Weibo Corp (WB) 2014 Q2 法說會逐字稿

Good morning and welcome to Weibo's second quarter 2014 earnings conference call. (Operator instructions) Please note this event is being recorded.

I would now like to turn the conference over to Weibo Corp's IR representative, Sandra Zhang. Please go ahead.

Thank you and good morning. Welcome to Weibo's second quarter earnings conference call. Joining me today are our Chairman of the Board, Charles Chao, our Chief Executive Officer, Gaofei Wang, and our Chief Financial Officer, Bonnie Zhang. This conference call is also being broadcast on the internet and is available through Weibo's IR website.

Before the management presentation, I would like to read you the safe harbor statement in connection with today's conference call. During the course of this conference call, we will make forward looking statements, statements that are not historical facts including statements about our beliefs and expectations. Forward looking statements involve inherent risk and uncertainty. A number of important factors could cause actual results to differ materially from those containing any forward looking statements.

Weibo assumes no obligation to update forward looking statements in this conference call announcement. Further information regarding this and other risks is included in Weibo's registration statement filed on 17 April 2014 and other filings with the SEC.

Additionally, I'd like to remind you that our discussion today includes non-GAAP measures which exclude stock-based compensation and certain other items. We use non-GAAP financial measures to gain a better understanding of the Weibo's comparative operating performance and future prospects. Our non-GAAP measures exclude certain expenses, gains and losses and other items that are not expected to result in future cash payment and that are non-recurring in nature, or may not be indicative of our core operating results and business outlook. Please refer to our press release for more information about our non-GAAP measures.

Following management's prepared remarks, we will open the lines for a brief Q&A session. With this, I would like to turn the call over to our Chief Executive Officer, Gaofei Wang.

(interpreted) Thank you and good morning everyone. Welcome to join us in Weibo's earnings conference call. In the second quarter of 2014, we have achieved healthy growth in both revenues and the number of users. In addition, I'm delighted to see rapid growth we have achieved on the mobile front with the large increase of mobile users as well as mobile revenue. This can be attributable to our endeavor to optimize our user experience, develop marketing channels and ramp up mobile monetization products.

Starting with our financial performance in the second quarter of 2014, our total revenue grew 105% year-over-year to $77.3 million. Ad revenue drew 99% year-over-year to $59.6 million with mobile representing over 39% of the total ad dollars and a quarter-over-quarter growth rate of 44%.

Besides this, we are also seeing continuous bottom line improvement this quarter with net loss decreased by 56% on a year-over-year basis.

Turning to our operating matrix, as of 30 June 2014, MAU grew 30% year-over-year to over 157 million (sic, see press release - "156.5 million") while DAU grew 32% to over 69 million. I would like to highlight that 78% of DAUs come from mobile, thanks to our further cooperation with TV programs this June and deeper penetration into second and third tier cities which enable us to increase mobile user scale and user engagement.

In 2014, we have further strengthened our mobile strategy and penetration into second and third tier cities. Weibo has already formed a strategic alliance with major handset manufacturers in China and owing to these efforts, we are delighted to see over 50% of our new mobile users came from cooperation with both handset manufacturers and mobile operators. At the same time, we observed that the retention rate of newly acquired user have greatly improved which is attributable to our dedication to improving mobile user experience, especially Android users' experience through optimizing our mobile products.

Currently, our average weekly retention week for our new users from major channels is about 50%. In the second half of this year, we will further enhance our strategic alliance with major channels. In the future, we expect to position ourselves not only as a mobile application but also as an interactive service providing platform to bridge our strategic partners and our users. In this sense, we will continue to make investment in this area and add Weibo's value to our partners.

In the second quarter, we are also making strides in our partnership with TV stations. We launched a Weibo TV index with CCTV CSM, a professional media research company, to leverage big events like the World Cup and a series of seasonal TV variety shows. We're confident that the launch of TV index will further solidify Weibo's role to TV programs in the sense of interactions with larger TV audience.

