Weibo Corp (WB) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Weibo reports fourth-quarter and fiscal year 2016 financial results conference call.

(Operator Instructions).

I must advise you that this conference is being recorded today, Thursday February 23, 2017.

I would now like to hand the conference over to your first speaker today, Ms. Lydia Yu, Investor Relations for Weibo.

Thank you, please go ahead.

Thank you, operator.

Welcome to Weibo's fourth-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 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 a forward-looking statement in this conference call and elsewhere.

Further information regarding this and other risks is included in Weibo's annual report on 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 financials 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 and 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 line 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, hello, everyone, and welcome to Weibo's earnings call.

On today's call, I will share with you key developments in Weibo's products, user growth and monetization, review the progress that we have made in 2016 and share with you our plan for 2017.

Let me first discuss fourth-quarter financial results.

We continue to see strong revenue and user growth in the fourth quarter of 2016.

Our total revenue reached $212.7 million, up 43% year-over-year.

Advertising and marketing revenue reached $187.9 million, up 45% year-over-year, with 68% of our ad revenue coming from mobile.

Non-GAAP net income was $77 million, up 134% year-over-year.

Weibo's total revenue for fiscal year 2016 reached $655.8 million, up 37% year-over-year.

Advertising and marketing revenue reached $571 million, up 42% year-over-year.

SME and KA advertising revenue reached $513 million, up 98% year-over-year.

Non-GAAP net income reached $183.5 million, up 167% year-over-year.

Weibo's robust revenue growth and operational efficiency in 2016 are derived from the following three areas.

First, continuous user growth and increase in user engagement have made Weibo an essential outlet of mobile marketing in China.

Second, with our monetization taking shape, we offer a full spectrum of advertising and marketing solutions, such as brand ads and performance [ads] tailored to different customer segments, from individuals, small- and medium-sized enterprises to key accounts.

Lastly, Weibo's business model as a social platform is starting to take shape in 2016, effectively enhancing operational efficiency and monetization.

On the user front, Weibo's monthly active users reached 313 million in December, up 33% year-over-year.

Average daily active users in December reached 139 million, up 30% year-over-year.

In December, 90% of Weibo's MAUs were mobile.

In 2016, our MAUs increased by 77 million and DAUs increased by 33 million, representing a much large user base increase than in 2015.

We are becoming one of the most important social platforms in China, especially to discover information and to engage in large discussions.

Hundreds of millions of users use Weibo to discover news and engage in conversations on topics of their interest, while tens of millions of our users use our platform to share and express their views and opinions to the world.

In discussing our operational update for the fourth quarter, I will cover Weibo's progress in the following areas.

The ecosystem of Weibo's platform is developed around three core components: user, content and customers.

Our massive user base enables content creators to quickly build social assets and pursue their monetization aspirations.

This promotes high-quality content to be shared and distributed on Weibo, attracting users, sparking conversations and, thereby, increasing our user base and user engagement.

Ultimately, the data that we gather from user engagements and the social networks formed by users acting as distribution channel help us establish more effective connections between our users and customers, increasing Weibo's marketing effectiveness.

As these two components come into play and reinforce one another, it will continually increase Weibo's size and value thus further strengthening our competitive advantage in the social media industry.

My operational update will elaborate in these three areas.

First, on a user product front, Weibo's core product, information feeds, has gone through a two-year structural change from a pure chronologically based timeline, to one based on social relationships and the other on topical interests.

Weibo's relationship-based information feed, i.e.

our original homepage timeline, is the main place for users to obtain information, engage in conversations, expressing their views and opinions.

Thus, we emphasize the timeliness of information and user engagement.

On the other hand, Weibo's interest-based information feeds are timelines for users to discover information and find topics of interest.

Thus, we emphasize content sharing and consumption.

In making the structural product shift, we have not only strengthened our differentiation in the social media sphere, we have also strengthened Weibo's leadership in content creation and user engagement.

