Weibo Corp (WB) 2015 Q2 法說會逐字稿

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  • Operator

  • Good day and welcome to the Weibo Corporation's second-quarter 2015 conference call. (Operator Instructions). Please also note today's event is being recorded. I would now like to turn the conference over to Vanessa Chen. Please go ahead.

  • Vanessa Chen - IR

  • 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, Herman Yu. The conference call is also being broadcast on the 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 statement. 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 Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed with the SEC on April 28, 2015 and other filings with the SEC.

  • Additionally, I'd like to remind you that our discussion today includes certain non-GAAP measures, which excludes stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating performance and future prospects. Our non-GAAP financial excludes certain expenses, gains and losses and other items that are not expected to result in future cash payments or that are non-recurring in nature or will not be indicative of our core operating results and 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.

  • Gaofei Wang - CEO

  • (Interpreted). Thank you and good morning. Welcome to Weibo's second quarter 2015 earnings conference call. During today's conference call, let me share with you updates on Weibo's products, traffic and monetization.

  • Let me start with our second-quarter performance. In the second quarter of 2015 Weibo continued to achieve strong revenue growth and user growth. Weibo's total revenues grew 39% year over year to $107.8m. Advertising revenue grew 47% year over year to $87.9m, with 62% of our ad revenues coming from mobile. Our non-GAAP net income in the second quarter reached $10.9m.

  • Turning to operating results, in June Weibo's monthly active users reached 212m, up 36% from the same period last year. Daily active users reached 93m, up 34% from the same period last year. 85% of Weibo's MAU in June were mobile which is comparable to prior quarter. Over the past year we have made significant product improvements and information flow optimization that have resulted in increased user stickiness as well as accelerated DAU and native ad revenue growth. The number of Weibo users who have activated Weibo Pay reached 46.5m in June.

  • On the operational front, let me elaborate on the key progress we have made. First, in the second half of last year we began to optimize the information flow of Weibo users. After six months the impact of our feed flow optimization began to bear fruit as we saw meaningful improvement in user engagement and retention, including timeline views and feed engagement that exceeded user growth rates. This also resulted in the improvement in user time spent on Weibo. Such improvements from feed flow optimization ultimately translate to an increase in Weibo's ad inventory.

  • On previous conference calls we've discussed our efforts to improve the ease of information consumption on Weibo. The open nature of Weibo as a social media accessible by everyone gives us an advantage for more efficient information discovery. As a result of our efforts over the past six months we have seen a significant lift in the number of mobile users sharing content on Weibo, much faster than DAU growth, especially within the Big Vs and highly influential user categories.

  • Going forward, we will consider the right balance of information feed coming from celebrities, [massive] users and businesses to optimize the user experience, which continues to remain a main product focus. To this end we plan to increase our investment in product development and platform technology to further improve user experience for information discovery and consumption on Weibo.

  • Second, as we strengthen the multimedia aspect of Weibo, taking advantage of the adoption of smartphones, 4G and WiFi in China, we're seeing Weibo users consuming more videos and photos. Through our collaboration and product integration with Miaopai, a leading short video sharing app, we're able to provide Weibo users with a unique and rich experience for creating and sharing short videos on handsets. In June the average number of daily videos on mobile viewed jumped almost fourfold from six months ago, paving the way for us to build a foundation to provide ads in video format in the future.

  • Third, in the area of Weibo's branding and channel strategy, we leveraged the scale of Weibo user base to deepen our strategic cooperation with the most influential players in the television and movie industry as well as the key smartphone makers.

  • In the first half of 2015 we collaborated with more than 100 TV shows, 86 movies and 20 major smartphone makers in the area of PR, co-marketing and product innovation, helping our partners to increase visibility and build a greater awareness for their brands, while allowing Weibo's own brand and user penetration to flourish. The results of our branding and channel strategy can be demonstrated from the significant increase in Weibo's penetration into lower-tiered cities.

