Ladies and gentlemen, thank you for standing by, and welcome to the Phoenix New Media 2018 second quarter earnings call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today, Wednesday the 15th of August, 2018. I would now like to hand the conference over to your first speaker today, Ms. Qing Liu. Thank you. Please go ahead.
Thank you, operator. Thank you. Welcome to Phoenix New Media second quarter 2018 earnings conference call. I am joined here by our CEO, Mr. Shuang Liu, and CFO, Ms. Betty Ho. For today's agenda, management will provide us with a review on the quarter and also include a Q&A session after the management's prepared remarks. The second quarter 2018 financial results and webcast of this conference call are available at the investor relations section of www.ifeng.com. A replay of the call will be available on the website in a few hours. Before we continue, I refer you to our safe harbor statement 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, Xin. Good morning and good evening, everyone. We are pleased to report that in the second quarter of 2018, while preserving our strong media DNA, we streamlined our resources and made significant progress in our product and content operations. Experiencing the continuous growth momentum, our advertising revenue generated from our iFeng app has increased by 43.2% in the second quarter of 2018 under the old accounting standard. During the quarter, we continued to cooperate closely with the government regarding the enforcement of online content regulations in China. For this purpose, we leverage our technology capabilities to optimize our algorithm, significantly augmenting the efficiency and accuracy of our content library's regulatory compliance process. In doing so, we try to strike a fine balance between maintaining market competitiveness and regulation compliance while upholding our commitment to delivering original, unbiased, and high-quality news coverage to our users.
Turning to our product innovations. Let me give you an update on our ongoing effort to improve our iFeng News app and our progress in this past quarter. As part of our ongoing effort to gather customer feedback, we organized a social event in June where we encouraged our users to identify our shortcomings and deficiencies. Through the feedback that we received, we were able to improve our products and services. In addition, to ensure the optimal user experience, we significantly accelerated the process of product improvements to once every other week. We believe that our continuous product enhancement will not only maintain and engage existing users, but also attract new users, and thus accelerate our revenue growth for the remainder of 2018.
The average time spent by users on our video content increased substantially, and video content accounted for half our users' total time spent in the second quarter. With respect to our live broadcast and video streaming strategies, our efforts have already started to bear fruit. Looking ahead into the second half of 2018, we will integrate video content into our WeMedia operations and aggressively recruit more WeMedia content producers to establish accounts on our platform. In addition, we will produce more short-form videos from the enriched content library of Phoenix Satellite TV, of which they have outstanding and high-quality content in history, culture, and interviews. Meanwhile, we plan to strengthen our original video content production capability in all of our vertical channels. By leveraging the influence and credibility of our brand, we continue to differentiate ourselves from the competition, focusing on original, unbiased, and high-quality news.
Building upon our strengths, we have increased our investments to further improve our content production capabilities, especially for exclusive content. Recently, we had two exclusive high-profile reports on two influential leaders. One was Premier Li Keqiang's speech on the promotion of the World Trade Organization at 9th China-Germany Economic and Technical Cooperation Forum in July. The other one was Vice Premier Mr. Liu He following his visit to the U.S. Topics discussed include the latest developments of China-US relationship with our independent commentary. Such exclusive coverage not only created a hike in our page views, but also in the frequency of sharing on social media platforms.
We aim to provide our users with the latest, the fastest, high-quality, time-sensitive news like current affairs and finance, et cetera, we'd also like to provide more diversified entertainment and knowledge-based, non-sensitive information to increase the stickiness and time spent, and more importantly, the overall experiences of our users. The credibility of sensitivity and uniqueness of our high-quality content, combined with the capabilities of our AI-based upgraded smart distribution system, has improved our coverage of major social events. We pride ourselves on the importance of our original content, especially influence our industry-specific vertical channels. We analyzed the ROI of our content investments in a concerted effort to optimize the efficiency of our editorial team.
