Weibo Corp (WB) 2024 Q2 法說會逐字稿

Good day, and thank you for standing by, and welcome to the Weibo Reports second quarter 2024 financial results conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sandra Zhang. Please go ahead.

Well, thank you, operator. Welcome to Weibo's second quarter 2024 earnings conference call. Joining me today are our Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Fei Cao. This conference call is also being broadcast on the Internet and is available to Weibo's IR website.

Before the management remarks, I would like to review the Safe Harbor statement in connection with today's conference call. During today's conference call, we may make forward-looking statements. Statements that are not historical facts, including statements of 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. We will assume no obligation to update the forward-looking statements in this conference call and elsewhere. Further information regarding these and other risks is included in Weibo's annual report on Form 20-F and other filings with the SEC. All the information provided in this press release is occurring as of the date hereof. Weibo assumes no obligation to update such information except as required under applicable law.

Additionally, I would like to remind you that our discussion today includes certain non-GAAP measures, which exclude stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of reported comparative operating performance and future prospects.

Our non-GAAP financials exclude certain expenses, gains or losses and other items that are not expected to result in future cash payments or are nonrecurring in nature or are not 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 CEO, Gaofei Wang.

(interpreted) Thank you. Hello, everyone. Welcome to Weibo's earnings conference call. Today, I'll share with you highlighting Weibo's product monetization in the second quarter of 2024. On the user front, by the end of the second quarter, which ended June reached 583 million and average DAUs reached 256 million. In larger than already sizable user community and a material use of mine site, we had proactively adjusting our user strategy this year with more general budget allocated to the acquisition and engagement of the high-quality users. This quarter, our DAU versus MAU ratios increased year over year and quarter over quarter, reflecting further improvement of user engagement.

On the monetization front, in the past two years, we have been focusing on combining with culture and products with advertising, marketing demand and thus our hotel marketing has to be recognized by a wider range of industries and other places. In the second quarter, our total revenues reached USD437.9 million of which our revenues reached USD375.3 million.

On a constant currency basis, our total revenue would have increased 1% year over year and our ad revenues would have decreased 1% year over year. Our non-GAAP operating income bridge USD157.6 million, representing a non-GAAP operating margin of 36%, a modest pickup year over year.

Next, let me share with you the progress made in product and monetization in the second quarter. In 2024, we see focus on growing user scale and engagement, strengthening the competitiveness of content ecosystem and improving operating efficiency as our key strategies -- strategic objectives.

On the channel front, we maintain close cooperation with handset manufacturers, focusing on acquisition of high value uses and promotion of engagement. We also invested to further refine accuracy of alcoholism and targeting capability of our business model in order to create enriched content offerings for our channel users and increase their user engagement, which laid foundation for monetization.

On social attributes in the second quarter, while leveraging our relationship-based feed to further recover vertical content ecosystem, we strengthen the interaction between KOLs and cent, increase their user stickiness and improve user interaction efficiency of relationship-based feeds. Meanwhile, this year, we have also been investing in user-generated content by improving the growth path of high quality UGC in Weibo to encourage more quality content generation around vertical content and boost user engagement.

In terms of user interest sharing, we further strengthened Super Topic community as a core domain for use of shared interest related content. In the first half of this year, used social interaction increased significantly with double-digit growth year over year. For example, during the first half of this year, we increased the interaction between celebrity and fans by expanding contains of celebrity and their work. As a result, in the second quarter, the number of average daily users who posted and the number of posts in the entertainment related Super Topic increased over 50% year over year, respectively.

In terms of the daily life sharing content by ordinary users, we improved the distribution mechanism for those high-quality content for the fairly distributed in core fees and help users who consistently generate content to accumulate fan base. For instance, in the second quarter, we launched a week will photography during June to select high-quality UGC photography around daily life, aiming to encourage our users to record and share their daily life in multiple dimensions.