Each day hundreds of millions of feeds are shared on Weibo, many of which are premium content from key opinion leaders, media outlets and celebrities.

In our original relationship-based model, users could only view feeds from followed accounts on a chronological basis.

This limited relationship-based information feed resulted in users being able to consume only a small portion of content in their timeline.

In Q4 2016, we rolled out the new relationship-based information feeds to all users and began testing the new algorithms for interest-based information feeds.

The new relationship-based timeline not only considers space and chronological order and maintains the follow model, it also prioritizes feeds based on overall user engagement, quality of content, timeliness of the information and user relationship.

Preliminary results on the rollout of our new relationship-based timeline in 2016 show an increase in user time spent and user engagement.

Separately in Q4, we saw Weibo's interest-based information feed also becoming a popular way for our users to consume content.

Breaking away from the follow model, interest-based timelines leverage Weibo's social interest graph to recommend content of interest to the users, simplifying content consumption and timelines and making it easier for users to form social relationships on Weibo.

The MAUs of our interest-based timeline is quickly approaching the MAUs of our relationship-based timeline, though [prior] still lags behind in usage frequency.

In 2017, we plan to optimize both our relationship-based and interest-based information feeds using machine learning, and strengthen Weibo's leadership in the areas of content creation, content consumption and user engagement.

Turning to content, short video is a top priority for us.

In Q4, we enhanced the user experience and video consumption, expanding both viewership and video views.

Daily video views in December increased 713% year-over-year.

In the second half of 2016, we focused on developing Weibo's video content ecosystem by working directly with creators and through our multi-channel networks, aka MCNs, as well as partnering with media and other organizations with IP rights and online video websites.

Top creators have been a focus for us this year and we have built a network alliance with over 200 video MCNs who serve as talent agencies for creators.

Top creators have been a key contributor of premium video content for Weibo and average daily video views of top creators have increased over 200% year-over-year.

In Q4 2016, we increased our efforts to partner with (background noise) and others with video IP rights to expand Weibo's video offering.

Through our cooperation, Weibo serves as a key channel for media firms and others with IP rights to distribute their premium video content to a larger audience, hence increasing their market influence.

For example, CCTV in Q4 shared a total of 6,920 short videos, up 22% quarter-over-quarter, and broadcasted 379 livestreaming sessions, up 40% quarter-over-quarter.

During the recent New Year's Eve, we partnered with five TV networks to broadcast our New Year's Eve gala live from Weibo, attracting over 20 million viewers and generating over 40 million engagements.

The audience on Weibo TV's live broadcast represents 10% of their total audience for their New Year's Eve gala.

We are seeing Weibo becoming an important means for TV networks to grow their audiences.

Simultaneously, we have also strengthened our partnerships with online video sites.

Serving as the traffic source videos from Youku can now be shared on Weibo and our users can also watch their short videos directly from Weibo.

Through our cooperation, videos shared to Weibo from Youku in December increased 19% from three months ago.

Lastly, on a UGC front, through enhancements of user experience for mobile video uploads, the number of users who have posted a video and the number of videos shared on Weibo has increased 43% and 37% respectively from the prior year.

In 2017 we will focus on enhancing the content creation experience for short videos and livestreaming, especially focusing on new and easier ways to share and consume video content on Weibo, anywhere at any time.

We have also made great strides in securing partnerships for content verticalization in 2016.

Through partnering with vertical MCNs, talent agencies who manage vertical KOLs, we've really diversified Weibo's content offerings beyond our historically popular areas such as entertainment and news.

In December, monthly views of our top vertical KOLs taken together increased 74% year-over-year, and 20 verticals now have monthly views exceeding 10 billion compared to 11 verticals a year ago, including food, relationships, sports and variety shows.

The broadening of Weibo's content breadth has helped us grow our user base and increase our impact to society.