  • On the monetization front, as discussed in the last quarter's conference call, with Weibo enterprise accounts reaching 1m and the full range of promoted ad products for customers to choose from, we were able to clean up bad marketing practices that are banned on Weibo. For example, we have taken steps to limit spamming, [fan spying] and other undesirable marketing behaviors.

  • We believe these actions will improve the information function experience for our users as well as creating a fair and desirable environment for social marketing on Weibo. Businesses and marketers will benefit from this clean-up and enforcement of social marketing rules which will enable better targeting and improved marketing effectiveness.

  • In the second quarter we also partnered with Socialbakers, a well known analytic company for social media to launch measurement for Weibo enterprise users. Almost 900,000 verified enterprise accounts are using the free trial version of this product. By working with Socialbakers, we hope to speed up the adoption of an industry standard for measuring social marketing effectiveness and accelerate the proliferation of social marketing in China.

  • Lastly, on the product monetization front, in the second quarter we witnessed strong growth in SME revenue, which includes self-service ads. Revenue increased 163% year over year and 54% quarter over quarter. The number of SME customers reached 444,000, which is an increase of 54,000 ad customers from last quarter as we continued to improve Weibo's self-service product offering and optimize the SME agency channel.

  • The growth of KA revenues was impacted by the World Cup last year. Excluding World Cup revenues from last year, KA revenues would have increased 34% year over year.

  • The primary reason for this revenue growth includes event-driven social marketing, TV plus Weibo ad offering and new product launch promotions. We also received positive feedback on Weibo's Big Day package, which allows advertisers to make new announcements in a big splash and capture a wide audience on Weibo in a short time span. Compared to other media apps, Weibo has a major advantage in offering performance-based marketing and event-driven campaigns. We believe Weibo can provide a strong solution for brand advertising and we plan to make further investments in this area.

  • With that, let me turn the call over to Herman for financial update.

  • Herman Yu - CFO

  • Thank you Gaofei and good morning everyone. And good evening to those of you in the western hemisphere. Let me now take you through Weibo's financial highlights.

  • For the second quarter of 2014 total revenues grew 39% year over year to $107.8m, which was above our guidance of $102m to $105m. Non-GAAP net income attributable to Weibo's ordinary shareholders came in at $10.9m compared to a non-GAAP loss of $5.1m for the same period last year. Non-GAAP EPS was $0.05 compared to a negative $0.03 a year ago.

  • The scale of revenues that Weibo has achieved is enabling us to grow revenues at more than twice the pace of cost and expenses. Revenues were up 39% year over year while costs and expenses were up only 16% year over year. Non-GAAP net margin reached 10% compared to negative 7% last year and 3% last quarter. Non-GAAP EBITDA was $15.4m compared to a negative $1.8m for the same period last year.

  • Let me give you more colors on Weibo revenues. Advertising and marketing revenues for the second quarter of 2015 were $87.9m, up 47% year over year. The strength of Weibo advertising was led by our small and medium sized enterprise business, which generated $33.9m in the second quarter. SME revenues were up 163% from the same period last year and up 54% from last quarter, making the SME business Weibo's largest advertising segment for the first time. Total SME customers surpassed 443,000 during the quarter, an increase of 54,000 from the prior quarter.

  • Our SME business includes revenues from self-service ads, which our users can buy directly on Weibo. We are seeing strong adoption of Weibo's self-service ads, which include Weibo [Fanstop] and Weibo FST. Weibo [Fanstop] allows a user to prioritize his feed at the top of his fans information flow while Weibo FST allows a user to target potential fans based on the profile and interest of Weibo users. In May we added promoted accounts to build out Weibo's promoted ad offering. Revenue from Weibo's self-service ads grew 139% sequentially and we expect this area to continue to be a key revenue driver for us going forward.