During the first campaign in May and June, nearly 500,000 users share their photography and contributed over 2.1 million photographs, attracting over 3 million cases to engage and interact. On the content ecosystem front in the second quarter, while maintaining our competitiveness in the IP related content ecosystem of hotel entertainment and events, we focus on increasing investment in verticals such as digital products, automotive, game, fashion and beauty and healthcare to enhance Weibo's competitiveness in the content ecosystem and further improved monetization efficiency.

On wholesale IP ecosystem in the second quarter was the release of Plentiful in entertainment work, we leverage advantage of celebrity and fans in entertainment work, as well as fan interaction across verticals and we encourage more users to consume and discuss around entertainment content. As a result, the number of user interaction in the entertainment vertical increased double-digit year over year.

For example, in the second quarter, we reached in-depth cooperation with music variety shows [Singer] 2024 of [Unan] TV station on cross screen live streaming and real-time hot topics to achieve user interactions. The show became a phenomenon in the first half of 2024 through launching innovative, contains a label such as allowing them to recommend spinner across platform as candidate pause on Weibo and rollout real-time culture around the show.

Total views of the show in 2024 exceeded 60 billion times. And the number of user into a discussion exceeded 560 million times. This merchant caused social interactions patterns between TV and social media, not only make the show influential, but also to provide brand advertisers with more diversified marketing solution and generating sustainable ad revenue growth for Weibo to Hutch and marketing.

During college entrance exam season this year, we've cooperated with People's Daily to boost discussion a discussion on lead on universities, major selection and application after the entrance of events and organized to experts and KOLs of over 10 verticals such as education, healthcare, data products, automotive and finance to share with examinees on suggestions of professional learning application and industry employment.

The total view of college entrance exam related content reached 38.9 billion times in June and the number of user discussions exceeded 110 million times, representing an increase of over 50% compared with the same period last year. On video content operations, we continue to focus on two aspects in Q2. First, we strengthened the construction of vertical content ecosystem, including supporting vertical content and engage in cross field accounts and media outlets in the generation and distribution of vertical hot trends.

Second, we beefed up the support of Golden and Orange verify account in vertical areas and empower them to earn higher commercial returns on our platform. In the second quarter, we continued to reinforce collection operation in automotive and digital product verticals with emphasis on industry brand and product. As a result, the number of Golden verified account in automotive and digital product verticals as well as the traffic interaction and our revenue on our platform continue to increase year over year.

For example, for the automotive vertical, as competition in the new energy vehicle market, intensified OEMs stepped up their investment in content operation. In the first half of this year, over 30 auto manufacturer up and around 100 executive of auto industry register or activated Weibo accounts.

Thanks to the content contribution from this ecosystem, KOLs and media accounts in the automotive industry also actively created a follow up hot topics. We are pleased to see our clients join us, including automotive content with system, which not only help clients to find brand operation and product promotion, but also lay the foundation for our long-term business cooperation with clients.

As for the online game verticals, field upon commencing construction of online game ecosystem over the past three years, we have covered over 80% of the top 100 games in terms of content operation. UGC creation and interactions business continued to improve, leading to rapid growth of the Golden verified account in the online game vertical.

In the second quarter, member of Golden verify accounts in this vertical increased by over 80% year-over-year with their traffic and interaction grew over 30% on an annual basis, leveraging Weibo's expanding advantages in online gaming ecosystem and higher influence of Golden verify accounts. We had build closer partnership with online game clients on content marketing.

In the second quarter, nearly 50% of the commercial project, 14 promotion, chose to cooperate with Weibo in how changed marketing, demonstrating better recognition of Weibo's golden verify accounts among clients in this industry, the ad revenue of Golden verify outcomes from the game industry increased by over 4 times year over year. We are delighted to see that the online game vertical has gradually entered the self-reinforcing cycles between content and the monetization ecosystem, similar to the automotive and digital vertical

Moving on to monetization. In 2024, we will continue to beef up our efforts to reinforce our monetization competitiveness, leveraging Weibo's strength in Hodgkin and IPs as well as driving vertical content ecosystem. We will sharpen the competitive edge of our content marketing and performance ad product in the hopes of enhancing our capabilities to mitigate business risk in key industries.