Also, after two years of hard work, we have significantly improved the monetization opportunities for vertical KOLs belonging to the fashion, entertainment and finance verticals.

As examples, in 2016 a top fashion e-commerce KOL, [Jondai], generated hundreds of millions of GMV in RMB from our platforms through the sale of women's apparel.

A top KOL of the finance industry, [Ho Ning], generated RMB3.4 million in paid subscription on Weibo.

And a celebrity broadcaster, Alec Su received close to RMB7.7 million in virtual gift items from livestreaming on Weibo.

Through [Weibocast], a self-media marketplace, paid subscriptions Weibo Showcase and other business tools], we enable self-media to monetize on Weibo.

The strength of our core competency incentivizes KOLs from different verticals through sharing their premium content on Weibo, which further increases their monetization potential.

Such incentives ultimately create a reinforcing loop.

In 2017, we plan to work with more vertical KOLs to help them unlock their monetization potential on Weibo through multiple means, such as advertising, subscription and e-commerce, to further strengthen Weibo's ecosystem.

In 2017, our operational focus will be on continuing to improve Weibo's content ecosystem specifically by further enhancing the user experience and content consumption and increasing our investment in user products, allowing users to better benefit from the massive content available on Weibo.

We will also focus on improving our multimedia content, allowing users to better and more easily express themselves through, for example, livestreaming and short videos on Weibo.

In addition, we plan to make further investments in content verticalization to help more content creators build their own brand and commercial value.

These strategies will in building influence in many industry segments.

Lastly, turning to monetization, we achieved strong ad revenue growth in the fourth quarter.

Key account revenue continued to grow rapidly, increasing 133% year-over-year.

SME revenue increased 85% year-over-year.

There are three main revenue drivers.

First, top KA customers experienced impressive results from their Weibo social marketing, which led to an increase in ad customers as well as advertising agencies spending more ad dollars on Weibo.

In Q4, we stated to work with third-party marketing research firms, Nielsen and AdMaster, to measure the effectiveness of Weibo's social marketing using industry methodology.

For example, Wrigley ran a short video advertising campaign on Weibo and [AP] test results show brand satisfaction towards the brand rose 23% and willingness to purchase Wrigley's products rose 34% after the campaign.

Using Oppo as another example, after Oppo ran a product launch campaign for their R9s smartphone on Weibo, over 90% of the participants surveyed have positive and/or neutral views towards their brand and the R9s smartphone.

Secondly, we have been focusing on developing an effective and integrated customer relationship management process for our ad customers to help them increase their sales lead conversion.

Using a well-known wedding photography studio in China, [Artiste Studio], as an example, by leveraging Weibo's social interest graph, Artiste Studio was able to move to more precisely target their potential customers on Weibo.

In addition, after the ad campaign using Weibo's private messaging function, the customer service department of Artiste Studio was able to contact with interested customers and continue the conversation to establish trust and reputation in potential customers' minds.

By using Weibo's advertising targeting and the messaging function, Artiste Studios ad engagement on Weibo reached 13% and sales conversion rose five times.

Lastly, fourth quarter is the peak season for e-commerce sales in China, and this year we further strengthened partnership with Alibaba.

Ad revenue from Alibaba reached $24.7 million in Q4, up 167% from last quarter.

Through close strategic cooperation, the effectiveness of Alibaba's marketing campaign on Weibo has significantly increased.

For example, Tmall took a new e-commerce marketing approach on Weibo in preparation for Double 11 this year, which leveraged social content to increase fan engagement and GMV.

In the past, e-commerce ads on Weibo would be a feed advertising a product and a text link to one of Alibaba's e-commerce platforms.

The new social content model can, for example, link product mention Weibo feeds of influencers to the product page on Tmall.

This novel innovation became a highlight of the Double 11 event.

Feeds posted by almost 200 e-commerce influencers and celebrities on Tmall, purchase recommendations reached over 10 billion views and live broadcasts streamed by e-commerce influencers discussing hot items on Tmall had more than 6 million views.

