Ladies and gentlemen, thank you for standing by, and welcome to the Phoenix New Media 2018 first quarter earnings conference call. At this time, all participants are in a listen-only mode. There'll 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, Tuesday the 15th of May, 2018. I'll now hand the conference over to, for a speaker statement, Ms. Nicole Shan. Thank you. Please go ahead.
Thank you, operator, and thank you and welcome to Phoenix New Media first quarter 2018 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu, and Chief Financial Officer, 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 prepared remarks. The first quarter 2018 financial results and the 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 applies 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 CNY.
With that, I would like to turn the call over to Mr. Shuang Liu, our CEO.
Thanks, Nicole. We recorded another quarter of solid results that carries through last quarter's strong growth momentum in our advertising business. Despite of the tightened regulatory environment in China, across the entire online media industry, seasonal slowdown during the Spring Festival in February, and strict media controls during the Two Sessions in March. We are pleased to see that our mobile advertisement remain a strong growth driver, recording a 46.3% year-over-year increase in the first quarter of 2018 under the old accounting standard of ASC 605. Recently, several internet companies were caught upon by the authorities to further regulate their platforms and to ensure that the internet space is free of vulgar and violent content. As China's leading online news provider, it is our responsibility and obligation to work with the government on enforcement of these policies.
Our strong media DNA and our mission to provide high-quality, professional, and unbiased news content allow us to stay at the forefront of the media space. We believe the increased media regulation is beneficial to the whole industry by helping foster a sustainable and healthier market, and will enable us to further realize our mission as a professional and unbiased media in the mid to long run. Meanwhile, we continue to innovate and upgrade our products and services to enhance our competitive advantage as China's leading information provider. In order to differentiate us from our peers, we seek to strike three balances in our content offerings. The balance between time-sensitive news and non-time-sensitive information. For instance, lifestyle, culture, entertainment, or history-related information.
Between public concerns and individual interests, and between eye-catching clickbait with high CTR, click-through rate, while at the expense of quality or accuracy and valuable content that our users generally enjoy reading and are inclined to save and share. Through our coverage of major events and breaking news, we provide our users with timely, high-quality, and unbiased news and information. We're also a pioneer in utilizing AI while providing editorial recommendations to entertain our users and meet their individual interests. Beyond that, we not only keep our users informed and entertained, but more importantly, as a leading internet media company, we have always put high emphasis on our mission to instill value, soften prejudice, and empower them with premium content. During this quarter, we introduced a number of initiatives for the production of original content across our internet-based verticals.
These initiatives are designed to streamline the planning, production, and marketing process of our original content. In addition, we've introduced MCNs, multi-channel network, in suitable vertical channels to enrich our content ecosystem, which in turn should help us better meet the demands of our users as well as advertisers. At the same time, we have also allocated more resources towards video content to diversify our content offering, and it's paying off in the fourth quarter of 2018. We are delighted to report that videos are now surpassing audio, visual, and text to become the most popular form of content on iFeng news app. We're confident that these highly differentiated content offerings and content operation strategies will further strengthen our brand and help us attract and retain more users.
We expect that in the remaining quarters of 2018, we'll see a significant improvement in our user experience and operating metrics as we put more efforts on our original content, enhance our WeMedia content offering. Achieve the aforementioned three balances in our content operations, and hence optimize our content ecosystem. With regard to the advertisers, we roll out Fengyi, a programmatic platform to help our brand advertising clients track and improve the performance of their ads. Starting with clients in the automotive and home appliance sectors, we believe the new platform will allow us to better serve the needs of our clients and maximize their advertising ROI. Specifically, we established copyright sharing partnership with high-quality video producers to develop movies, TV shows, or mobile games based on the literature IPs we own.
For instance, our gaming division is cooperating with a film studio to co-develop TV shows and mobile games based on content from Adventure in the Skies, a martial arts literature IP developed by Phoenix New Media. Finally, on Yidian's side, we were encouraged by Yidian's solid top line and traffic growth in the first quarter of 2018. Yidian's gross revenue for the first quarter tripled compared to that of the same period last year. We're confident that Yidian's close strategic cooperation with OPPO and Xiaomi, its advanced content operations, and its strong monetization performance will enable Yidian to double its full-year revenue in 2018. Yidian's popularity was demonstrated by its performance during the Two Sessions in March. Working closely with several mainstream and statewide media outlets, Yidian's Two Sessions channel aggregated 870,000 related news stories, averaging 7.12 million viewers per daily during the three-week period.