During the second quarter, we worked closely with CCTV on the World Cup event to boost interactions between TV hosts and the soccer fans, and we partnered with local TV stations to work on popular shows such as Where Are We Going, Dad? and The Voice of China. As a result of these initiatives in June, the number -- the cumulative number of Weibo users participating in TV related topics exceeding 27 million and TV related topics that are heavily discussed on our platform is over 1000.

In a nutshell, our cooperation with TV programs will not only drive user engagement on the platform but it will also help Weibo gain more recognition from TV brand advertisers which we believe would eventually help us build out the multiscreen advertising model as we move further down the path.

In the second quarter, we have further improved the product experience and optimized the information feed. With the expansion in user base and user network, we noted that user experience wouldn't be hampered when more contents overwhelm them than what they really need.

In the first half of 2014, we have taken a series of measures to optimize information feeds. For instance, we have been taking steps to limit the reach of the low quality and the promotional content to our users. This measure is proved to considerably enhance our user experience and user engagement. Currently, the feed optimization program covers around one third of our total DAUs. We will extend our coverage to all active users in the second half of this year.

Turning to our second area of focus, updates on Weibo's monetization. On the brand advertising front, in the second quarter we extend our promoted feed ad solutions to brand advertisers in early May. As a result, mobile ad revenue as a percentage of total ad revenues increased to 39% in the second quarter. At the same time, we continued to enhance ad effectiveness through improved ad quality and a distinctive social graph.

Optimized advertisements on Weibo platform have generated improved engagement rate. To meet brand advertisers' increased demand on mobile ad, at the end of the second quarter, we have launched the mobile full screen loading page ads. We believe the offering of such ad solutions will lower the entry barrier for brand advertisers who would like to tap into mobile ad territory.

On the SME advertising front, benefitting from our investment in distribution channels and the technology advance, we are delighted to see continuous rapid growth in ad revenue with double digit quarter-over-quarter increase in both new customers who open deposit accounts and the customers who actually place the ad with us. Meanwhile, with the constant improvement of our ad bidding system and engagement rate, our CCTM increased by 30% on a quarter-over-quarter basis.

Our next step is to further optimize our ad bidding system and the service mechanism, and to build up advertising agency network and assist those agencies with social media sales force and the promotional capacity to grow stronger in future.

In April, we officially launched our payment solution, Weibo Payment. As of the end of July, Weibo Payment had over five million active users. Weibo Payment is the critical component to our social commerce ecosystem and will considerably increase the marketing effectiveness for the e-commerce advertisers. In the next two quarters, we will focus on expanding our payment user base and optimizing our promoted feed products, leveraging Weibo pay.

In the meantime, we are testing products or functions viewed on our closed loop marketing solution. For example, for Weibo's Me-Media users, we have started to offer fee based subscription service and tipping functions.

With that, I would like to turn to our CFO Bonnie for our financial review. Thank you.

Thanks Gaofei and good morning everyone. I will walk you through our financial performance for Q2 and then touch briefly on guidance before opening the call for your questions.

For the second quarter of 2014, net revenue grew 105% to $77.3 million. Major revenue components including advertising and marketing revenue and Weibo Value Added Service revenue. For 2014 Q2, each component as a percentage of total net revenue is 77% and 23% respectively. Our advertising and marketing revenue for the second quarter of 2014 grew 99% year-over-year to $59.6 million, compared to $30 million for the same period last year.

Total net revenue contributed by Alibaba was $22.2 million in this quarter. A number of factors attributed to our strong performance, including growth in promoted feeds marketing solution revenue generated by over 9000 SME clients and a higher key accounts revenue attributable to the growth in customer base we achieved in Q2 2014.

Excluding ad revenue from Alibaba, top ad revenue generating sectors are FMCG, automobile and internet services. For the second quarter of 2014, mobile revenue accounted for 39% of advertising and marketing revenue, compared to 31% in the prior quarter. The rising proportion of mobile revenue corresponds well with our growing mobile traffic which leads to increased mobile inventory.