  • Moving on to key accounts, revenues from our key accounts, mostly large brand advertisers, were $25.5m, up 4% from last year and 13% from last quarter. The year-over-year weakness was primarily due to a higher revenue base from the World Cup last year. Revenue from Alibaba in the second quarter was $28.4m, up 28% year over year and represents approximately a quarter of Weibo's total revenues.

  • As a leading social media in China, Weibo is well-positioned to capture the trend of advertisers migrating to mobile. Mobile revenues in the second quarter reached $54.8m, up 134% year over year representing 62% of total advertising and marketing revenues compared to 39% a year ago. With 85% of Weibo's MAUs on mobile and this user segment growing 43% year over year and the breadth of the Weibo mobile ad offering to both key accounts and small and medium sized ad customers, we are in a good position to capture the market's push toward mobile advertising.

  • Moving on to value-added services, Weibo value-added services revenues increased 13% to $20m. Game-related services revenues was $11.4m, up 58% year over year. Membership revenues was $6.1m, up 87% year over year. And data-licensing revenue was $2.5m, down 66% year over year and down 5% quarter over quarter.

  • As explained on the previous call, we made a strategic decision in the fourth quarter last year to provide data-licensing service on a more limited basis so as to optimize ad revenues over the long run and consequently we may see data licensing revenue to further decline.

  • Membership revenues for the second quarter included a one-off $1.6m generated from Weibo's users casting votes to determine the winners of the prestigious Paeksang Awards for the Best Female and Male Korean TV and Movie Stars.

  • Having Weibo Pay really gives our users the unique experience to participate in the determination of the most popular Korean celebrities. As Gaofei mentioned, the number of Weibo users who have activated Weibo Pay has reached 46.5m.

  • Turning now to costs and expenses, as a reminder, unless otherwise noted, my comments will focus on non-GAAP financial measures which excludes stock based compensation, change in fair value of invested option liability, amortization of intangible assets, net of related income tax effects and gain/loss on the sale of investments and impairment on investments.

  • Total costs and expenses were $98.1m, up 16% year over year. Cost of revenues was $33.4m compared to $19.5m a year ago. The increase in cost of sales can be primarily attributed to higher value-added tax, game and other revenue share resulting from higher revenues as well as higher infrastructure-related costs resulting from traffic growth and the strong growth in video viewing on Weibo. Operating expenses totaled $64.7m compared to $64.8m last year, reflecting an increase in payroll-related cost offset by a decrease in marketing and bad debt expenses.

  • Our focus this year has been to grow revenues while putting in place a system of business controls to improve spending effectiveness. As we move into the second half we expect higher revenues and further margin improvement from our operating leverage.

  • Operating income for the second quarter was $9.7m compared to a loss of $7m for the same period last year.

  • Non-GAAP net earnings attributable to Weibo's ordinary shareholders for the second quarter was $10.9m compared to a loss of $5.1m last year. Non-GAAP diluted earnings per share was $0.05 compared to a loss of $0.03 per share from last year. Non-GAAP adjusted EBITDA, defined as earnings before interest, taxes, depreciation, amortization and other non-operating income and share-based compensation expenses, was $15.4m compared to a negative of $1.8m last year.

  • Turning to balance sheet and cash flow items, as of June 30, 2015 Weibo's cash, cash equivalents and short-term investments totaled $337.1m. For the three months ended June 30, 2015, cash, cash equivalents and short-term investments decreased $117.9m primarily resulting from Weibo's equity investments including an investment of $142m in Didi, Kuaidi Taxi, the largest transportation platform app in China. Cash provided by operating activities for the second quarter of 2015 was $51.4m, capital expenditure was $3.7m and depreciation and amortization expenses were $5.9m.

  • Turning to Weibo's third-quarter 2015 guidance, we estimate that Weibo's total revenues for the third quarter of 2015 to be between $120m and $123m, assuming the renminbi to US dollar exchange rate stays at the current level.

