. I would now like to hand the conference back to the Management team 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. Thank you for participating, you may all disconnect.