Weibo Corp (WB) 2014 Q4 法說會逐字稿

Welcome to Weibo's fourth quarter earnings conference call. Joining today are our Chairman of the Board, Charles Chao; our Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Herman Yu. This conference call is also being broadcast on Internet and is available through Weibo's IR website.

Before the management presentation, I'd like to read you the Safe Harbor statement in connection with today's conference call.

During the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Weibo assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Further information regarding this and other risks is included in Weibo's strategy statement filed on April 17, 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 Weibo's comparative operating performance and future prospects.

Our non-GAAP measures exclude certain expenses, gains, losses and other items that are not expected to result in future cash payments, or 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'd like to turn the call over to our Chief Executive Officer, Gaofei Wang.

(interpreted). Thank you and good morning, everyone. Welcome to Weibo's fourth-quarter 2014 earnings conference call.

During today's conference call, let me share with you the progress we have made in building Weibo as a leading social media in China, as well as the progress made on Weibo's native ad offerings.

We refer to social media as a social platform that is mainly used to enable open information sharing, as opposed to social networking services and instant messaging, which are generally used to facilitate private communication and networking.

First, let me start with our fourth-quarter performance.

In the fourth quarter 2014, Weibo continued to achieve strong revenue growth and user growth. Weibo's total revenue grew 47% year over to year to $105 million.

Ad revenues grew 57% year over year to $88 million, with mobile in revenues for the first time exceeding a majority to 54% of our total ad revenues. In addition, we are experiencing continuous [top-line] improvement with non-GAAP net income in the fourth quarter reaching $9.4 million.

Turning to our operating results. In December, Weibo's monthly active users reached 176 million, up 36% from the same period last year; while daily active users reached 81 million, up 31% from the same period last year. 80% of Weibo's MAUs were mobile in December.

On our last conference call, we discussed Weibo's goal to serve as an information sharing social platform and to offer a wide range of tools and services to our users and other potential customers to empower them to conduct business on our social media platform.

To serve these purposes and following industry trends, we have placed significant efforts to enable the creation sharing and conception of multimedia content on top of text-based content. We aim to continue our leadership in social media in China by offering better user experience for multimedia content.

In connection with these goals, in the fourth quarter, we have made progress in the following areas. First, we have placed significant emphasis on the creation and sharing of ideas and information in certain vertical areas, with particular focus on optimizing the experience for creating [web] photos and videos. In addition, through investments, we have realized standalone video and photo sharing [entities] whose content could be shared to Weibo.

As 4G becomes more widely adopted in China, we are seeing Weibo users sharing photos more frequently. Thus, in 2015, leveraging Weibo's brand and user presences, we'll ramp up our efforts in making Weibo's photo-sharing community even bigger and develop a separate photo sharing app [consolidated] by our position as a leader -- leading social media for open sharing of rich content.

In fourth quarter, we have also added a group chat function to strengthen social aspect [of] Weibo. Such group chatting function differs from QQ and WeChat.

Weibo users have an asymmetric relationship between celebrities and their fans, and this function will enable the fans of shared interest to improve the richness of their interactions among themselves.

Secondly, on the monetization front, our goal is to offer more sales and marketing tools to better serve our [AD] customers [enlisted on] Weibo. During the past on November 11, the [KA] W11 Festival, we have stepped up efforts to promote Weibo's AD offerings to small and medium-sized enterprise customers.

In addition to strengthening our existing SME distributors' network, we have optimized user experience for mobile-promoted themes offered through Weibo self-service systems. Our efforts to better serve SME customers are paying off, as we've witnessed an accelerated growth in both number of customers and revenues.

For first quarter of 2014, the total of SME customers grew 35% quarter over quarter to over 14,000. Within our SME revenues, we include revenues from self-service customers, which reached over 300,000 in the first quarter, representing a growth of 94% sequentially.

Self-service customers are usually individuals and small business who purchase [ads] on Weibo in small increments. Our goal is to nurture a large group of this Weibo marketers and over time migrate them into our SME distributors who can provide better service and support and help them grow their business.

During W11 Festival, we worked with Alibaba, Sina [other channel], other manufacturers and car dealers, and successfully launched the W11 (inaudible) [flash sales event]. The one month long event generated over 120,000 sales leads, illustrating the robustness of Weibo ads to providing branding and performance-based marketing. We have received very positive feedback from our AD customers for this event.

Lastly, I would like to spend some time to review 2014 and talk about our strategy in 2015.