The [public] Double 11 is coming broke the Guinness world record as the most discussed event within 24 hours.

According to AdMaster, Weibo has become a top promotional channel for Double 11, helping to increase brand affection and purchase intent for products promoted during the world's largest e-commerce day.

Promoter ads and information feeds are something we have been continuously enhancing.

At the same time as the volume of our information feeds grow, we are also seeing an increase in ad effectiveness.

In Q4, CTR, also known as click through rates, improved by double digits from the prior year and this is mainly due to the following reasons.

First, the number of KA customers have grown rapidly, increasing 65% year-over-year.

Second, we have upgraded our user interest pegging system, allowing us to build more accurate and complete user social interest graphs and improve the position of Weibo's ad targeting.

By leveraging user behavior data on how they have historically viewed and engaged with the various types of ads, Weibo's targeted ads not only can generate higher user satisfaction, but also more precise ad targeting, which ultimately translates to improving ad effectiveness and brand perception for our customers.

Third, we have been continually innovating our ad products and finding methods to better tailor them to specific customer industries.

We have been able to increase customer's ad budgets for new ad products through launching new products like video and app download ads.

Also, through products like our combined brand and performance marketing solutions and effective lead ads, we have been receiving positive market reputation.

In 2017, we plan to increase the competitiveness of Weibo's ad products through the following strategies.

First, we will continue to focus on growing our user base.

In 2016, Weibo has started to demonstrate its platform value, the network effect of our content ecosystems.

In addition, we have entered the huge online video market with the launch of videos -- Weibo's short and live videos which are contributing to increasing user engagement on Weibo.

In 2017, we will further increase our investment in user products to continually expand our ecosystem.

Second, we plan to make additional enhancements to our algorithms, especially in leveraging interest and location data.

In 2016, as our ad revenue increased rapidly, our ad inventory also grew at a fast pace.

Through algorithmic enhancement, we have been making steady improvements to Weibo's advertising effectiveness.

In 2017, our priorities will be to further improve effectiveness, Weibo's marketing closed loop solution and ad (background noise).

Third, we plan to further expand the customer base by offering a wide array of ad solutions from event marketing to KOL marketing to performance-based ads and to brand awareness ads.

Combined with China's ad market shifting towards mobile and video, the total number of ad customers on Weibo grew significantly in 2016.

In 2017, our sales and marketing team will continue to improve our ad products and develop a combined brand and performance marketing strategy aimed at creating a more comprehensive ad solution to bring increased value to our customers.

Thus, increasing our competitiveness and expanding our customer base.

Lastly, we plan to further explore and increase of business opportunities for self-media to more an important component in Weibo's content ecosystem.

In 2016, after several years of developing our monetization model, we noticed that vertical KOLs are able to well monetize on Weibo through paid subscription, helping e-commerce, etc., and the significant as Weibo continues to lead as one of the most important social platforms in China, we become an integral investment that our content partners must make in order to grow their organization.

With that said, this has helped to bring us a large number of new customers.

In 2017 as our customer s better integrate into our ecosystem, thereby increasing the marketing effectiveness, we will also increase our support towards our content partners, especially in the areas of monetization and hope that their needs for organic ads on our platform will continue to increase.

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

Thank you, Gaofei.

Welcome to Weibo's fourth quarter 2016 earnings call.

Let me go to our financial highlights for the fourth quarter and full year 2016.

Towards the fourth quarter, Weibo's total revenue reached $212.7 million, up 42% year-over-year or 53% on a constant currency basis, exceeding the Company guidance between $205 million and $210 million.

Non-GAAP net income attributed to Weibo reached $77 million, up 134% year-over-year.

Non-GAAP diluted EPS was $0.34 compared to $0.15 a year ago.

