Weibo Corp (WB) 2016 Q3 法說會逐字稿

Ladies and gentleman thank you for standing by and welcome to the Weibo reports Third Quarter 2016 Financial Results. (Operator instructions).

I'd now like to hand the conference over to your first speaker today, Ms. Lydia Yu. Thank you. Please go ahead.

Thank you operator. Welcome to Weibo's third 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 broadcasted on the internet and is available through Weibo's IR website.

Before the management's 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 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, 2015, filed with the SEC on April 28, 2016, 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 or 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.

(interpreted) Thank you. Hello everyone and welcome to Weibo's earnings call. On today's call, I will share with you our key developments and product user and monetization as well as the progress that we have made on our key initiatives this year.

Let me first discuss third quarter financial results. We continue to see strong revenue and user growth. Our total revenue in the third quarter reached $176.9 million, up 42% year-over-year.

Advertising and marketing revenue reached $156.7 million, up 48% year-over-year with key accounts and SME ad revenue growing at 101% year-over-year. 66% of our ad revenue was from mobile. Non-GAAP net income in the third quarter was $54.6 million, up 147% year-over-year.

On the user front, Weibo's monthly active users reached 297 million in September, up 34% year-over-year. Daily active users reached 132 million, up 32% year-over-year. In September, 89% of Weibo's MAUs were mobile.

This quarter with the occurrence of the summer Olympics and other events, we saw strong user growth and user engagement. The Olympics brought together over 52 million users on Weibo generating close to 579 million topic related interactions.

At the same time, as a result of the improvements to Weibo's ad effectiveness and our strong sales force, we noted in a meaningful increase in the number of advertisers as well as average revenue for advertiser, aka ARPA.

This includes our key account advertisers which grew 46% year-over-year. KA revenues grew 119% year-over-year this quarter which is higher than SME's growth. With Weibo's monetization model taking shape, with a reinforcing cycle of user growth, user engagement and monetization this will help us secure an enviable leading position in the mobile internet world.

In discussing our operational update for third quarter, I will cover Weibo's progress and [average] user content and customer. First on user growth, we continue to leverage our broad channel network for user acquisition and we are increasing our competitive advantage in user acquisition.

Last quarter, we discussed the strategic corporation that we have formed with domestic smartphone manufacturers to expand our user baser.

In the third quarter, as Weibo (inaudible) system for content creation further takes shape -- and our multi-media features become even richer, more and more media companies and news sources are using Weibo as a first destination to distribute their content. This phenomenon is allowing more exclusive content on Weibo.

For example, during the Olympics a total of 295 Chinese Olympians posted on Weibo, generating 58 million user interactions. This network of Chinese Olympians represent approximately 70% of the Chinese athletes who participated in the 2016 Olympics and over 90% of the Chinese athletes who won an Olympic medal.

Having exclusive content like these gives us an edge in acquiring new users more effectively. With content creation shifting to KOL social video and mobile, we are in the unique position to attract premium exclusive content which is extremely important especially to continuously acquire and reactivate users in a cost-efficient manner.

Next on the product front, as I previously discussed, our focus in 2016 is to expand and optimize our information feed products. First, on Weibo's relationship based information feed, i.e. our home page timeline, we worked on improving the user experience and feed consumption, increasing user engagement as well time spent by finetuning the algorithm for feed recommendation.

We have started to employ machine learning to increase user engagement on our relationship based information feed. Our test results from selected geographies in the third quarter show user interaction increasing double digits.

In addition, a priority for us in 2016 is to introduce and optimize our Hot Weibo information feed. This is important for us as we leverage our skill advantage and content creation to cut into (inaudible) market.

In our third quarter, we rolled out an upgrade of Hot Weibo information feed which through interest based matching algorithms, continuous breaking news [mining], we have improved the quality of content [per user].

Compared to Q2, both the numbers of users who refreshed and the number of Hot Weibo information feeds that were refreshed more than doubled sequentially. Significantly increasing our ad inventory, we will continue to enhance and improve the algorithms for Hot Weibo information feed to improve user experience and bolster discovery and consumption of content.

Lastly, on the multi-media front, as mentioned on our last call, video is a top priority for us this year. We will focus on the creation and consumption of short videos. In the past two quarters, we enhanced the user experience on video consumption through product improvements.

