Earnings Call: Q2 2021

Aug 17, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Phoenix New Media Second Quarter 2021 Earnings Call. At this time, all participants are in a listen I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Qing Liu. Thank you. Please go ahead. Thank you, operator. Welcome to Phoenix Media's Q2 2021 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu and Chief Financial Officer, Edward Lu. On today's call, management will first provide a review of the quarterly results and then conduct a Q and A session. The Q2 2021 financial results and webcast of this conference call are available on our website at ir. Haifeng.com. A replay of the call will be available on the website in a few hours. Before we continue, I would like to refer you to our safe harbor statements in our earnings press release, which apply to this call as we will make forward looking statements. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. With that, I would like to turn the call over to Mr. Shuang Liu, our CEO. Thank you, Qing. Hello, everyone. Thank you for joining us on our call today. During the Q2 of 2021, we continued to encounter downward pressure as competition intensified, regulation tightened and advertisers remained cautious with their budgets. As our core competitive differentiation lies in our region content production capabilities, we have upheld our commitment to originalities and revamped our content strategy. We believe that our newly augmented content metrics will lay a solid foundation to attract new users, increase their loyalty and generate a sustainable revenue stream. I would like to start by discussing our key efforts revamping our content strategy. As users suffer from information overload in this digitally charged world, we're convinced that the most effective way to add value to our users is to produce original content with distinctive characters that are true to our brand. Hence, we have repositioned our content metrics and adjusted our content production pipelines to produce a series of columns and programs, each written and presented in certain voice and style consistent with our branding differentiation. Through these efforts, we intend to not only enhance our brand image but also create a unique brand affinity among our users and advertisers, which should help us unlock more sustainable long term value from our brand equity in turn. To elaborate in the area of original content, in order to cater to varied user demands, we have focused our resources on producing 3 distinct voucher: opinion column, investigative reporting and premium IP production. For example, during the Q2, we launched our original opinion column titled Eye of the Storm, which is distinctively positioned to examine contentious current events. We present the audience with a unique, authentic and timely interpretation of issues by conducting meticulous research and exploring a wide array of viewpoints. Our coverage on various controversial topics and social phenomenon generated an immense number of views across our APP and other social platforms, with the most popular piece garnered more than 140,000,000 views on Weibo. As for in-depth investigative reporting, our trademark columns, such as the Tanggouhu and the Tumor Intelligence Agency, continue to bring our user well rounded and thorough analysis on the hottest topics, such as COVID-nineteen delta variant, latest vaccine developments, Miami condo clubs and so on. In addition, our social investigative through life stories of ordinary people thus bringing public awareness of these issues and giving voice to the open voices. Our new short video series titled Your Achievements in Chengdu pioneered a unique storytelling method by combining field production with TED Talk like TED Talk Style Speech by A List Celebrities. The series portrays how ordinary people have overcome tremendous difficulties to accomplish nearly impossible projects. It resonates so much with the current audience aspiration for excellence, success and the honor that it became an instant hit across the Internet. The 2 episodes released during the quarter accumulated over 10,000,000 plays on our APP loans. The second episode became the number one hot search on Bilibili and also right at the top of iQIYI's heat map for all similar scene programs. Your achievements elevated our premium IP production comp to new heights and exemplified our industry leading plan and production capabilities. In addition to quality production, advertisers also appreciated access to luminaries in art, culture, science and politics with backgrounds and trades in sync with brand images. For example, through video series, Junping Talk, Junping Tan, we interviewed Han Meiling, our renowned contemporary Chinese artist. The program attained a large number of likes and endorsements from top KOLs as well as young intellectuals who constitute the large the target demographics coveted by our advertisers. As for reporting news and events, we continue to distinguish ourselves through industry leading breaking news coverage. During the quarter, we covered the launch of Chinese manned spaceship, Shenzhou Qihou. Shenzhou 7, through a variety of formats, including live streaming, push notification and the focal topic recommendations, our multi dimensional coverage reached 5,000,000 user following, particularly through live streaming, which attracted a historical record of over 800,000 live audiences. Beyond the cornerstone of our original content and news reporting, we also made strides in expanding our content ecosystem. In the quarter, we launched our own MCM platform called, as we know it, zhuzhuyoushi. As the name suggests, it is