With revenue peaking in our seasonally tied fourth quarter, our adjusted EBITDA reached $78.2 million, up 111% year-over-year and adjusted EBITDA margin reached 37% compared to 25% last year.

For fiscal 2016, Weibo's total revenue reached $655.8 million, up 37% year-over-year or 45% on a constant currency basis.

Our SME and KA businesses together make up 90% of Weibo's advertising revenue.

Each grew robustly in 2016 at 98% year-over-year or 110% on a constant currency basis.

Non-GAAP net income attributable to Weibo in 2016 reached $183.5 million, up 167% year-over-year.

Non-GAAP diluted EPS was $0.82 compared to $0.32 a year ago.

Adjusted EBITDA reached $193.7 million, up 126% year-over-year, and adjusted EBITDA margin reached 30% compared to 18% in 2015.

Since turning profitable in 2015, we have seen continuous margin expansion, illustrating a strong operating leverage of Weibo as a social media platform that connects content to audience.

We believe there is significant opportunity for our operating margin to grow especially over the long-term as we further scale our users, content creators, and customers.

Let me give you more color on our fourth quarter revenues.

Advertising and marketing revenue for the fourth quarter reached $187.9 million, up 45% year-over-year or 55% on a constant currency basis.

Mobile ad revenue made up 68% of total ad revenue and was up 53% or 64% on a constant currency basis.

Total advertisers reached 689,000, up 4% year-over-year.

On our last call, we discussed that as our customer base volumes, we have put in place a system to increase and continuously improve the user experience of Weibo ad through algorithmic adjustments in big data analysis.

We not only want to grow our customers, but also take into consideration the quality of the advertisers.

Thus, when we look at SMEs through the channel, KAs and self-service customers who have higher potential to have a sustainable relationship with us, we are seeing healthy customer growth.

ARPA or average revenue per advertiser for SME and KAs are also seeing a healthy trend.

Turning to SMEs, the strength of Weibo's advertising was led by our SME business which reached $101.4 million, up 85% year-over-year, or 98% on a constant currency basis in the fourth quarter.

Key customer sectors contributing to the strong revenue growth and include app developers, e-commerce and O2O companies.

SME advertisers usually purchase performance based ads.

As Gaofei mentioned, revenue drivers for performance ads include improving CTR and add targeting capabilities.

In addition, opening up brand ads to SMEs including video ads is also helping SME grow rapidly.

Moving on to KA, our key account business mostly made up of large brand advertisers, becoming another pillar for Weibo's growth engine.

In the fourth quarter, our KA ad revenue reached $61.8 million, up 149% year-over-year, compared to 130% in the third quarter, 84% in the second quarter and so on, on a constant currency basis.

As Gaofei mentioned, Weibo's strong brand in the marketplace has been an important driver for our revenue growth.

Our revenue drivers also include Weibo's wide array of ad offerings as well as the livelihood of celebrities and influencers whose presence on Weibo have amplified the impact of social ads.

Moving on to value-added services.

Weibo's value added services reached $24.9 million in the fourth quarter, up 28% year-over-year or 37% on a constant currency basis.

Membership fees was up 89% year-over-year and data licensing was up 79% year-over-year on a constant currency basis.

The two together make up more than 50% of Weibo's VAS revenue.

Turning to cost and expenses, total non-GAAP cost and expenses were $139.2 million, up 20% year-over-year.

Cost of sales was $48.7 million, up 16% year-over-year while operating expenses totaled $90.6 million, up 22% year-over-year.

The increase in non-GAAP cost and expenses was primarily due to an increase in marketing expenses, value added taxes, and commission-based salaries with the latter two impacted by higher revenues.

As a technology-driven company, Weibo not only puts focus on developing innovative user products and ad products, we also leverage technology to give our users better video experience while keeping infrastructure cost down.

Our disciplined approach to cost management runs through the development department and despite video views increasing seven-fold year-over-year in December, the year-over-year increase in bandwidth cost under cost of sales was manageable.

