Phoenix New Media Ltd (FENG) 2022 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to Phoenix New Media Third Quarter 2022 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. And now I'd like to hand the conference over to Ms. Muzi Guo from Investor Relations. Thank you. Please go ahead.

Thank you, operator. Welcome to Phoenix New Media's Third 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 third 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, let me 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 would 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.

The third quarter of 2022 remain a challenging one for our ad business due to weak advertising demand caused by the macroeconomic environment and COVID outbreaks.

While we were seizing our monetization opportunities, we continue to build our brand differentiation through content production and distribution, and elevate our media influence in various industries and the communities, especially through industry standards and (inaudible). Moreover, we made significant updates to our products to better connect our users to our content.

During this quarter, we continued to demonstrate our media expertise and deliver in-depth news to our users across all platforms. We covered major national and [breaking] news stories, such as the escalation of the Russian-Ukraine war, the tension in the Taiwan Strait, the passing of Queen Elizabeth II of the U.K., and assassination of the former Prime Minister of Japan, Shinzo Abe.

We stayed at the top of the game of running hot topics. Take the heightened tension in the Taiwan Strait as an example. It was a fast news app, sending push -- sending push notifications on more than 75% of the key updates of the event, leading to a high user reach and (inaudible). Once the push notification is open (inaudible) as users are directed to other related highlights on contextualized contents.

Besides Pelosi's flight tracker, we were also one of first media live streaming her landing at Taiwan Airport, following up by live interviews of field experts in military affairs and international relations, who provided their professional opinions and shared their interpretation of the situation. Our hot topics keep user up to date throughout the series of events.

Besides a 10% increase in [engagement] rates and 20% increase in average time spent year-over-year for our news app, our news accounts on third-party platforms also gained substantial popularity. We gained 3 million new followers during the quarter on our Weixin official accounts. Weixin video accounts, Douyin and Kuaishou. With 65 articles generating over 100,000 [new leads] and over 100 videos generating over 1 million views.

We continue to build our media influence on new partnerships through events. In July, we held the first ever [Phoenix Global Forum]. (inaudible) and promoting gender equality and presented woman of influence awards, where we celebrated the most accomplished woman role models.

Also, in September, we collaborated with Phoenix TV and held the Phoenix Greater Bay Area Economic Forum. Over 50 senior officials, including John KC Lee, Chief Executive of Hong Kong Special Administrative Region, and [actors] and entrepreneurs gathered together to exchange ideas and look for solutions and opportunities for the economic development of the Greater Bay Area and China as a whole.

Both events generated substantial publicities with nearly 100 media outlets covering the events. The hashtag topics and the media clips of events were widely reported on social networks.

Our original video series, [Global Insights], (foreign language), has consistently proven its commercial value. The series is collaborating with journalism -- journalists and influencers located in 14 countries, over 5 continents, and employs domestic and overseas social media as main distribution channels, with accumulated 20 million followers across all channels. As Chinese brands continue their efforts to grow their business and brand overseas, Global Insights became an effective marketing solution for them to increase their international exposure.

During the quarter, we collaborated with one of the major electric vehicle brands, and [fueled] their new models to rolling out the production line in Indonesia, showcasing their innovative technology and product development.

With our global resources, operators and distribution channels, we are becoming a reliable partner for Chinese brands to build strong, resilient and truly global brands.

We also refined our other original content products, such as the micro documentary series, The Journey. The series is presented in an authentic storytelling style, makes a strong personal connection. The 4 episodes released in the quarter were viewed by nearly 40 million users across the Internet and widely shared on social media platforms.

From a palliative care doctor's daily work caring for people living with serious illness, to a young man from a remote village changing his life through education, the series tells the story about perfection, courage, persistence, resilience, dedication and wisdom, all of which are greatly valued by our general audience, and by which brands also like to be endorsed. This type of content products not only enhance our content offering, but also create long-term value.