Amid a relatively soft end market in the second quarter, our revenue decreased 1% year-over-year on constant currency basis by industry or the entities industries such as Pinterest and automotive industries sustained solid growth trends benefiting from clients' recognition of Weibo's culture marketings. Therefore, our share of clients' market projects in this sector either remain stable or increase. Since to the interested public deals and discussion January generated by the blockbuster IPs such as [Sino] 2024. Weibo is attracting many clients to launch campaigns around this IP related Hutchins, which brought forth incremental HubTran marketing dollars to our platform.

For example, in the second quarter, Vivo and Weibo reached a strategic cooperation in content marketing, achieving index called creation of content between Weibo platform and the brand. To elaborate with expanded marketing initiative, our new product launch to daily Hutchins throughout the year and thus comprehensively enhance the user reach and nurture use and mindset of the brand and its products.

Fix the Vivo X 100 series launched in the second quarter as examples. After the new product release in May, we will take advantage of the peak period of off-line concert in the second quarter and the popularity of Verizon Show seen in 2024 actively participated in the co-creation of how trends and strengthen user awareness of the differentiated pack of the Vivo X 100 Series.

Concert go better to enhance user penetration of Vivo's portrait photography. We successfully helped Vivo achieve the first place in the dual track of concepts and the 10 photos in the current Internet IT market clients will gradually concentrate on the top IPs. This trend can also be seen from traffic structure of Weibo, the traffic and monetization opportunities brought to us by the top IPs was significant higher than those from mid-tier IPs.

On the flip side, in the second quarter, the sales of international cosmetic brands was still under pressure, which negatively affected the pace of new product launch and thus the scalable bucket. Therefore, our ad revenue from the cosmetic and beauty sector continued on a descending trajectory year over year. In order to boost clients' willingness of new direct marketing and its effectiveness, we step up our cooperation with e-commerce platform and domestic brands this year.

To elaborate, we actively explore the opportunity new product launch of the FMCG industry between social and e-commerce platforms and provide clients with better marketing support. We hope these efforts translate into more stable growth in the US and FMCG sector in the coming quarters.

In the second quarter, we started the cooperation on new product launch. Our marketing team, all was focused on the cosmetic and beauty as well as footwear and apparel industries, leveraging labor strength in coach and marketing, we offer some final value proposition to clients some social influence to e-commerce conversion.

With this partnership, we hope to enhance client recognition of the value of Weibo's hot trend marketing and also cultivate and reinforce users' mindset of discovering new product on Weibo. We will continue to explore this model with Tmall in the third quarter and try to penetrate into more industries and clients. With higher client recognition of Weibo's hot trend marketing and our broadening coverage of domestic beauty brands, we hope to see our ad revenue in the cosmetic and beauty sector stabilize or return to growth year over year in the fourth quarter.

Overall speaking, amid the current competitive landscape, based on the current brand plus performance ad offerings, Weibo's marketing service has upgraded to content-marketing solutions with emphasis on hot trend and IP, celebrity and KOL plus performance ad. Leveraging adjustment in the sales structure and ad product in the past two years, the market competitiveness of these three types of ad offerings has gradually improved and become the key driver of revenue.

Ad revenue directly generated by these three types of ad offerings account for over 50% of our total ad revenues. From industry perspective, the hot trend and IP marketing finally serve the FMCG, digital products and automotive industries. Clients in these industries seek to amplify their product influence, leveraging organic hot trends or even build market hype around their new products through Weibo's hot trend marketing.

The celebrity and KOL marketing mainly caters to the luxurious goods, cosmetic and beauty as well as footwear and apparel industries. Clients can better reach fans and influence their consumption decision with higher accuracy by working with celebrities and KOLs in professional areas.