Non-GAAP net income attributed to Weibo in the fourth quarter was $77 million, up 134% year-over-year.

Adjusted EBITDA reached $78.2 million, and adjusted EBITDA margin was 37% compared to 25% a year ago.

We continue to see platform-wide margin improvements.

Turning to the balance sheet and cash flow items.

As of December 31, 2016, Weibo's cash, cash equivalents, and short term investment total $396 million.

Cash provided by operating activities for the fourth quarter was $82.3 million.

Capital expenditure totals $6.5 million and depreciation and amortization expenses were $3.5 million.

On the shares and (inaudible) shares as of the end of December.

Turning to Weibo's first quarter 2017 guidance.

We estimate our first quarter revenue to be between $185 million and $190 million, which does not take into consideration the foreign exchange rate fluctuation.

Before I turn the call over to the operator, let me quickly recap our achievements in 2016.

We have made tremendous progress this year building strong momentum in both user growth and advertising growth.

We have focused on improving the user experience by utilizing machine learning in our information feeds to improve content relevancy.

We've also made the consumption of information feeds easier by offering interest-based information feeds in addition to the original follow model.

In the area of content diversification, our verticalization effort is taking shape.

As more and more key opinion leaders from different verticals begin to publish on Weibo, our content ecosystem is becoming a reinforcing loop as KOLs learn to quickly and efficiency acquire an audience on Weibo and monetize their social assets via e-commerce, content subscription, virtual gifting, brand ambassadorship, and other means.

In the area of video, we have focused on improving the user experience for short video consumption and launching live video.

We built a large network of human video publishers and organizations with IP rights, including TV networks, celebrities, video MCNs and online video sites to share premium video content onto Weibo.

Our video traffic was up seven-fold in December.

With users shifting to mobile, content in feed format even for videos will become more popular especially when social engagement is added.

As a leading social media platform in China with an MAU of over 300 million, Weibo is in a unique position to make content more interesting and engaging by enabling the participation and involvement of celebrities, media, industry KOLs, influencers and large audiences.

Moving into 2017, mobile, social and video will become even more important for the social media industry, and we are well positioned to take advantage of these trends.

With that, let me turn the call to the operator for questions.

Thank you.

(Operator Instructions) Our first question today comes from the line of Alicia Yap from Citigroup.

Please ask your question.

Hi, good morning, Gaofei and Herman.

Thanks for taking my questions and congrats on the good quarter.

My question is related to overall ad budget allocation.

So among your KA customer, can you share with us how much of your total ad budget for Weibo platform currently is allocated to video ad format versus the performance space.

And in addition, within your video ads revenue, what is the percentage currently coming from SME customers or is that mainly still come from KA?

Thank you.

Okay, good morning, Alicia.

The first question you asked was what percentage of our advertising was from video versus performance based.

The way we sell our advertising is usually in a packaged form so we don't sell video by itself.

For example, when we talk about SME buying a video, SME typically buy performance based and they will probably buy video as a bundle of their overall campaign so that their performance-based advertising could be more effective.

So with that kind of understanding, our total advertising revenue in the fourth quarter from video is over 10% but I don't think it's very meaningful to follow that percentage specifically because really, it's kind of the driver for the overall larger budget from the customer and also increasing the number of customers by having this unique kind of advertising.

Can you repeat your second question with regards to percentage of SME revenues?

Yes, I guess it's just roughly the same that you answer but I think it's just more from KA specifically, just wanted to get a sense like whether they have an intention increasingly to allocated more towards the video ad versus previously that you have more display and then you know, there are choices on performance.

But is video increasingly attracted to them?

Alicia, this is Charles, let me answer this question and among the video customers, we have actually the revenues from video and the majority is from KA right now, and a very small portion from SMEs.