Moving on to our new (inaudible), we rolled out several upgrades to improve our interactive features. Specifically, we focused on increasing user engagement by improving the comment feature by allowing users to collect badges. So leaving intriguing comments, users are more motivated to leave their opinions under the articles. Comments can also be quoted by other users and displayed as dialogue, which stimulates more discussions and debates. As a result, we have seen the number of comments increase by 31%. Also, we refined our algorithm to improve the distribution of video comments.

Upon analyzing users' viewing history, preferences and engagements, we were able to refine their profile based on their interests, standpoints, level of education and so on, and distribute videos personalized to each user profile.

Aside from delivering information, we increased the supply of content that fulfill our users' interests and needs for entertainment. The click-through rates of video content has increased by 30% year-over-year. With these joint efforts, the average time spent per user increased by 20%. (inaudible) retention increased by 43% and 44%, respectively.

Next, I'd like to move on to our progress in revenue diversification. We continue to develop our online reading segment during the quarter. We collaborated with online reading platforms to monetize our premium IP content and further expanded our IP library of audio content to lay the groundwork for developing growth drivers of new (inaudible).

For our real estate vertical, although there have been numerous, numerous, numerous (inaudible) for resale homes, new home sales and the marketing campaigns remain stagnant. Our team vigorously promoted innovative solutions to our clients to further optimize their cost basis.

Meanwhile, we focus on growing our B2B influence through industry collaborations and content offerings. We formed the first ESG alliance with the top 5 ESG data platforms. Together, we are going to refine the ESG rating system for real estate developments, complement the company profiles and drive healthy and sustainable growth for the industry.

As for e-commerce, product sales in health and wellness category continue to grow. As we added the collection of important food complements to our product selection, our customer service has expanded to Weixin groups with new product information, and coupons are regularly shared with our loyal repeat customers, and their needs are properly attended to, which substantially increase the rates of repurchase.

Phoenix [Upworks], our digital connection platform launched last quarter, released a collection featuring the virtual character, Zhou Li, of famous landmarks in celebration of the Chinese Mid-Autumn Festival. Combining Zhou Li's, (inaudible) modern girl image and the Forbidden City, Taipei 101, Tokyo Tower and so on, the collection sends holiday wishes to people all over the world. Going forward, as virtual characters emerge as a new trend in digital marketing, Zhou Li will complement our innovative marketing solutions and future events to assist our advertising clients reach more younger audiences.

In summary, despite the macro headwind, we remain committed to strengthening our brand influence through breaking news coverage and organizing events, while continuing to enrich our content offerings and upgrade our products. At the same time, we're working to align resources to (inaudible) sharpening focus, our clear set of priorities. Going forward, we will certainly remain prudent in evaluating business initiatives, aligning our business with shifting industry dynamics and elevating our brand influences through consistent delivery of contents with high value.

With that, I will now pass the call on 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 third quarter of 2022. All figures mentioned will be in RMB.

Our total revenues were CNY 194.8 million compared to CNY 244.6 million in the same period of last year. To elaborate, net advertising revenues were CNY 172.4 million compared to CNY 216.6 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 third quarter.

Paid services revenues were CNY 22.4 million compared to CNY 28 million in the same period of last year. The decrease was mainly due to the reduction in the content spending of certain customers.

Loss from operations in the third quarter of 2022 was CNY 36.5 million, compared to CNY 206.3 million in the same period of last year. This is mainly because the company recognized CNY 140.4 million of allowance for credit losses in the third quarter of 2021 relating to the entire amount of accounts receivable and the notes receivable from Evergrande Group, and we did not recognize such loss in the third quarter of 2022. In addition, the decrease was also attributable to the strict cost control measures (inaudible).

Net income attributable to iFeng was CNY 24.3 million compared to net loss of CNY 134 million in the same period of last year.

Moving on to our balance sheet. As of September 30, 2022, the company's cash and cash equivalents, term deposits, short-term investments and the restricted cash were RMB 1.13 billion or approximately USD 159.4 million.

