Phoenix New Media Ltd (FENG) 2022 Q2 法說會逐字稿

Thank you all for standing by, and welcome to the Phoenix New Media Second Quarter 2022 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded.

And I'd now like to hand the conference over to your speaker, Muzi Guo from Investor Relations. Thank you, please go ahead.

Thank you, operator, and hello, everyone. Welcome to Phoenix New Media's Second Quarter 2022 Earnings Conference Call. I'm joined here today by our CEO, Mr. Shuang Liu; and our CFO, 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 second quarter 2022 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 move on to the prepared remarks, I'd like to 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 the conference call are in RMB.

And now I'd like to turn the call over to Mr. Shuang Liu, our CEO.

Thank you, Muzi. Hello, everyone, and thank you for joining our call today.

In the second quarter of 2022, the nationwide COVID resurgence continued to exert pressure on our business. While some of our marketing executions were postponed or canceled, many of our advertisers chose to tighten their branding budget in the highly uncertain macro environment. Nevertheless, we remained resilient during challenging times. We concentrated on expanding our media presence through offering premium content, made significant upgrade to our product and continued to explore new business opportunities to diversify our revenue streams.

This year marks the 11th anniversary of our Phoenix Finance Summit. We took this signature event online in light of the challenges of holding offline events. This year, Ms. Carrie Lam, former Chief Executive of Hong Kong Special Administrative Region, and nearly 50 other political dignitaries and business tycoons, gathered at our online summit to exchange and share insights and ideas on the global and Chinese economy. The summit generated an immense number of views and discussions on social platforms, with 300 million views on Weibo, and was reported by more than 60 media outlets, making it one of the most high-profile events during the quarter.

In terms of news events coverage, we jointly planned a 2-day special coverage with Phoenix TV on the 25th anniversary of the establishment of the Hong Kong SAR. We invited scholars and experts to participate in featured interviews and discussions, focusing on hot topics such as the opportunities and challenges faced by the region, in areas of politics, finance, innovation and education. In addition, we recreated 10 memorable moments in the 25 years of Hong Kong SAR history into digital collectibles, which were not only sought-after in the digital marketplace, but also attracted more younger generations to our event coverage.

Our original content continued to deliver value to our users and the society. Our investigative column, Eye of the Storm, (foreign language), focused on unveiling and exposing relevant facts behind controversial topics and social phenomenon, ranging from the financial scam targeted at seniors, to the pollution caused by electric car manufacturers. The column received widespread praise for raising public awareness and seeking answers to difficult questions. Our in-depth opinion column, The Message, explored trending hot topics with the focus on ordinary individuals and their life stories, especially on the pandemic prevention and control. It covered these topics from different angles such as laws and regulations, industry standards, social economy, public policy, using an authoritative, rational and constructive style, consistent with our content strategy and differentiation. The Message attracted a group of loyal followers, with a considerable number of articles each generating over 100,000 views on WeChat.

On the video content front, our newly launched original series, The Journey, (foreign language), went viral across all social platforms. The Journey is a micro-video film documentary that records people around us and the bitterness and sweetness in their lives. Found in our spotlight was a tech company executive suffering from ALS but is resilient and persistent, a restaurant owner struggling to support his business under the pandemic, and a mid-aged coder re-navigating his life after losing his job. These stories resonated well among our audiences. Each series episode received 10 million views across the Internet and generated over 100,000 new followers on Douyin and Bilibili.

In terms of our product, we continued to refine our "iFeng" app during the quarter. The newly developed page integrating all news articles in the app with audio functions allowed our users to listen to the uninterrupted latest update of their preferred news while performing other tasks. They can now also choose to listen to Phoenix TV's live programs instead of watching. This has resulted in noticeably improved user engagement. The average time spent by users using the audio function has increased by 26%. Meanwhile, we continued to refine our content curation strategy. On the one hand, our algorithms distribute content based on nearly 60 user profiles to fulfill their soft news and interest-based content needs. On the other hand, by adding their own captions, our editors carefully choose and present the information they publish. A sentence or two of their own thoughts or calling out a quote help highlight the content in the news feed, which leads to more clicks, and fuel interactions and discussions. These enhancements have greatly improved our user experience. As we continued to optimize our traffic acquisition costs, our user traffic remained stable, while our user engagement has improved. The average click-through rate has increased by 22% year-over-year, average time spent by users increased by 15%, and the next-day retention rate increased by 15%.

