Phoenix New Media Ltd (FENG) 2021 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Phoenix New Media First Quarter 2021 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Qing Liu. Thank you. Please go ahead.

Thank you, operator. Welcome to Phoenix New Media First Quarter 2021 Earnings Conference Call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu; and Chief Financial Officer, Mr. Edward Lu.

On today's call, management will first provide a review of the quarterly results and then conduct a Q&A session. The first quarter 2021 financial results and webcast of this conference call are available on our website at ir.ifeng.com. A replay of the call will be available on the website in a few hours.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which apply to this call as we will make forward-looking statements. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB.

With that, I would like to turn the call over to Mr. Shuang Liu, our CEO.

Thank you, Qing. Hello, everyone. Thank you for joining us on our call today. During the first quarter of 2021, the industry-wide competition continued to exert pressure on our business growth. We focused on fortifying our core advantages by creating and delivering original, exclusive and high-quality content and securing our brand advertising baseline while striving to create new growth curves. Additionally, we've remained committed to exploring our new business initiatives to augment our revenue source mix.

In the first quarter, we continued to demonstrate our leading role in news coverage, especially as the go-to-place for breaking news. During the government's two Sessions event in 2021, ifeng engaged in full coverage of the event through our PC and mobile channels as well as our contents on all major social platforms.

Our original news coverage, especially our featured live broadcasts and exclusive content from Phoenix TV generated a record-breaking 2 billion views across the Internet. Our professionalism and credibility in journalism allowed us to stand out among other commercial media and gain more interaction opportunities with government officials. Additionally, we've published an original interview series with dozens of commissioners, scholars and experts on issues discussed at the two Sessions, which were widely republished by other domestic and foreign media, such as CCTV, Singapore Lianhe Zaobao and Forbes China, and ranked on Weibo's top list of hot searches. Our coverage extended beyond news articles and short videos. Phoenix TV's two Session coverage, which included 8 important event sessions, was broadcasted through our live platform to reach millions of users across the globe. Our results from the two Sessions speak for themselves. The number of brand advertising clients for the event reached new highs compared to prior years, and our brand advertising revenues from the event increased by 50% year-over-year.

Another major event that we covered was the China-U.S. dialogues held in Alaska in March. As the first in-person dialogue between the Chinese government and Biden administration, this was one of this year's highest profile events so far. Of the four Chinese media outlets granted access to the event, we were the sole commercial media outlet. By capturing the official dialogues, interacting with the Chinese representatives outside of the conference rooms, and raising questions and general public concerns, we covered the event from various perspectives. As the only commercial media outlet on the frontlines, we published exclusive live video feeds and interviews, most of which were republished by our peers to generate massive user traffic across all major social media platforms. Our coverage of the dialogues and the post-event interviews accumulated more than 700 million views on social media platforms across the Internet.

Other than news content, our original IP programs, such as "On the Cover" in our financial vertical and "iFeng Talk" in our entertainment vertical continued to gain popularity among viewers and brand advertising customers. We integrated our vertical team's expertise in capturing trending topics and social buzz as well as our sales team's in-depth understanding of our advertisers' branding needs to create IP programs tailored to those same needs. Consider "Jinping Talks". We developed this cultural interview program specifically for Xi Liquor. "Jinping Talks" facilitates in-depth dialogues between various industry experts and celebrities aligned with Xi Liquor's brand image, in order to effectively market and promote the brand's products. Moreover, by making our premium IP programs, such as "Jinping Talks" , available on Weibo and other main third-party social media platforms, we gained access and exposure to a broader audience base, further enhancing our brand recognition and influence.

While we actively distributed our content to other third-party platforms and executed distribution strategies tailored to the unique characteristics of each platform, our total number of followers on social media platforms exceeded 100 million in the first quarter. More specifically, our official Weibo account exceeded the 20-million followers mark for the first time and earned 8 hot searches -- 80 hot searches in the first quarter. The increased exposure of our brand across other social media platforms bring us new monetization opportunities. Although we are still exploring various possibilities, we believe the monetization of our third-party traffics will serve as a new driver of business growth.