We have established multi-level standards for original content using measures such as social media distributions, and click-through rates, et cetera, to ensure that all the reports and analysis that we generate are of the highest quality for all of our consumers. To stay at the forefront of the industry, we are also increasing our investment in the creation of intellectual properties. So we see the continuous innovation of our IPs as crucial to our long-term growth. For example, we have pioneered a new form of infotainment that marries elements of talk shows and reality shows with features of documentaries to inform and entertain our users at the same time. Our original content will specifically increase our exposure with the upper and middle class and younger demographics.
These new and innovative ways of monetizing our IPs will not only increase the considerable influence our brand already has but also allow us to utilize our strong sales and marketing capabilities. We believe that these additional premium services, as well as the brand influence that Phoenix New Media carries, will help us further expand our users and client base. Lastly, let me address our strategy concerning our investment in Yidian. During the quarter, Yidian continued its steady growth trajectory in terms of DAUs and revenue. Yidian's DAU achieved high single-digit growth compared with 60 million in April. In addition, building upon the successful partnerships with Xiaomi and OPPO on content operations, Yidian entered a strategic agreement with another leading handset manufacturer to provide a full range of information services for its web browsers, further accelerating the traffic growth on Yidian.
As we mentioned in previous earning calls, the board of Yidian has been considering the option of listing the company domestically. Should Yidian choose a listing in the A-share market , we'll be required to divest our equity interest in it prior to the listing due to PRC regulatory restrictions. We have had discussions with Yidian key stakeholders, as well as the board of directors. While nothing has been finalized or decided yet, we tend to think that the A-share market is the preferable listing value for Yidian, where it can achieve an optimal market evaluation and thereby provide a better investment return to us when we exit the investment. Taking Yidian's extraordinary performance during the last 18 months into consideration, we believe it is reasonable to expect its valuation to be doubled compared with the previous round of financing, which will generate a sizable return on our previous investments.
We plan to channel the potential use of proceeds from Yidian transaction to expand our user base and increasing our user stickiness . We seek to energize our robust growth trajectory through a combination of organic growth and innovation with strategic acquisition. In organic growth, we continue to sharpen the competitive edge of our iFeng News flagship app and fortify our leadership in online news media industry. At the same time, we'll also actively explore strategic investment opportunities in complementary applications, especially those that have already established a community of younger demographics. In today's consumption upgrade area, we're working proactively to satisfy Chinese consumers' demand for services beyond share information editing and distribution. In addition to providing comprehensive information to our users, we're also enabling them to cultivate a happy, healthy, and a fulfilling lifestyle through an ecosystem we're currently building. Such ecosystem targets the upper and the middle class.
It shall be comprehensive, closed-looped, and used in lifestyle-related and mobile-ready verticals such as finance, wealth management, housing, food, travel, health, parenting, and so on. It should enable us not only substantially improve our user thickness, but also expand our business model to encompass transaction or subscription-based model and a variety of new revenue streams beyond our core advertising model. Leveraging our pervasive brand influence and our strong monetization capabilities, we are confident that our lifestyle-oriented, vertical-specific ecosystem will seamlessly complement our existing service offerings. In addition to exploring these new innovative initiatives, we will maintain our unwavering commitment to strengthening our professional journalism and our leadership in the Chinese online media space. At the same time, we are optimistic that our new initiative will potentially offer better services to our users and enable us to create long-lasting value for our shareholders.
With that, I will turn the call over to Betty Ho.
Thank you, Shuang, and thank you all for joining our conference call today. I am pleased to announce that we are seeing strong revenue growth momentum from our mobile app. Before I update you on the financial details, I would like to shed light on the impact of the newly adopted accounting standard, ASC 606, namely revenue from contracts and customers, which took effect from January 1, 2018. By applying the modified retrospective method under the new standard, sales taxes and surcharges previously presented as a component of cost of revenues are now presented as a reduction item of revenues and some advertising for advertising barter transactions previously not recognized as revenues are now recognized as revenues. For comparative purposes, here we will provide our financial highlights under the old accounting standard, ASC 605.