Since our IPO last April, we have focused on strengthening (technical difficulty) the aspect of our platform and have seen (inaudible) withdraw from the market. Our efforts to focus on open sharing of UGC and [enterprising features] of Weibo have proven to be a great success, as Weibo added 47 million MAUs in 2014 from the year before, representing the largest growth in absolute terms since our inception.

The strong growth of Weibo users can be attributed to two reasons.

First, on the product side, in addition to strengthening the social media aspect of Weibo, as discussed above, we improved the quality of web content by attracting more experts, professionals, and in-the-know producers to create and share a lot of content in the various topical content. Consequently, in 2014, we saw Weibo's verified users in these areas double.

Second, by clearly differentiating Weibo as a leading social media platform in the marketplace, we strengthen our relationships with TV stations, show producers, and handset manufacturers, which make our acquisition of users more cost effective and increased Weibo's usage. Through these efforts, we saw Weibo's penetration rate in low-tier cities increase significantly in 2014.

As we look at the 650 million Internet users in China and the penetration rates of other types of social product by region in China, we believe we will still have a huge potential to grow. For example, Weibo's penetration rate in low-tier cities has significantly [continued] to grow when compared to that of Tier 1 cities.

In 2014, we made measurable improvement in this area through easier [onboarding] experience and other channel and branding initiatives. In 2015, we will further leverage the social media features of Weibo to increase our user scale and close the gap in low-tier cities.

On the subject of competition, the withdrawal and downsizing of other micro-blogging sites presents an opportunity as we consider how to attract their users to Weibo.

Second, as 4G becomes more popular in China, more and more users are creating and sharing more multimedia content. As a leading social media for creating sharing and discovering of multimedia content, we plan to further improve native photo and video experience on Weibo, and we'll consider strengthening our cooperation and relationship with third-party photo and video-sharing entities.

On the monetization front, we have achieved impressive results in 2014,. Weibo's net revenues grew 77% year on year to $334 million. The mobile advertising and [supermarket] industry in China are at an early stage, and we have had to educate China's advertising and marketing industry and help our customers make the shift to mobile.

The good news is that we have seen more and more marketers adopt Weibo social marketing, especially in mobile front format, as mobile advertising made up more than half of our advertising revenues in Q4 for the first time.

In 2014, we introduced many new AD products to our brand customers, such as interactive aid, [effica] loading page, [TV Plus] Weibo, and industry-specific AD solutions. For example, [especially those] tailored for auto industry and feeds with [app] downloads.

These initiatives have helped us expand Weibo's advertising customer base and strengthen our offerings for specific customer segments such as fast-moving consumer goods and mobile app developers. For 2015, we plan to further increase industry-specific AD solutions and create a win-win proposition for our customers and users.

For 2015, we also plan to further improve Weibo mobile AV offerings, and our social interest [graph] of SIG recommendation engine to better serve our customers.

Before I turn the call to Herman Yu, our new CFO, let me say a few words.

As many of you know, Herman had been with Sina over 10 years and was Sina CFO for past [10] years. Over the past few years, Herman has given me tremendous support in areas regarding financial expertise. As Weibor becomes bigger, I am delighted to have Herman join us to lend us a steady hand and his over 20 years management experience in high tech industry as we begin our first [year] as a public company.

With that, our [CFO] Herman will give his financial review.

Thank you.

Thank you, Gaofei, for the introduction; and good morning, everyone.

It's quite exciting to be back at Weibor. In the past year, Weibo's business has grown to a large scale. As Gaofei mentioned, Weibo's monthly active users reached 176 million in December, up 36% year over year.

For 2014, which is our second full year of monitization, Weibo's revenues grew to $334 million, up 77% year over year. The scale that Weibo has achieved enabled us to narrow Weibo's non-GAAP loss in 2014 to $1.7 million from a loss of $30.8 million the year before.

On a non-GAAP adjusted EBITDA basis, Weibo made $15.1 million in 2014 compared to a loss of $6.3 million for 2013.

Now let me walk you through our financial highlights for the fourth quarter.

Since our IPO in April, we have had solid execution. For the fourth quarter of 2014, Weibo's total revenues reach a historical milestone surpassing $100 million per quarter to reach $105.2 million, representing a 47% growth year over year.

Non-GAAP net income was $9.4 million, growing 142% from the same period last year.

Non-GAAP EBITDA was $16.2 million compared to $8.7 million for the same period last year.

Weibo's advertising and marketing revenues for the fourth quarter of 2014 were $88 million, up 57% from the same period last year.

We saw robust wealth coming from all customer segments. For example, Weibo's small and medium-sized enterprise business generated $23.5 million in revenues, which more than doubled from the $9.9 million for the same period last year.