And in terms of interest of the lead advertising going forward, I think there will be more and more KA customers who will be interested in video advertising, partly because our video advertising is getting a lot of traction in the market and secondly, because there is a strong demand for video advertisement but on the market itself, our overall market itself, and TV -- traditional TV ratings is going down year by year and so -- and also a lot of video sites shifting towards more like membership-fee-based service.

So there is the overall decrease or lack of inventory for video advertising in the market which give us a lot of opportunity to get more customers in this area for online advertising.

So I think there will be a good demand for that, it's a matter of how we are going to satisfy that demand in the market.

But in terms of SMEs, I think that demand will be there but I think that will be more from some native ads, content-related native ads in video that could be more popular among SMEs and that is another area we probably will focus upon in the coming year.

But in terms of dollar amount, we think the majority will still be coming from KA customers.

Our next question today comes from the line of Evan Zhou from Credit Suisse.

Please ask your question.

Hi, good morning, Charles, Gaofei, and Herman.

Congrats on the very solid quarter.

The question is mainly regarding our own product, I was wondering how you look at the overall define like news feed or information feed based product competition for this year?

I think everyone including like the leaders like [Totia], Tencent, and us and Netease also, Baidu is looking at it as well.

So I was wondering like from the product perspective, you also mentioned a lot like information feed, the interest-based feed in your prepared remarks.

How do you see the dynamics both on the user side, who is gaining share, losing shares or on the budget side?

Because I think everyone is kind of -- the budget target for this is pretty high.

And also, I think a couple of days ago, you actually announced a cooperation with [Yidian] and also along with [Yisha] as well.

So how do you see kind of the dynamic going forward on that front and what is our kind of edge on the product side?

Thank you.

(Interpreted) So from our product roadmap, we are moving -- we have already established a relationship base and we are now also focused on building our interest-based timeline.

So there are two benefits from growing our interest-based audience.

One is by building an interest-based information feed, it lowers the barrier for our new users to come on to easily be able to consume content.

And secondly, for our current medium-level and high-level heavy users, it can increase their time spent.

So we are seeing that in the market, people who have entered the interest-based feed format product include companies like Baidu, like [UC] like Totia and we believe that ultimately, in order to have the competitive strength, it's all about our user retention rate.

And without strong social engagement aspect of the product, it's very hard to actually increase the retention rate of the users.

So we can see in China that it's typical for a mobile owner -- a mobile phone owner to actually switch to a new handset every 12 months.

So if you don't have that social relationship and every time when you try to get a new user, the cost would be very expensive.

Whereas if you have built a social relationship with other people in the network, then we would have less cost pressure to maintain the user.

So for Weibo, we're a very new entrant into this interest-based feed product and we believe that the size of this market is just as big or as our current size of microblog and we believe that we can actually get a reasonable market share as we enter this space especially with our strong social aspects of both products.

Our next question today comes from the line of Juan Lin from 86Research.

Please ask your question.

Hi, good morning, Charles, Gaofei and Herman.

Thank you for taking my questions.

My question is related to monetization particularly ad load.

What is the current level for total ad load and what is the ad load for video autoplay feed and Discovery Channel?

Whether do we expect the ad load to increase this year and to which level do you think ad load will normalize?

And then secondly, the question is brand advertising versus SME.

Brand advertising has been outgrowing the SME advertising for two quarters, so whether the trend will continue and what kind of product and sales strategy we will put on enhancing the brand ad growth?

Thank you.

Hi, Juan, good morning.

On our last call, we actually explained the fact that because our product is diversifying from relationship to interest-based, also with video and so forth, you are actually seeing a lot of different information feeds that we have introduced.

When you look at our ad load, for example, this quarter, our ad load is actually slightly lower than last quarter, and still above 4%.

But I think the ad load percentage is not -- it's just one of the many metrics we talked about, impact to the overall revenue growth including, for example, CTR if you look at a lot of new products that we have including leads and so forth.