For the amount and ratios under the new accounting standard, please refer to our earnings release where we have provided financial items under both the old accounting standard and the new accounting standard. Let me take you through our financial highlights for the second quarter of 2018. The amounts mentioned here are all in RMB, unless otherwise noted. The differences between GAAP and non-GAAP consist of share-based compensation and income or loss from equity investments, including impairments. iFeng's total revenue for the second quarter of 2018 were RMB 396.7 million, which is in line with our previous guidance and represented an increase of 0.9% from RMB 393.3 million in the same period last year. Non-GAAP net income attributable to Phoenix New Media Limited for the second quarter of 2018 was RMB 53.7 million, representing an increase of 83.7% from RMB 29.3 million in the same period last year.
Non-GAAP net income per diluted ADS in the second quarter increased 81.1% to RMB 0.74 from RMB 0.41 in the same period last year. Starting with revenues, net advertising revenues for the second quarter of 2018 increased 2.5% to RMB 347.3 million from RMB 338.7 million in the same period last year. The increase was due to the consistently increase of 23% in mobile advertising revenue, which was partially offset by a 26.6% decrease in PC advertising revenues. Out of which, the mobile advertising revenues from iFeng app grow robustly in second quarter, representing an increase of 43.2% to RMB 200.8 million compared with the same period last year. Paid services revenue for the second quarter of 2018 were RMB 49.4 million, compared with RMB 54.5 million in the same period last year.
Revenues from digital entertainment were RMB 40.1 million, compared with RMB 45.6 million in the same period last year, which is due to a 29.3% decrease in the MVAS revenue, mainly resulting from a decline in users' demand for services provided through telco operators in China. Revenues from games and others for the second quarter were RMB 9.3 million, representing an increase of 3.3% from the same period last year. This is mainly due to the increase in revenues derived from other new businesses, while the revenues generated from web-based games operated on the company's own platform were still declining. Non-GAAP gross profit for the second quarter was RMB 230.1 million, compared with RMB 226.6 million in the same period last year. Non-GAAP gross margin for the second quarter of 2018 was 58%, compared with 57.6% in the same period last year.
Non-GAAP content and operational cost as a percentage of total revenue was 27%, as compared to 26.6% in the same period last year. Revenue sharing fee as a percentage of total revenues was 3%, as compared to 3.8% in the same period last year. Bandwidth cost as a percentage of revenues was 3.5%, which is consistent with the same period last year. Sales taxes and surcharges were RMB 34.3 million for the second quarter of 2018, as compared to RMB 33.2 million in the same period last year. Non-GAAP operating expenses for the second quarter of 2018 were RMB 196.6 million as compared with RMB 196.2 million in the same period last year. Non-GAAP operating income for the second quarter was RMB 33.5 million as compared to RMB 30.5 million in the same period last year. Non-GAAP operating margin for the second quarter was 8.4% as compared to 7.7% in the same period last year.
Net income attributable to iFeng for the second quarter of 2018 was RMB 49.9 million, representing an increase of 100.2% from RMB 24.9 million in the same period last year. Non-GAAP net income attributable to iFeng for the second quarter was RMB 53.7 million, as compared to RMB 29.3 million in the same period last year. Non-GAAP net income per diluted ADS for the second quarter was RMB 0.74 as compared to RMB 0.41 in the same period last year. I will discuss our balance sheet. As of June 30th, 2018, the company's cash and cash equivalents, term deposits, and short-term investments and restricted cash were RMB 1.32 billion or approximately US$199.4 million. Restricted cash represents deposits placed as a security for banking facilities granted to the company, which are restricted as to their withdrawal or usage. Lastly, I'd like to provide our business outlook for the third quarter of 2018.