positioned as a hub for knowledge based content created by our contracted influencer. Taking into consideration of our professional journalist DNA, our global contact network and our highly educated user base. By the end of Q2, our MCN had contracts contracted 14 subject experts, including Phoenix TV reporters, renowned intellectuals and overseas content creators. Our first original video series called Phoenix Global Observer Group, brings field reports on live interviews on trending global topics and events to audience. The series became an instant success on Weibo, Bilibili and other third party platforms in addition to our own platform, attaining wide user followings. In the meantime, we're in the process of examining our perverted inputs, while we generate value by enhancing our content metrics, strengthening our brand equity and providing clients with diversified marketing solutions. Looking ahead, we believe the combination of our cross border content delivery capabilities with our distinctive creator mix, which consists of both foreigners in China and Chinese expatriates, will become a competitive advantage for us as we foresee an ever growing demand for overseas marketing by Chinese brands. Next, I will briefly touch on our signature events during the quarter. This year marks the 10th anniversary of our Phoenix Financial Summit. Prominent speakers, including the Chief Executive of Hong Kong SAR, Ms. Carrie Lan, together with 31 other political dignitaries and business tycoons, congregated at this year's summit. Also, for our Ifeng Gourmet Food Festival in Beijing and culinary arts center of Chengdu, we attracted over 160 distinguished guests at each location, including top chefs, food critics, restaurants and celebrities, thus greatly enhancing our brand influence in the food sector. Now, let's take a look at our iPhone app. In response to our realigned content strategy, we have implemented a few initiatives to enhance the content ecosystem within our app. We carefully segregated content related to hot issues out of our premium content pool, thus setting time sensitive content with temporarily high views apart from evergreen content with sustainable popularity. On one hand, we continue to make editorial recommendation of trending topics to cater to users' desire to tune in current events. On the other hand, we have also refined our premium content pool to retain in-depth content with large user value, including high quality content from those original columns and programs mentioned earlier as well as from other We media accounts. By optimizing our operation and distribution of the premium content pool, we intend to increase both our user retention rate, our average user time spent on APP. In fact, our monthly repeat user increased by 4% sequentially over the last quarter. As we collaborate more closely with Phoenix TV on distribution rights, we have vastly improved our APB's user interface and pay layout to better leverage the exclusive content from Phoenix TV. For example, we have segmented Phoenix TV related content into a stand alone column with its own landing page and added content labels to highlight exclusivity. Because the Phoenix TV brand carries different user affinity and trust, distributing exclusive content from it through the iPhone app has significantly improved our user thickness. During the Q2, within the Phoenix TV column, monthly active users increased by 18% while the click through rate increased by 27% on a sequential basis. Lastly, I'd like to share our progress in revenue diversification. For online reading, we have made significant progress in adding more methods of monetizing our premium IP content. In addition to our cooperation with Himalaya in audio content production, we have also entered into a long term strategic cooperation agreement with Tencent Music Entertainment Group to expand our audio content licensing program to all of its platforms, including QQ, Kugo and Huo Music. For our audiovisual content, we have formed a strategic cooperation with Shandong Film and Television Production Company, a renowned producer of movie and TV programs, to jointly create movies and TV shows based on our copyright IP content as well as to jointly engage investor and sponsors. For our real estate vertical, our performance in the first half of the year met our own expectations despite tightened market regulation, which we believe will likely prevail throughout the rest of the year. In anticipation of a challenging environment going forward, we are proactively streamlining business operations at our local branch office to boost their revenue generation capabilities. We're also optimizing our revenue composition by gradually diversifying our client base to reduce customer concentrated risk. On the e commerce front, our independently developed e commerce platforms was close to completion during the Q2. We have invested substantial efforts in refining our merchandising strategy to establish our competitive differentiation in the e commerce arena. After thorough reviews of our user base characteristics, our operating performance data and third party market research, we have concluded that our competitive edge lies in selecting and marketing products in 2 specialty categories. 