We continue to see strong momentum in the adoption of Weibo marketing solution from SME customers, as the total number of SME customers exceeded 14,000 in the fourth quarter, up 59% from the same period last year.

Although Weibo's SME marketing services are mainly sold to distributors, we include it in our SME revenues native ads, which is directly from Weibo's self-service system which is targeted to individuals and small businesses who wish to purchase Weibo ads in small quantities.

As Gaofei mentioned, over 300,000 of these customers tried Weibo social marketing in the fourth quarter, and our hope is over time to migrate these marketers to SME distributors as they become more familiar and reliant on Weibo's marketing to build their own brands and businesses.

Revenue from Alibaba was $38 million, representing a growth of 59% year over year. Working with [Taobao, Sina] and Alipay is an exciting opportunity for us, as we discover new ways to grow social commerce and build win-win solutions for e-commerce merchants and our users.

For example, our marketing solution includes leveraging the ability of Weibo to amplify the promotions of Alibaba merchant in providing Weibo users a seamless experience to complete a purchase transaction within a Weibo [feed].

Revenues from our key accounts, also known as large brand advertisers, grew 19% year over year to $26.5 million, representing about one-quarter of Weibo's total revenues.

The strong performance of KA over the past year was due in part to the introduction of new advertising products, most of which were mobile-enabled, and allowed KA customers to take advantage of Weibo's robust growth in mobile traffic.

In 2014, we shifted from a display-centric ad model by adding new ways for KA marketers to build brands and interactive Weibo fans, such as marketing campaigns tied to Weibo Plus TV, and large event-based promotions, as well as launching various native ads for KA marketers, allowing them to (inaudible) Weibo's [back bone] mobile traffic.

For the fourth quarter of 2014, Weibo's mobile advertising revenues reached approximately 54% of Weibo's total advertising revenues compared to 28% for the same period last year. The addition of mobile-enabled ad format for KA customers has grown Weibo's mobile ad revenues, as well as increased proportion of SME revenues.

Weibo's ability to [pass a chad on] in 2014 from a PC-centric display format to mobile-enabled ad format is an important milestone for us, as 80% of Weibo's 176 million monthly active users were mobile, and this user segment is growing 47% year over year.

For the fourth quarter of 2014, Weibo's value-added services revenues increased 12% year over year to $17.2 million, which represents 16% of Weibo's total revenues. We think this proportion is reasonable as we look into 2015.

Game-related services in the fourth quarter 2014 grew 57% year over year, while membership revenues grew 17% year over year.

During the fourth quarter, we shifted our strategy for offering Weibo data, which decreased to $2.9 million from $5.4 million a year ago. Although we will continue to offer data services on opportunistic basis to strategic third parties, we see more value in offering Weibo data in the form of measurement to our ad customers, which will help them better understand the performance of their ads on Weibo and how they can adjust their targeting strategy to get more out of their campaigns on Weibo.

We also see opportunities to work with third-party data companies to improve Weibo's ad targeting, such as the agreement we signed with [Axion].

Turning now to cost and expenses. As a reminder, unless otherwise noted, my comments will focus on non-GAAP financial measures which exclude stock-based compensation, change in fair value [of] investor option liability, amortization of intangible assets, and related income tax effects.

For the fourth quarter of 2014, total costs and expenses were $95.5 million, up 40% year over year. Cost of revenues was $25.6 million, up 59% year over year.

Operating expenses totaled $69.9 million, up 34% year over year primarily due to an increase in [calculated] cost as well as marketing expenditures.

Operating income for the fourth quarter of 2014 was $9.8 million compared to $3 million for the same period last year.

Non-operating income for the fourth quarter was $3 million, of which $1.8 million relates to interest income, and $1.2 million arising from a foreign exchange gain which we do not expect to be significant going forward.

Income tax for the fourth quarter of 2014 was $3 million, which included a reversal of deferred tax assets from previous quarters.

Non-GAAP net earnings for the fourth quarter of 2014 was $9.4 million compared to $3.9 million for the same period last year.

Non-GAAP diluted earnings per share was $0.04 compared to $0.02 per share for the same period last year.

Non-GAAP adjusted EBITDA, defined as earnings before interest, taxes, depreciation and amortization, other non-operating income and share-based compensation expenses, were $16.2 million, up 86% on the same period last year.

Turning to balance sheet and cash flow items. As at December 31, 2014, Weibo cash, cash equivalents and short-term investments, totaled $450 million.