Finally, despite the fierce competition in the performance and marketing in recent years, we are gradually improving our competitiveness ad through algorithm optimization and social native ad offerings, although performance ad has now become the main contributor to revenue growth in the past two years. Performance ad offerings are crucial for us to broaden client coverage and identify high-quality clients.

In contrast to other platforms' competitive edge in traffic-based monetization, we have built our competitiveness on media-oriented and brand-oriented ad placement as well as content marketing based on hot trend IPs and celebrities. This differentiation are critical for us to obtain marketing budget for product promotion and user mindset.

Meanwhile, as we further strengthen the construction of content ecosystem in the entertainment, sports, events and industry-based verticals and better integrate organic content ecosystem with commercial content ecosystem, our business model, which is mainly based on brand plus celebrity marketing and content marketing, well supplemented by performance ad, will be more conductive to improving the platform's monetization efficiency. This is also our most important strategy and objective for strengthening our monetization competitiveness in future.

With that, let me turn the call over to Fei Cao for our financial review.

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's second quarter 2024 earnings conference Call. Let's start with user metrics. In June 2024, Weibo's MAUs reached 583 million, and average DAUs reached 256 million. As communicated last quarter in 2024, we have proactively adjusted our user strategy to put more emphasis on the acquisition and the engagement of high-quality users, as demonstrated by improved DAU versus MAU ratio this quarter.

Turning to financials. As a reminder, my prepared remarks would focus on non-GAAP results. Our monetary amounts are in US dollar terms and all the comparisons are on a year-over-year basis, unless otherwise noted. Now, let me walk you through our financial highlights for the second quarter 2024.

Weibo's second quarter 2024 net revenue was $437.9 million, a decrease of 1% or an increase of 1% on a constant currency basis. Operating income was $157.6 million, representing our operating margin of 36%. Net income attributable to Weibo reached $126.3 million, representing a net margin of 29%. Diluted EPS was USD0.48.

Let me give you more color on the second quarter 2024 revenue performance. Weibo's advertising and marketing revenues for the second quarter 2024 was $375.3 million, a decrease of 3% or 1% on a constant currency basis, reflecting muted ad demand amidst [massive] macroenvironment. Mobile ad revenue was $352.3 million contributing approximately 94% of total ad revenues. In terms of growth, 3P products, e-commerce and entertainment, were the largest contributors to growth.

We are delighted to see sustained ad [revenue] increase of handset sector this quarter, leveraging our robust content ecosystem and the dynamics with passionate [plan] around 3P products. The entertainment sector demonstrated good momentum this quarter, driven by blockbuster TV program and Weibo's unique value proposition for hot trends.

On flip side, the top line recovery will still track by underperformance of the FMCG sector. Despite a modest growth of the food, of beverage and apparel sector, the cosmetic and the personal care sector still feel behind due to large ad budget from [unmet] feed and the intense competition among ad platforms. For ad product, promoting feed ad was the largest, followed by social display and topic and search.

Ad revenues from Alibaba for the second quarter was $32.4 million, an increase of 21% or 23% on a constant currency basis. We are pleased to see the solid ad growth from Alibaba continue throughout the first half of 2024 as Weibo's brands plus performance solution resonated well with Alibaba to fulfill its funnel marketing goals.

Before turning to VAS segment, let me share some preliminary color on the trends entering the third quarter of 2024. On the upside, Weibo continues to be the go-to platform to discover and discuss our own hot trends during the summer Olympics, which boosted user engagement and attracted intensive ad statement.

That said, with the chunk of advertising budget allocated to the Olympic games, we expect relatively lukewarm ad demand post the Olympic season, factoring in sluggish consumption data. We will beef up our sales execution and enrich Weibo's content ecosystem in the second half of the year in the hope of mitigating macro and the industry headwinds.

