Weibo Corporation
Q4 2020 Earnings Call Transcript

Published: 18 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Weibo Reports Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. I must advise you that this conference is being recorded. I would now like to hand the conference over to your first speaker, Sandra Zhang, Weibo IR. Thank you. Please go ahead.

[Sandra Zhang:]

Thank you operator. Welcome to Weibo's fourth quarter and fiscal year 2020 earnings conference call. During today our Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Fei Cao. The conference call is also being broadcast on the Internet and available through Weibo's IR website.

[Gaofei Wang:]

Thank you. Hello everyone and welcome to Weibo's fourth quarter and fiscal year 2020 earnings conference call. On today's call, I'll share with you highlights on Weibo's user product and monetization review the progress made in 2020 and elaborate our strategies for 2021. Let me start with our fourth quarter financial results. In the fourth quarter our total revenue increased 10% to $513.4 million, mainly attributable to less impact from COVID-19 pandemic to the advertising business as well as our efforts to optimize the competitive strategy for brand and performance ad business. Advertising and marketing revenue reached $453.5 million, an increase of 12% year-over-year with 91% of ad revenue coming from mobile. In the fourth quarter, non-GAAP operating income reached $204.1 million, an increase of 12% to 21%, year-over-year, representing a non-GAAP operating margin of 40%.

[Fei Cao:]