Lastly, I would like to share our progress in revenue diversification. For online reading, we continued to monetize from our collection of premium IP literatures. Our audio book Wen Ding(foreign language), jointly produced with Himalaya reached 9 million views within two months since its release. Meanwhile, 6 of our self-produced audio books ranked in the Himalaya New Book Top List. Monetization of our audio books also made significant progress as we entered into a copyright sales agreement with NetEase Cloud Music.

For our real estate vertical, the aftershock of the industry regulation and liquidity concerns lingered, and the macro environment remained uncertain. While driving growth in real estate advertising was challenging, our team vigorously promoted innovative solutions to our clients, including selling customized appliance packages. On the content side, we focused on reporting issues concerned by C-end homebuyers, such as the quality of construction and renovation. In the meantime, our ESG index released in the second quarter became the first comprehensive ESG ranking in the real estate industry, highly recognized by investors and property developers. Our to B and C influence were both growing thanks to these efforts. In addition, the team optimized the sales team structure and eliminated certain city divisions that did not meet expectations for profitability to improve operational efficiency.

As for e-commerce, we launched our digital collectible platform Phoenix Artworks, (foreign language) during the quarter. As previously noted, we published a compilation of digital historical moments in honor of the 25th anniversary of the establishment of Hong Kong SAR. What sets us apart from the other platforms is our genes in art and culture, and our partnerships with world's leading museums and art institutions. The first collection launched, A Thousand Li of Rivers and Mountains, a 12th-century painting in the collection of the Palace Museum, was sold out within one hour of release. Western collections, such as the Impressionist World Series by Van Gogh, Cézanne, and Gauguin, were likewise extremely popular and quickly sold out.

The digital collectibles can generate considerable discussion and enthusiasm online. This is especially important for events, emerging IPs, and brands that want to increase their recognition and exposure quickly. As such, we believe that in addition to the sale of digital collectibles, they can complement our future events and marketing solutions.

In summary, despite the macro headwind, we remained committed to strengthening our brand influence through breaking news coverage and our signature events, while continuing to enrich our content offerings and upgrade our product. At the same time, we cautiously evaluated and invested in new business initiatives to diversify our revenue streams. In the future, we will prudently manage our business operations while focusing on business development and emerging growth areas.

With that, I will now turn the call to our CFO, Mr. Edward Lu to provide a closer look into our quarterly financials.

Thank you, Shuang, and hello, everyone. I will now walk you through our financial performance for the second quarter of 2022.

Our total revenues were RMB 191.6 million as compared to RMB 256.7 million in the same period of last year. To elaborate, net advertising revenues were RMB 160.5 million compared to RMB 233 million in the same period of last year. The decrease was mainly due to the reduction in advertising spending of advertisers in certain industries, the intensified industry-wide competition, and the negative impact of the COVID-19 outbreak in certain regions in China in the second quarter.

Paid services revenues were RMB 31.1 million compared to RMB 23.7 million in the same period of last year. The increase was primarily driven by the increase in the content sales to certain customers.

Loss from operations in the second quarter of 2022 was RMB 94.8 million compared to RMB 34.8 million in the same period of last year.

Net loss attributable to iFeng was RMB 95.8 million compared to RMB 7.1 million in the same period of last year.

Moving on to our balance sheet. As of June 30, 2022, the Company's cash and cash equivalents, term deposits, short-term investments, and restricted cash were RMB 1.33 billion, or approximately USD 198.5 million.