1 is high culture and creativity and the other one, health and wellness. Moving forward, we will focus our platform resources on those 2 product categories. Moreover, we have decided to leverage external resources beyond our own user traffic to achieve faster growth for our e commerce business. Our team is actively exploring different ways of utilizing our premium content to generate user from third party platforms such as WeChat. We'll also leverage our content production capabilities in various vertical channels such as Phoenix Lab, food and beverage, health and wellness, culture and reading to effectively close the loop of vertical content to specialty commerce. In summary, while we are fully aware of the multitude of challenges we are currently facing, we remain confident in our business prospects as we zero in on our core competency in original content creation, rely on our operational focus, expand our content metrics and adjust our distribution strategies. With that, I will now turn the call to our CFO, Edward Lu, to provide a closer look into our quarterly financials. Thank you, Shuang, and thank you all for joining our conference call today. Our total revenues in the Q2 of 2021 were RMB 256.7 million, representing a decrease of 17.8% from RMB 312.3 million in the same period of last year. I will now provide some additional color on revenues during the Q2 of 2021. Net advertising revenues in the Q2 of 2021 were RMB233 1,000,000, representing a decrease of 18.6 percent from RMB286.3 million in the same period of last year, mainly due to the reductions in the advertising spending of advertisers from certain industries in the period. Paid services revenues in the Q2 of 2021 decreased by 8.8 percent to RMB23.7 million from RMB26 1,000,000 in the same period of last year. Revenues from paid content in the Q2 of 20 21 decreased by 32.4 percent to RMB9.6 percent 1,000,000 from RMB14.2 million in the same period of last year, mainly due to the trend towards free online reading in the online reading market. Revenues from e commerce and others in the Q2 of 2021 increased by 19.5% to RMB14.1 million from RMB11.8 million in the same period of 2020, mainly caused by the increase in revenues from e commerce business. Loss from operations in the Q2 of 2021 was RMB34.8 million compared to income from operations of RMB25.6 million in the same period of last year. Operating margin in the Q2 of 2021 was negative 13.5% compared to positive 8.2% in the same period of last year. As Shuang mentioned, we have made a strategic decision to increase our investment in boosting our original content production capabilities. While such investment will impact our profit margin in the short term, as we're managing our expenses prudently, we believe that it will help boost our competitive advantages and revitalize our growth trajectory. Non GAAP loss from operations in the second quarter of 2021 was RMB30.1 million compared to non GAAP income from operations of RMB27.8 million in the same period of last year. Non GAAP operating margin in the Q2 of 2021 was negative 11.7% compared to positive 8.9% in the same period of last year. Net loss from continuing operations attributable to ifeng in the Q2 of 2021 was RMB7.1 million compared to net income from continuing operations attributable to ifeng of RMB2.8 million in the same period of last year. Non GAAP net loss from continuing operations attributable to ifeng in the Q2 of 2021 was RMB2.1 million compared to non GAAP net income from continuing operations attributable to ifeng of RMB23.7 million in the same period of last year. Moving on to our balance sheet. As of June 30, 2021, the company's cash and cash equivalents, term deposits, short term investments and the restricted cash were RMB1.51 1,000,000,000 or approximately US248.9 million dollars Finally, I'd like to provide our business outlook for the Q3 of 2021. We are forecasting total revenues to be between RMB237.9 million and RMB282.9 million. For net advertising revenues, we are forecasting between RMB 236 point 7,000,000 and RMB 256,700,000. For paid service revenues, we are forecasting between RMB21,200,000 and RMB26,200,000. Looking ahead, we will continue to prioritize the attraction and retention of users through the production of exclusive and original content. At the same time, we aim to execute more product upgrades to refine our user experiences and improve our content operations, which should ultimately fuel the growth of our brand equity. In line with this effort, we will also focus on bolstering our operating efficiency, investigating new monetization strategies and improving our revenue stream mix. Such efforts will allow us to enter a new growth cycle and further improve our overall profitability. This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Sheru Zhang of 86 Research. Please ask your question. Good morning, management. Thank you for taking my question. I have one question regarding your ad business. Can management share more color on the drivers for ad business growth in the Q2? So just for that, we can better understand how you see that will trend? And any major initiatives should we expect in second half to further support the growth? Hello, this is Edward speaking. Actually, this is a very good question. Actually, our brand advertising business is still facing challenges in revenue growth. During the quarter, advertisers in certain industries reduced their marketing spending. For example, clients in auto industry, our advertising business mostly important revenue source. But because of the ongoing shortage of auto chip supply, auto industry production capability was reduced and lower sales targets forced the industry clients to cut their ad spending. Advertisers in other industries, such as real estate, also trimmed their advertising activities as a result of the tightening regulatory environment. Also, during the Q2, COVID-nineteen resurged in Southern China. The execution of some of our important offline operations and events in the region had to be put on hold. This, of course, also negatively affected our ad revenues