Thank you, Gaofei, and hello everyone. Welcome to Weibo's fourth quarter and fiscal year 2020 earnings conference call. Let's start with user metrics. In December 2020, Weibo's MAUs reached 521 million, representing a net addition of five million users on a year-over-year basis. Weibo's average DAUs reached 225 million, representing a net addition of three million users on year-over-year basis. Mobile MAUs represented approximately 94% of total MAUs. As a reminder, my prepared remarks would focus on non-GAAP results and all comparisons are on a year-over-year basis unless otherwise noted. Now let me walk you through our financial highlights for the fourth quarter and fiscal year 2020. Weibo's fourth quarter 2020 net revenues, was $513.4 million, an increase of 10%. Operating income was $204.1 million, an increase of 21%, representing an operating margin of 20%. Net income attributable to Weibo is $212.7 million, an increase of 21%, representing a net margin of 41%. Diluted EPS was $0.92 compared to $0.77 in 2019. For full year 2020, total revenues reached $1.69 billion, a decrease of 4%. Operating income was $579.6 million, a decrease of 12%, representing an operating margin of 24%. Net income attributable to Weibo is $547.5 million, representing a net margin of 32%. Diluted EPS $2.38 compared to $2.78 in 2019. Let me give you more color on our fourth quarter and full year 2020 revenue growth. Advertising and marketing revenues for fourth quarter 2020 was $453.5 million, an increase of 12%. Mobile ad revenues reached $413.8 million, representing 91% of our total ad revenue, up from 88% last year. Full year 2020 advertising and marketing revenues reached to $1.49 billion, a decrease of 3%. This mobile ad revenue is contributing 90% of total ad revenue, up from 87% in 2019. Beside unprecedented challenges from COVID-19 and resulted full year single-digit revenue decrease, we are pleased with the solid recovery in the second half of 2020 underpinned by the overall ad demand pickup in the domestic market, breath of new economy bringing incremental marketing demand, as well as our relative ad growth to capture new end markets and additional ad wallet share of existing fans. Let's start with KA. In the fourth quarter, our KA ad revenue was $226.8 million, an increase of 18% or 26%, excluding the impact from barter transaction. Our KA business booked accelerated year-over-year growth with the number of brand advertisers' spending in ads reaching a new record. Industry-wide, the recurring momentum for our KA business continues to be broad-based with key sectors such as FMCG and automobiles closing the year on a higher note. Our belief that entertainment, travel, and real estate sectors remained pressured as the sporadic COVID-19 cases in China in part postponed the recovery pace of new sectors in late 2020. Full year 2020 KA ad revenues reached to $741.7 million, an increase of 2% or 9%. On that percent including barter impact, representing 50% of Weibo's total ad revenue. Our KA business demonstrated resilience against tough market environment, speaking to Weibo's unique value proposition to brand customers. Weibo has gradually become the cornerstone of many advertisers' marketing spend, as we offer further marketing solutions to serve their branding plus performance needs. In 2020, we also notably captured incremental ad wallet through our differentiated KOL marketing tools, as well as unique products such as search and targeted products, as this resonated well with customers' demand. Looking forward, with continuous recovery of ad demand and opportunities brought forth by new economy, we continue to see headroom to incenting our customer base, as well as potential to tap into incremental ad wallet. We believe we are well positioned to solidify and further uplift our competitiveness in the brand advertising market. Turning to SMEs. In the fourth quarter Weibo's SME ad revenues was $167.2 million, a decrease of 5%. We continued to narrow the year-over-year decline rate, leveraging the nice momentum of online sectors, particularly gaming, education and e-commerce. That said, certain offline customers continued to face headwinds, particularly amid sporadic outbreak of COVID-19 cases in multiple areas in China. Full-year SME ad revenues were $592.7 million, a decrease of 16%, representing approximately 40% of Weibo's total ad revenues, mainly due to significant impact from COVID-19, especially from offline sector as well as competition headwind. Although, the performance ad market in 2020 was challenging in many ways, we made strides in expanding OCPX coverage, driving video ad penetration, as well as developing integrated industry specific ad solutions, which all aim to enhance our ad performance. We're delighted to see these initiatives already bear fruit in early stage with the gaming and education sectors, booking triple-digit growth this year. The early momentum for these two sectors demonstrated Weibo's potential in delivering relatively competitive our ad in the market, leveraging our uniqueness in integrating Weibo's resources in content, KOLs and traffic. Ad revenues from Alibaba in the fourth quarter was $59.5 million, an increase of 57%, reflecting our cooperation with Alibaba to drive value from both platforms' brands and merchants during the peak e-commerce promotional season. Full-year ad revenues from Alibaba were $152 million, an increase of 55%. Apart from the fact that 2019 was relatively low base, the momentum of Alibaba ad revenue also reflected our efforts in serving integrated marketing demand for both platforms' brands and merchants. That said, ad spend from Alibaba highly correlated to its own business operations, especially its marketing strategies which may change from time-to-time. As communicated earlier, we cannot assure that such robust growth will be sustainable in the future. Value added service, VAS revenues was $59.9 million in the fourth quarter, a decrease of 4%. The decrease was primarily resulted from the decrease of live streaming business and was partially offset by the revenue contribution from the interactive entertainment company acquired and consolidated into the company in November 2020. Full-year 2020 VAS revenues was $203.8 million, a decrease of 14%, mainly resulting from a decrease in live streaming revenue. Turning to costs and expenses, total cost and expenses for fourth quarter was $309.3 million, an increase of 3%. The increase was primarily due to higher personnel-related costs and step-up in marketing spend and was partially offset by decreased general and administrative expenses. Full-year costs and expenses totaled $1.11 billion compared to $1.10 billion for 2019. Operating income in the fourth quarter was $204.1 million, an increase of 21%, representing an operating margin of 40%, compared to 36% last year, reflecting our solid recovery post-COVID-19 and our capability of delivering decent margin profile amid the market competition. Operating income for full-year 2020 was $579.6 million, representing an operating margin of 34% compared to 37% in 2019. Turning to income tax under GAAP measure, income tax benefit for fourth quarter was $25.3 million, compared to an expense of $31.1 million last year. The income tax benefit was primarily due to the recognition of preferential tax treatment for certain of the company's PRC subsidiaries, as well as reverse of recognition of deferred tax liabilities in prior periods related to certain investments. Full-year income tax expenses was $61.3 million compared to $109.6 million in 2019. The decrease was primarily resulting from changes in deferred tax liabilities related to fair value change on investments. Net income attributable to Weibo in fourth quarter was $212.7 million, compared to $176.7 million last year. Net margin was 41%, compared to 38% same period last year. Net income for full-year 2020 was $547.5 million, representing a net margin of 32% compared to 36% in 2019. Turning to our balance sheet and cash flow items. As of December 31, 2020, Weibo's cash, cash equivalents and short-term investments totaled $1.5 billion, compared to $2.4 billion as of December 31, 2019. The increase was primarily due to net proceeds from $750 million senior notes issued in July 2020 for general corporate purpose and cash provided by operating activities and was partially offset by the investment activities we made during 2020. In the fourth quarter, cash provided by operating activities was $321.2 million, capital expenditures totaled $8.4 million, and depreciation and amortization expense amounted to $10.7 million. On full-year basis, cash provided by operating activities was $741.6 million, capital expenditures totaled $34.8 million, and depreciation and amortization expenses amounted to $32.1 million. We delivered approximately $706.8 million free cash flow in 2020, an increase of 30% year-over-year, representing our capability of delivering high profitability and generating strong operating cash flow. Lastly, let's talk about our financial outlook. We anticipate our first quarter of 2021 revenue to increase by 25% to 30% year-over-year on a constant currency basis. This forecast also reflects Weibo's current and preliminary view and is subject to change. With that, let me now turn the call over to the operator for the Q&A session.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Tian Hou of TH Capital. Please ask your question.