Finally, I'd like to provide our business outlook for the fourth quarter of 2022. We are forecasting total revenues to be between CNY 203.2 million and CNY 223.2 million. For net advertising revenues, we are forecasting between CNY 187.8 million and CNY 202.8 million. For paid service revenues, we are forecasting between CNY 15.4 million and CNY 20.4 million. This forecast reflects our current and preliminary view, which are subject to change and substantial uncertainties.

In summary, our top line came under increased pressure this quarter due to the current macro headwinds. While we remain dedicated to expanding our media presence and diversifying our revenue stream, we are working to align resources to appropriate, sharpening focus on a clear type of priority. As such, we believe that our continuous levers will sustain us through this adversity 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 the line of Xueru Zhang from 86Research.

I have 1 question regarding your ad business. During the recent quarters, we've seen a slowdown in ad demand, while advertisers are cautious with their ad spending. I'm wondering what's that -- the company platform -- other platforms that can help you stay competitive in the market?

This is Edward speaking. Thank you for your question. Actually, we do face a lot of challenges. But for brand advertising, the value of premium and differentiated content and the media endorsement is irreplaceable. These are our key strengths, and we never stopped trying to increase our competitiveness in this area.

First of all, our breaking news coverage and the creation of hot topics have always been our key strength. This brings us high user traffic and especially high user engagement, which is essential to effective marketing. News and information also carries significant implications of the development of the (inaudible) and the international dynamics.

Brands seek to be associated with these topics to elevate the exposure to a greater audience space. Our advantage also, like in creating content that resonate with users, through our content advertisers, establish connections with their target customers and associate their brands with universal values such as courage, resilience, persistence and love.

The mini documentary we mentioned earlier, The Journey, is an excellent example of this type of content marketing. It conveys values shared by our audience and brands alike. While we are committed to provide comprehensive marketing solutions to our key account clients, we are catering to middle- to small-sized advertisers with creative and combining content marketing solutions, which, in general, higher in gross margin.

Our brand differentiation also help us to reach niche markets. For example, a growing number of Chinese enterprises are expanding their business overseas. As they tap into our [firm] market, they often need a complete different marketing strategy to build their brands abroad, with our contracted things [generally] and KOLs are all over the world. And our global network of resources and highlights, we can promote Chinese brands and the culture more effectively from a global perspective.

We are also able to carry out marketing execution overseas under the pandemic. Actually, very few media -- they can ability in the market.

Another important shift in advertiser demand is that they now spend a large portion of their budgets on social media and emphasis on [prevention] marketing, instead of spending all of their budgets on mainstream media marketing campaign.

In light of this change I have mentioned above, we must break through the barriers of media. We have accumulated a large user base, over 130 million on third-party platforms, including Weibo, Weixin, Douyin, [Kuaishou] and Bilibili, Kuaishou . The development and the monetization of this account has become one of our strategic priorities. We have laid out a detailed action plan for our operation on third-party platform.

Our team structure and resources are also revised to the monetization target for this account. I believe with this effort, we will stay competitive and continue to bring unique value for our clients. I hope I have answered your questions, Xueru.

Our next question comes from the line of Alice Tang from First Shanghai.

So my question is regarding the balance sheet cash items. Can you give us an update on how the cash will be used since the company still have a fair amount of cash?

Alice, thank you for the question. Yes, you are right. Currently, we still have more than RMB 1 billion in cash. With such sufficient reserves, we are now in a very strong position to fix the ever-changing macro environment.

At this point, it's very crucial for us to manage our existing capital cautiously. We have set a very strict goal to bring down cash burn by focusing on returning to profitability and specificating a faster turnaround of our accounts receivable. The business is only sustainable if you can generate healthy cash flows from operations.

Another way to reach that goal is to optimize our cost structure and increase operating efficiency. Our cost management efforts during the first half of the year have paid off. During this quarter, our sales and the marketing expenses decreased by 22% year-over-year. And our G&A expenses also decreased substantially. So overall, we will continue to manage our operation and cash position with cautious while driving to achieve perfect and positive operating cash flow. Thank you, Alice.

Now there was [all answer the] questions, so I will hand back to the management team for closing remarks.

Thank you. 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 today on this call. Have a good -- have a nice day. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.