Mobile ad sales generated by SME customers and Ali are the key contributors in the increase in total mobile revenue. To better serve our larger marketers using our social interest graph recommendation engine that improved the relevance of ad advertising with users on our platform, we extended the promoted feed product, so-called brand express, to our key account customers in the second quarter.

We have seen encouraging early reactions from customers since the introduction of such marketing solution in May. We believe the adoption of promoted feed products by our key ad advertisers will provide a more balanced product/revenue mix for Weibo and further drive our growth in mobile revenue.

We generated value-added service revenue principally from feed-based services, which includes game-related service, VIP memberships and data licensing service that we introduced in the fourth quarter last year in order to further monetize our use space and the content of our platform.

VAS to revenue increased 131% year-over-year from $7.7 million to $17.7 million in Q2 2014. The increase was mainly due to robust growth from game-related service and the addition of data licensing service.

Turning now to costs and expenses. I would like to remind you that unless otherwise noted my comments will focus on our non-GAAP financial measures, which excludes share-based compensation, amortization of acquired intangibles and the related income tax effects and the change in fair value of investor option liability. For the GAAP financial measures, as well as the reconciliation between the non-GAAP and the GAAP financial measures, please refer to our earnings release posted on our IR website.

In Q2, total costs and expenses were $84.1 million, up 80% year-over-year. The increase is driven by headcount and related overhead costs as we continue to invest in our workforce to scale the business and to drive continued product innovation.

In addition, we incurred a marketing expenditure in promoting our payment product, Weibo Payment, which is a critical component of our social commerce ecosystem we try to build, in collaborating with TV programs such as World Cup and in deploying marketing resource to increase our penetration in the lower tier cities. As a result of our strong revenue growth and relatively low expenditure increase, we reduced operating loss from $9 million in the prior period last year to $6.8 million in Q2 2014.

Non-GAAP net loss attributable to Weibo's ordinary shareholders was $4.9 million, down from a non-GAAP loss of $11.2 million in the same period a year ago. Our GAAP net loss attributable to Weibo's ordinary shareholders in the second quarter was $15.4 million, which includes $3.4 million of stock-based compensation expense, $0.2 million of intangible assets amortization expenses net of tax and a $6.8 million charge associated with change in fair value of investor option liability.

Upon Weibo's IPO in April, Alibaba has fully exercised its investor options to increase their shareholding of Weibo to 30% on a fully-diluted basis. The exercise of such investor options has resulted in a balance sheet reclassification of our option liability to Weibo's shareholders' equity under US GAAP. We do not expect there would be a further charge arising from such investor options fair value change in the future.

Non-GAAP basic and diluted loss per share for the second quarter was $0.03 compared to $0.08 per share for the same period last year.

Turning to balance sheet and cash flow items, as of June 30, 2014 Weibo's cash, cash equivalents and short-term investments totaled $498.7 million. The cash used in operating activities for the second quarter of 2014 was $18.1 million, capital expenditure totaled $3.9 million and depreciation and amortization expenses were $5.6 million. During second quarter Weibo repaid a $255.7 million loan from SINA using proceeds raised in the IPO.

Turning to our third quarter 2014 guidance, we estimate that our net revenue for the second quarter will be between $79 million and $82 million. This concludes our prepared remarks. We are ready for questions.

Thank you. (Operator Instructions) Eddie Leung, Merrill Lynch.

Hi, good morning. Thank you for taking my questions. I have two questions. The first question is about your advertising revenues. Could you update us on the revenues in the second quarter from promotional feeds? And how much of that are coming from the key accounts after you open up the promotional feeds to those big advertisers.

And then separately, could you give us an update on the number of corporate accounts in the second quarter? Thank you.

Yes. Hi, Eddie. I think the first question is on the advertising dollar on the promo feeds. I think what we can disclose at this point, given we started the promo feed to brand advertisers in the middle part of second quarter, our total revenue generated from the proceeds as a percentage of non-Ali revenue is about 38%. So that includes those dollars we earned from our brand advertisers and our SMEs.

And on your second question for a number of corporate accounts, key accounts we've had for our brand advertisers, that is about 190.