All of these play into this and so we talked about last quarter, going forward, we are not going to specifically disclose our add loads especially on a product basis because it's not as meaningful, you need to look at all of the metrics as a whole.

But you know, to answer your question, our ad load's a little bit over 4% and it's lower than our last quarter.

Our next question today comes from the line of (Multiple Speakers).

I'm sorry.

(Interpreted) So this year, what we see expanded, our KA is growing faster than our SME.

A major reason for this is the product that is available to these customer segment.

Whereas the SMEs, they can only buy promoted feed ads, for the KAs, in addition to promoted feeds, we can also apply many other different type of advertising such as topics, such as event based, such as brand advertising, such as app opening and so forth.

So because of that broad reach, broad array of products that we offer to the KAs, we are able to actually have a stronger growth this year.

So going forward, the way we look at this is from a brand advertising offering aspect, we see ourself having stronger offering so we are very competitive in this space.

But with regards to performance based advertising, there is quite a few competitors in this market such as Baidu, such as (inaudible) and so forth.

So what we're -- with respect to the offering, what was stronger at the brand advertising versus performance based.

On the other hand, we think that the demand from SME is becoming very strong, so I think over the next one or two years, it's hard to gauge which one will be growing faster.

I think it really at the end of the day, is our ability to actually offer very competitive products in this space so we will have to see.

And our last question today comes from the line of Alex Yao from JPMorgan.

Please ask your question.

Hi, good morning, everyone, thank you for taking my questions.

I have two questions.

ONE is regarding the KOL monetization so you guys discussed three major categories you are monetizing in the (background noise) such as fashion, apparel, and financial service.

So across the 50 content categories that you guys have on Weibo, to what extent have you monetized those categories from a KOL perspective?

And then among the available monetization models was the KOL themselves such as the e-commerce, ad placement, etc., what are the key monetization vehicles for them and so lastly, what are -- what I want to establish is how should we think about the KOL monetization sustainability and scalability in the next two years.

And then the second question is regarding the user growth outlook for this year, you guys have done a good job in terms of building the user and driving the engagement over the past few years.

How do you think about the user growth outlook and user acquisition strategy for this year given that the population dividend of mobile internet has come into an end?

Thank you.

(Interpreted) So for self-media, or these big vertical KOLs, our monetization model for them will not change, basically, advertising, it will be e-commerce, it will be subscription of their content.

So in the last two years, we've first focused on maybe the one-third of the industries where we think it's easier to help them monetize.

Over the next year or two, we're going to start expanding into KOLs of other industries and help them find a way to be able to monetize the social assets on Weibo.

So Alex, I think the real question you were asking is monetization, when we think about allowing the self-media, the big KOLs on Weibo's monetization, Weibo is really not about growing revenues in this space.

It's really about allowing these KOLs to be able to share premium content on to Weibo at the same time be able to get a return from all the efforts that they've put in.

So it's, when we're talking about monetization, it's really helping them find a way to get their return for the content that they've created.

And this is a very important part of Weibo's ecosystem, which means that we actually try to generate organic demand for advertising for the KOLs and I think there are two parts of it.

In the process becoming more influential on the Weibo platform, there is a need or demand for advertising for increase in content coverage to increase their financial asset in the process and once they become more influential on the platform, when they start to monetize, they would have demand for advertising again for the monetization.

So this is actually a very important part when we say organic demand from Weibo advertising.

This is what we're talking about and this is very important part of the ecosystem for Weibo and the foundation for a lot of future demand.

That concludes the question-and-answer session for today's call.

I'll now like to hand the conference back to Ms. Yu for closing remarks.

Thanks, everyone.

That concludes today's conference call.

Ladies and gentlemen, that concludes our call for today.

We thank you all for your participation.

You may now disconnect.

Editor: Portions of this transcript that are marked "interpreted" were interpreted on the conference call by an interpreter present on the live call.

The interpreter was provided by the Company sponsoring this Event.