  • Before I turn the call over to the operator, let me quickly summarize our performance. Since our IPO a year ago we have seen solid revenue growth every quarter, with SME advertising a long tail in China and now our largest advertising segment at 39% of total advertising. Mobile revenues now account for 60% of our advertising revenues compared to less than 40% a year ago. The scale of revenues that Weibo has reached has enabled us to be profitable for the last three quarters, with increasing margin.

  • Our DAUs and MAUs have also been growing very strongly as we deepen our partnership with the television and movie industries as well as with the top smartphone makers to efficiently grow Weibo's brand and pre-installs. On the user experience side, we have taken steps to clean up the clutter in the information feed resulting in increased Weibo refreshes and engagements.

  • On the whole we have seen strong execution across the board over the past year and we are taking the crucial steps to secure a leading position in China's social media space.

  • With that let me now turn to Q&A. Operator, we're ready for questions.

  • Operator

  • (Operator Instructions). Dick Wei, Credit Suisse.

  • Dick Wei - Analyst

  • Hi. Good morning. Thank you for taking my questions and congrats on the very strong quarter. I have two questions. The first question is on the user usage trend on Weibo. I wonder if you can -- I understand that the DAU number is very strong, seeing very strong growth. If you can add some more color in terms of the usage differences. Is there more spending on video or is there any particular type of contents that user is just more engaging on the platform? That will be great.

  • And my second question is on the SME, industry. Sorry ?- for SME advertiser, what are the industry segments they're in?

  • And then if you can remind me the revenue booking for self-serve versus through the agency. Do we expect any kind of -- with self-serve being like a larger portion, do we expect any of the margins changes for the SME segment? Thank you.

  • Gaofei Wang - CEO

  • (Interpreted). So we can see that from our MAU, we've been growing at 36%, and our DAU is growing approximately at the same rate, at 34%. So we can see that when you compare to six months ago, the DAU grew 16% whereas our information refresh grew 30%. And we can see that most of our feeds now have photos and you can see that users are more and more viewing videos. Due to our product improvement on video last year, incorporating native videos, you can see that our viewership of videos from six months ago increased almost four times. And we hope that with our further improvement in the user experience for videos that we can double that by the end of the year.

  • Herman Yu - CFO

  • Okay. With regards to second question, Dick, I recall you mentioned what are the main industries for SMEs. Basically revenues from SMEs, if you look at the top -- because there's so many customers in this, we look at the SMEs from the channels. And if you look at the top 500, 600 customers, we notice that it comes from mainly three segments.

  • One is you see a lot of app developers who are using Weibo for app downloads. Second, you see a lot of ad customers are doing ecommerce. And third, you're seeing a lot of O2O players who traditionally don't have a web presence, but because of the ease of using Weibo and being able promote their product and so forth, this is a third category.

  • And then with regards to the difference of self-service and SME channels, right now the SME channels as a percentage of total revenue is by far much larger than self-service. But I think we expect that over the near future that self-service will continue to be growing at a rate faster than the SME channels. I think from a margin perspective we don't expect this to be too different because for the SME channels you would have to pay rebates and so forth, but we're recognizing revenue at a net basis.

  • Dick Wei - Analyst

  • Great. Thank you very much.

  • Herman Yu - CFO

  • Thanks.

  • Operator

  • Eddie Leung, Merrill Lynch.

  • Eddie Leung - Analyst

  • Good morning. Thank you for taking my question. Just a quick question on your gross margin. You mentioned that one factor behind the sequential decline in gross margin is about games. So just wondering whether it's a purely a mix shift effect or is it any change in the revenue-sharing ratio.

  • And also could you remind us how you account for your game revenues? Do you book it on gross basis or net basis? Thank you.

  • Herman Yu - CFO

  • Yes, good question, Eddie. I think when you look at gross margins, our gross margin has slightly decreased from a year ago. And I think you hit the point that we now have -- we book our game revenues based on gross. So as game grows, you will see that the revenue share from games increase. That's one reason. Another reason is because if you look at our revenue last year, a significant portion comes from data licensing which doesn't have much cost of sales. As this portion of revenue becomes a much smaller part of our total revenues, that will also impact our gross margins.