For example, we introduced auto play and optimized suggestive feed to suggestive video feed as well as improve Weibo's live streaming experience for both broadcasting and fan engagement. In the third quarter, daily video views and live streaming sessions broadcasted maintained strong growth rates.

Daily video views in September increased 740% year-over-year and live streaming which we launched this year saw [our] sessions broadcasted in the third quarter increase 124% sequentially which meaningfully improved time spent per user and Weibo's monetization potential.

Going forward, our product development will focus on improving the content creation experience for short videos and live streaming. Previously, users created short videos and live videos on third party apps and shared them through Weibo.

We are now working on making it more convenient for users to create short videos and perform live streaming directly from Weibo.

In the third quarter, we have been focused on increasing the adoption of live streaming as well as product enhancements. The number of key opinion leaders and media companies who have live streamed on Weibo in the third quarter increased by 217% and 385% respectively from the prior quarter.

We will continue to focus on increasing the adoption of live streaming by top KOLs and media companies on Weibo. Live streaming is one of the most important multi-media formats on Weibo.

With our inherent nature of being mobile, social and viral, Weibo has a natural advantage in offering live streaming which will help us acquire new users, increase user time spent and improve our monetization opportunities.

The number of KOLs and media accounts who live stream from Weibo will be an important metric for us as having a large network of influential accounts live streaming from Weibo will further strengthen our advantages as the leading social media platform.

Turning to content, previously my discussion revolved around Weibo's content verticalization effort. This quarter, let me discuss our competitive strength in news and celebrity verticals which are the most popular verticals on the internet in China consumed by nearly every internet user.

News verticals have also historically given Weibo strength. As our user base expands and social media sharing becomes multi-media centric, our ability to enable media companies and celebrities to officially distribute content is becoming more apparent.

In the past, media companies and celebrities can choose from many websites. Some do it exclusively, while others choose multiple partners to distribute their proprietary content.

Now as media and celebrities hope to optimize their content reach and grow their own audience, Weibo is becoming their platform of choice for first releases.

For example, during the Olympics, CCTV-5 shared proprietary Olympic short videos on Weibo on a real-time basis thereby increasing its fan base on Weibo and traffic on its Weibo app. A video showing Chinese Olympian Qin Kai proposing to his girlfriend He Zi following his competition reached 120 million views.

Another example is the humorous video interview with Olympian Fu Yuanhui which received over 80 million video views. As part of the strategic cooperation of Weibo, CCTV gained 1.23 million new fans on Weibo and significant media exposure.

CCTV-5's mobile app also benefited from video views redirected from Weibo and experienced significant traffic growth during the Olympics. In the future, we plan to explore monetization opportunities with media companies with content IP rates.

In addition, many celebrities are choosing to make public announcements directly and exclusively on Weibo whether they're through other media platforms to maximize their reach and influence.

Using Chinese celebrity couple Wallace Huo and Ruby Lin as an example, feeds related to the Wallace Huo and Ruby Lin wedding topic were viewed 7.6 billion times and generated more than 1.62 million topic related interactions.

We will continue to work on enabling media companies and celebrities to most efficiently disseminate proprietary content and further develop Weibo's content ecosystem with a reinforcing loop of content, influence and monetization for our content partners.

Lastly turning to monetization, we achieved strong ad revenue growth in the third quarter with more and more key accounts gradually realizing the value of social marketing on Weibo. Revenue from our KA business in the third quarter grew 119% year-over-year.

This can be attributed to our existing advertisers increasing their ad spending on Weibo as well as a growing number of new customers purchasing Weibo ads. With our ad product offerings expanding, we are seeing the ARPA of both our existing and newer customers growing double digits.

The increasing mix of KA ads on Weibo is improving the quality of our ads thereby improving user experience and our brand image as well as giving us a good foundation to further build out our social marketing solutions.

Turning to our SME business, our [app channel] ads and organic ads have been the drivers for SME revenue growth. Our SME revenue which includes self-service advertising grew 90% year-over-year in the third quarter and ARPA grew 25% year-over-year.

In the second half of this year, we started to put in place mechanisms to improve the quality of our ads which makes algorithmic adjustments based on user's negative feedback selection and user data analysis to ensure healthy long term growth of our ad business.

