Earnings Call: Q4 2020

Mar 16, 2021

Ladies and gentlemen, thank you for standing by, and welcome to Phoenix New Media Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Jing Li. Thank you. Please go ahead. Thank you, operator. Welcome to Phoenix New Media's Q4 2020 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu and Chief Financial Officer, Mr. 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 Q4 2020 financial results and webcast of this conference call are available on our website at ir. Ifeng.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. Good morning and good evening, everyone. We delivered encouraging results in the Q4 of 2020 despite the ongoing impact of COVID-nineteen on the macro economy and its corresponding effect on China's advertising industry. Meanwhile, quarterly revenues were in line with our previously provided guidance range, reaching RMB362.2 million for the period. Our success in the face of such uncertainty further demonstrated the capabilities of our authoritative news coverage and established brand influence, our consistent cultivation of Ifeng's content ecosystem and the success of our new business initiatives. In 2020, the escalation of the COVID-nineteen pandemic significantly affected people's lives and created one of the most challenging social events. During this period of fear and confusion, our professional journalism enabled us to consistently deliver high quality news coverage, inform the public about effective virus prevention methods and dispel rumors through professional fact checks. For example, during the Q4, Tumor Intelligence Agency, Zhongliuqinhuaju, which is one of our We media accounts, shed light on hot topics such as COVID-nineteen vaccine development progress and the vaccine side effects through a steady flow of timely, in-depth and scientific analysis reports. Those reports led to not only strong followings from our users, but also frequently republished on other social media platforms and gained additionally industry recognition from traditional media outlets. In the meantime, our in-depth and comprehensive coverage of 2020 U. S. Presidential election, which originated from our platform and permitted through the Internet, generated record breaking viewership. Through our official account on Weibo alone, our election related content garnered over 6,000,000,000 views. During the run up to the election, we leveraged Phoenix TV's exclusive live news reports from its North America station and launched on our platform a second to none real time feature update of ballot counting status, thus accomplishing a viewership of over 10,000,000 on the Election Day. Also, we provided our users with insightful interpretations of the U. S. Election results as well as their societal and political impacts by hosting exclusive interviews with SOF leaders such as Professor Mr. Zhengping Yan. In addition, through our We media accounts, such as Tangbo, we carried take by take coverage of the daily trips and turns throughout the presidential election and published original commentary on Biden's victory, both of which went viral on social media during the most intense era of elections. To further comment our brand influence, we produced a series of high profile events during the quarter. For example, we hosted the 2020 Ifeng Fashion Awards in December and generated over 1,000,000,000 views in total. Also, we organized the 2020 Ifeng Beautiful Childhelp Charity Gala through cooperation with a number of well known charities and raised more than RMB10 1,000,000 in donations from children in need. Since this event's inception 13 years ago, we have helped to raise a cumulative amount of over RMB227 1,000,000. In addition, our 2020 iPhone Finance Summit at the end of 2020 featured a stellar lineup of distinguished figures, ranging from state level signatories to authority figures in the fields of politics, finance and academia, such as former Hong Kong Chief Executive, Mr. Liang Zheng Yin and 2013 Nobel Prize winner, Mr. Robert Shiller. For online reading, by integrating our Ample content library and IP production experience, we further explored several new and innovative opportunities such as short form video series. In the quarter, we brought our key short form video series, Adiuli Zadu, Ichu TV to Quixuan, one of China's top online short video platforms. The show has accumulated more than $139,000 42,000,000 views on Kuaishou by year end, and we were awarded the Kuaishou's best partner of IP in 2020. In addition, for real estate, we leverage our established editorial capabilities and AI algorithm to launch a new real estate media platform, Feng Taixin, through which we provide homebuyers and property developers with real time industry information, in-depth industry reports and detailed data analysis. This platform has shown significant monetization potential to date, generating a total contract value of more than RMB30 1,000,000. Now turning to our flagship news app, Ifeng. We implemented a number of initiatives recently to enhance our content ecosystem, which will serve as our core growth driver going forward. 