Turning to VAS. VAS revenue was $62.6 million in the second quarter, an increase of 15% or 18% on a constant currency basis, primarily driven by revenue growth of membership services. We have benefited from improved ARPU for membership services. This result to our premium VIP feature to cater to the need of sticky users. Turning to cost and expenses. Total cost and expenses for the second quarter were $280.3 million, a decrease of 2%.

Operating income in the second quarter was $157.6 million, representing an operating margin of 36% compared to 35% in the same period last year. Turning to income tax under GAAP measure. Income tax expense for the second quarter was $33.3 million compared to $25.5 million last year. The increase was mainly due to the withholding tax accrued related to earnings to be remitted from our WFOE to our Hong Kong subsidiary, which is to [fund] our demand for US dollars in business operations and the payments of dividends and that is safer in the future.

Net income attributable to Weibo's shareholders in the second quarter was $126.3 million, flattish year over year. Net margin was 29%, flattish versus the same period last year. Turning to our balance sheet and cash flow items. As of June 30, 2024, Weibo's cash, cash equivalents and short-term investments totaled $2.84 billion. We have made a special tax dividend payment of approximately USD199.4 million in May.

In the second quarter, cash provided by operating activities was around $132.1 million. Capital expenditures totaled $10.3 million and depreciation and amortization expenses amounted to $14.5 million. With that, let me now turn the call over to the operator for the Q&A session.

(Operator Instructions)

Alicia Yap, Citigroup.

(interpreted) Thanks, management for taking my questions. Can management comment a little bit how you build the overall macro-outlook and how will that translate to your advertising outlook for the second half of this year?

And then, can you share with us whether you have observed any meaningful change of the advertiser sentiment in the different industry vertical? Any particular shift of the sentiment from any advertiser that you might have observed? And also, does management believe the current macroenvironment could actually last into next year? Thank you.

(interpreted) Thank you very much for the question. So first of all, in terms of our advertisement revenue in Q2, from a renminbi standpoint, this was flat versus the last quarter and also year-on-year wise. And also you can see that although we've been experiencing some of the decline and also the decrease of the overall consumption, but still the willingness of placing the ad produce from the advertisers was pretty much stable.

So in terms of the overall revenue, in Q2 we can see that there was particularly negatively impacted by the verticals like the cosmetics and beauty products by about 5%. But for the rest of the other industries, we're experiencing pretty much growth.

And also, in terms of the Q3 outlook and also the second half performance, there are still some of the uncertainties in terms of the macroeconomic development, especially about the consumption. So we remain very much precautious over the outlook for the rest of the 2024. So still, we will be experiencing some of the challenges in terms of the resumption of the consumption and the macro economy in the first-tier cities, for instance.

And this is, of course, going to impact some of the willingness that we're placing the ads by the advertisers. But still, you can see that against the other players in this advertising industry, Weibo's advertising business is relatively not that big. And so still, we are seeing some of the precautious behaviors of the placing the ad by the advertisers.

But still, in terms of the new product launch and some of the other relevant advertisements related to the new products, the customers are tending to choose those top-notch IP and also top-notch platforms to do their advertisements and also promotion. So this is going to help us to acquire additional budget from this standpoint.

And also, furthermore, we can see that we are able to divide the customers into three categories or three kinds. The first category is in the FMCG industry, including the food and beverages, the apparels and shoes as well as entertainment and also development industries. So still, the scale of the consumption or the volume in total is pretty large.

So even if the customers are pretty much precautious in allocating their budgets for advertisements, but still, they are quite intentions in searching for new IP and also concentrate on those top-notch platforms. So for instance, in Q3, we had the bigger activities like the Olympic Games.

And you can see that in terms of the hot trend selling rate and also the other parameters, we have seen a very good improvement and also the boost. So meaning that the customers are willing to spend budget on acquiring those top-notch IPs and also collaborating with the top-notch platform. So from this standpoint, Weibo still stands in terms of our advantages.