So far, we have seen an increase in ad engagement of 38%. As our client base expands, we will work with our advertisers to improve ad quality and with users to improve the user negative feedback mechanism, the combination of which will help us improve such objectives.

The value of Weibo's video ads is gradually being recognized by KA and SME advertisers. In the third quarter, the number of KA customers who purchased video ads reached 154, up 90% quarter-over-quarter and the number of SME customers who purchased video ads reached 3907, up 13% quarter-over-quarter. Video ad revenue makes up over 10% of our total ad revenue in Q3.

Social video ads can draw huge viewership and user engagement and thus help us attract TV and online video website advertisers. For example, in September a KA customer, Shanghai Volkswagen, purchased video ads reaching [80 million] users and generated [7.9 million] video views.

Video ads can also help us attract more ad budget from SME advertisers, such as those in the ecommerce industry. Due to their strong engaging nature, video ads are becoming a critical component of SME social marketing. For example, an SME customer with a skincare brand purchased video ads in September and reached 40.9 million users, generating 32.4 million video views.

Since early 2016, we have worked on developing a combined brand and performance ad solution for advertisers in the auto industry, and expanded our efforts to educate the market and potential customers about our new ad product. We have focused on improving the accuracy of our ad targeting by leveraging our social interest graph recommendation engine, with user tagging data. Users tagged with an interest in auto have reached 70 million as of September, representing an increase of 117% since our efforts began early this year.

I have also made good progress in developing new and innovative ad formats. Last quarter, I discussed Weibo's [LEAP] ad. This quarter, we introduced a Weibo showcase designed specifically for auto industry. Auto advertisers can have a showcase car appear at the bottom of these, when the automaker's brand or make is mentioned. When clicked, the showcase car will redirect the user to an information page on the car model and allow an option to fill out a lead generation form.

We also plan to equip (inaudible) with the ability to private message interested potential customers, subsequent to seeing their brand campaign. This will give the business an opportunity to retarget potential customers who have seen their ads increase their sales leads. We are seeing initial success from our auto ad solutions with auto ad revenue growth rate up triple digits from last year. In the future, we hope to replicate our ad solution for other industries.

Weibo's monetization ecosystem has been developing rapidly over the last few quarters. We are seeing a strong demand for our ads, from brand ads to performance-based ads, to organic ads. Our ad offering covers a wide range, from promoter ads with user targeting ability to brand ads that have broad audience reach.

Like (inaudible) opening ads, promoter trends and (inaudible) ads, all of which are quite unique to Weibo. We are seeing advertisers shifting their ad budget to mobile, social and video ads, which puts Weibo in a sweet spot. We hope to seize these opportunities and further develop Weibo's monetization model.

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

Thank you, Gaofei. Good morning everyone, and good evening to those of you in the web. Welcome to Weibo's third quarter 2016 earnings call.

Let me go through our top-level numbers. For the third quarter, Weibo's total revenue reached $176.9 million, up 42% year-over-year, or 49% on a constant currency basis, exceeding the Company's guidance of between $168 million and $173 million. Non-GAAP net income attributed to Weibo reached $54.6 million, up 147% year-over-year. Non-GAAP diluted EPS was $0.24 compared to $0.10 a year ago.

Adjusted EBITDA reached $57.7 million, up 117% year-over-year. Our adjusted EBITDA margin reached 33% this quarter, compared to 21% last year.

Let me give you more color on our revenues. Advertising and marketing revenue for the third quarter reached $156.7 million, up 48% year-over-year or 56% on a constant currency basis. Total advertisers reached 753,000, up 52% year-over-year.

We are pleased to see that more and advertisers from self-service to SMEs through the channels, to key accounts, continue to adopt Weibo social marketing. ARPA, or average revenue per advertiser, for SME and KA customers are also seeing healthy trends. Mobile ad revenue made up 66% of total ad revenue and was up 53%, or 60% on a constant currency basis.

Turning to SMEs and KAs. Revenue from SMEs and key accounts together was $147.4 million, up 101% or 112% on a constant currency basis. With ad budgets shifting from mobile, social and video, we are seeing our SME and KA revenue benefiting from this cycle of trend. From 50% year-over-year in the first half of last year, to 82% in the second half, to over 100% in each of the last three quarters on a constant currency basis. The strength of Weibo's advertising was led by our SME business, which grew 90% year-over-year or 100% on a constant currency basis.