in the Q2. But in the meantime, various short video and social media platforms contain an increasing portion of market share in the online advertising industry. So we are, at the same time, facing intense competitions as well. Having said that, we have carefully reviewed our business operations, reevaluated our sales team and made timely operational adjustments to better prepare for the challenges ahead. We have assessed our industry and customer mix as well as our regional market dynamics to exploit more sales opportunities and create new incentive schemes around business development to acquire more new customers and enter new industries. Actually, advertisers' demands for strategic branding and marketing are always evolving. They now require more comprehensive marketing solutions instead of single ad products. Aside from our signature events and regular premium content offerings, actually, we are leveraging our user traffic and influence on social media and short video platforms, including those generated by our MCN influencers to enrich our products and service offerings. Also, as Shawn mentioned earlier, like adjustments to our original content strategy is very important as well. This will further enhance our brand. This combined with our strategic planning in various industry verticals such as tourism, health and wellness and automobiles will help us improve user loyalty, increase brand influence and ultimately drive the growth of our advertising business in these sectors. Last but not least, utilizing our international perspective, we are actively launching official accounts on social platforms overseas, such as Facebook and YouTube to further amplify our global brand presence and influence. At the same time, we have utilized our MCN platform to sign money overseas KOLs with international backgrounds. I believe these efforts will create enormous value for large scale corporations in China, helping them to expand their international exposure and conduct more overseas branding activities. Thank you. And I hope I have answered your question. Yes, that's very helpful. Thank you. Your next question comes from Carmen Zhang of First Shanghai Securities. Please ask your question. Hi, management. Thanks for taking my question. Could management please share some additional information regarding your operations on 3rd party social media and short video platform? And how do you plan to monetize traffic generation from there? Thank you, Karen. This is Shuang. We're definitely becoming more focused on our 3rd party platforms. This platform is becoming more and more important because it first can function the channel for our premium content distribution, also becoming a very important source of traffic and therefore, monetization opportunities. In terms of brand advertising, our 3rd party platform traffic has provided existing advertisers with more opportunities to heighten their brand exposure as well as reach more potential consumers on 3rd party platforms. It will support our brand advertising revenue in return. Aside from brand influence, we also believe the in-depth commercial value of these traffic has yet to be fully unleashed. They have helped us to access our large client base with growing demands for content marketing, notably those in the FMCG industry. Also, since an increasing number of consumers start shopping on social media platforms, such as Douyin, Quayshow and WeChat, the large follower accounts, which we have accumulated on these platforms, will also drive our e commerce business growth. As such, we have laid out a detailed action plan for our operation on the 3rd party platforms. We have a specific aim to further explore their commercial value. First, we need to concentrate on resources on developing top tier accounts on 3rd party platforms and focus on quality over quantity. We have also categorized our accounts on 3rd party platforms into different groups for varied purpose. For example, our iPhone account on Weibo, given its broad content coverage, with more than 20,000,000 followers, we plan to use it to fortify our brand influence rather than to drive monetization going forward. On the other hand, we have our vertical content accounts, such as finance and economy and fashion our IP content accounts, such as Livings, Zaiyunjian and the accounts of our MCN's contracted influencers. These accounts target more specific audience base with a more detailed user profile. They are planned to be the main category for monetization. Also, our focus on building content genre differs from platform to platform in order to attract quality traffic and targeted followers as the characteristics between platforms are quite different. For example, WeChat has a large user base for finance and culture availability for tech and knowledge and so on. On. These plans would not only work with streamlined operational process and effective performance evaluation. We have established quantitative performance indicators such as numbers on content publishing, article views, followers, reshares and comments across different platforms. By evaluating these metrics, we can decide whether or not we have met our operational targets. Along with our persistent focus on content quality and influence as well as our sales efforts, we believe our client base and average revenue per customer will both increase. And of course, the commercial value of these traffic will naturally fall. Yes, this is my answer. Thank you. I would now like to hand the conference back to Jane to continue. Thank you, operator. We have come to the end of our Q and A session and our conference call. Please feel free to contact us if you have any further questions.