Weibo Corporation
Q2 2015 Earnings Call Transcript

Published: 19 Aug 2015

[Operator:]

Good day and welcome to the Weibo Corporation Second Quarter 2015 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please also note today’s event is being recorded. I would now like to turn the conference over to Vanessa Chen. Please go ahead.

[Vanessa Chen:]

Thank you and good morning. Welcome to Weibo's second quarter earnings conference call. Joining me today are our Chairman of the Board, 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 forward-looking statements in this conference call and elsewhere. Further information regarding this and other risks is included in Weibo's annual report and Form 20-F for the fiscal year ended December 31, 2014 filed with the SEC on April 28, 2015 and other filings with 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 expenses. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating performance and future prospects. Our non-GAAP financials 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 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:]

[Foreign Language] Thank you and good morning. Welcome to Weibo's second quarter 2015 earnings conference call. During today's conference call, let me share with you updates on Weibo product, traffic and monetization. [Foreign Language] Let me start with our second quarter performance. In the second quarter of 2015, Weibo continued to achieve strong revenue growth and user growth. Weibo’s total revenues grew 39% year-over-year to $107.8 million, advertising revenue grew 47% year-over-year to $87.9 million with 62% of our ad revenues coming from mobile. Our non-GAAP net income in the second quarter reached $10.9 million. [Foreign Language] Turning to operating results, in June, Weibo’s monthly active users reached 212 million, up 36% from the same period last year, daily active users reached 93 million, up 34% from the same period last year. 85% of Weibo’s MAU in June were in mobile, which is comparable to prior quarter. Over the past year, we have made significant product improvement and information flow optimization that have resulted in increased user stickiness as well as accelerated DAU and related ad revenue growth. The number of Weibo users who have activated Weibo Pay reached 46.5 million in June. [Foreign Language] On the operational front, let me elaborate on the key progress we have made. [Foreign Language] First, in the second half of last year, we began to optimize information flow of Weibo users. After six months, the impact of our feed flow optimization began to bear fruit as we found meaningful improvement in user engagement and retention, including timeline views and feed engagement that exceeded user growth rate. This also resulted in improvement in user [indiscernible] on Weibo. Other such improvement from feed flow optimization ultimately translates to an increasing Weibo’s ad inventory. [Foreign Language] On previous conference calls, we discussed our efforts to improve the ease of information consumption on Weibo. The open nature of Weibo as a social media acceptable by everyone gives us an advantage for more efficient information discovery. As a result of our efforts over the past six months, we have seen a significant lift in the number of mobile users sharing content on Weibo much faster than DAU growth, especially within the Big Bs and other highly influential user category. Going forward, we will consider the right balance of information feed coming from celebrities, public figures and businesses to optimize user experience, which continues to remain a main product focus. To this end, we have planned to increase our investments in product development and platform technology to further improve user experience for information discovery and consumption on Weibo. [Foreign Language] Second, we strengthened the multimedia aspect of Weibo. Taking advantage of the adoption of smartphone, 4G and WiFi in China, we are seeing Weibo users consuming more videos and photos. Through our collaboration and product innovation with Miaopai, a leading short video sharing app, we are able to provide Weibo users with a unique and rich experience for creating and sharing short videos on handsets. In June, the average number of daily videos on mobile viewed jumped almost four folds from six months ago, paving the way for us to build a foundation to provide ads in video format in future. [Foreign Language] Third, in the area of Weibo’s branding and channel strategy, we leveraged a scale of Weibo user base to deepen our strategic co-operation with the most influential player in the television and movie industry as well as the key smartphone makers. In the first half of 2015, we collaborated with more than 100 TV shows, 86 movies and 20 major smartphone makers in the area of PR, co-marketing and product innovation, helping our partners to increase visibility and build greater awareness for their brands while allowing Weibo’s own brand and user penetration to flourish. The result of our branding and channel strategy can be demonstrated from the significant increase in Weibo’s penetration into lower-tiered cities. [Foreign Language] On the monetization front, as discussed in last quarter’s conference call, with Weibo enterprise accounts reaching 1 million and a full range of stimulated ad products for customers to choose from. We were able to clean up private marketing practices that are spent on Weibo. We have taken steps to limit spending and other undesirable marketing behaviors. We believe these actions will improve the information consumption experience for our users as well as creating a fair and desirable environment for social marketing on Weibo. Businesses and marketers will benefit from this cleanup and enforce social marketing growth, which will enable better targeting and improved marketing effectiveness. In the second quarter, we also partnered with Socialbakers, a well-known analytic company for social media who launched measurements for Weibo enterprise users. Almost 900,000 verified enterprise accounts are using the free trial version of this product. By working with Socialbakers, we hope to speed up the adoption of an industry standard for measuring social marketing effectiveness and accelerate the proliferation of social marketing in China. [Foreign Language] Lastly, on the product monetization front, in the second quarter, we witnessed strong growth in SME revenue, which include self-service ads. Revenue increased 163% year-over-year and 54% quarter-over-quarter. A number of SME customers reached 444,000, which is an increase of 54,000 ad customers from last quarter, as we continue to improve Weibo self-service product offering and optimize the SME agency channel. The growth of KA revenues was impacted by the World Cup last year. Excluding World Cup revenues from last year, KA revenues would have increased 34% year-over-year. The primary reason from -- for this revenue growth include event-driven social marketing, TV plus Weibo ad offering and new product launch promotion. We also received positive feedback on Weibo’s Big Day package, which allows advertisers to make new announcement in a big flash and capture wide audience on Weibo in a short time frame. Compared to other media apps, Weibo has an added advantage in all three performance-based marketing and event-driven campaigns. We believe Weibo can provide a strong solution for brand advertising and we plan to make further investments in this area. [Foreign Language] With that, let me turn the call over to Herman for financial update.