[Tian Hou:]

Gaofei has already elaborated our 2021 strategy, can you elaborate a little bit in detail about your outlook in user growth and as well as your channel strategy? Thank you.

[Gaofei Wang:]

So relating to this question, before answering the question about 2021 let's talk about the issues that we had in 2020. So, for example, due to the COVID-19 that we really had a historical high or reaching a peak of those number of users in Q1. But actually, normally in the past, after consuming some of our products like the hot topic products or hot trend products, those consumers or those users are going to be with us and retain with us, to further consume the entertainment and also the other vertical related products. But actually, because of the COVID-19, in the second half of 2020, we had a very good management and also the restrictions on the entertainment-related product consumption. So the retention rate, of those, kind of customers or users dropped. So those are the major reasons of causing us to have a decreased number of users in Q2 and Q3, majorly. So in Q4, we have been doing some kind of a work, for example, increasing the investment to the user acquisition cost. And also, we really increased some kind of productization, in order to attract and also retain those, kind of users. And also, you can see that, we have been doing some kind of things, right now, because rather than paying attention to MAU, now we pay more attention to the total consumption as well as the frequency of the consumption specific. So, we can interpret that into the following kind of parameters, for example, DAU, and also some kind of frequency of the consumption, and also the total scale of the consumption. So that is actually going to really help us to improve our competitiveness as well as our kind of inventory of the monetization. And also, in terms of our strategy in the future, in 2021, we would like to focus on the following items. So first of all, we had our traditional advantage in terms of acquiring those users through our hot trends. So in the past in 2020, actually we had some of the issues occurred in terms of increasing retention ratio and also helping the users to actually stay with us more and consume more frequently. So actually in 2021, in Q1, and also later this year, we are going to further emphasize on these two particular points. So that is to say, first of all, emphasizing on the consumptions related to the relationship-based feed. And also, we are going to encourage those video accounts to actually publish more videos. And also help and trigger the consumption around the videos by the users. So actually, through these, kind of ways especially through videos, we are going to really help to increase their retention ratio of our users. So actually we are very confident to overcome the difficulty and also get ourselves improved in later this year. And also lastly, I want to say that in terms of the 2021 trend. So first of all, talking about the year-on-year comparison, because we had a very high historical figure in Q1 of 2020, so it's not that meaningful for us to compare. But actually we are very confident to realize a month-to-month growth in 2021 Q1. And also another thing is that in terms of our channel strategy, we are going to really focus on increasing the retention ratio of our users and also really help to build a very good and also healthy growth on the number of users. So we are very much confident in driving the traffic and also driving the activity and also the retention ratio of the users in 2021.

[Tian Hou:]

Very helpful. Thank you. That's all my question.

[Operator:]

Your next question comes from the line of Miranda Zhuang of Bank of America. Please ask your question.

[Miranda Zhuang:]

Thank you for taking my question. So my question is, can you please share the ad spend outlook for the 2021? And what, kind of, your ad products and services will particularly gain traction and gain incremental budget allocations among your KA and SME clients across different industry sectors? Thank you.

[Gaofei Wang:]