Cash used in operating activities for the fourth quarter of 2014 was $32.1 million. Capital expenditure totaled $3.8 million, and depreciation and amortization expenses were $6.1 million.

Turning to Weibo's first-quarter 2015 guidance. We estimate that Weibo's total revenues for the first quarter of 2015 to be between $93 million and $96 million.

With that, let me now turn to Q&A.

Gene Munster, Piper Jaffray.

I might have missed it in the prepared remarks, but can you give us an update in terms of payments and how that's been [trending]?

And then separately, when you look at the number of SMEs that you currently have, how do you think about what ultimately -- [you've] 14,000, what ultimately that addressable market could be two, three, five years down the road?

Thanks.

Gene, can you say the first question again?

Yes. I might have missed it in the prepared remarks, but any updates on payments and how to think about that progressing going forward?

(interpreted). This is Charles. Let me maybe address your question.

On the second one, regarding the potential addressable market for SMEs, and I think it's very important for us to build a very big base, customer base for SMEs, because as you understand, the nature of this advertising system, especially for our (inaudible) -- the ones in the information flow, it requires a lot of matching.

So the more customers you have, the more inventory you have, the more accurate the matching will be; the more efficient the advertising will become.

So this is -- one of our priorities is to expand our customer base in both categories for the SMEs, and so we saw pretty good progress in 4Q. And I think we're going to continue to build our base in the future.

I think [around that] 14,000, I think when we get to 100,000 customers, I think our advertising system will become much, much more robust in terms of efficiencies. And this is the target we are getting to for the future, maybe in two or three years.

That's helpful. So two to three years. Thank you very much.

Let me finish the first question that Godfrey asked, and then we can move on.

So the first question that Gene asked was regards to payments. And payments so far, we have at the end of last year total activated and linked to Alipay was about $35 million. And those were actually user payments. We had over 11 million users.

Thank you.

This is [Eddie]. Just a couple of quick questions. You mentioned quite a bit about your SME advertiser strategy, but I would like to get more color on the so-called large account segment. Just wondering; could you share more color on how successful you guys have been doing cross-sellings to your traditional portal large accounts? So could you share with us, let's say, the proportions of your portal advertisers that have been your Weibo advertisers on a consistent basis?

And then, a bit related to that, could you also remind us the number of corporate accounts registered on Weibo at the moment?

Thanks.

(interpreted). So, Eddie, with regards to having similar customers with the portal, there would be more overlap in the fast-moving consumer goods and auto industries, which the portals are very strong at.

Going into 2015, we will be focusing -- Weibo is going to focus also more on real estate and the finance sector. So in these type of industries, as we grow more, we're going to have more [differentiation].

And with regards to the big accounts, the enterprise and government accounts that we have verified, we should reach about 800,000, which is twice the amount over the same period the year before.

Very helpful. Thank you.

Juan Lin, 86Research.

My first question (technical difficulty) very strong compared to peers. Would you please break down these items into banner ads and [promoted feed] ads?

My second question is related to the (inaudible). In Q, how much was the growth, or how much of the [S dollar] for SME revenues generated by the self-serving systems?

Thank you very much.

Can you repeat the first question? You got cut off.

Sure. My first question is related to breakdown of revenue, breakdown of banner ads and promoted feed ads.

Yes. Okay. So let me take these two. So with regards to the product breakdown of our advertising revenue, so if you exclude Alibaba, for the first time I think in fourth quarter, promoted fees is the majority now. So it's over 50% of our total revenues. One can guess that with our mobile advertising now becoming very substantial.

With regards to your second question on self-serving services, that is still a very small proportion of our total SME advertising. We mentioned on the script that the purpose of this really is to allow a lot of our individuals, our small businesses, to try Weibo advertising, to buy directly from Weibo advertising. So the purchases are very -- [started] small; it's more trial size. So the idea is to let them try first and then as the purchases become more significant move them to the distributors.

So it's part of our customers with 300,000, and the total revenue amount is relatively small compared to all the SMEs.

Thank you, can I have a follow-up question, if I may, regarding competition scenario? So Weixin rolling out the Weixin [Moments] ad in third quarter. How do you see the major move from Weixin impacting the ad budget plan from your key accounts?

(interpreted). Yes. So with Weixin entering advertising, I think at some level, you will see some competition. But I think more importantly we're at a very early stage of mobile social advertising in China, and with Weixin coming in what it does is it increases the overall scale of the industry. And we see actually some of our customers now asking more about social marketing and mobile marketing.

So I think it's going to help educate our customers both key accounts and SMEs, and to ultimately drive higher demands. As a result, I think we should benefit from this secular trend.