  • Eddie Leung - Analyst

  • Thank you.

  • Herman Yu - CFO

  • Thank you.

  • Operator

  • Juan Lin, 86 Research.

  • Juan Lin - Analyst

  • Hi, good morning. Thank you for taking my question. My question is related to your vertical partnership with Alibaba. I'm wondering in the second quarter, did you generate any revenue via the vertical partnership with Alibaba?

  • And also what is the progress of the vertical cooperation in terms of which verticals you have already worked on, what events you were hosting in the past quarter and which new verticals are you planning to explore in the second half? And how should we project the revenue from this portion in the near term, meaning the second half of the year?

  • And my second question is related to Weibo Commerce. What is the current progress with your [Dian Tong] and Weibo Showcase? How many [Dians] do you have and the number of merchants and transaction value on the Weibo platform? Thank you very much.

  • Gaofei Wang - CEO

  • (Interpreted). You know last time we talked about, with the Alibaba alliance that due to some internal changes and so forth that we would start talking about the vertical alliance in the second half. So the revenues that we generated from Alibaba is beyond our original expectations. Some areas in which we have the vertical alliance include music, travel and leveraging socialized to push ecommerce goods.

  • The composition of revenues coming from the verticals as a percentage of total revenue coming from Alibaba is not significant, less than $10m. In the second quarter these vertical projects were just started and represented maybe half of the quarter. As we move into the second half and next year we hope to grow these vertical activities in movies and music and so forth.

  • With regards to the second question on Weibo ecommerce, so what we're trying to do with this is to work with our socialites because, as you know, with Alibaba you have Taobao and we also have work with another ecommerce app called [Weimei]. You have a lot of goods that are being shown and what we can do is leverage the socialites on Weibo to actually promote and to recommend the products that they think are good products. As a result, by recommending these, they can -- and as a result of generating revenue we will have a revenue share with socialites. So this is something that we're trying to launch in cooperation with Alibaba.

  • As this program, socialites ecommerce, just started promoting, we have now over 2,000 of these members that we have accepted to be part of the program and we should be growing this over time.

  • Juan Lin - Analyst

  • Thank you very much Gaofei and Herman. That's very helpful.

  • Operator

  • Jin Yoon, Mizuho Securities.

  • Jin Yoon - Analyst

  • Hi. Good morning guys. Just on the revenue side first of all, we saw a nice pick-up on the revenues from the non-Alibaba side of advertising. Can you just talk about the kind of attrition rate in terms of what percentage, how much of your revenues is coming from new customers versus increased spending from the existing customers? That's my first question.

  • And the second question is, we continue to see a downward drift on the whole sales and marketing side, aspect. Can you just give some color in terms of how we should see that spending going forward? If we should continue to see some downward trajectory, is that because again advertisers are a lot more stickier because of the self-service model, or what's driving that downward trajectory? Thanks guys.

  • Herman Yu - CFO

  • Yes, two questions. The first one on attrition, Jin, we don't disclose the attrition numbers. Part of it is it's hard to analyze when you're looking at attrition, some of these purchases, a lot of our products is based on new product launches. Weibo is a social media for promoting new products. So because you don't see our vendors or advertisers actually promoting products every month or every quarter, it's really depending on their product releases. So that is not a number I think that's too meaningful. But you do see, for example, from our SMEs, from our self-service, a lot of them continuing to buy and recharge their payments for the self-service and so forth.

  • With regards to sales and marketing, if you look at the second quarter, yes, it's slightly below last year and slightly below first quarter. We expect this dollar amount to actually continue to rise in third quarter and fourth quarter. As we mentioned before, you see the supply change is because we're looking at marketing effectiveness, we're looking at how we spend on our channels and so forth and to try to make the best out of our spending and to make sure that it's spent the most effectively. But I think as a trend we should expect this to pick up in third quarter, fourth quarter, as we did last year if you look at the sequential variations from quarter to quarter. Okay?