Thank you, Bonnie. Thanks.

Dick Wei, Credit Suisse.

Hi. Thank you for taking my questions. I wonder on the monetization front what is the advertising loads right now, and then how do you think it's going to go going forward and if the -- maybe the revenue side limitation, are we seeing it more on the inventory front or from the advertising spending front?

And my second question is if management can share the outlook for the user growth? Particularly after some of the events like World Cup, how should we look at user growth on the second half? Thank you.

Hi, Dick. This is Bonnie. The ad load for the second quarter actually is pretty close to the first quarter; we're still slightly above 1%. We do not expect there will be significant increase for the ad load in the second half of 2014.

Dick, this is Charles. Regarding your second question on the user growth I think -- the user growth in a particular period, and sometimes I would say user activity has to do with certain events.

Like we've had some major events in the month of March and we saw some increase in user activities. And the same in the month of June: everybody knew that there was the World Cup and that also enhanced the user activity for that particular month.

But overall we do not believe that user activity -- events have a lot to do with the number of users and the user growth too much. And so our strategy is still going to be focused on our efforts in growing our users in all aspects, meaning that we want to enhance our expansion in the second tier cities via different marketing activities and with product innovations as well as increase our effort in our TV project to increase the exposure on the TV programs and on the TV interactive activities so that we can continue to grow our user base.

Currently we believe that our user growth is still on track with the plan and I think we're going to see similar growth probably in the second half of this year.

Great, Charles. You mean similar growth on a year-over-year basis, is that what you're --

Yes, yes. That's what I meant, yes.

And maybe if I can go back to the first questions, that maybe the revenue growth we are seeing some limit? Well, I guess what is the limiting factor for the revenue growth for the advertising? Is it -- it seems that it's more on getting the customer's SME or key account rather than the limitation on the inventory front. I'm not sure if it is the correct comment.

I think this is a balance between these two elements. On the one hand we want to increase the ad load without impacting too much about the user experience and on the other hand in the -- from advertisers front we want to increase the effectiveness of advertising, meaning that we want to provide more focus, more targeted advertising solutions to them. I think this is a growing effect and currently we do not see a limitation on inventory.

And on the other hand we do want to increase the effectiveness of our -- promoted feed advertising solutions to our key accounts so that they will get better returns in their investment. And so I think it's a gradual process.

In the end of course, first we want to rely on the user growth, user activity growth so that we can have more inventories on an overall basis. On the other hand, more importantly, we want to enhance our ad solutions to make them more targeted, more relevant to the content so that we can increase our ad load without too much impact on the user base.

And I think that currently these two factors both have impact on our revenues but I think we need to making progress on both fronts in order to generate more revenues going forward.

Great. Thank you very much, Charles and Bonnie. Thank you.

Gene Munster, Piper Jaffray.

Good morning. Bonnie, I apologize if I missed this, but did you mention how many SME customers you have or revenue from SMEs? And then separately, any -- the number of Weibo -- the number of paid transactions. You gave a number out last quarter. Thank you.

Yes. For the number of SME customers for the second quarter, it's over 9000. I think it's somewhere around 9300. The second question you had, Gene, is on the total transaction volume we had?

Or the number -- or your revenue from SMEs.

Oh, revenue. We actually do not separately disclose SME revenue on a quarterly basis, but there's a gross for -- I think the gross rate we have seen for our SME customers is pretty encouraging, it's over -- I think it's over 20%.

Quarter-on-quarter I assume?

Yes, quarter-on-quarter. It's a close -- it's 32% actually, that's the rate.

Okay, that's helpful. And then lastly just the number of Weibo paid transactions?

I think for the second quarter we -- our focus really is on the growth our payment users. So far on the statistic on GMV, we have not put too much of a focus on it.

Our step will be -- the step we'll be doing is accumulate our payment users first and then grow -- in the second half continue to grow the payment users and then the number of merchants who adopt our payment platform. So I think to the later quarters of this year probably going into fourth quarter, even into 2015, we will be starting to disclose the GMV number for our transactions, total, on our platform.