Now turning to our ifeng app. In the first quarter, in the presence of severe competition from other algorithm-based apps, we put significant -- substantial effort in enhancing ifeng's user experience and retention, implementing a series of upgrades to boost its algorithm efficacy, to streamline its content operations and expand its highly differentiated content library. First, we refined our algorithm to differentiate, generic trending social topics from interest-based vertical content and tailored our distribution strategies based on content classifications, allowing us to not only maximize the exposure of these topics across our platform, but also provide our users with easy access to personalized, interest-based content. Furthermore, we also refined the segmentation of our user profiles. By providing a constant flow of aggregated content based on individual users' profile and interest, we continued to improve the user experience of our product.

Second, we continued to strengthen the operations of our premium content pool. During the quarter, we focused on maximizing the exposure of the premium content that was closely related to trending hot topics. By providing consistent and complementary topics and information that users are interested in, we have enhanced the platform's user experience. In the meantime, we also directed our resources to the production of high-quality articles and videos to further enrich and diversify our premium content pool and enhance the overall content quality of our news app.

Third, to provide our users with access to Phoenix TV's live feeds and classic television programs, we introduced a featured channel on our news app, which further enhanced ifeng's brand influence and user retention.

As a result of the efforts mentioned above, our 30-day user retention rate increased by 10% on a sequential basis and user click-through rate increased by 3% on a sequential basis.

Now turning to new initiatives. During the quarter, we remained committed to advancing various new initiatives to further diversify our revenue streams and augment growth. For real estate, we focused on establishing our B2B influence. One of the B2B products we rolled out was our smart content generation solution, Hurricane System. This system provides users with key industry updates and analysis on areas related to real estate companies, including their stock price fluctuations, strategic changes and property development. On the other hand, our digital real estate news service, Fengcx.com, focused on active operations and distribution of B2B content. By closely monitoring the quarterly earnings results of more than 300 listed real estate companies, the product has helped real estate brands to boost their market exposure while also demonstrating its capacity to function as a premium news service for the executives, managers and other [stakeholders] (corrected by company after the call) of real estate enterprises.

On the online reading front, we have accumulated an extensive library of premium online literary IP. Our primary goal has been to foster more diverse monetization opportunities for this IP. Our initial work in audio content reproducing our literary IP was an instant success. By the end of March, our audio channel on Himalaya, one of China's largest audio platforms, had over 1.51 million followers and an excess of 570 million plays. We transformed other literary IP into video content. Our in-house production of Boss Ling's Sweetheart (inaudible), a short-form video series, has already collected 40 million views since launching on Kuaishou in February. In fact, audiences' warm reception to the series has earned it a spot on the platform's top 5 must-watch list.

On e-commerce front, to enhance our e-commerce platform's overall competitiveness, we continued to strengthen our original content production capabilities and personalized content recommendation algorithms to efficiently convert the user traffic we generated from content into e-commerce customers.

We also accelerated the optimization of our independently developed e-commerce platform. During the quarter, we upgraded the PC version on WeChat mini program of Phoenix Premium Products to provide a better user experience. As a result of these upgrades, we achieved an increase in user conversion rates on both platforms.

More importantly, we also actively explored different ways of generating user traffic from third-party platforms through our premium content offerings to lower our e-commerce customer acquisition costs. During the first quarter, for example, we officially launched our e-commerce live streaming feature, and the progress we have made so far is quite encouraging.

Driven by these combined efforts, Phoenix' premium products grew its GMV by 24% sequentially and gross profit by 23% sequentially in the first quarter.

In summary, we were aware of the downward pressure on certain segments of our advertising business and that we are facing existing competitions in areas of our new business initiatives. Nevertheless, we have proactively realigned our business strategies to increase user traffic through our exclusive and premium content offerings. At the same time, we continued to invest in new business initiatives in order to diversify our revenue streams. Going forward, we will stay focused on fortifying our leadership in news reporting, expanding our new media influence and optimizing our cost structures to build a solid foundation for sustainable business growth.