On the channel side, we are seeing healthy revenue trends, both in terms of customer growth and ARPA. Key sectors contributing to the strong revenue growth, include app download, ecommerce and O2O.

We are also seeing more budget coming from P2P finance. As Gaofei mentioned, some of our SME customers are trying Weibo brand advertising for the first time, particularly video ads, beyond their traditional purchase of performance-based ads.

On the self-service side, we're also beginning to see strong revenue growth. As Weibo [brands] its customer base, we have put in place a system to screen and continuously improve the user experience of Weibo ads through algorithmic adjustment and big data analysis. For example, we add a negative feedback system in feeds with ads to allow users to opt out of the kind of ads they choose not to see and select their reasons for doing so.

By developing a system that screens and continuously improves ad quality, we can improve user experience while growing our ad business. Weibo's ad quality screening system has allowed us to reduce the total number of advertisers, primarily weeding out advertisers with low-quality ads from the prior quarter, while continuing our robust revenue growth trend.

Moving on to KAs. Our key account business is becoming another pillar of Weibo's growth engine. In the third quarter, our KA ad revenue reached $63 million, up 130% year-over-year compared to 84% in the second quarter and 67% in the first quarter on a constant currency basis.

More and more key account customers are adopting social marketing as they learn to leverage key opinion leaders in their marketing to increase campaign virality. Our introduction of social video ads and brand ads with lead generation features, as Gaofei discussed, also help, and these ad solutions are favored by our top KA customer segments, including fast-moving consumer goods, IT and automobile sectors. Revenue from Alibaba in the third quarter was $9.3 million compared to $32.5 million a year ago.

Moving on to value-added services. Weibo's VAS revenue reached $20.2 million in the third quarter, up 7% year-over-year or 13% on a constant currency basis. Membership fees, our largest VAS category, was up 96% on a constant currency basis. Data licensing up 10% and game services down 26%. Membership fees are growing robustly, primarily due to the increase in paying user while game services revenue decline impacted by PC games.

As a social media platform, we expect the majority of our revenues to come from advertising and marketing services. Nevertheless, we see opportunities to leverage our large user base, Weibo Pay and big data to provide more value-added services to our users. We will update you on our progress in this area as new and VAS monetization opportunities become more developed.

Turning to cost and expenses. Total non-GAAP costs and expenses were $122.4 million, up 19% year-over-year. Cost of sales was $43.7 million, up 19% year-over-year, while operating expenses totaled $78.7 million, also up 19% year-over-year. The increase in non-GAAP costs and expenses was primarily due to an increase in marketing expenses, value-added taxes and bad debt expenses, with the latter to impact at the higher revenues.

Non-GAAP net income attributed to Weibo was $54.6 million, up 147% year-over-year. We are seeing platform like operating leverage taking shape. Non-GAAP net margin in the third quarter reached 31% compared to 18% last year and 24% last quarter.

Turning to balance sheet and cash flow items. As of September 30, 2016 Weibo's cash, cash equivalent and short-term investments totaled $479.4 million. Cash provided by operating activities for the third quarter was $89.8 million. Capital expenditure totaled $1.3 million and depreciation and amortization expenses were $3.5 million.

In November, we made an additional investment of $120 million in Yixia Technology, the parent of Yi Zhibo, Miaopai and Xiaokaxiu apps, which enables live streaming, short videos and video dubbing. Our shares in the market, per our ADR depositary firm, approximately 22% of Weibo's shares outstanding were represented by American depositary shares as at the end of October, which factors in the effect from the recent Weibo share dividend distribution by our parent, Sina.

Turning to Weibo's fourth quarter 2016 guidance, we estimate our fourth quarter revenue to be between $205 million and $210 million, which is not taking into consideration foreign exchange rate fluctuations.

Before I turn the call over to our operator, let me quickly recap our highlights for the quarter. We continue to see momentum in Weibo's traffic with both MAUs and DAUs growing over 30% year-over-year. Our strong traffic growth is helped by our relentless efforts to track premium user-generated content and improve the user experience for content creation and content consumption.

