Q3 2020 Earnings Call Transcript

Published: 18 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Phoenix New Media Third Quarter 2020 Earnings Call. . I would now like to hand the conference over to your first speaker today, Qing Liu. Thank you. Please go ahead.

[Qing Liu:]

Thank you, Operator. Welcome to Phoenix New Media's Third Quarter 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&A session. The third quarter 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.

[Shuang Liu:]

Thank you, Qing. Good morning, and good evening, everyone. Although we face a complex situation as a result of the COVID-19 pandemic and escalating geopolitical tensions, we delivered revenues in line with our previous guidance in the third quarter of 2020, generating RMB303 million in total revenue in the period. Furthermore, we remain steadfast in our commitment to providing a superior user experience, upgrading our products, maintaining our content leadership, augmenting our monetization capabilities and setting the stage for a return to growth. First, in regards to our flagship news app, iFeng, we continue to enhance its user experience and improve its content delivery efficiencies through the optimization of its core capabilities. During the quarter, for example, we reaped the quality of viewing experiences for our users while also providing them with additional flash short-form content. Moreover, we were successful in introducing new public service functions to the platform, which helped to amplify both user engagement and user interaction, especially within the content of major social events and hot topics. In addition to these key product upgrades, we also maintain our relentless efforts in fine-tuning our content recommendation engine. By integrating our seasoned editor knowledge into more areas of the company recommendation process, we were able to better focus on improvement of click-through rates and user time spent on the platform during the period. As such, our user business improved substantially in the quarter, with average time spent per user on platform increasing by 20% year-over-year, and our user retention rate grows by 41% year-over-year. Meanwhile, our total number of newly added users also increased by 30% quarter-over-quarter as we continue to adopt a prudent approach in our user acquisition strategies and a focus on leveraging those acquisition channels with quality ROI. Now turning to our content operations. In the third quarter, we remained focused on strengthening our leadership in those company verticals that we believe have long-term strategic values. In our financial vertical, for example, we further expanded our audience size by releasing such smash hits as On the Cover, our in-depth video series featuring exclusive interviews with influential people, including Mr. Long Yongtu, former Vice Minister of Foreign Trade and Economic Cooperations; and Ms. Maye Musk, celebrity model and mother of Elon Musk. In fact, On The Cover was so well received by our users that it has recorded more than 60 million total views on our own media portfolio during the quarter.

[Edward Lu:]

Thank you, Liu Shuang, and thank you all for joining our conference call today. Our total revenue in the third quarter of 2020 were RMB303 million, in line with our previous guidance range and representing a decrease of 10.9% from RMB339.9 million in the same period of last year. This decrease was primarily due to negative impact of the COVID-19 outbreak and heightened industry competition. I will now provide some additional color on our revenues during the third quarter of 2020. Net advertising revenues in the third quarter of 2020 were RMB281.3 million, representing a decrease of 10.2% from RMB313.1 million in the same period of last year. This decrease was primarily attributable to the previous stated reason. Paid services revenues in the third quarter of 2020 decreased by 19% to RMB21.7 million from RMB26.8 million in the same period of last year. Revenues from paid content in the third quarter of 2020 decreased by 34.3% to RMB8.9 million from RMB13.5 million in the same period of last year, which was mainly due to the tightening of rules and regulations for digital reading in China and in line with the broader market conditions. Loss from operations in the third quarter of 2020 was RMB28.4 million compared to loss from operations of RMB60.2 million in the same period of last year. Operating margin in the third quarter of 2020 was negative 9.4% compared to negative 17.7% in the same period of last year. Non-GAAP loss from operations in the third quarter of 2020 was RMB26.7 million compared to non-GAAP loss from operations of RMB56.8 million in the same period of last year. Non-GAAP operating margin in the third quarter of 2020 was negative 8.8% compared to negative 16.7% in the same period of last year. Net loss from continuing operations attributable to ifeng in the third quarter of 2020 was RMB0.9 million compared to net loss from continuing operations attributable to ifeng of RMB50.9 million in the same period of last year. Non-GAAP net income from continuing operations attributable to ifeng in the third quarter of 2020 was RMB1.3 million compared to non-GAAP net loss from continuing operations attributable to ifeng of RMB47.5 million in the same period last year. Moving on to our balance sheet. As of September 30, 2020, the company's cash and cash equivalents, term deposits, short-term investments and restricted share -- restricted cash were RMB2.37 billion or approximately USD 349.5 million.

[Operator:]

. Your first question comes from Binbin Ding from JPMorgan.

[Binbin Ding:]

My question is on the ad market. So can you give us an update on the pricing market trend in the second half? It seems your ad revenue decline widened in the third quarter, and you still mentioned COVID-19 was still one of the major reasons. So can you elaborate on that? Also, can management talk about the advertising trend of industries? Which are the key categories you've seen some recovery and which industries still face a lot of challenges?