This concludes my prepared remarks. I will now hand the call to our CFO, Mr. Edward Lu, to provide a closer look into our quarterly financials.

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

Our total revenues in the first quarter of 2021 were RMB 226.1 million, in line with our previous guidance. This represents a decrease of 2.3% from RMB 231.4 million in the same period of last year.

I will now provide some additional color on revenue during the first quarter of 2021. Net advertising revenues in the first quarter of 2021 were RMB 201.3 million, representing a decrease of 3.5% from RMB 208.7 million in the same period of last year, mainly due to the reductions in advertising budgets from advertisers in certain policy-sensitive industries in the period.

Paid services revenues in the first quarter of 2021 increased by 9.3% to RMB 24.8 million from RMB 22.7 million in the same period of last year. Revenues from paid contents in the first quarter of 2021 decreased by 11.8% to RMB 10.5 million from RMB 11.9 million in the same period of last year, mainly due to the broader market conditions reflecting the trend towards free online reading. Revenues from E-commerce and others in the first quarter of 2021 increased by 32.4% to RMB 14.3 million from RMB 10.8 million in the same period of 2020, mainly caused by the increase in revenues from E-commerce and online real estate related services.

Loss from operations in the first quarter of 2021 was RMB 41.9 million, improving from RMB 70.9 million in the same period of last year. Operating margin in the first quarter of 2021 was negative 18.6%, improving from negative 30.7% in the same period of last year.

Non-GAAP loss from operations in the first quarter of 2021 was RMB 40.7 million, improving from RMB 68.3 million in the same period of last year. Non-GAAP operating margin in the first quarter of 2021 was negative 18%, improving from negative 29.5% in the same period of last year.

Net loss from continuing operations attributable to ifeng in the first quarter of 2021 was RMB 29.2 million compared to RMB 38.6 million in the same period of last year. Non-GAAP net loss from continuing operations attributable to ifeng in the first quarter of 2021 was RMB 27.8 million, improving from RMB 50.5 million in the same period of last year.

Moving on to our balance sheet. As of March 31, 2021, the company's cash and cash equivalents, term deposits, short-term investments and restricted cash were RMB 1.58 billion or approximately USD 240.9 million.

Finally, I'd like to provide our business outlook for the second quarter of 2021. We are forecasting total revenue to be between RMB 263.8 million and RMB 283.8 million. For net advertising revenues, we are forecasting between RMB 244.8 million and RMB 259.8 million. For paid service revenues, we are forecasting between RMB 19.0 million and RMB 24.0 million.

In summary, we will continue to build on our efforts of producing exclusive and original content to attract and retain our users. We will also invest in product upgrades to enhance user experience and streamline content operations to strengthen brand equity. In addition, we will continue to explore new monetization strategies, diversify our revenue streams, and improve our operating efficiency. These initiatives, combined with the gradual recovery of the advertising industry, is setting the stage for a recovery of our growth and profitability.

This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead.

(Operator Instructions) Your first question comes from Binbin Ding of JPMorgan.

I have a couple of questions. First one is, what is the current scale between the organic traffic versus other traffic? And what is Phoenix's priority on these two traffic growth in the future?

Second is, what are the major sources of your third-party traffic? And how do you generate those traffics?

Third one is, can management also talk about the monetization plan of your third-party traffic in the future?

Binbin, this is Shuang. Yes, I'd like to talk about our strategy. Starting from last year, we have more focused on the organic growth of our traffic. And I think especially, we are more cautious about the user acquisition strategy. We are more focused on the content-driven or brand-driven user growth approach. So that's why you can see our marketing expense is under control.

And I -- at this stage, I cannot quantify the portion of the organic traffic and the other traffic. But I'd like to tell you, going forward, most of -- major portion of the traffic will come from organic growth, which means it's going to be driven by our content, by our brand, by our premium content.