[Herman Yu:]

Thank you, Gaofei, and good morning everyone and good evening to those of you in the western hemisphere. Let me now take you through Weibo’s financial highlights. For the second quarter of 2015, total revenues grew 39% year-over-year to $107.8 million, which was above our guidance of $102 million to $105 million. Non-GAAP net income attributed to Weibo’s ordinary shareholders came in at $10.9 million compared to a non-GAAP loss of $5.1 million for the same period last year. Non-GAAP EPS was $0.05 compared to negative $0.03 a year ago. The scale of revenues that Weibo has achieved is enabling us to grow revenues and more than twice the case of costs and expenses. Revenues were up 39% year-over-year while costs and expenses were up only 16% year-over-year. Non-GAAP net margin reached 10% compared to negative 7% last year and 3% last quarter. Non-GAAP EBITDA was $15.4 million compared to a negative $1.8 million at same period last year. Let me give you more colors on Weibo revenues. Advertising and marketing revenues for the second quarter of 2015 were $87.9 million, up 47% year-over-year. The strength of Weibo advertising was led by our small and medium size enterprise business, which generated $33.9 million in the second quarter. SME revenues were up 163% from the same period last year and up 54% from last quarter, making the SME business Weibo’s largest advertising segment for the first time. Total SME customers surpassed 443,000 during the quarter, an increase of 54,000 from the prior quarter. Our SME business includes revenues from self-service ads, which our users can buy directly on Weibo. We have seen strong adoption on Weibo’s self-service ads, which include Weibo Fensitong and Weibo FST. Weibo Fensitong allows our user to prioritize his feed at the top of his friends’ information flow, while Weibo FST allows the user to target potential friends based on the profile and interest of Weibo users. In May, we added promotive accounts on Weibo’s promotive ad offering. Revenues from Weibo self-service ads grew 139% sequentially and we expect this area to continue to be a key revenue driver for us going forward. Moving on to key accounts. Revenues from our key accounts, mostly large brand advertisers, were $25.5 million, up 4% from last year and 13% from last quarter. The year-over-year weakness was primarily due to a high revenue base from the World Cup last year. Revenue from Alibaba in the second quarter was $28.4 million, up 28% year-over-year and represents approximately a quarter of Weibo’s total revenues. As a leader in social media in China, Weibo is well positioned to capture the trend of advertisers migrating to mobile. Mobile revenues in the second quarter reached $56.8 million, up 134% [Technical Difficulty], representing 62% of total advertising and marketing revenues compared to 39% a year ago, with 85% of Weibo’s MAUs on mobile. And this user segment [Technical Difficulty] year-over-year and the breadth of Weibo mobile ad offering to both key accounts in small and medium-size ad customers, we are in a good position to capture the markets moving toward mobile advertising. Moving on to value-added services. Weibo value-added services revenues increased 13% year-over-year to $20 million. Game-related services revenues was $11.4 million, up 58% year-over-year. Membership revenues was $6.1 million, up 87% year-over-year and data licensing revenue was $2.5 million, down 66% year-over-year and down 5% quarter-over-quarter. As explained on the previous call, we made a strategic decision in the fourth quarter last year to provide data licensing service on a more limited basis so as to optimize ad revenues over the long run. And consequently, we may see data licensing revenue to further decline. Membership revenues for the second quarter included a one-off $1.6 million generated from Weibo users’ casting votes to determine the winners of the prestigious Baeksang awards for the best female and male Korean TV and movie stars. Having Weibo Pay really gives our users the unique experience to participate in the determination of the most popular Korean celebrity. As Gaofei mentioned, the number of Weibo users who have activated Weibo Pay has reached 46.5 million. Turning now to costs 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, net of related income tax assets and gain/loss on the sale of investments and impairment on investments. Total costs and expenses were $98.1 million, up 16% year-over-year. Cost of revenues was $33.4 million compared to $19.5 million a year ago. The increase in cost of sales can be primarily attributed to higher value-added tax, game and other revenue share resulting from higher revenues as well as higher infrastructure-related costs resulting from traffic growth and the strong growth in video-viewing on Weibo. Operating expenses totaled $64.7 million compared to $64.8 million last year, reflecting an increase in payroll-related costs, offset by a decrease in marketing and bad debt expenses. Our focus this year has been to grow revenues while putting in place a system of business controls to improve spending effectiveness. As we move into the second half, we expect higher revenues to further margin improvement from our operating leverage. Operating income for the second quarter was $9.7 million compared to a loss of $7 million for the same period of last year. Non-GAAP net earnings attributed to Weibo’s ordinary shareholders for the second quarter was $10.9 million compared to a loss of $5.1 million last year. Non-GAAP diluted earnings per share was $0.05 compared to a loss of $0.03 per share from last year. Non-GAAP adjusted EBITDA to finance earnings before interest, taxes, depreciation, amortization and other non-operating income and share-based compensation expenses was $15.4 million compared to a negative of $1.8 million last year. Turning to balance sheet and cash flow items. As of June 30, 2015, Weibo’s cash, cash equivalents and short-term investments totaled $337.1 million. For the three months ended June 30, 2015, cash, cash equivalents and short-term investments increased $117.9 million, primarily resulting from Weibo’s equity investment, including an investment of $142 million in Didi, Kuaidi Taxi, the largest transportation platform app in China. Cash provided by operating activities for the second quarter of 2015 was $51.4 million. Capital expenditure totaled $3.7 million and depreciation and amortization expenses were $5.9 million. Turning to Weibo’s third quarter 2015 guidance. We estimate that Weibo’s total revenues for the third quarter of 2015 to be between $120 million and $123 million, assuming the renminbi to US dollar exchange rate stays at the current level. Before I turn the call over to the operator, let me quickly summarize our performance. Since our IPO year ago, we have seen solid revenue growth every quarter with SME advertising [indiscernible] largest advertising segment at 39% of total advertising. Mobile revenues now account for 60% of our advertising revenues compared to less than 40% year ago. The scale of revenues that Weibo has reached has enabled us to be profitable for the last three quarters with increasing margin. Our DAUs and MAUs have also been growing very strongly as we deepen our partnership with television and movie industries as well with the top smartphone makers to efficiently grow Weibo’s brand in pre-installs. On the user experience side, we have taken steps to clean up the clutter in the information feed, resulting in increased Weibo refreshes and engagements. On the whole, we've seen strong execution across the board over the past year and we're taking the crucial steps to secure a leading position in China's social media space. With that, let me now turn to Q&A. Operator, we're ready for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Dick Wei of Credit Suisse. Please go ahead.