1st, our editorial recommendation and data analysis directed us to reach our platform content by expanding the number of We media accounts to ensure that the accounts remains high quality, differentiated and appealing to users. Secondly, through a combination of editorial recommendations and algorithm based user segmentation, we continuously sharpen the quality of our premium content library. For example, by allocating more exposure to the reader's digest, Jinpin Shendu module. We increased users' attainment of eye cloud information. Certainly, by combining our editors' professional journalism with our advanced software algorithm, our team scaled the entire Internet to capture the hottest topic, optimizing their aggregation and distributed the related content through our trendiness and satisfy our users' needs of breaking news and trending topics. In addition, we continue to reinforce our exclusive access to Phoenix TV's video content library to expand our own resources of quality video content, solidify our brand influence and distribute highly solid app content across the Internet. Moreover, we steadily improved our distribution strength for premium content on other social media platform to bolster our content exposure and channel additional user traffic back to our own products. By 2020, the number of online video users in China has reached 9 certain minutes, and the overall user time spent for online video has also ramped up significantly. Seizing the massive market opportunities emerging from this visualization trend, we have been proactively developing our video offerings with a 3 pronged strategy. The first is leveraging Phoenix TV's massive library of evergreen content to better satisfy our core users' needs for differentiated content and set our brand apart from the competition. The second is developing our unique and original video programs in various verticals to further diversify our content productions. The third is identify talented video content creators who are active in those areas that align with our overall content strategy and brand image. By providing them with the necessary support and assistance, we still improve their content production efficiency and generate more premium content on our platform. By attracting these top content creators with clearly defined goals and responsibilities, we believe that our content ecosystem will harvest the fruitful results in the near future. As we help content producers and short form video content flourish on iPhone, We have also steadily optimized our AI algorithm and audience segmentation. The average user time spent by user on iPhone grew by 30% on a year over year basis, while its user retention rate grew by 23% in the quarter. Now, I would like to provide everyone with an update on our new business initiatives. In November, leveraging our massive base of users, we tend to possess advanced education, classic taste and strong purchasing power. We upgraded our online e commerce brand and officially launched Phoenix Premium Products, Huang Jia Shanghai. To cater to their lifestyle needs. We have formed a team of professional buyers to select high end products in categories such as fine culture and creativity, food and wine and health and fitness. By employing rigorous standards in our selection of bestselling products, we will not only achieve higher gross margins, but also satisfy the demand of China's rising media platform for better and healthy lifestyles. The combination of our massive user base, original content production capabilities and a sophisticated recommendation algorithm has enabled us to reduce our e commerce customer acquisition costs, enhance our product marketing position and boost our user retention rates as well as transaction conversion rates. As prime a prime example is our best selling book product, a brief history of the World on Maps, which overtook the sales of comparable Pampa products on other e commerce platforms and achieved a transaction conversion rate of 43.3%. In 2021, we plan to utilize a live inventory model for e commerce initiative, optimize our product selection, strengthen our supply chain management and improved our transaction conversion rates for our products. With the continuous improvement in our e commerce initiatives operating efficiency, we should be able to expand its profit margin accordingly. Moreover, by leveraging our unique integration of original content production and e commerce, we'll continue to explore innovative e commerce forms, such as live broadcasting and short form video onto other social media platforms to fuel the momentum of our e commerce business. In conclusion, as we uphold our professional standard of producing authentic, authoritative and trustworthy content, we've made meaningful progress in enhancing our content ecosystem, expanding our product offerings and cultivating new growth initiatives. While we recognize the current difficulty in forecasting for 2021, with the economy gradually recovering in the post pandemic world, we're well positioned to revitalize our growth engine and generating lasting shareholder value. With that, I will turn the call to Edward, our CFO, to go through the financial results. Thank you, Shuang, and thank you all for joining our conference