Great. Thank you.

Philip Wan, Morgan Stanley.

Hi. Good morning and thank you for taking my questions. I have two. My first one is regarding your sales outlook: given that you have measure to improve the product experience by limiting the promotional content, should we expect a faster growth for non-advertising revenue in the near-term?

And then my second question is regarding your native ad products that you are expanding to the brand advertising customers. So could you share with us, have you experienced any challenge in terms of balancing the ad inventory, ad location or pricing between the key accounts and SMEs? Thank you.

Philip, this is Charles. Regarding your first question, sales outlook, I don't think we're going to offer specific sales outlook on the conference call here, and currently we're not expecting the guidance will be much different from what we had before for the second half of the year in terms of sales growth. And I'm going to let Gaofei to answer your second question regarding the inventory issues between SME and the key accounts.

(interpreted) I think we follow the principle for whoever bids higher gets the inventory on our platform. However, we do recognize that for certain brand advertisers we do provide a fixed CPM arrangement for them. On average our CPM for our key customers is higher than our SME customers.

I think Gaofei wants to supplement his comments in terms of the ad load.

(interpreted) The ad load is -- one thing we have factored in to calculate the ad load is the engagement rate. With the increase in the engagement and the accuracy in terms of our targeting, we believe the -- we do expect a certain level of increase in our ad load for the second half.

Okay, that's very helpful. Thank you.

Piyush Mubayi, Goldman Sachs.

Thank you for the opportunity. So in May opened up the promoted feeds to key accounts, could you give us any color that you could share with us at this point on how that has performed?

Second, this may have been asked earlier also. Any -- give us a sense of where you are with the MAU to DAU ratio for mobiles, or if you could give us the number for mobile DAU that would be very helpful. And third on the payment systems, how many customers have used that at this point of time as a percentage -- either a total number or a percentage of your MAU? Thank you.

Yes, I can take the first one. In terms of the adoption of the promoted feed solution, since May up to the latest data we have seen we had about 100 customers have already executed or ordered such solutions from us.

So we believe the result -- these are all brand advertisers -- so we believe that the result is pretty encouraging in terms given only about three months' period of time. So the second question, Piyush, you had, is the MAU/DAU ratio as a mobile spread? Is that our understanding is correct?

That's correct. I think last quarter you said 70% came from -- 70% of DAU was mobiles.

Yes.

(interpreted) The percentage of mobile DAU for the second quarter is 78% which is higher than 70% in the first quarter. In terms of the mobile percentage MAU this number will be even higher.

Gaofei tried to explain there's a couple of reasons attributable to the growth in the mobile percentage in DAU.

(interpreted) There are three factors -- two major factors. One is our new users who acquired from second and third tier cities most of those are mobile users. The second factor would be, in the month of June because the interaction we had with TV programs that leads to a growth in our mobile users pretty significantly. With that we expect for the second half of 2014 the percentage of mobile user for DAU or MAU would be relatively stable comparing to the second quarter.

Related to usage intensity is there any time spent number you could share with us?

(interpreted) In terms of time spent, on the mobile front the time spent has been pretty flat and while on the PC side we have seen slightly increase from first quarter to the second quarter.

In terms of the payment users, in Gaofei's script he actually did mention that we had about five million active users. While we refer to that number these are the users actually had at least one transaction on our platform.

Okay thank you both. Thank you for that.

Juan Lin, 86 Research.

Next question.

Operator we'll take the next question please.

Yes I did announce the next question but they don't seem to be speaking. Juan Lin of 86 Research please go ahead with your question. Okay we'll move on to Alicia Yap at Barclays.

Hi good morning everyone. Thanks for taking my questions. I have one question. So as you penetrate more users into the second and third tier cities what have you learned on the behavior and the usage from those users? Will any of these trends and the behavior that you've seen could help you think differently for your future monetization model for both on the advertising side and also the value added service front? Thank you.

