Weibo Corporation
Q4 2014 Earnings Call Transcript

Published: 11 Mar 2015

[Operator:]

Welcome to the Weibo Corporation Fourth Quarter 2014 Conference Call. [Operator Instructions]. I would now like to turn the conference over to [indiscernible] IR representative. Please go ahead.

[Unidentified Company Representative:]

Thank you. Good morning. Welcome to Weibo's fourth quarter earnings conference call. Joining today are our Chairman, Charles Chao, our Chief Executive Officer, Gaofei Wang and our Chief Financial Officer, Herman Yu. The conference call is also being broadcast on the Internet and is available through Weibo's IR website. Before the management's presentation, I would like to read you the Safe Harbor statement in connection with today's conference call. During the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Weibo assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Further information regarding this and other risks is included in Weibo's registration statement filed on April 17, 2014 and other filings with the SEC. Additionally, I would like to remind you that our discussion today includes certain non-GAAP measures, which excludes stock-based compensation and certain other items. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating performance and future prospects. Our non-GAAP measures exclude certain expenses, gains, losses and other items that are not expected to result in future cash payments or that are non-recurring in nature or will not be indicative of our operating results and business outlook. Please refer to our press release for more information about our non-GAAP measures. Following management's prepared remarks, we will open the lines for a brief Q&A session. With this I would like to turn the call over to our Chief Executive Officer, Gaofei Wang.

[Gaofei Wang:]