Weibo's content ecosystem is experiencing a network effect with more and more media companies, celebrities and other influencers using Weibo to share their stories. Weibo has a natural advantage in the tracking of influencers due to our viral nature. As more influencers come to Weibo, they make Weibo more viral, which in turn makes social marketing on Weibo more effective, which in turn gives influencers more monetization opportunities. This represents the reinforcing nature of Weibo's content ecosystem.

On the monetization side, our KA and SME revenue has grown over 100% in the last three quarters on a constant currency basis. Weibo's monetization is also taking shape as we benefit from our strong brand breadth of product offering and ad budget shifting to mobile, social and video. Our team's strong execution, coupled with the platform nature of Weibo, is translating into strong operating leverage, and we believe there is more room for our margin to expand, especially when we look into the longer-term horizon.

With that, let's now turn to Q&A. Operator, we are ready for questions. Thanks.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). The first question comes from the line of Alicia Yap from Citigroup. Please go ahead.

Hi, good morning, Gaofei and Herman. Thanks for taking my questions and congrats on another strong set of results. A couple of quick questions.

Number 1 is regarding your recent decision to eliminate the 140-character limit on the user post, and expand to the 2000 characters. How is the user reactions and feedback so far, and have you seen more posting and more free engagement from users after the change?

And then second is also related to your recent new monetization initiative announced at the V-Influence Summit last month. Specifically, I wanted to understand a number of payment initiatives that you plan to launch, such as charging a fee for viewers to view the broadcast and all that.

When will these new initiative features to be fully released to user and then when that is released, what's your expectations of the rem? Do you worry about user offended by that? Thank you.

(Spoken in foreign language).

Good morning, Alicia. Let me translate Gaofei -- what Gaofei just said. So, at the beginning of the year, we opened up the Weibo to allow our people who have Weibo membership to send more than 140 characters and these people are those that actually have been verified with their ID.

And so, when you look at people who have membership, which is a small group of the total population who actually send Weibo, we see them sending over 250 words, or 250 characters. This subset of people, we see them significantly increase the amount of Weibo that they send that's over 250 words. However, when you look at the total amount of Weibo being created, this is a small subset of the total.

Okay, and for item number 2, when you talk new monetization, yes, we started a subscription model for some of our content, but as a total of the revenue, it's going to be immaterial now.

Okay. All right, thank you.

The next question comes from the line of Claire Cao from Morgan Stanley. Please go ahead.

Hi management, thanks for taking my questions. I have three questions. So, the first one is related to the progress of monetization plans of our live broadcasting business. When do we plan to start take a cut for the gross billing of live broadcasting platforms that is getting traffic from us?

Then the second question is that we noticed that the gross margin continued to see substantial improvement sequentially in this quarter, so I'm wondering what's the key driver behind that?

And also, if we compare to the global leaders on social platforms, our current level of margin profile is already quite similar to that of Facebook when it was at a similar revenue scale. So, I'm thinking what's driving the strong margin improvement, and how should we think about further room for margin expansion in the future?

And my third question is a housekeeping one. So, can management help us to break down the ad revenue by different ad formats and also for our promoter feed ads, what's the CPM and ad load in the quarter? Thanks.

Okay. Good morning, Claire. Let me try to cover your questions. If I miss something, maybe (inaudible).

The first question is on live broadcasting, so I think I will answer this in two ways. Number 1 is we currently do a live broadcasting, the majority of it through a company that we invested, which is Yixia, Yi Technology. The Yi app actually does most of the broadcasting from influencers and we allow all the broadcasters on Yi to also share to Weibo.

So most of the GMV that's created by -- it's created by Yixia and as a platform that helps them grow with traffic support and so forth. We are looking to do a cut into this business sometime soon, in the near future. But as a whole, our strategy for live broadcasting is much more than just allowing influencers to have the kind of show-style type of models that you see in other live broadcasting or live streaming apps.

We're much more than just [2C], we're also focusing on [2B], that Gaofei mentioned, such as working with media companies to have the live broadcasts you see from the Olympics, from the presidential debates and so forth. We're focusing on for example working with KOLs such as celebrities to also do live streaming, and we're seeing a lot of this beyond just kind of the [tipping] model. For example, a lot of the KOLs are getting sponsorships, the kind of model that you actually see in the US with, for example, YouTube.