[Edward Lu:]

This is Edward speaking. I will answer this question. Actually, in the third quarter, our advertising business was impacted by the recurrence of the epidemic in certain areas of China as well as the popularity of short-form videos and livestreaming e-commerce, which continued to gain market share during the quarter. As you might know, our brand advertising and performance-based advertising accounted for about 80% and 20% of our total advertising revenues, respectively. Actually, in Q3, our brand advertising revenues increased on a sequential basis. This steady growth was mainly due to the gradual recovery of our off-line promotional campaigns and the original IP programs. As more off-line activities continue to take place in the remainder of 2020, we expect our brand advertising revenues to achieve double-digit growth in the fourth quarter.

[Operator:]

Our next question comes from Carmen Zhang from First Shanghai Securities.

[Carmen Zhang:]

My name is Carmen. After you receive the second tranche of ADS payment, how do you plan to use the additional cash on the company's balance sheet? Are you considering price tabulation of dividends?

[Shuang Liu:]

This is Shuang. Let me answer your question. As of September 30, 2020, we had cash and cash equivalents of USD 350 million. We also maintained our cash -- strong cash flow during the pandemic. It was driven by our effective cost control measures as well as the excellent return that we achieved in our ED investment. It showcased our strategic investment experience. As for our existing capital, we plan to use these resources in 3 key areas. First, we'll continue to optimize our product metrics with our flagship news app, iFeng, remaining at the core of our service offerings. At the same time, we'll also aim to develop more platform-based products, which is capable of meeting the future needs of consumers. We will also explore new business opportunities with both government and enterprise business partners. Secondly, we will actively explore more strategic investment opportunities by evaluating potential investments into those VC funds that are aligned with our business goals. In particular, we are focused on funds with extensive experience in TMT, entertainment, video, luxury consumer products and other vertical services. It will help to keep us up to grade -- up to date on the very rapidly evolving market dynamics of new business sectors. Thirdly, we remain committed to creating shareholder value and delivering returns to our shareholders in a variety of ways. Having said that, dividends are simply one form of giving back to our shareholders that we will consider going forward. This year, we have observed the privatization of some U.S.-listed companies as well as registration system reforms in the domestic capital market. We will certainly evaluate our choices in due course with our continuing focus on ensuring shareholder rights and maximizing their interest. Right now, we'll also be sure to take over -- to take our own situation and market environment into account. In addition, we'll continue to work towards refining our core business and executing our new business initiatives. We're now taking active steps to expand our e-commerce business by upgrading our e-commerce products and building out our own supply chain to further improve the monetization capabilities of our e-commerce business. We hope to share our business progress on this front with everyone as soon as next quarter. I hope this answered your question, Carmen.

[Operator:]

. Your next question comes from Frank Chen from Macquarie.

[Zhenyu Chen:]

A few questions. The first one is, I remember that you mentioned the company's target to narrow the loss, you mentioned, this year. I think you did quite a good job year-to-date. And when do we expect to break even looking forward? And the second question is on the advertising. Probably on the advertising side, unit price on brand ads, can you update us how KPM looks like today compared to last quarter or a year ago? And what direction do you think KPM will go in the future to drive up e-commerce?

[Shuang Liu:]

Okay. Thanks. This is Shuang. I will answer the first part of the question. Maybe Edward can add a few more words on the advertising trends. Our operating loss for the first 9 months of 2020 was RMB73.8 million, which is much lower than our operating loss of RMB248 million in the same period of last year. As such, we are now on track to achieve our operating targets for the full year. However, due to the impact of the pandemic on our top line performance in 2020, we do not expect breakeven at operating level this year. As a public company, we fully understand the importance of profitability, and we are well aware that maintaining the healthy growth of our core business is the optimal path to long-term profitability. With the continuous optimization of our current strategy and vertical operations, we are confident that we can leverage our existing business strength to not only ensure the growth of our core business but also develop additional growth drivers in such new areas as e-commerce, product reviews and original IP programs. Over the long term, we believe that our effective corporate governance structure will enable us to strike the fine balance between growth and profitability. I think you mentioned the advertising trend going forward next year, right? So maybe Edward can add a few more words on this.

[Edward Lu:]

This is Edward speaking. Actually, as I have previously mentioned in Binbin's question, looking forward, the advertising industry is still full of challenges. I think in like -- first, it depends on the development of the epidemic worldwide, especially in China, in -- we think next year, it's getting better, but it's still a question, right? And so in this kind of macroeconomic environment, we think the online advertising industry are still facing challenges maybe in -- especially in the first half of 2020. And also, this online advertising industry is evolving, and users spend more and more time on platform like Douyin and Kuaishou, these kind of short-form video platforms. So our advertising incomes are still facing pressures, especially for the -- how to make our advertising more cost-effective is a big challenge for us. And -- but we -- as I also mentioned before, actually, we have recognized this kind of changing in market dynamics. We already put a lot of effort and -- in like the short-form video and the e-commerce spaces. So next year, there will be challenges, but we also feel very excited and confident. We think we can handle these challenges and make some progress in advertising business. Thank you, Frank.

[Operator:]

. There are no further questions at this time. I would now like to hand the conference back to the management. Please continue.

[Qing Liu:]

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.

[Shuang Liu:]

Thank you all.

[Edward Lu:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating. You may all disconnect.