And so let me answer this particular question. So first of all, in 2020 Q4, we have been seeing a very good recovery of our KA ad customer, especially we returned to the triple-digit growth. And also, we although had a year-on-year decrease on SME in Q4, but still that particular decrease rate has been reduced. And also, further in 2021, we're going to really see a kind of a very good growth on the brand customers, especially at the FMCG and also automotives, as well as the luxury as well. And also, in 2021, we're going to see also a very good growth for entertainment as well. And also, next part is about the SME. So this year, for example, we have seen a very good trend for gaming or Internet service, as well as online education, et cetera, et cetera, but actually we're not quite sure, whether or not we are going to see another doubling effect or doubling results of the gaming industry this year. And also, talking about the other, traffic diverting related SMEs, without a very strong demand on branding, actually in 2020, we were talking about those O2O or e-commerce businesses. We had a little bit -- another ideal performance in 2020, but still in 2021, we are going to see a further intense competition in the area that I mentioned. And also, next part is about the products. So, based on the social nature of Weibo, so we are going to really focus continuously on the kind of the strategy of the brand plus performance and also the content and also IP-based marketing strategies. So based on this particular content and IP-based marketing, as well as the strategy of brand plus performance, we have very good advantage in gaining the budget from the top-notch customers. And also, we do see that the, kind of, short video is actually a very big competitor through the OTV area. So we can see that in this particular thing. We do see that those customers from OTV actually had a very high requirement already kind of a content, and also the IP as well as the famous KOLs in this area. So based on the unique advantage of Weibo in terms of the IP and KOLs, and celebrities, we are very much positive to actually have the advantage of those OTV converted or transferred budgets and gaining that. And also, next part is that, we had also a very good development in terms of our information flow, like the super FST has been upgraded further. So we are going to see a kind of a triple-digit growth on OCPX as well. And also, the gaming as well as the educations as two verticals are increasing dramatically and also, because of our upgraded algorithm in this particular area. And also, talking about those particular customers, they do have the requirement, not only to gain traffic, but also they would like to do some kind of a brand promotion work. So because of that we are seeing that in 2021, we're very much positive to actually have that particular development, especially talking about the customer and e-commerce and also Internet services, et cetera.

[Miranda Zhuang:]

Thank you.

[Operator:]

We'll take the final question from Alicia Yap of Citigroup. Please ask your question, Alicia.

[Alicia Yap:]

Hi, good evening. Thank you for taking my questions. Also, congratulations on the results and the guidance. My questions is related to the ad inventory and also the competitive landscape. So, how does management elaborate the situation you are seeing in 2021 versus last year in terms of the ad pricing pressure and the supply for these ad inventory as compared to last year and even as compared to 2019? And also, any comment on the margins trend for 2021. Let me translate very quickly.

[Gaofei Wang:]

So first of all, talking about the ad inventory, so before in the first question and also to that first question I already mentioned that actually this year in terms of our strategies for the users, we are going to actually see that more of our investment and also the product-related strategies are going to focus more on the DAU and also the consumption frequency of the users and the per capita consumption traffic of the users from the previous major focus on MAU. So that's to say this particular DAU increase and also more frequency of the consumption of users will definitely drive the development and growth of the ad inventory. However, kind of, speaking based on the Q1 result it's very difficult for me to give you a kind of forecast about this particular ad inventory in 2021, especially, for Q1. And of course, we do have seen very good growth on the other video platforms, but still we are very much focused on increasing the DAU and also the frequency of consumption of users and these strategies will definitely bring a growth on the ad inventory.

[Fei Cao:]

In terms of your margin question, I will try to take this question. With the revenue growth as our primary goal and at the same time, we want to enhance our competitiveness of our platform so we may increase our investment in marketing channels compared to last year 2020. So on this basis we expect our operating margin can still reach well in the high level that is to say maybe no less than 30%, but there still will be a certain decline maybe the impact the decline will be single-digit maybe 5% compared to the level of last year. So in summary in this year, the company's all of strategies is mainly focused on improving our revenue growth and continue to improve the competitiveness of the platform at the user product level so the cost and expenses level. The main areas of investment will be increased will improve the marketing channel investment. In last year 2020, due to the epidemic and other impact market channel investment was conservative that is down from the year 2019. So considering the competitive user market and leveraging Weibo's relatively advantaged new user acquisition costs, we will ensure our coverage of basic channels such as free installation and focus on increasing the investment in user engagement. And another area is personnel-related costs. To maintain -- in order to maintain our competitiveness in the market in some key departments as such our advertising business department and our R&D department there are certain personnel increase, headcount increase and also the salary raise. So last year due to the impact of the pandemic, the company also enjoyed some government benefit. This will impact our margin this year. So in summary, the effect on our margin will be dropped from year-to-year.

[Alicia Yap:]

Okay. Thank you for the color. Yes, thank you.

[Sandra Zhang:]

This concludes our conference call today. Thank you for joining. We'll see you next quarter. Bye-bye.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.