Thank you. Good morning everyone. Welcome to Weibo's fourth quarter 2014 earnings conference call. During today's conference call let me share with you the progress we have made during Weibo as a leading social media in China as well as the progress made on our Weibo's native offerings. We refer to social media as a social platform that is mainly used to enable open information sharing as opposed to social networking services and instant messaging which are generally used to precipitate private communication and networking. First let me start with our fourth quarter performance, in the fourth quarter of '14 Weibo continued to achieve strong revenue growth. Weibo's total revenue grew 47% year-over-year to 105 million, Ad revenues grew 57% year-over-year to 18 million. This mobile ad revenues for the first time exceeding a majority to 54% of our total ad revenues. In addition we’re experiencing continuous top line improvement with non-GAAP net income in fourth quarter risen [ph] 9.4 million. Turning to our operating results. In December we both marked active users which were 176 million up 36% from the same period last year, while daily active users reached 81 million up 31% from same period last year, 80% of Weibo's MA used for mobile in December. On our last conference call we discussed Weibo's goal to serve as a major sharing search platform and to offer wide range of tools and services to our users and other potential customers to empower them to conduct business on our search media platform. To serve this purpose and following industry trends we have placed significant efforts to enable the creation, sharing and consumption of multi-media contents. On top of text based contents, we aim to continue our leadership in social media in China by offering better use experience for multi-media contents. During connection with these goals in the first quarter we have made progress in following areas, first we have placed significant emphasis on the creation and sharing of ideas and information in certain vertical areas with particular focus on optimizing the experience for creating [indiscernible]. In addition through investments we have rolled out standalone video and photo sharing app whose content could be shared to Weibo. As 4G becomes more widely adopted in China we’re seeing Weibo users sharing photos more frequently thus impacting the region of Weibo's brand and user preferences, we will ramp our efforts photo sharing communities even bigger and develop a separate photo sharing app to further solidify our position as a leader leading social media of open sharing of rich content. In first quarter we have also added a group chat function to strengthen social aspect of Weibo. Such group chatting function differs from [indiscernible] and WeChat. Weibo users have a symmetric relationship between celebrities and their friends. Such function will enable to strengthen our shared interest to improve the richness of their interaction among themselves. Secondly on the monetization front, our goal is to offer more sales and [indiscernible] to better serve our ad customers on Weibo's. During the November 11 aka 11/11/2014, we have step up efforts to promote Weibo's ad offerings to small and medium sized enterprise customers. In addition to strengthening our existing SME distributors network we have optimized user experience for mobile promoted fees offered through Weibo's self-service system. Our effort to better serve SME customers are paying off as we written an accelerated growth both in the number of customers and revenues. For the fourth quarter of 2014 the total number as of SME customer grew 35% quarter-over-quarter to over 14,000 within our SME revenues, we include revenues from self-service -- reached over 300,000 in fourth quarter representing a growth of 94% sequentially. Self-service customers are usually individuals and small business who purchase native ads on Weibo in small increments. Our goal is to nurture a large pool of these Weibo marketers and overtime migrate them to our SME distributors who can provide better service and support to help them grow their business. During 11/11 festival [ph] both with Alibaba, SINA and other channel, auto manufacturers and car dealers and successfully launch the 11 of fund/sales event. The one month alone generated over 120,000 sales leads illustrating the robustness of Weibo ads to providing branding and performance based marketing. We have received very positive feedback from our ad customers for this event. Lastly I would like to spend some time to review '14 and talk about our strategy in 2015. Since our IPO last April we have focused on strengthening [Technical Difficulty] aspect of our platform and have seen [indiscernible] with broad market. Our efforts to focus on open sharing of UGC and amplifying feature of Weibo have proven to be a great success as Weibo added 47 million MAUs in 2014 from a year before, representing the large growth in absolute terms since our inception. The strong growth of Weibo users can be attributed to two reasons, first on product side. In addition to strengthening the social media aspect of Weibo as discussed above, we improved the quality of Weibo content by attracting more experts, professionals and producers to create and share lots of content and various top core content. Consequently in 2014 we saw Weibo's verified users in this areas doubled. Second, by clearly depreciating Weibo at leading social media platform in marketplace will strengthen our relationships with TV stations, show producers and hence their manufactures which made our acquisition of users more cost effective and increased Weibo's usage. Through these efforts we saw Weibo's penetration rate in low tier cities increased significantly in 2014. As we look at the 650 million internet users in China and the penetration rates, other type of search product by region in China. We believe we will still have a huge potential to growth for example Weibo's penetration rate in low tier cities have significantly grown when compared to that on tier one cities. In 2014 we made measurable improvement in this area through easy on-boarding experience and other channel and branding initiatives. In 2015 we will further leverage the social media features of Weibo to increase our user scale and close the gap in low tier cities. On the subject of competition the withdraw and downsizing of other microblogging sites presents an opportunity as we consider how to attract that users to Weibo. Second, as 4G becomes more popular in China, more and more users are creating and sharing more multi-media contents. As a leading social media both creation, sharing and discovering of multi-media content we plan to further improve that native photo and video experience on Weibo and we will consider strengthening our cooperation and relationship with third party photo and video sharing entities. On the monetization front we have achieved impressive results in 2014, Weibo's net revenues grew 77% year-over-year to 334 million. The mobile advertising and search marketing industry in China are at an early stage and we have had to educate China's advertising and marketing industry and help our customers make the shift to mobile. The good news is that we’re seeing more and more marketers adopt Weibo's search and marketing especially in mobile front format as mobile advertising is made up of more than half of our advertising revenues in Q4 for the first time. In 2014 we introduced many new ad products through our brand customers such as interactive ads, app loading page, TV plus Weibo and industry specific ad solutions. For example special ad tailored for auto industry and feeds with app downloads. This initiatives have helped us expand Weibo's advertising customer base and strengthen our offerings for specific customer segments such as fast moving consumer goods and mobile app developers. For 2015 we plan to further increase industry specific ad solutions and create a win-win proposition for our customers and users. For 2015 we also plan to further improve Weibo mobile ad offerings and our social interest ground, SIG recommendation engine to better serve our customers. Before I turn the call to Herman Yu, our new CFO, let me say a few words. As many of you know Herman has being with SINA over 10 years and was at [indiscernible] for past eight years. Over the past few years Herman has given me tremendous support in areas recurring to financial expertise. As Weibo becomes bigger and the logic to have Herman joining us led us a steady hand and his over 20 years management experience in Hi-Tech industry as we begin our first few year as a public company. With that I will turn to Herman Yu for financial review. Thank you.

[Herman Yu:]