Finally, I'd like to provide our business outlook for the third quarter of 2022. We are forecasting total revenues to be between RMB 197.2 million and RMB 217.2 million. For net advertising revenues, we are forecasting between RMB 179.6 million and RMB 194.6 million. For paid service revenues, we are forecasting between RMB 17.6 million and RMB 22.6 million. These forecasts reflect our current and preliminary view, which are subject to changes and substantial uncertainties.

In summary, our advertising business experienced continued pressure due to the impact of the COVID outbreaks during the second quarter of 2022. In response, we proactively managed our expenses, streamlined our operations and optimized our team structure to improve operating efficiency. Going forward, we will continue to investigating new business initiatives to improve our revenue stream mix. Despite the short-term setbacks, we believe our endeavors will sustain us through these adversities and prepare us to achieve a better margin recovery in the future.

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

(Operator Instructions) Our first question comes from Xueru Zhang from 86 Research.

I have one question about the ad business. So the first half of this year was tough for the ad market. As we head into the second half, I wonder does management observe any recovery trend? Also, could you share some color on the growth outlook for the second half?

Thank you. Actually, the answer is yes. Many companies suffered from the macro headwinds during the last quarter, and we were no exception. Our teams in Shanghai and Beijing had to work remotely from home for some time, and so did many of our major clients. With the economy growth slowing down and so much uncertainties, advertiser demand softened. Stats showed that from January to May, the total marketing spending decreased by over 10% year-over-year. Certain industries were affected even more. For example, auto industry - one of our major client industries - their marketing spending dropped by around 25% from January to May.

From June, however, as the economy gradually recovers from COVID impacts, businesses once again started to invest in branding and marketing to help their sales growth. So for the rest of year, given this trend continues, we hope our advertising revenue will pick up.

Having said that, we have to admit that the competition is very intense. As advertisers tighten their budget, their demand for comprehensive marketing solutions is ever growing. We have to quickly respond to that and find our own differentiation.

First, our brand image and media influence are our core advantages. Actually, in the first half of this year, through our breaking news coverage and original content, not only did we increase user engagement in our iFeng app, but also our fan base on the third-party platforms increased by 30%, reaching nearly 130 million. While we help advertisers to convey their brand stories and escalate their brand exposure, we can help them reach a broader customer base.

At the same time, we are introducing creative marketing tools such as digital collectibles and virtual characters to fulfill advertisers' need for creative marketing. Also, utilizing our international background and perspectives, we have created a series of products helping advertisers to expand their international exposure and conduct more overseas branding activities. Our Global Observer series, for example, was well received by our advertisers.

With all these joint efforts, we are hoping to see growth recovery in our advertising revenue in the second half of the year. Thank you, Xueru.

Our next question comes from Alice Tang from First Shanghai.

So my question is regarding the cost side. It was mentioned earlier that the company was implementing cost control measures. So will this be a continuing trend in the future? And could you please disclose the company's long-term cost strategy?

Alice, thank you for your question. Actually, as mentioned on our last call, our goal is to return to profitability in the next 2 - 3 years. As such, optimizing our resource allocation and increasing efficiency is our top priority, and this will continue to be our focus in the near future.

During the second quarter, we continued to drive efficiency in all areas. On day-to-day project execution level, we closely review the cost structure of each project, demanding a higher gross margin. In terms of business lines, especially the new initiatives, we set clear goals and performance measurements, and conduct frequent reviews. With limited resources, we have to be cautious with our pilot projects. If they had not met prior expectations, we respond quickly as to whether or not they have to be scaled-down or even being closed. Also, on a higher level, we did thorough analysis on bandwidth, marketing, labor costs, and so on, to drive overall cost optimization, which should pay off with better results in the following quarters.

Alice, I hope I have answered your question.

Yes. That's very helpful.

Thank you. That was our final question. So I will hand back to management for closing comments.

Thank you. We have now come to the end of our Q&A session and our conference call. Your time is very much appreciated. If you have any further questions, please feel free to contact us. Thank you for joining us today on this call, and have a good day.

Thank you so much. This does conclude today's conference call. Thank you all for joining. You may now disconnect.