  • Jin Yoon - Analyst

  • Thank you.

  • Herman Yu - CFO

  • Thank you.

  • Operator

  • Tian Hou, TH Capital.

  • Tian Hou - Analyst

  • Morning Herman, Gaofei and Charles. A couple of questions. One is related to your operating margin. This quarter the operating margin turned into positive. Compared with last quarter same time, it was a significant margin improvement. So I wonder going forward, what's the outlook for the operating margins? That's the first question.

  • The second question, I would like to know more about your TV Weibo interaction program. And I wonder how many big drama, TV drama shows and variety shows have you signed up in third quarter and the fourth quarter. That's just two questions.

  • And the third question is really related to the macro economy. And as China's macro economy is still really not that great, what's the potential impact to your key account revenue going forward? That's all my questions.

  • Herman Yu - CFO

  • So let me answer the first one and the third one and then Gaofei will answer the second one. With regards to our operating margin, Tian, I think you have a good point that we're seeing a pretty good expansion. We grew from 1% operating margin in Q1 into Q2 at 9%.

  • I think long-term-wise, you can look at Weibo as many Internet companies in China. Because we have the benefit of not having to pay for content, this is a UGC platform that we think we have significant room for expansion. I think in the near term what you can do is just look at our current cost structures in Q2 and expect it to have the regular secular trend increase as we did in past years, but I think long-term-wise we will have significant opportunities here because of the scalability of our model, the fact that we don't have to pay for content.

  • Secondly, with regards to the macro economy impacting us, we gave our guidance in Q3. We so far have not seen too much impact to our KA business. Part of it is because our KA is driven by several factors especially, our new product launches such as Weibo plus TV, such as Big Day which is basically using brand advertising to give a burst of impact to new product launches. But we realize the GDP is getting impacted and we'll monitor that very closely. With that, I'll turn over to our CEO to talk about Weibo Plus TV.

  • Gaofei Wang - CEO

  • (Interpreted). Yes, with regards to the number of variety shows, as we mentioned in the call that it's over 100. And you can see through our partnership with television over the last year that Weibo has now become either the exclusive partner or the preferred partner with the key television stations. We actually see that investments from the television, they're gaining more and more market shares and so forth. So we expect that their investments in this area will continue and that as a result the revenue coming from this area should continue to grow too.

  • Tian Hou - Analyst

  • Very helpful, thank you.

  • Operator

  • Thomas Chong, Citigroup.

  • Thomas Chong - Analyst

  • Hi. Good morning. Thanks for taking my question. I have two questions. Can you provide us some color about the geographical split of your users in tier-one, tier-two and lower-tier cities?

  • And my second question is relating to the revenue split. Any color on the geographical distribution in terms of your revenue? Thanks.

  • Herman Yu - CFO

  • I'm sorry, Thomas. Can you repeat that one more time?

  • Thomas Chong - Analyst

  • Hi Herman. My question is about the MAU by geographies. What's the percentage coming from tier one and two, as well as lower tier cities?

  • And the second question is about the revenue from tier one, tier two as well as lower tier cities. Thanks.

  • Gaofei Wang - CEO

  • (Interpreted). With regards to our MAU, our user base, about 50% to 60% of our user base comes from tier one, tier two, and the remaining is in the lower-tier cities.

  • And with regards to revenue composition, we actually don't analyze this by city because there's many different ways to look at it. You look at where the advertiser is based; you look at where the user is based and so forth. So, as you know, as part of our advertising, some of it is branding, some of it is performance-based and so forth, we don't think that segregating this by geographic region is too meaningful for us. Thanks.

  • For most of our advertisers they are looking at user profile, user interest, and they're not looking at geographic targeting. For smaller ad customers there's also -- they might be more interested in the geographic location, but as a percentage of total revenues this is pretty small.