Thank you, Gaofei for the introduction and good morning everyone. It's quite exciting to be back at Weibo. In the past year Weibo's business has grown to a large scale. As Gaofei mentioned, Weibo's monthly active users reached 176 million in December up 36% year-over-year. For 2014 which is our second full year of monetization Weibo's revenues grew to $334 million up 77% year-over-year. The scale that Weibo has achieved enable us to narrow Weibo's non-GAAP loss in 2014 to $1.7 million from a loss of $30.8 million the year before. On a non-GAAP adjusted EBITDA basis Weibo made $16.1 million in 2014 compared to a loss of $6.3 million for 2013. Now let me walk you through our financial highlights for the fourth quarter. Since our IPO in April we have had solid execution with fourth quarter of 2014 Weibo's total revenues reached a historical milestone surpassing $100 million per quarter to reach $105.2 million representing a 47% growth year-over-year. Non-GAAP net income was $9.4 million growing 142% from the same period last year. Non-GAAP EBITDA was $16.2 million compared to $8.7 million for the same period last year. Weibo's advertising and marketing revenues for the fourth quarter of 2014 was $88 million up 57% from the same period last year. We saw robust growth coming from all customer segments. For example Weibo's small, medium sized enterprise business generate $23.5 million in revenues which more than doubled from the $9.9 million with the same period last year. We continue to see strong momentum in the adoption Weibo marketing solution from SME customers as a total number of SME customers exceeded 14,000 in the fourth quarter up 59% from the same period last year. Although Weibo -- SME marketing services are mainly sold through distributors we included in our SME revenues native ads purchased directly from Weibo's self-service system which are targeted to individuals as small businesses who wish to purchase Weibo ads in small quantities. As Gaofei mentioned over 300,000 of these customers try Weibo social marketing in the fourth quarter and our hope is overtime to migrate these marketers to SME distributors as they become more familiar and reliant on Weibo's marketing to built their own brands and businesses. Revenue from Alibaba was $38 million representing a growth of 59% year-over-year. Working with Taobao, SINA [ph] and Alipay is an exciting opportunity for us as we discover new ways to grow social commerce and build win-win social for ecommerce merchants and our users. For example our marketing solution include leverage the ability of Weibo to amplify the promotions of Alibaba merchant and providing Weibo users a seamless experience to complete a purchase transaction within a Weibo fee. Revenues from our key accounts also known as large brand advisors grew 19% year-over-year to $26.5 million representing about a quarter of Weibo's total revenues. The strong performance of KA, over the past year was due impact to the introduction of new advertising products most of which were mobile enabled and allowed KA customers to take advantage of Weibo's robust growth in mobile traffic. In 2014 we shifted from a display centric end model by new ways for KA marketers to build brands and interact with Weibo fans. Such as marketing campaigns prior to Weibo plus TV and large event based promotion as well as launching various native ads for KA marketers allowing them to take advantage of Weibo's platform and mobile traffic. For the fourth quarter of 2014 Weibo's mobile advertising revenues reached approximately 54% of Weibo's total advertising revenues compared to 28% for the same period last year. The addition of mobile enabled ad format for KA customers help grow Weibo's mobile ad revenues as well as increased proportion of SME revenues. Weibo's ability to pass the [indiscernible] in 2014 from a PC centric display format to mobile enabled app format is an important milestone for us as 80% of Weibo's 176 million monthly active users with mobile and this user segment is going 47% year-over-year. For the fourth quarter of 2014 Weibo's value added services revenues increased 12% year-over-year to $17.2 million which represents 16% of Weibo's total revenues. We think this proportion is reasonable as we look into 2015. Game related services in the fourth quarter of 2014 grew 57% year-over-year while membership revenues grew 17% year-over-year. During the fourth quarter we shifted our strategy for offering Weibo data which decreased to $2.9 million from $5.4 million a year ago. Although we will continue to offer data services on opportunistic basis to strategic third parties we see more value in offering Weibo data in the form of measurement to our ad customers which will help them better understand the performance of their ads on Weibo and how they can adjust their targeting strategy to get more out of their campaigns on Weibo. We also see opportunities with third party data companies to improve Weibo's ad targeting such as the agreement we signed with [indiscernible]. Turning now to cost and expenses, as a reminder unless otherwise noted my comments will focus on non-GAAP financial measures which excludes stock based compensation, change in fair value of investor option liability, amortization of intangible assets and related income tax expense. For the fourth quarter of 2014 total cost and expenses were $95.5 million up 40% year-over-year. Cost of revenues was $25.6 million up 59% year-over-year. Operating expenses totaled $69.9 million up 34% year-over-year primary due to an increased headcount related cost as well as marketing expenditures. Operating income for the fourth quarter of 2014 was $9.8 million compared to $3 million for the same period last year. Non-operating income for the fourth quarter was $3 million of which $1.8 million related to interest income and $1.2 million arising from foreign exchange gain which we do not expect to be significant going forward. Income tax for the fourth quarter of 2014 was $3 million which included a reversal of differed tax assets from previous quarters. Non-GAAP net earnings for the fourth quarter of 2014 was $9.4 million compared to $3.9 million for the same period last year. Non-GAAP diluted earnings per share was $0.04 compared to $0.02 per share for the same period last year. Non-GAAP adjusted EBITDA defined as earnings before interest, taxes, depreciation and amortization other non-operating income and share based compensation expenses was $16.2 million up 86% from the same period last year. Turning to balance sheet and cash flow items, as of December 31, 2014 Weibo cash, cash equivalents and short term investments totaled $450 million. Cash used in operating activities for the fourth quarter of 2014 was $32.1 million. Capital expenditure totaled $3.8 million and depreciation and amortization expenses was $6.1 million. Turning Weibo's first quarter 2015 guidance, we estimate that Weibo's total revenues for the first quarter of 2015 to be between $93 million and $96 million. With that let me now turn to Q&A. Operator we’re ready for questions.