So as a platform, I think it's going to add just kind of a show model as a subset of our total live broadcasting. I think the opportunity there is much bigger than just tipping. It's going to probably be getting closer and closer to what we're seeing in the Western social business models.

With regards to gross margin, I think it comes -- several factors that's helping us -- our gross margin grow. I think number 1 is the fact that our revenues are growing pretty fast. And then with regards to the cost of revenues, we talked about last quarter where we're keeping bandwidth growth at a pretty moderate rate, slower than revenue.

And the reason comes from two folds. Number 1 is that the technological improvement that we made this year so that we can send less data at the same time to have as good quality with the video, even though the video traffic has been growing significantly.

And secondly, we've also strategically outsourced some of the bandwidth that we have. Last year it was all mainly using internal infrastructure; this year we're working with two other outside vendors which help us address two things. Number 1, [it's pulled] the incremental unit cost down and secondly, as a media nature platform when there's a spike in traffic such as we saw in Olympics, we can immediately outsource and be able to smoothen out that type of traffic. So, that's helped to keep our bandwidth in line.

And then thirdly, when we look at game, last year game makes up a significant part of our VAS and games margin is usually smaller. So, with game being a small push on the total revenue, obviously that helped increasing the gross margin too.

When you look at the net margins, you mentioned the fact that our net margins, we're seeing pretty good growth. Last year, our non-GAAP net margin was 14%. You can see first quarter this year we (inaudible) and then the last two quarters we've been increasing to 24%, now over 30%.

And I think we have a long way to go. I mean, if you look at our revenue growth, when you look at for example our monetization model where we're using mostly user-gen content, we're having other people supply our content and so forth. We're able to control our cost with the bandwidth infrastructure. And we're being pretty efficient. Because of the great content we have, we're pretty efficient in terms of in terms of acquiring new users. So, some of the platform features that you're seeing in Facebook and other kind of internet platforms, Weibo has as a result, as our revenue scale, we should be like other platforms and be able to scale our business model too.

The last question you have was with regards to ad format. So, our ad format, we have three types of inventory, basically. We have the promoted feeds which make up 52% this quarter; compared to last year it was about 51%.

You can see that while promoter fee as -- in terms of absolute dollars, growing very healthily, as a percentage of revenue, it's still maintained there because we also have other advertising that's really also pulling our growth. About a third of our advertising relates to brand and we've been doing very innovative stuff with brand. For example, our app opening. Whenever you open a Weibo app you can see that. And because of our app, covering over 100 million DAU, as a result it becomes very powerful in China.

Then with us allowing that to do video ads starting in the second quarter, so you're seeing that you're getting a lot of demand from the market. In addition, we do a lot of events that allows us to have a key word or hashtag, so that's kind of our third type of advertising. That is driving a lot of demand, especially when we're working with TV and so forth. So, we are actually seeing Weibo having a very broad portfolio of products that's allowing us to support revenue growth, not just promoter fees.

And with that, you asked about ad loads and CPM, I think because this represents half of our revenue, I think that this is not really -- we don't look at just one such metric in trying to determine Weibo's overall business. But with regards to ad loads, for the quarter it averaged within -- over 4%. With regards to our CPM we haven't -- not much change from last quarter. I hope that answers your question.

Thanks. That's very helpful.

Next.

The next question comes from the line of Evan Zhou from Credit Suisse. Please go ahead.

Hi, morning, Gaofei, Herman, thanks for taking my questions. Two questions. First one is regarding the product feature that you just mentioned that (inaudible). I think specifically to -- Gaofei just mentioned that in -- specific to video and live streaming, that you mentioned that you plan to try to enhance the production features within the Weibo app, that users don't have to just use the third party app to produce short video and the live streaming.

I just want to confirm that -- does that mean that users don't have to rely on other features like Miaopai and Yi Zhibo to do these, like let's say Weibo will be having our own in-house features to -- for users to produce short video and live streaming? Or are we still kind of referring to the feature of (inaudible) Miaopai? Also, kind of any thoughts regarding the future plans for bringing out more third party providers in short video and particularly to live streaming as well? That's my first question.