  • Herman Yu - CFO

  • Thank you Thomas.

  • Thomas Chong - Analyst

  • Thanks.

  • Operator

  • Wendy Huang, Macquarie.

  • Wendy Huang - Analyst

  • Thank you. First, I want to clarify the rationale behind some numbers. So for the second quarter it seems that your portal advertising revenue increased by $17m while Weibo advertising revenue increased by only $9m. But I thought the Weibo's momentum should be stronger than the portal. So maybe can you elaborate why the portal advertisement seems such more resilient in second quarter?

  • And also can you provide some breakdown of your Q3 guidance? So how should we expect the sequential dollar increase to be spread out among the portal and also the Weibo?

  • And the second question is you, previously you made an investment in the Kuaidi and the Didi. So going forward, will you actually consider more investments in the O2O type of companies? Thank you.

  • Herman Yu - CFO

  • Hi Wendy, this is Herman. Let me elaborate on the two questions. I think with regards to your question on how Weibo revenue compares with the portal revenue, since this is a conference call for Weibo, maybe we can leave that question to the next conference call where Bonnie, our CFO of Sina, will be able to answer.

  • With regards to our investment in Kuaidi, yes, as an overall investment strategy we're looking at areas where we could take investment and at the same time have the opportunity to form a strategic partnership with these companies so that we can add more feature sets and value to our users. And we will continue to look at companies like this where it can help Weibo's app to bring in more frequency to help us increase our Weibo Pay users and so forth.

  • Charles Chao - Chairman

  • Okay, Wendy. This is Charles. Regarding your first question, I think you're talking about the sequential increase in the advertising revenues for portal compared to the increase for Weibo. Actually if we look at the components of the advertising revenues, actually for portal we generate more revenues, much, much more. I would say majority from KA accounts, meaning the major brand advertisers. But for Weibo actually we generate more from the SMEs and from Alibaba.

  • So actually the KA market usually is much more affected by the seasonality. If we look at the historical numbers we had in the past, between Q1 and Q2 there was always like anywhere between 25% to 35% increase sequentially in advertising revenue for the portal whereas such fluctuation for Weibo is much smaller. So this is always the case in terms of our seasonality pattern. There's nothing special about it. Thanks.

  • Wendy Huang - Analyst

  • Thank you.

  • Operator

  • Chi Tsang, HSBC.

  • Chi Tsang - Analyst

  • Thanks very much. I just had a question about social commerce again. Can you give us an update on, in terms of your wallet users you said were about, I think it's about 46m, which is kind of flat Q-on-Q. And I'm wondering if you can give us a number in terms of GMV transacted on Weibo, what type of things people are actually buying, the ticket size, and any sort of trends or characteristics would be very helpful. Thank you very much.

  • Gaofei Wang - CEO

  • (Interpreted). With regards to our GMV, we can see that our Weibo users, our Weibo Pay users, it's about 46m. The reason you don't see too much increase from Q1 is because in the first quarter we had the Red Envelope campaign that was around Chinese New Year and that was a major driver for this. And with regards to the absolute GMV for the second quarter, on a year-over-year basis we see an increase around tenfold and on a sequential basis it's about 70% growth. We don't disclose the actual GMV because that is not a significant amount, but as we grow this number bigger in the future we will consider doing that.

  • With regards to how our users are using Weibo Pay, there's mainly two types. One is to transact ecommerce transactions and the other one is to actually make payments for services, such as the voting of the Korean celebrities that I talked about earlier in the script.

  • Chi Tsang - Analyst

  • Thank you.

  • Herman Yu - CFO

  • Thank you.

  • Operator

  • Alicia Yap, Barclays.