And we have -- talking about our social media outlet's traffic, I'd like to share that we have accumulated over 100 million users on third-party platforms. This demonstrated our brand influence, content value and high monetization potential. We have also already achieved solid progress on WeChat and Weibo's content ecosystem. Every day, tens of millions of users consume our exclusive content while engaging in dynamic social interactions on these two platforms.

And also, we are making good progress in expanding our user base on short video platforms like Douyin, Kuaishou and Bilibili. We plan to promote hosts from Phoenix TV as well as other partnered opinion leaders who created content that fits our trademark style. We believe these personalized contents in the form of short videos will appeal to and better service the younger user demographic.

Our massive social media base -- user base brings greater monetization potential. And frankly speaking, we have not yet fully utilized these resources. In the first quarter, we launched our FengMing program to better monetize this enormous user traffic through social media. We are also in the process of utilizing our professional marketing and planning capabilities to provide brand clients with more options. These services allow us to provide brand clients with integrated marketing services, includes placing their brand advertisements on more top third-party social media accounts.

Massive social media traffic can not only help our existing advertisers to reach more potential target customers, we believe it also allow us to attract advertisers in new industries, especially winning more budget allocations from advertisers in the fast-growing customer goods industries. So going forward, we will continue to optimize our capabilities to customize original content for third-party platforms, to escalate the exposure of our content and to increase user interactions. As we continue to improve our stickiness for users on third-party platforms and enhance our monetization capabilities, our user [base] (added by company after the call) expansion and monetization capabilities will form a self-enforcing style.

I also want to emphasize that we are at an early stage of monetizing our outlets on the social media platforms with more integration, more interaction between our portals part and also Phoenix TV part. We're confident we can leverage our TV hosts, their premium content more effectively and further improves the strength of our brand recognition and further monetize these -- the traffics on these sites. Thank you.

Your next question comes from Frank Chen of Macquarie.

I have 2 quick questions. The first one is, can you share a little bit more additional information on your e-commerce business? If you are willing to share more operating metrics (inaudible)?

The second question is a follow-up question on your social media initiative. Can you share us more about the unit economics of that? How is your unit's user acquisition cost and the monetization potential of units? For example, you have 100 million -- over 100 million followers on social media. How should we think of the monetization potential of that amount of followers?

And what will be the business model for that? Will you get revenue sharing from those social media platforms? Or will you have some native ads that you can put inside your content?

This is Edward speaking. Regarding your first question about our e-commerce business. Actually, our progress on the e-commerce business is quite encouraging. On a sequential basis in the first quarter, Phoenix Premium Product's GMV grew by like 24%, and gross profit grew by 23%.

At this point of time, the majority of our e-commerce revenues are still generated from our ifeng platform. By creating original e-commerce content, such as articles and short video, and utilizing our content recommendation algorithms, we provide e-commerce services to our ifeng app's existing users who trust our brand. This allows us to explore and improve the monetization potential of our user traffic. Also, these capabilities have allowed us to quickly build up an e-commerce service system that is tailored to our target consumers and has a very low -- actually, we have a very low customer acquisition cost.

Of course, to achieve a more significant e-commerce business growth in the long term, we need to go beyond our existing user traffic. Our e-commerce team has already started to explore different ways of using our premium content to generate user traffic from third-party platforms, such as WeChat.

In the first quarter, we successfully organized a serial of e-commerce live streaming sessions on [short-form] (corrected by company after the call) video platforms such as Kuaishou and Douyin. And throughout these sessions, we collaborated with well-established online influencers, created premium collections of high-quality products at a very competitive prices. This result is -- actually, the result is quite encouraging, and we will continue to explore different ways to acquire potential e-commerce users on short video platforms.

We will continue to -- we'll definitely continue to refine the fundamentals of our e-commerce business. This business has a lot of headroom for improvement, especially in terms of product selection strategy and acquiring third-party platform traffic at a reasonable price -- reasonable cost. Moreover, we need to further enhance our daily operation efficiency to optimize cost structure. Although converting our 100 million social media followers into e-commerce consumers remains a challenge, it also has enormous potential to boost our future growth.