One of the feature stories, Great Power and New Army, which included over 2,800 related news articles, accumulated more than 100 million views. Following the conclusion of the Two Sessions meeting, Yidian collaborated with China Daily to analyze viewer behavior data. We believe such data analysis will help Yidian improve the quality of its future coverage of national events. As we stated in our previous earning call, Yidian is our major strategic investment, and we have the right to consolidate Yidian's financial system when certain conditions are met. At the same time, as the largest shareholder of Yidian, we are also open to all viable options to ensure its long-term goals and realize its value. One of the many options we are evaluating is a potential listing in China.
As you may be aware, recently, the China Securities Regulatory Commission introduced a number of incentives to encourage unicorn to list domestically in the A-share market, where Chinese companies have significantly higher valuations than their overseas-listed peers. We and Yidian's other shareholders will monitor the developments of the A-share market closely. We'll carefully evaluate all of our options in the coming months and keep everyone updated on any new developments. With this, I will turn the call over to our CFO, Betty Ho.
Thank you, Shuang. Thank you all for joining our conference call today. I'm pleased to announce that we once again delivered solid financial results amid the Chinese New Year and Two Sessions. 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 with customers, which took effect from January 1st, 2018. By applying the modified retrospective method under the new standard, sales tax and surcharges previously presented as a component of cost of revenues are now presented as a reduction item of revenue, and some advertising-for-advertising barter transactions previously not recognized as revenues are now recognized as revenue. For comparative purposes, herein we will provide our financial highlights under the old accounting standard, ASC 605.
For the amounts 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 first quarter of 2018. The amounts mentioned here are all in RMB, unless otherwise noted. The difference between GAAP and non-GAAP consists of share-based compensation and gain or loss from equity investments, including impairments. iFeng's total revenue for the first quarter of 2018 were RMB 309.9 million, which is at the high end of the company's previous old accounting standard guidance and represented an increase of 5.2% from RMB 294.5 million in the same period last year.
Non-GAAP net loss attributable to Phoenix New Media Limited for the first quarter of 2018 was RMB 52.2 million. Non-GAAP net loss per diluted ADS in the first quarter of 2018 was RMB 0.72. Starting with revenues. Net advertising revenues for the first quarter of 2018 increased to 10.5% to RMB 266.3 million from RMB 241.1 million in the same period last year. The increase was due to the strong increase of our mobile advertising revenue by 46.3%, which was partially offset by a 26% decrease in PC advertising revenues. Paid services revenue for the first quarter of 2018 were RMB 43.6 million, down by 18.3% from RMB 53.4 million in the same period last year.
Revenues from digital entertainment were RMB 34.7 million, down by 17.9% from RMB 42.3 million in the same period last year, which was largely due to a 30.9% decrease in MVAS revenues, mainly resulting from the decline in users' demand for such services provided through telecom operators in China. Revenues from games and others for the first quarter of 2018 were RMB 8.9 million, represented a decrease of 19.6% from RMB 11.1 million in the same period last year. This is mainly due to a decrease in revenues generated from web-based games operated on the company's own platform. Non-GAAP gross profit for the first quarter of 2018 was RMB 155.2 million, compared with RMB 133.6 million in the same period last year. Non-GAAP gross margin for the first quarter was 50.1%, compared with 45.4% in the same period last year.
Non-GAAP content and operational costs as a percentage of total revenue is 34.2%, as compared to 35.6% in the same period last year. Revenue sharing fees as a percentage of total revenue decreased to 2.8% from 5.9%. Bandwidth cost as a percentage of revenue was 4.6%, compared with 4.9% in the same period last year. Sales taxes and surcharges was RMB 25.7 million for the first quarter of 2018, as compared to RMB 24.3 million in the same period last year. Non-GAAP operating expenses for the first quarter of 2018 was RMB 210.1 million, up by 27.1% from RMB 165.4 million in the same period last year. Non-GAAP operating loss for the first quarter was RMB 54.9 million, as compared with non-GAAP operating loss of RMB 31.8 million in the same period last year.