The second question is actually regarding short video. I think we've been talking about it for the past two or three quarters. I was wondering if towards the year-end, if you look at the budget allocation, what kind of outlook you would like to -- give some more color about how short video can play into both the users timespan increase and also revenue contribution will affect your CPM increase, in terms of the overall revenue picture? That would be helpful, if you can give some more color there. Thank you.

(interpreted) Over the last half a year we can see that consumption of short videos and live streaming have been growing very, very fast, and we've been focusing on how do we improve the consumption experience. So right now, when users want to share short videos, and also live stream, you would have go to a Miaopai site, and this is -- we wanted to simplify this process and improve the user sharing experience. So, we're working with Miaopai to move some of their key features in Miaopai app on Weibo, so that users can directly share from Weibo and at the same time be able to do the key features for editing.

When we look at our key opinion leaders, we look at when they do live streaming and also when they share short videos, the amount of content that they -- the frequency that they share is relatively low. We think there's a great opportunity to increase this. By increasing the ease of sharing this on Weibo, we think that we can increase the amount of content that they share.

With this model, we will still continue our strategic cooperation with Miaopai. The idea is that when we make the sharing from Weibo much easier, the content that is being shared from Weibo will also go to Miaopai and vice versa, so that we hope as overall the pool of content that both of us create would increase and be shared.

With regards to the question on time spent on video and ECPM revenue, I think with regards to time spent we're seeing Weibo's time spent being increased by video consumption. I think this is a big factor. I think this is an overall trend when you look at China's internet space. You're seeing people consuming video, especially on mobile, more and more. I think that we're getting part of that trend.

With regards to ECPM, as we mentioned last quarter we launched video ads in the second quarter. Our strategy this year is more to get the market to experience video ads, especially social ads, especially presenting our video ads on mobile. So, our strategy is to go out and give a deep discount so that more and more people can try, and we'll also limit the quantity that people can purchase. The whole idea is to get the market to adapt to some of this social video advertising, and then next year when we have a new year of budget, at that point we hope to further increase the overall spending.

So, the net effect is our price lists for video ads are much higher, but given the steep discount that we have, the income today is not that much different than the other products.

Okay, got it. Thank you.

In the interests of time, please ask one question per person. The next question comes from the line of Alex Yao from JPMorgan. Please go ahead.

Hi, good morning everyone. Thank for taking my question. Two quick ones. One is to follow up with Evan's questions on video. You guys mentioned that video ads represented roughly 10% of the total ads revenue this quarter. I'm just wondering is this 10% relatively under-monetized or over-monetized in relation to the time spent on those short video form created? Then given the trend, the ads budget is shifting towards video, how do you guys think about the longer-term revenue mix between video and other formats?

Secondly, regarding your investment in Yixia [Technology], does that mean you guys effectively outsource the product and the feature development to Yixia Technology in the areas including live broadcasting, short video creation and broadcasting stuff, or does it mean you guys are effectively outsourcing the content sourcing generation operation et cetera to Yixia Technology? If there's a future monetization on those content created on both platforms, how shall we think about the revenue share between you guys and Yixia Technology? Thank you.

Yes, hi Alex. So, I'll answer the first two. With regards to video monetization, as I mentioned earlier, [with this type of] video advertising a push in the second quarter, and in the third quarter we're seeing more and more customers adopt it, but I think this is just very early stages for China to accept social video advertising. I think that when you look out into next year, and you look out further, I think that video is going to be a much bigger part of our total advertising dollars. I think there's great potential just from the initial feedback of our customers, whether it's the key accounts or the SMEs.

With regards to our relationship with Yixia, I'll let Gaofei answer that.

(interpreted) So with regards to short video and live streaming, we think that this is a very, very big market opportunity. If we're seeing, for example, content creation moving toward that direction, in order to seize that opportunity we think that it's much faster when we're working with someone who specializes on the operation and getting the good content for short video and streaming versus Weibo trying to do it all alone.

With regards to the revenue, with regard to the short videos on Weibo, all the revenue related to short videos, we're getting 100%. With regards to streaming right now, basically all the live streaming Yixia is getting the (inaudible), we're looking to get a cut into that revenue stream in the near future.

Thank you. I'll now hand the call back to Ms. Lydia Yu for closing remarks.

That concludes the call for today. Thanks to everyone for joining.

Thank you ladies and gentlemen. That does conclude the conference for today. Thank you so much for your attendance. You may all 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.