(interpreted) What we have observed we have actually seen increased growth in our second tier city new users. What we found that comparing to first tier users, they tend to engage a lot more on the platform versus posting, providing original positing on the platform. So with that we believe we have good opportunity from our SME customers from their advertising to meet those populations demand on product. Also on the game side which we believe that would be a well fit between the product we are offering to their needs. As a result, for the second half of 2014 our focus on the e-commerce advertisers as well as advertisers who placed ads through our multi-screen program between TV and Weibo will be the key.

I see, great. I have a follow up question on the investment and the spending: so as we continue to invest on some of the new product enhancements, how should we think about the overall R&D and the sales and marketing spend for the rest of this year? Thank you.

(interpreted) On the R&D front there is two parts. One is on the user products that's especially on the Android side. So we have expenditure to further enhance that product. On the other side of R&D which we believe there will be more spending for the second half would be our closed loop solution we talked about in our prepared remarks.

On the marketing side we are aware of that and there will be significant population probably would have changed -- first time to change to their first smart phones. As a result our spending will be focusing on the channels, particularly those ones we had a strategic relationship with and second would be further promoting the brand of Weibo, both through the channeling and also the TV plus Weibo programs.

Great thank you.

Thomas Chong, Citigroup.

Hi good morning. I have two questions. My first question is about the value added service. Can management provide some color about the breakdown in terms of the revenue mix in other revenue, in particular for the gaming part as well as the top five games contribution to the game revenue? My second question is about the contribution from Alibaba. Can management provide some color about how much of the $22 million from Alibaba actually comes from PC and mobile and how should we think about the contribution from Alibaba going forward, because as I look at first to the second quarter it seems on a declining trend in terms of revenue contribution? Thanks.

Yes I think on the VAS revenue side we had a total about $17.7 million. I think about 40% is our games -- game revenue, and game revenue most of those are PC revenue. The PC versus mobile it's about 88% versus 12%. In terms of Alibaba PC and the mobile split, actually we had seen quite significant growth on their mobile percentage for this quarter. Their split is close to 50% to 50%. So that was a significant improved from prior quarter.

In terms of the second half of 2014 Alibaba spending I think we do expect there will be quite significant pickup on Alibaba spending in the later part of the year given there will be large e-commerce events to happen in the fourth quarter. So there is a general expectation that Alibaba expenditure with Weibo will be loaded on the second half 2014.

Thanks Bonnie. A follow up question is about the 40% of the games revenue in VAS. What are the contributions from top five games?

I don't believe we have any games that are so significant that will make (technical difficulty) revenue for games, I'm sorry. We don't believe we have anything like very significant in terms of contribution for any particular games. So it's overall kind of pool of games we either develop internally or co-op with others to provide a Weibo platform basically.

I think that going forward probably our focus will be more on the mobile games in terms of growth and as most of our user base and user activity does concentrate on the mobile terminals. These particular areas we have experienced some of the games during the work up and have gained some good attraction in terms of user participation and going forward we intend to offer more and more games on the mobile terminals and hopefully we will start to have impact on the monetization going forward starting next year.

Thanks.

[Zhao Zhang], Macquarie.

Good morning. Thanks for taking my questions. First I wanted to confirm what -- I think I heard it from what Bonnie said -- you had 100 key accounts and 9300 SMEs for your promoted feeds advertisers in Q2. Is that correct Bonnie?

Yes I think let me clarify: the number of customers for the second quarter for key it's 190 and for the SME customers it's over 9300.

Okay 190 key accounts for the promoted feed. There was no contribution from Alibaba to the promoted feeds revenue; is that because you don't want open to the Alibaba merchants? Is there any particular reason for that?

There is some contribution from Alibaba on the promoted feed side but the percentage out of the total Alibaba spending with us is, it's quite small.

Would you be able to share with us a rough mix between the key accounts and SMEs including the revenue contribution inside the promoted feeds? Which side is bigger?

Definitely SME is a lot bigger given we already had SMEs promoted feed solution over a year now and for key we just opened in May. So the percentage of total promoted feed revenue SME will take a very significant or I would say a vast proportion of it.