Non-GAAP operating margin was negative 17.7%, as compared to negative 10.8% in the same period last year. The decrease was mainly due to the increase in mobile traffic acquisition expenses, as compared with the same period last year as we started to increase our tech in the second quarter of 2017. Net loss attributable to iFeng for the first quarter was RMB 58 million as compared to RMB 32.2 million in the same period last year. Non-GAAP net loss to iFeng for the first quarter was RMB 52.2 million as compared to RMB 23.2 million in the same period last year. Non-GAAP net loss per diluted ADS for the first quarter was RMB 0.72 as compared to RMB 0.32 in the same period last year. I will discuss our balance sheet as of March 31st, 2018.
The company's cash and cash equivalents, term deposits and short-term investments and restricted cash were RMB 1.3 billion, or approximately $207.6 million. Restricted cash represents deposits placed as security for banking facilities granted to the company, which are restricted to their withdrawal or usage. I'd like to provide our business outlook for the second quarter of 2018. As we have stated above, the company has adopted the new revenue standard, ASC 606, since January 1st this year. For comparative purposes, we are forecasting total revenue
Under the old revenue standard, to be between RMB 396.8 million and RMB 411.8 million, representing an increase of 0.9%-4.7% year-over-year. For net advertising revenues, we are forecasting between RMB 353.5 million and RMB 363.5 million, representing an increase of 4.4%-7.3% year-over-year. For paid services revenues, we are forecasting between RMB 43.3 million and RMB 48.3 million, representing a decrease of 20.7%-11.5%. By leveraging our brand influence and innovative advertising solutions, we were able to carry our strong growth momentum into first quarter despite of the seasonality factors. As Shuang mentioned, we will strengthen our content offerings and enhance our original content to differentiate our product while we remain prudent on the usage of traffic acquisition costs. This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead.
Thank you. Ladies and gentlemen, we're now beginning 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, ladies and gentlemen, to ask a telephone question, it is star one. Thank you. We have our first questioner ready from Wendy Huang from Macquarie. Please ask your question, Wendy.
Thank you. Thank you for the management. First, can you further elaborate on the recent regulations impact on the iFeng news app as well as the Yidian? How long do you expect the current round of regulation to last for? Also the impact on the revenue, how long will it last for? Also from the competition perspective, actually, do you actually benefit from any potential budget shift from your competitors who may actually suffer more from the regulations? Secondly, on the mobile advertising revenue, it seems to have slowed down a little bit recently. Can you give more specific color on the mobile ad revenue growth into next quarter in 2018? Lastly, can you also provide more detail about the MCN, multi-channel network, that you just mentioned in the prepared remarks? Thank you.
Hi, Wendy. This is Shuang. Let me answer your question regarding the regulatory challenge. Phoenix has been operating in China for more than two decades. We have experienced the market's ups and downs numerous times. This time, I think it is a one-time thing with relatively limited impact. I think it is an industry-wide tightening, the regulation, not particularly targeting any individual company. Actually, a bunch of companies including news apps in the industry were temporarily suspended in April, or be seriously warned or even just permanently shut down. Many players experienced this round of regulation in one way or the other. During this short period of suspension, I think we tweaked the iFeng news app to ensure future regulatory compliance. Now the iFeng news app is back up and running in app stores.
Revenue-wise, I think this round of regulation is, as I mentioned, the impact is limited. We believe the increased media regulation is definitely beneficial to the whole industry by helping foster, as I mentioned in my opening remarks, a sustainable and healthier market, especially for us. We as a responsible and professional media player in the market, I think this shift of regulatory tone will particularly benefit the internet companies with rich content, with professional standards. In the mid to long-term run, I think it is a good thing. MCN is definitely a very important area we are trying to explore. We have specifically select auto sector, car sector as the spot we are going to focus on. We have recruit talent to set up new team, to also set up the game plan for the next year. We are going to invite more self-media players in this market.