[Operator:]

[Operator Instructions]. Our first question is from Gene Munster of Piper Jaffrey. Please go ahead.

[Gene Munster:]

I might have missed this in the prepared remarks but can you give us an update in terms of payment and how that’s been trending and then separately when you look at the number of SMBs that you currently have how do you think about what -- 14,000 what ultimately that addressable market could be 2, 3, 5 years down the road. Thanks. I might have missed that in the prepared remarks but any updates on payments and how is that progressing going forward?

[Gaofei Wang:]

Let me maybe address your question, on the second one regarding the potential addressable market for SMEs and I think it's very important for us to build a big base, customer base for SMEs because as you understand the nature of this advertising system especially for the ones in the information flow, it requires a lot of mention. I mean so the more customer you’ve the more inventory you’ve the more accurate the matching will be, the more efficient advertising will become. So this is when our priority is to expand our customer base in all categories for the SMEs and so we saw pretty good progress in 4Q and I think we’re going to continue to build our base in the future. I think right now 14,000 when we get to a 100,000 customers I think our advertising system will become much, much more robust in terms of efficiencies and this is the target we’re getting for the future maybe in 2 or 3 years.

[Operator:]

Our next question is from [Technical Difficulty]. Please go ahead.

[Unidentified Analyst:]

[Technical Difficulty]

[Herman Yu:]

Yes, let me finish the first question that Gene asked and then we can move on, so the first question that Gene asked was regards to the payments and payment so far we have at the end of last year total activated linked to Alipay was about 35 million and those were asked for user payments we had over 11 million users.

[Unidentified Analyst:]

This is Eddie. Just a couple of quick questions, you mentioned quite a bit about your SME advertiser strategy but would like to get more color on the so called large account segment. Just wondering could you share more color how successful you guys have been doing cross sellings to your traditional large accounts. So could you share with us let's say proportion of your portal advertisers that have been your Weibo advertisers on a consistent basis and then related to that, could you also remind us the number of our corporate accounts registered on Weibo at the moment. Thanks.

[Gaofei Wang:]

So Eddie, with regards to having similar customers with the portal there will be more overlap in the fast moving consumer goods and auto industries which the portals are very strong at. Going into 2015 Weibo is going to focus also more on real estate and finance sector, so in these type of industry as we grow more we’re going to have more-- Yes and with regards to the V accounts, the enterprise and government accounts that we have verified, we should reach about 800,000 which is twice the amount over the same period the year before.

[Operator:]

Our next question is from Juan Lin, 86 Research. Please go ahead.

[Juan Lin:]

[Technical Difficulty] very strong compared to peers, could you please breakdown these item into banner ads and promoted feed ads. My second question is related to SME revenue. In Q4 how much of the growth or how much of ad dollar for SME revenues generated by the self-serving systems? Thank you very much.

[Herman Yu:]

Can you repeat the first question? You got cut off.

[Juan Lin:]

My first question is related to ad revenue for banner ad and promoted feed ad.

[Herman Yu:]

Yes, okay so let me take these two. So with regards to the product breakdown of our advertising revenue. So if you exclude Alibaba for the first time I think in fourth quarter promoted fees it's over 50% of our total revenues, working guest ads with our mobile advertising now becoming very substantial. With regards to your second question. Yes with regards to your second question on self-serving service that is still a very small portion of our total SME advertising, we mentioned on the script that the purpose of this really is to allow a lot of individual as small business to try Weibo advertising to buy directly from Weibo advertising. So the purchase is very small, it's more trial size. So the idea is to let them try first and as the purchases become more significant move them to the -- so it's lot of customers with 300,000 and the total revenue amount is significantly small compared to all of their revenue.

[Juan Lin:]

Can I have a follow-up question if I may regarding competition scenario. So WeChat [ph] rolling out [indiscernible] enrollments in third quarter. How do you see the major move from initially impacting the ad budget plan from your key accounts?

[Gaofei Wang:]

Yes, so with [indiscernible] entering advertising I think at some level you will see some competition but I think more importantly we’re at a very early stage of mobile social advertising in China and with [indiscernible] coming in what it does is it increases overall scale of the industry and we see actually some of our customers now asking more about social marketing and mobile marketing. So I think it's going to help educate our customers both key accounts into ultimately drive you know higher demands as a result I think we should benefit from this circular trends.