  • Alicia Yap - Analyst

  • Hi. Good morning Gaofei and Herman, and Charles. Thanks for taking my questions. I do have a question related to the local commerce service opportunity. So with Weibo having 93m DAU, it is a very powerful platform for connecting the users to their local, daily local services. So can management share with us the plans and the strategies that you are working on with Alibaba and maybe [co-pay] and other strategic partners to capture this opportunity.

  • Gaofei Wang - CEO

  • (Interpreted). With regards to local O2O service offerings, we've started pushing a product what we call Weibo Radar, which leverages location-based services using the geographic region of the user to push. We see that the O2O in China, a lot of the companies are burning a significant amount of cash, so our model would not be similar to theirs where we are doing a gateway. We have chosen to actually prepare to be partnering with people that can provide better services so that we can promote their services and our partners includes people like Alipay and also Didi Taxi and so forth so that we will become the promotional arms for their services.

  • Alicia Yap - Analyst

  • Thank you Herman. So second question, regarding to the Alibaba revenue as well, I guess we are approaching the end of the initial agreements for the three years commitment, so is there any update in terms of the upcoming negotiation or any further partnership and agreements on that front? Thank you.

  • Gaofei Wang - CEO

  • (Interpreted). Our original business cooperation agreement with Alibaba ends at the end of the year. Basically there are three types of agreement. The three type of advertising that we're doing with them is one relates to the overall spending and media spend, the second relates to our alliance with them on the vertical side, as we mentioned previously on movies, music and travel and so forth, and thirdly has to do with Alimama.

  • Yes, so we see the further negotiation process with Alibaba in two separate ways. One is looking at how we're going to continue to strategically align with them on the media spend and on the verticals side. We think that that should be stable from where we are today. And with regards to Alimama, we will continue to monitor this and see if we can actually be able to monetize more from the way Alibaba does or versus ourselves if we were to offer this to other customers. So we will have to make a judgment on this as we go forward and probably will not have a massive contract with this area.

  • Alicia Yap - Analyst

  • Great. Thank you. Very helpful.

  • Herman Yu - CFO

  • Okay.

  • Operator

  • Natalie Wu, CICC.

  • Natalie Wu - Analyst

  • Hi. Good morning. Thank you for taking my questions. I just have two questions here. The first one is a simple follow-up question on socialized ecommerce. You just mentioned that there is a revenue-sharing scheme behind that. Just wondering what is the roughly revenue-sharing ratio.

  • And the second question is, notice that your active user growth has a very nice pace. Can you give us some color on the active user churn rate or retention rate? Thank you.

  • Herman Yu - CFO

  • I'm sorry, can you repeat the first question? What do you mean by revenue share for ecommerce?

  • Natalie Wu - Analyst

  • I thought you just mentioned that for your socialized ecommerce, Weibo ecommerce, you have some revenue-sharing scheme behind -- between you and Alibaba. Is that true?

  • Gaofei Wang - CEO

  • (Interpreted). So for the two questions, the first one with regards to leveraging socialites to push ecommerce, the way we arrange it with Alibaba is that Alibaba will pay us this as a net advertising fee to us.

  • The second one is because the Weibo Pay, once they've activated and they're linked to Alipay we don't normally expect that the users to actually deactivate this. It's a very small percentage of the total so this is not something that we actually emphasize.

  • Natalie Wu - Analyst

  • Thank you Herman and Gaofei. Actually my second question is regarding on the retention rate for your Weibo total active user, not the payment user.

  • Herman Yu - CFO

  • Yes, I see, Natalie. This is not something that we analyze -- this is not something that we disclose, the retention rate of this, because there's many different angles to look at this.

  • Natalie Wu - Analyst

  • Okay. Thank you Herman.

  • Herman Yu - CFO

  • Okay. Thank you.

  • Operator

  • That concludes the question and answer session. I'd like to turn the conference back to Vanessa Chen for final remarks.

  • Vanessa Chen - IR

  • Okay, that concludes today's conference call. Thank you all for joining us.

  • Operator

  • And thank you. The conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines.

  • Editor

  • 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.