As we have stated above, the company has adopted the new revenue standard ASC 606 since January 1st, 2018. For comparative purposes, we are forecasting total revenues under the old revenue standard. Revenue guidance under the new revenue standard is provided in our earning release to be between RMB 413.2 million and RMB 428.2 million, representing a decrease of 2.9% to an increase of 0.6% year-over-year. For net advertising revenue, we are forecasting between RMB 378 million and RMB 388 million, representing an increase of 4.1% to 6.9% year-over-year. For paid service revenue, we are forecasting between RMB 35.2 million and RMB 40.2 million, representing a decrease of 43.6% to 35.6%. In summary, we are pleased to our sustained growth momentum and margin improvements this quarter. As Shuang stated earlier, we will remain committed to strengthening our competitive advantage in our content offering and product innovations to further solidify our market-leading position.
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 session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from the line of Frank Chen from Macquarie. Please ask your question.
Hello, management. Thanks for taking my question. I have basically three questions. First, on the guidance. The 3Q guidance looks pretty weak, especially you guide the total paid services to decline around 40% year-over-year. Could you share more color on the reason behind this set of weak guidance? The second question is on margin. We did a quite good job on cost control this quarter, especially on control over sales and marketing expense. I wonder how should we look at the margin trend in the rest of this year. Do we have an updated budget on the traffic acquisition for this year? The third question is on Yidian. Can you share more color on Yidian's revenue growth on the domestic listing timeline? Just to be clarified, will we hold any stake in Yidian after its domestic listing?
Thank you, Frank. Let me answer your question first. If Shuang wants to cover additional information, he will add later. For your first question about the guidance, actually our iFeng app advertising revenue increased by 43% in the second quarter. It was mainly driven by increasing of pricing and the number of advertisers. For the rest of the year, we have confidence that the strong momentum of the app revenue will be continued. We expect the app revenue will be increased at least at par with industry at about 40%. We also have new initiatives to boost our revenue growth by creating our own IP and to use big data to enhance our algorithm for our advertisers to be placed to the users at a most relevant way.
We have launched three IP originally last year, which potentially could become a lasting IP where we saw high demand for our brand advertisers. Including all these initiatives for the full year, we remained very optimistic that our advertising revenue will have a double-digit growth, as we mentioned in our first quarter earnings call. That is for the guidance. For the paid services, we are seeing a further strengthening of the regulations regarding to the MVAS business. The telecom actually in place a very heavy regulations on that. The MVAS services will be further declining at about 40% per year. That actually was very consistent with our previous expectation, no surprise here. As for the margin, in terms of the TAC, traffic acquisition expenses, as we mentioned earlier, last year we spent about RMB 320 million in our TAC cost.
This year, we increased to about RMB 400 million. We have not increased our budget, but this budget should be enough for the rest of the year. As for the margin, we remain our expectation. As we mentioned earlier in our first quarter call, it has not been changed. As for the Yidian revenue growth, as we mentioned earlier, in 2017, its revenue was tripled. This year, we expect the revenue to be doubled. Also, Yidian's DAU experience in two months as compared to April this year, has experienced a high single-digit growth from 60 million. It's very healthy and strong growth within Yidian. As for their A-share listing plan, as Shuang mentioned in his script, actually, we don't have a definitive plan for Yidian whether to be listed on A-share or overseas.
Apparently, in terms for the valuation, it's better for Yidian to be listed on A-share. Nothing has been concluded. Actually, Yidian has doing its Round F financing, and it's expected to be completed by the end of the year. I hope that answers your question. Shuang, do you have anything to add? Yeah.
Your next question comes from the line of Natalie Wu from CICC. Please ask your question.
Hi, [audio distortion]. This is [Jalen] speaking on behalf of Natalie. Thanks for taking my question.
We can't hear you very clearly. Can you
Yeah. Is this okay now?
Yeah, better. Yeah.
I was wondering, could management share some plan on future user acquisition? Given that smartphone shipment in China is slowing down recently, we are seeking more diversified channel for user growth. Do management have any targets for MAU or DAU in the next year? Thanks.
Hi, this is Shuang. As Betty mentioned in her remarks, actually our total user acquisition cost for the second half of the year will remain the same, will remain unchanged. We are going to hold a very cautious approach to rigorously analyze the ROI on user acquisition. Looking forward for the second half of this year, I think we will do better than the first part of this year. We are going to increase our investment in our content library, strengthening our algorithm-driven computing team, and further recruit more talents on our algorithm team to further optimize our user experience. Our goal is to grow our flagship app, iFeng News, more robustly. In addition, we are also internally exploring new product to further increase our user base. For competitive reasons, we cannot disclose too much.