Regarding your second question, I'm not sure if I have heard you clearly. Actually, we don't spend much on the user acquisition cost on the social platforms because we provide exclusive and premium content to a lot of channels like Weibo and WeChat and on short video platforms such as Douyin, et cetera. So users just -- well, they like our content, and they will subscribe our accounts on this kind of social media channels.

As you already know, like, we have more than 100 million followers on Weibo, WeChat and Douyin and Kuaishou, et cetera. And we believe, like, this kind of massive user base has a big potential for the future. And the business model actually is quite simple. First, it's brand advertising. We provide more -- explore opportunities for our existing advertising -- brand advertising clients. So they can reach more potential consumers on our social platform -- social network platforms as well. So this will definitely help our advertising business.

Also, for this kind of massive user base, as I already mentioned above, like, forward -- faster-developing e-commerce business. Because users on social platform, like, 3 or 5 years ago, consumers only buy from Taobao and Jingdong, these kind of platforms -- e-commerce platform. But nowadays, people more and more come to Douyin, Kuaishou and WeChat platforms to do their shopping. And so we believe in the future, the massive user base on this social media platform will help our e-commerce business for sure. I hope I have answered your question.

Yes, let me add a few more words on your second question. Actually, I have answered Binbin the same sort of questions at the beginning. You might want to double check with that. But I want to emphasize that the monetization of our over 100 million users on social network platforms is still at an early stage.

As you said, the monetization options include native apps and revenue sharing with third-party platforms. But right now, it's still at an early stage. So it's a little bit premature to share the data and the portion of the native apps and revenue sharing options, but we'll definitely keep you updated on this.

(Operator Instructions) Your next question comes from Carmen Zhang of First Shanghai Securities.

Can you tell us more about your advertising business in the first quarter and the main challenges that are currently pressuring your advertising revenue?

This is Edward speaking. Actually, for our advertising business, as macro economy continued to recover in the first quarter, our brand advertising business achieved a healthy growth rate on a sequential basis. However, from a broader perspective, our advertising business as a whole still faces challenges in future revenue growth.

We expect our brand advertising business to continue its year-over-year growth trend in the second quarter. This expectation is based on the fact that most of our brand advertisers should continue to experience a rebound. In addition, as the pandemic continues to be brought under control in China, many off-line events, such as our Food Gala can be conducted as normal. This will have a positive impact on our brand advertising growth.

Nonetheless, in certain industries, notably in real estate, we are aware of the impact from tightening national macroeconomic policies, which will lead to uncertainties in advertising spending. Therefore, we expect brand advertising to experience more pressure.

The increasing execution cost for brand advertising project is also a challenge, and we will need to come up with a more refined project management process to better control costs.

We are also adjusting our sales team to balance our sales capabilities across different regions. Besides, we are enhancing our content offering, especially in terms of original content. This is allowing us to expand our influence in areas such as new consumption, online education, healthcare and new energy vehicles. We believe that our influence in these areas will eventually translate into new growth drivers for our brand advertising business.

For our programmatic advertising business, the overall budget in the market continues to be absorbed by the leading short-form video platforms. To -- actually, to survive this kind of competitive environment, we must put more efforts to upgrade our ad product features accordingly. Actually, we have already enhanced the underlying technology of our ad platforms.

For FengYi, we enabled API docking to more efficient data sharing and ad placement coordination between our platform and advertisers.

For Feng Yu, we have strengthened our data support system for our platforms' advertising clients in the finance vertical. This has helped to improve our conversion rates for our clients throughout the entire finance industry.

For Fengfei, we expanded our business development efforts and converted multiple leading smartphone manufacturers into Fengfei's alliance partners, which drove additional user traffic to Fengfei in this quarter.

These challenges I have mentioned above will improve the efficiency and effectiveness of our programmatic ad delivery and make our programmatic systems more competitive in the market. Thank you.

(Operator Instructions) I would now like to hand the conference back to the management team for closing remarks. Please continue.

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.