We are going to establish a consortium to help them better to enable us to enrich our content library, to speed up the monetization of rich content. I think the impact will materialize in the next two or three quarters. Betty probably can answer the question about the advertising.
Sure. Hi, Wendy. With respect to the mobile advertising revenue, actually, for the first quarter, our growth was very good as expected at about 46.3%, which actually, you can see although it's a very slow season because of the seasonality of the Chinese New Year and the Two Sessions, but because of the low base in 2017 first quarter, at that time, we have not introduced our DSP programmatic buying platform yet. As compared with the last quarter, we did very well this quarter. Looking forward, we are still expecting our mobile advertising growing at least at par with industry rate at about 40%. For the full year 2018, our mobile advertising will still be continuing as a growth driver for our advertising business.
Okay. Also, I want to follow up on the Yidian. You also mentioned in the prepared remark that, with the collaboration with Oppo and Xiaomi this year, you expect Yidian's revenue to double in 2018. Can you maybe also share your view also, what kind of news feed industry revenue growth do you think it would be? In other words, will Yidian actually outgrow or grows more slowly than the whole industry?
Hi, Wendy. Actually, for Yidian, we just mentioned in our prepared remarks that it did very well. Its DAU actually has increased by 25% as compared to the same period last year. Also, its revenue actually tripled in the first quarter of this year as compared in 2017. For the full year, we are still expecting to be at least double in terms of its revenue. Yidian's growth is still very strong, and it actually has changed its focus to be focused on browser business. The total number of DAU, actually, we can see within that, the browser DAU has been increasing significantly. Also, in addition to Oppo and Xiaomi, they have also attracted other customers for Yidian to help with their browser operations. Yidian used Intel Inside as their browser strategy.
Moving forward, I think increasing their operation of the browsers for other handset manufacturers is one of their strategy. This is leveraging on their license because they are being granted with a license, and it's so important for them to gain credibility to operate handset manufacturers browser. For Yidian, this is definitely a strong driver for their future growth.
Thanks, Betty. Thanks, Shuang, as well.
Thank you. Bye.
Once again, ladies and gentlemen, it is star one. Our next telephone question is from Natalie Wu from CICC. Please ask your question, Natalie.
Hi. Good morning, Sean, Betty. Thanks for taking my question. My question is mainly related to Yidian. Can you share more color on the MAU or DAU trend for Yidian? Just want to confirm that the CNY 1 billion valuation was actually the valuation negotiated almost 2 years ago for Yidian, right? Phoenix New Media still holds about 42% of Yidian. Also, what's your expectation for Yidian's current valuation given the industry leader Toutiao has just said that it raised its valuation to $35 billion and also smaller player in this same field, Qutoutiao, said to have $2 billion-$3 billion valuation within this year. Sean, as you just mentioned in your prepared remarks, A-share market seems to be more appropriate for Yidian. Does that mean that you will seek for chances that Yidian may be listed in A-share market ? Thank you.
Okay. Hi, Natalie. This is Betty. With respect to the Yidian's MAU, we actually never disclose the MAU. But for its DAU, as I said earlier, we recorded an increase of 25% year-on-year in terms of DAU for the first quarter of 2018 for Yidian. As for the valuation you mentioned about some other players in the market, we actually also are studying their valuations. We concluded that their valuation is around 10%-15% of their revenue. When we did Yidian Round E for our $1 billion valuation for Round E in late 2016, at that time, our valuation was about-
$1 billion
$1 billion, which represented about 12x of our revenue. I think moving forward for our Round F, I've given you the industry reference and our own reference. You should have a sense of what kind of valuation that we are looking for. As for the third question, Shuang will be answering your question.
Yeah. Let me add a few words about your second question first. Actually, if you conduct a careful comparison between Yidian and other players, I think in Round E, the valuation, you're quite right, is set almost two years ago, on both user scale and revenue scale is quite smaller than our current level. Also, as you mentioned that some other players also finished the financing in the last couple of months. In terms of the revenue and the user scale, and the policy treatment, I think we stand in the much more superior position. We are pretty optimistic about our Round F financing. As to the future listing, actually, because of the latest development in the market, China's CSRC issued new guidance and initiatives, which particularly favor company specializing in AI industry with market cap more than RMB 20 billion.