Okay great. My last question is on the sales force. Could you talk about the current sales force -- the structure now do you have a totally independent sales force for Weibo now? If that's the case how when you go sell to brands for key accounts how does this sales force work with the Sina sales force which sell the portal ads and how you leverage your relationships et cetera? Thank you.

Well on this particular question we talked about last quarter. Basically we are in the process of building a much more independent sales force for Weibo. So for Weibo sales force they can sell directly to any kind of brand advertisers for any product, but as we said before for any event driven advertising -- like World Cup is a big event for example -- or for any big package deal which in corporate inventories both from portal and from Weibo then the portal sales force can still sell and they are actually probably the major force for selling these package advertising or event driven advertising for now and going forward we will want to make sure that this becomes -- our sales force in Weibo will become more and more independent and this is the ongoing process basically.

Okay. Thanks Charles for the color.

Thank you.

Juan Lin, 86 Research.

Hi good morning Charles, Bonnie and Gaofei. Thanks for taking my questions. I have two questions. One is the cooperation with Alibaba. I wonder how many Alibaba merchants have you mapped so far meaning you have access to their payment information? This is my first question.

You mean how many Alibaba merchants have been mapped in terms of having providing advertising or --

No have been providing the payment information and you have more in depth access to their information that you have mapped in your systems?

Okay, I will ask Gaofei to address this question.

(interpreted) On the user front like given WeiboPay is backed by Alipay so the five million users we disclosed you can assume all had an Alipay account. On the advertiser front we recognized that some of these advertisers who are already using our Weibo payments solutions while some of those are continuing using Alipay. Right now we don't have the number of splits for that.

Given the number of Weibo payment users is comparatively small at this point so we probably will wait until the second half that once we are users getting to a certain level of skill that we will be working with Alibaba to ensure that merchants from Ali who had transaction on Weibo will be using -- all of them will be using WeiboPay.

Thank you very much. My second question is regarding SME advertisers. You have a pretty solid sequential growth for your total number of SME advertisers. Is there any particular industry that you see very strong growth in terms of SME advertiser number or have you expanded your distributor network to acquire more SME clients?

I think for SME industry sectors, the two largest ones are internet services and SMCGs. So these are two verticals which had a more distinct revenue contribution for this particular quarter.

Thank you very much.

Yu-Heng Fan, China Renaissance.

Hi, good morning. Thanks for taking my question. My first question is one to follow on the closed loop marketing solution you are doing right now. I just want to get a sense about the timeframe: when will you launch this program? What kind of feedback have you heard from the potential advertising customers? Then I will have a follow up. Thank you.

(interpreted) I think right now we have distinct products for our advertising monetization and also the closed loop solution. What we have observed that some of our advertisers actually have started using the closed loop solution on our platform and the engagement rate for those who are using the closed loop solution actually has doubled from those who have not used that particular solution. Given the number of our payment users is quite limited at this point, like we indicated before, we will probably wait until the later part of this year then we would require all our SME customers would be using our Weibo payment if they would like to complete transactions on our platform.

Thank you that's helpful. Secondly, I want to ask management comments on the recent advertising solution testing by WeChat. What have you heard from the advertisers in terms of the consideration when they evaluate the advertisers solution from Weibo and WeChat? Do they incline to play most of advertising -- trying to play advertising on both platforms? Any color will be helpful. Thank you.

(interpreted) We have not heard specific comments from either our key customers or our small SME customers in terms their particular advertising campaign on the WeChat. Given the advertising on WeChat is placed on the public accounts the limited impression they can offer will be just a little bit hard for us -- we believe will be hard for advertising purpose.

On Weibo the RK and SME are customers who are focusing on promoting either their brands or their products versus on WeChat we believe most of their advertising coming from advertisers who are trying to promoting their public accounts on WeChat. So we do not believe there will be any duplicates in terms of the advertisers.

Thank you.

This concludes our question and answer session. At this time I would like to turn the conference back over to management for any closing remarks.

Thanks for joining the call. We will see you next time. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.