[Operator:]

Our next question is from Jin Yoon, Mizuho Securities. Please go ahead.

[Jin Yoon:]

Now that the company has hit profitability on a non-GAAP basis do you expect that trajectory to continue in the next few quarters? Is there any plans to accelerate further invest, or accelerate investments in R&D or sales and marketing. Can you just talk about how you look at kind of the cost structure and investments going forward? Thanks.

[Herman Yu:]

Let me talk about it with regards to the next quarter and then the whole year for 2015, if you look at Q4 and then looking at the first quarter, our cost is pretty much fixed. So if you look at our guidance so if you look at our guidance revenue is going to be down on a quarter-over-quarter basis but in terms of our cost and expenses much of that is fixed cost. You’re not going to see a much savings. With regards to the whole year 2015 you actually see a pretty consistent ramp up in 2014 and we should see that trend going into 2015. I think for the whole year you will see that Weibo has gotten to a certain scale where revenue growth should be outpacing the overall cost and expense percentage growth.

[Operator:]

Our next question is from Jialong Shi of Credit Suisse. Please go ahead.

[Jialong Shi:]

My question is also about the competitive landscape for social ads from another angle, your another mobile social peer, Momo, also started serving social ads to both local and Alibaba merchants recently so I just wonder if management can provide any colors on your competitive edge when trying to bid for ad dollar from the same advertisers.

[Gaofei Wang:]

So far we have not seen competitive pressure from Momo, Momo being a local base advertising and for us working with Alibaba with our payments solutions I don’t think we have a conflict right now. So far we don’t see competitive pressure from that.

[Operator:]

Our next question is from George Meng, Morgan Stanley. Please go ahead.

[George Meng:]

My question is actually on the user and user products, first of all I noticed that you guys started to so called clean up some of the inactive fans starting from January. So I just wonder what's the latest user stats trend you started that kind of initiative. That’s my first question. And I’ve a follow-up, thanks.

[Gaofei Wang:]

Yes, so we have been having ongoing clean-up of user -- fans, and what we see during events such as the November 11th, some enterprise accounts and celebrities have ways of increasing their fans in which we have penalized these enterprises and celebrities as they are increasing these what we call fake fans. So we will continue to do these type of clean-ups going forward and we haven't really seen them impacting user usage.

[George Meng:]

And my second question is regarding your strategy to roll-out for example some separate apps like Weibo [indiscernible] and Weibo camera and also maybe try to promote again your video sharing app. So just wondering can you elaborate a little more on that, do you think like maintaining a metrics of different separate apps is more beneficial to use than just maintain a single app and adding or emphasizing some of the functions and also you mentioned that you’re going to cooperate with some of the third party photo sharing apps. So I just wonder going forward are you going to just focus on your Weibo camera app. And then maybe turn that into Instagram in China or you have other plans, just can't share with us, more thought on that. Thanks.

[Gaofei Wang:]

Yes, so overall in our prepared remark we talked about that in 2015 we will put more focus on trading a separate app for photo and for video. We see Weibo as a platform that aggregates and to share rich content and we see these individual apps as apps that can create very rich content. So we think that these two type of apps are complimentary and some of the feature sets that we build in these individual apps you can also have seen them in Weibo. So in 2015 we should still see most of these rich media photos and videos being captured directly from Weibo, we also want to promote some of these professional and semi-professional as they are creating content to use individual apps which will have better quality and have more better feature sets for creating photos and videos.

[Operator:]

Our next question is from Tian Hou of TH Capital. Please go ahead.

[Tian Hou:]

I’ve a question related to your users. So we saw your users growing quarter-by-quarter particularly in the 2014 pretty nicely. However most of the users are really came from lower tier cities like second tier cities and when we do some kind of investigation or survey we found that to the users in the Tier 1 cities seems like turn their back to Weibo. So I wonder if you see the same speculation and also I wonder in your strategy for future development how do you want to address this issue? How do you want to -- users in Tier 1 cities to pick up? That’s my question.

[Gaofei Wang:]

Tier 1 users as a percentage of total user base is still the largest. When we compare on an annual basis Tier 1, Tier 2, Tier 3, all the tiers versus prior year we actually see them pretty stable. We see tier one growing around 10% and then another than Tier 1 we see growing around 20% to 30%. So it's still a pretty stable for Tier 1. And for 2015 we should see most of the growth still coming outside of Tier 1 cities because if we you look at the penetration rate outside of Tier 1 it's much lower than Tier 1 cities.

[Operator:]

This concludes the question and answer session and conference call. Thank you for attending today's presentation. You may now disconnect.