call today. Our total revenues in the Q4 of 2020 were RMB362.2 million, in line with our previous guidance range and representing a decrease of 9.5 percent from RMB400.4 million in the same period of last year. This decrease was primarily due to the negative impact of the COVID-nineteen outbreak. I will now provide some additional color on our revenues during the Q4 of 2020. Net advertising revenues in the Q4 of 2020 were RMB336.7 million, representing a decrease of 7.3 percent from RMB363.1 million in the same period of last year. This decrease was primarily attributable to the previous stated reason. Paid services revenues in the Q4 of 2020 decreased by 31.4 percent to RMB25.5 million from RMB37.3 million in the same period of last year. Revenues from paid content in the Q4 of 2020 decreased by 46.6 percent to RMB11.2 million from RMB20.9 million in the same period of last year, which was mainly due to the tightening of rules and regulations on digital reading in China and in line with the broader market conditions, reflecting the trend towards free online reading. Loss from operations in the Q4 of 2020 was RMB28.8 million, improving from RMB108.1 and 8,100,000 in the same period of last year. Operating margin in the Q4 of 2020 was negative 8%, improving from negative 27% in the same period of last year. Non GAAP loss from operations in the Q4 of 2020 was RMB3.3 million, improving from RMB104.2 million in the same period of last year. Non GAAP operating margin in the Q4 of 2020 was negative 0.9%, improving from negative 26% in the same period of last year. Net income from continuing operations attributable to Ifeng in the Q4 of 2020 was RMB444.8 million compared to RMB902.5 million in the same period of last year. Non GAAP net loss from continuing operations attributable to ifeng in the Q4 of 2020 was RMB8.2 million, improving from non GAAP net loss from continuing operations attributable to ifeng of RMB99.2 million in the same period of last year. Moving on to our balance sheet. As of December 31, 2020, the company's cash and cash equivalents, term deposits, short term investments and the restricted cash were RMB1.67 billion or approximately US255.8 million dollars Finally, I'd like to provide our business outlook for the Q1 of 2021. We are forecasting total revenues to be between RMB210.2 million and RMB230.2 million. For net advertising revenues, we are forecasting between RMB192 1,000,000 and RMB207 1,000,000. For paid service revenues, we are forecasting between RMB18.2 million and RMB23.2 million. Looking into 2021, are actively implementing those measures, which can help us to overcome the current macro challenge and recover our growth. We will continue to invest in product offering upgrades, content strategy refinements, brand new stream diversification and the user base expansion. Our investments in these areas have already enabled us to develop a strong pipeline for new growth initiatives, thereby unlocking more opportunities for us to explore new and effective monetization systems. Going forward, our unique combination of content leadership, premium brand equity and product innovation will continue to serve as key competitive differentiation. As such, we remain confident in our ability to navigate the current industry headwinds and strengthen our position at the forefront of China's new media industry. This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead. Ladies and gentlemen, we will now begin the question and answer Our first question comes from the line of Frank Chen from Macquarie. Please ask your question. Hi, good morning. Thank you for taking my question. Actually, I feel very interesting that you mentioned a feel good in your business area in your prepared remarks. Are you going to grow organically or will you seek some sort of M and A to extend your business. So my question is that what's your investment strategy in 2021? Any upcoming M and A should we expect? Thank you. Good morning, Frank. This is Edward speaking. I will answer your question. Actually, this year, we have invested RMB90 1,000,000 cumulatively in 3 industry leading venture capital funds such as Wuyuan Zhiben. These funds have extensive investment experience and proven track record in verticals such as video platforms, e commerce, interactive entertainment, etcetera. This investment should not only deliver a handsome return on our investment, but also expand our access to new innovation, obtain more timely insight in the latest industry trends. And of course, Yanbo has to seize new product opportunities in this constantly changing Internet market environment. Actually, in verticals such as finance and product reviews, we have made meaningful progress in developing some innovative content based products and services to serve a wider range of users. Going forward, we plan to explore more opportunities in additional verticals. Actually, our abundant cash reserve should enable us to upgrade our existing products and construct our content ecosystem and further develop innovative Internet products, so that we can proactively cultivate growth opportunities for the future. This is my answer. I hope I have answered your question, Frank. Yes. Thank