I think Yidian will pretty soon fit into that category. It definitely give us new options. We're going to balance all these, the pros and cons, and to decide where is the best venue for our future listing. I think in the next two or three quarters this will be pretty clear.
Great. Thank you for the color, and congratulations on the progress Yidian made. Just to confirm the shareholding, you have a 42% stake in Yidian, right?
Close to 40%, actually. After closing of the Round E financing, our total holding is close to 40%. 38% or 37%?
It's 38.6%.
Yeah. 38.6%.
Got it.
Yeah.
Got it. Thank you. Looking forward to the future financing of Yidian.
Thank you.
Thank you.
Once again, ladies and gentlemen, it is star one to ask the question. Our next question is from Binbin Ding from J.P. Morgan. Please ask your question.
Hey, good morning, Shuang, Betty, and Nicole. Thanks for taking my question. I have two here. My first question is on video. You mentioned video has become the most popular content format on your mobile app in the first quarter. Can you give us any color regarding the user or time spent contribution from video content on your platform in the first quarter? Have you seen any impact from the emerging and more entertainment-oriented short video apps to your overall time span? It will be great if management can comment on your overall video strategy going forward. My second question is on your mobile ads. For the first quarter, your mobile ad revenue has grown by 46% in the first quarter. I was wondering if you can give us any detail regarding the drivers behind this.
How much is coming from traffic, how much is coming from ad load increase, and coming from pricing as well? If management can comment on the future trend of these metrics, that would be great. Thank you very much.
This is Shuang. Actually, video is, you are quite right, is one of the most important areas we are going to focus on. Starting from this year, based on our data, our users' video time span increased significantly. On a six-month basis, it increased by 30%. It is quite encouraging. We are also exploring new products to explore the future opportunities and take advantage of the video trend, because we are a company controlled by Phoenix TV. We have very rich content library. Even though from regulatory point of view, some sensitive current affair video may not be directly put on our platform, the content in lifestyle, cultural, and entertainment is still available. That gives us unique competitive advantage. Entertainment is also a big trend. The users' time spent on this is also increasing.
As I mentioned in my opening remarks, we try to strike a balance among users' experience, because video will definitely increase the users' time spent, not necessarily increase the-
Retention rate
not necessarily increase retention rate. There is a delicate conflict. We want to not only inform our users, but also entertain our users. Beyond that, we want to provide them with quality viewing experience. We want to strike a balance between the time-sensitive news and non-time-sensitive information, between the video and the click-through oriented content, and also the quality premium content. We not only increase our users' time spent, but also increase the retention rate. It is not rocket science, it is an art. That is something I think we are very good at. By trying to strike a balance between this, I think we will further increase our brand awareness, we will increase our user retention rate, and both users' time spent. Betty probably can
Yeah. Hi, Binbin. Let me address your second question. As for our mobile advertising revenue, you mentioned that we did very well in the first quarter and why was that? It was mainly due to, as I mentioned earlier, we had a very low base in 2017 because during the first quarter of 2017, we haven't started the DSP yet. For the first quarter of 2018, actually, the growth driver is still being the mobile advertising revenue. It actually has exceeded over 65%. It has reached 67% as total advertising revenue. For the full year, we are expecting it to be increased to over 70%. The portion of the mobile advertising revenue actually far exceeded the PC revenue already. You actually offset the decrease of the PC revenue.
Also, the driver is also because of the number of customers, number of advertisers we have. During the first quarter of 2018, our number of advertisers have been increased by 130%. We see our client base actually has been expanded significantly. Although the ECPM remained about the same as the previous quarter, because as I said, if we are comparing the first quarter of 2017, it hasn't started yet. That's the driver for our mobile advertising. We are expecting it continues to grow strongly, at least at par with industry at about 40%.
Looks like there's no more further questions at this time. I'd like to hand the call back to the speakers for any continued remarks. 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 further questions. Thank you for joining us on this call. Have a good day.
Thank you. Bye.
Thank you.
Ladies and gentlemen, thank you for participating. You may all disconnect. Goodbye.