This product will definitely focus on younger demographic, will play emphasize on interaction and social networking. Looking forward in the mid-term to long-term range, as we mentioned in our opening remarks, there is a high possibility we are going to let the Yidian to go public domestically. That provides us with a chance to exit our investment. With the potential return of our investment, we are going to also looking at opportunities to do further strategic acquisition to extend our user base, especially in younger demographic.
Thanks so much.
That's the overall our user acquisition and user extension game plan.
Yeah, got it. Thank you so much.
Thank you.
Your next question comes from the line of Binb in Ding from JPMorgan. Please ask your question.
Hey, good morning Shuang zǒng, Betty zǒng, and Qing Liu . Thanks for taking my question. I have a question on your content strategy. Can management elaborate on your content strategy in this and next year? Also, a related question is your content investment. Can you give us a sense regarding the content budget in this and next year? You mentioned a few key areas of content investments, including WeMedia content, including documentary programs, video, et cetera. What are the main areas to spend this budget and what's the implication on our profitability? Thank you.
Hi, this is Shuang. Thank you for the questions. I think our content strategies covers four areas. The first is our breaking news. That's where our specialty, our expertise lies in. Recently, breaking news kept coming on topics including international relations, economics, entrepreneurships, and celebrities, et cetera. User demand for cars and authoritative and reliable information on those hot topics is emerging. We will continue to leverage our strength in the timely capture and professional editing of breaking news, and deliver the most insightful and authentic content to our users to increase our brand equity and user stickiness. We shall not diminish, but rather augment our strength in professional editorial content. Secondly, our original content production. I think we recently conducted a thorough review of our original content categories. Afterwards, we have eliminated some categories with little traffic, monetization or social impact.
Going forward, we will concentrate our resources in providing original content in roughly 20 categories, including cultural affairs, history, fashion, finance, economics, and others. We will place a greater emphasis on the productization, monetization, and multi-channel marketing of our content. Through original content production, we aim to accentuate the uniqueness of our brand, intensify users' reliance on our platforms, and enhance our monetization capabilities. Third thing is our WeMedia. Actually, we have reorganized our WeMedia operation team and put new leadership in place. We have conducted a thorough review of our WeMedia user accounts and remapped our course of collaboration with Yidian. We have laid out a more scientific compensation structure for our WeMedia content producers based on their traffic generation results.
We also reinforced the coordination between WeMedia and various vertical channels content production, and strengthened the top-tier WeMedia account recruitment, operations, and monetization in each vertical channel. For competitive reasons, we cannot quantify too much on the exact RMB amount investment in those areas, will be more than we had expected. I think this will definitely bear fruit in the mid to long-term range. We'll further enhance our user stickiness and create even more opportunities for monetizations. Also, you mentioned our video IP initiatives. For video IP, as we all know, user attention is increasingly shift toward video content, so a re advertising dollars. Advertisers love to sponsor proprietary video content to promote their own brand influence. Phoenix New Media has extensive experience in producing original video content in interviews, histories, and culture.
We are exploring a new form of show, which has the perfect combination of elements of both talk show, reality show, and interviews. This will help us to attract younger, white-collar demographics. Starting this year, we have increased our investment in proprietary content production, especially in, as I said, in integrating celebrity interviews, talent shows, and variety shows. I think because we have very solid advertiser network, we are good at monetizing culture and history and the celebrity interviews-oriented shows. This further increased investment in video IPs will not have significant impact on our bottom line. Maybe Betty have anything to add to that.
No.
Okay.
Binbin?
I hope this answers your question.
Yeah, that's very helpful. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further question at this time. I would now like to hand the conference back to today's presenter. Please continue.
Thank you, operator. We have come to the end of our Q&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.
Thank you.
Thank you.
Bye.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.