Thank you very much. Very helpful.

Jin K Yoon, Mizuho Securities.

Now that the Company has hit profitability on a non-GAAP basis, do you expect that trajectory to continue in the next few quarters? Is there any plans to accelerate or further? Can you talk about how you look at the cost structure and investments going forward?

Thanks.

I think let me talk about it with regards to next quarter and then the whole year for 2015.

If you're looking at Q4 and then looking at the first quarter, our costs are pretty much fixed. So if you look at our guidance, revenue is going to be down on a quarter-over-quarter basis. But in terms of our cost and expenses, much of that is fixed costs, so you're not going to see much savings.

So with regards to the whole year 2015, you actually see a pretty consistent ramp up in 2014, and we should see that trend going into 2015.

I think for the whole year, you will see that Weibo has gotten to a certain scale where revenue growth should be outpacing the overall cost and expense percentage growth.

Great. That's perfect. Thanks, Herman.

Thank you.

Jialong Shi, Credit Suisse.

My question is also about the competitive landscape for mobile social apps from another angle. Your another mobile social peer, Momo, also started serving social ads to both local and Alibaba merchants recently. So I just wonder if management can provide any colors on your competitive edge when trying to bid for [ad dollars] from the same advertisers.

(interpreted). So far, we have not seen competitive pressure from Momo. Momo, they are local based advertising and for us working with Alibaba, with our payments and (inaudible) solutions, I don't think that we have a conflict right now. So so far, we don't see competitive pressure from them.

Thank you.

George Meng, Morgan Stanley.

My question is actually on the user and user product fronat. So first of all, I noted that you guys started to so-called clean up some of the inactive fans starting from January. So I just wonder what's the latest user stat trend you observed after you started that kind of initiative.

That's my first question, and I have a follow-up. Thanks.

(interpreted). Yes. So we've since had an ongoing thing about user account fans, and what we see during events such as the November 11, say, that some enterprise accounts and celebrities have ways of increasing their fans in which we have [penalized] these enterprises and celebrities as they're increasing these what we call fake fans. So we will continue to do these type of clean-ups going forward, and we haven't seen them really impacting our user usage.

Got it. That's very helpful.

And my second question is regarding your strategy to roll out, for example, some separate apps like Weibo's [Jonjin] and Weibo Camera, and also maybe try to promote again your [Miaopai] on the video sharing app.

So just wondering. Can you elaborate a little more on that? Do you think like by maintaining a matrix of different separate apps it's more beneficial to you than just maintain a single app and then adding or emphasizing some of the functions?

And also, you mentioned that you are going to cooperate with some of the third-party photo-sharing apps. So I just wonder, going forward, are you going to just focus on your Weibo Camera app and then maybe turn that into Instagram in China? Or you have other plans? Just can you share with us more thoughts on that?

Thanks.

(interpreted). Yes. So overall, in our prepared remarks, we talked about that in 2015, we will put more focus on trading a separate app for photo and for video. We see Weibo as a platform that aggregates and to share content, this rich content, and we see these individual apps as apps that can create very rich content.

So we think that these two types of apps are complementary. And in fact, some of the features that we've built in these individual apps, you can also have -- you are seeing them in Weibo.

So in 2015, we should still see most of these rich media photos and videos being captured directly from Weibo. We also want to promote some of these professional and semi-professional as they are creating content to use individual apps which have a better quality and have more better feature sets for creating photos and videos.

Got it. That's very helpful. Thanks for the comments.

Tian Hou, TH Capital Research.

I have a question related to your users. So we saw your users growing quarter by quarter, particularly in 2014, pretty nicely. However, most of the users already came from lower-tier cities, like second and third-tier cities. And when we do some kind of investigation or survey, we found that the users in the Tier 1 cities seems like turn their back to Weibo. So I wonder if you see the same situation.

And also, I wonder in your strategy for future development how do you want to address this issue; how do you want the users in Tier 1 cities to pick up?

That's my question.

(interpreted). Tier 1 users as a percentage of the total user base is still the largest. When we compare on an annual basis Tier 1, Tier 2, Tier 3, all the tiers versus prior year, we actually see them pretty stable. We see Tier 1 growing around 10%, and then other than Tier 1, we see it growing around 20% to 30%. So it's still pretty stable for Tier 1.

And for 2015, we should see most of the growth still coming outside of Tier 1 cities because, if we look at penetration rates, outside of Tier 1, it's much lower than Tier 1 cities.

Thank you. That's all my questions.

This concludes the question and answer session and conference call. 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.