you. Thank you, Edward. Thank you. Our next question comes from the line of Shouiro Zhang from 86 Research Limited. Please ask your question. Good morning, management. Thank you for taking my question. I have a question about the ad industry. So it's good to hear that management comment that the economy is gradually recovering. So I'm wondering if management group elaborate a bit more about the macro outlook and the ad budget from key ad verticals for 2021? Thank you. It's a very good question. Actually 2020 was definitely a difficult year because of the COVID-nineteen. For the advertising industry, it's very challenging for sure. Although during the second half of twenty twenty, the economy and ad placements started to gradually improve, many in the but many industries still have not fully recovered to their pre pandemic conditions. When we look at our own advertising income, recent pandemic recurrence in certain locations of China such as Beijing has affected our execution of some important offline advertising events. Also the competitive dynamics in the Internet industry is constantly changing. So it's more compact for the advertising business. Our sales of brand advertising should actually benefit from the continued economic recovery during the Q1 of 2021. When we look deeper into various sectors, our brand advertising mainly concentrate in industries such as auto, finance, liquor and 3C. And those industries should continue to recover. Take the auto industry, for example, China's Passenger Union Association reported that auto production and the sales rose more than like 4 fold year over year in February 2021. Moreover, we plan to expand our market share in brand advertising for the new consumption sector, through cooperating with social media platforms and short video platforms such as Weibo, WeChat and Bilibili, etcetera. Those initiatives should lead to increased revenue contribution from the FMCG sector as well. Additionally, as China continues to bring COVID-nineteen under control, our offline events such as the iPhone Food Festival, Meishi Shengdian, will take place as planned. Those events should have very positive impact on the growth of our brand advertising business. Moreover, we will further enhance our content ecosystem and increase our collaboration with Fink's TV, so that we can attract more high end users and the average user time spent of our product will increase. All these efforts should be very helpful to our sales growth and we expect our brand advertising revenue to reach double digit growth in the Q1 of 2021. And for our Pro Grow Match advertising business, our supply of ads inventory on short video platforms has squeezed the market share of other platforms. Still in the Q4 of 2020, we strengthened our sales and marketing efforts related to many business partners' apps, so that we were able to not only offset the market competition pressure on our programmatic advertising, but also expand our opportunities to monetize traffic on other third party platforms. We expect our revenue from this monetization channels to continue increasing in 2021. At the same time, we allocated more resources to innovating and optimizing features on our existing products, created a better community environment, increased user retention and increased our investment in new product development. The results of our efforts should materialize gradually, lead to an overall improvement in our advertising sales and generate a greater long term value over time. This is my answer to your question. Thank you. Yes, that's very helpful. Thank you. Our next question comes from the line of Lani Zhang from First Shanghai Community. Please ask your question. Hi, management. Thanks for taking my question. We noticed that Phoenix TV has announced the change of their management team. So I wonder what's the impact on phone? Hi. Thank you. This is Huang. Let me answer your question. Phoenix TV's global reporting resource and original content capabilities have been well respected in the industry. And we believe its potential is yet to be fully unleashed. As you said, recently, Phoenix TV's sporting new personnel to management team, they have extensive international backgrounds, significant media management insight and experience and deep government and business contact in Mainland China. We are very confident these 2 executives joining will bring in vigor and more resources to Phoenix TV. This will accelerate its evolution into a truly global multichannel media group and further unleash Phoenix TV's brand potential, exemplify Phoenix TV's voice on the international media stage and enable Phoenix TV to perform a greater role in China's steady integration into the world economy. And we believe as Phoenix TV's media influence extends, its business value should enjoy greater potentials. I hope this will answer your question. Yes, that's very helpful. And thanks. Thank you. There's no more question at this time. I would now like to hand the conference back to today's speakers. Please 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. Thank you for joining us on this call. Have a good day. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.