And also, for the other industries and verticals, for instance, the headsets and automotive and gaming as well as films and movies and those entertainment industries, for instance, we were experiencing pretty much pressure and stress over the consumption improvement and resumption. But still, most of the competitions are pretty much around the new products and some of the new movie marketing, for instance, and also promotion.

So people, and also different companies are competing with each other to get more market share around the marketing for new products and new launches. So Weibo still holds our advantage in this particular area in terms of hot trend social topics as well as the very good relationship with some of the customers. So in that sense, for instance, in this summer holiday, the box office of most of the new movies slowed down or decreased a lot year-on-year wise comparing with the same period last year, almost half in terms of the total value of the box office.

But still, because of a very good relationship and our customers are choosing Weibo to promote their new products and also increasing their budget on us, so from this standpoint, we are still increasing our revenue, and we do have our advantage in this area.

And also, for the third category, we're talking about those stressful industries, for instance, the cosmetics and beauty products and also some of the luxurious brands. We've been seeing a very stressful situation over the resumption and increase of the consumption as a whole.

So in this particular industries, the customers are not choosing to launch any new products in order to get better results. So as a result, we've been seeing most of the ads were pretty much performance-based ads or some of the discounts and promotional activities or campaigns.

So Weibo is less competitive in this front. So -- of course, we can still gain our revenue by getting the budget of the performance-based ads from our customers or organizing some of the campaigns for our customers, but still, Weibo is less competitive versus the previous two categories and also the marketing methods in this arena.

Xueqing Zhang, CICC.

(interpreted) Thank you management for taking my question. My question regards AIGC. We noticed that the company self-developed the truly large language model, successfully pass through legislation in July. What's the latest development in AIGC? How does it help our content production and commercialization efficiency? Thank you.

Thank you for this question, and also -- first of all, previously, we've been sharing with everybody about the application of AIGC by Weibo and the standpoint of generating content for the platform and also enhancing the interaction between the users -- and among users. In the second half or later stage of the July, we were hearing about the approval of the LLM developed by Weibo and by the government.

And also, we use this technology to further boost and also enhance the AI products that we application -- we are applying now. For instance, the comments in robots and also some of the AI assistance in getting the response to the users. So we hope that the interaction based on the content by Weibo on our Weibo platform is going to be more intelligent and also timely fashioned.

And also, the second thing that I would like to say is that in Q2, we've been -- or in the first half of this year, also, we had a better interpretation and understanding capability by this AI model, especially the multi model understanding and also interpretation of the contents on Weibo because we know that there are millions of -- billions of contents generated by the random users. And also, because these contents were randomly generated by the users, it was not standardized and it was not structured and also, it was not that common, I mean, following a certain pattern in terms of the total user.

So, also those contents were having the image form, the video and also text. So at the current stage, the recommendation of those contents to the relevant target users is still based on the correct emphasized interpretation and understanding of those contents. So at the current stage, the large language models that we have got approval is primarily used in this front to better understand and also more precisely understand the main purpose, the message and content in order to have a more precise recommendation to the users.

And now we have a coverage of almost 90% of the users. But of course, still, there are some of the works that we need to further working on in order to improve the [indiscernible] of the understanding and also we need to do some of the further assets to increase the computational power in this area as well. So still, we are observing the future potential of this particular feature.

And second point I'd like to say is that, now in terms of the search-in results, there are some of the results that are from the media or V media or from the random users. So this particular AI is able to help the users within one minute to conclude and summarize the searched contents so that the user experience is going to be much better in using the search feature of Weibo.

And because of this, in Q2, we had already MAU of this particular feature exceeding 10 million already. But this is only one of the examples that we are trying the capability of AI. And also in the near future, we are going to have a better trial of this in helping us to better interpret and understanding the content and also to trigger -- and based on the information-based flow that we have and also based on the other capabilities that we have, we are going to have a better use and application of the AI feature and also this technology

Thank you. There are no further questions at this time. I would like to hand over to Sandra Zhang for closing remarks.

Thanks, operator, and thank you, all, for joining our conference call today. We will see you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.

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