[Dick Wei:]

Hi. Good morning. Thank you for taking my questions and congrats on a very strong quarter. I have two questions. The first question is on the user -- usage trend on Weibo, I wonder if you can -- I understand that DAU number is very strong, seen very strong growth. If you can add some more color in terms of maybe the usage differences, is that more spending on video or is there any particular type of contents that user gets more engaging on the platform, that will be great. And my second question is on the SME kind of the industry, so I thought SME advertiser, what are the industry segments they’re in and then maybe you can remind me the revenue booking for self-serve versus for the agency, do we expect any kind of -- with self-serve being the larger portion to expect and if the margin changes for the SME segment. Thank you.

[Gaofei Wang:]

[Foreign Language] Yeah. So we can see that from our MAU, we’ve been growing at 36% and our DAU is growing approximately at the same rate at 34%. [Foreign Language] Okay. So we can see that, when you compare to six months ago, DAU grew 16% whereas our information refresh grew 30% and we can see that most of our keys now have photos and you can see users are more and more viewing videos. [Foreign Language] Due to our product improvements on video last year, incorporating native videos, you can see that our viewership of videos from six months ago includes almost four times and we hope that with our further improvement in the user experience for videos that we can double that by the end of the year.

[Herman Yu:]

Okay. With regards to second question, Dick, I recall you mentioned what are the main industries for SMEs. Basically, revenues from SMEs, if you look at the top, because there are so many customers in this, we look at the SMEs from the channels and you look at the top 500, 600 customers, we notice that it comes from mainly three segments, one is, you see a lot of app developers who are doing -- using Weibo for app download. Second, you see a lot of app customers coming, doing e-commerce. And third, you are seeing a lot of O2O players who traditionally don’t have web presence, but because of the ease of using Weibo, promote their product and so forth. This is a third category. And then with regards to the difference of self-service and SME channels, right now, the SME channels, as a percentage of total revenue, is by far much larger than self-service, but I think we expect that over the near future that self-service will continue to be growing out, growing at a rate faster than the SME channels. I think from a margin perspective, we don’t expect this to be too different, because for the SME channels, you would have to pay rebates and so forth, but we’re recognizing revenue at a net basis.

[Dick Wei:]

Great. Thank you very much.

[Operator:]

Our next question comes from Eddie Leung of Merrill Lynch. Please go ahead.

[Eddie Leung:]

Good morning. Thank you for taking my question. Just a quick question on your gross margin. And you mentioned that one factor behind the sequential decline in gross margin is about games, so just wondering whether it’s purely a mix shift effect or is it any change in the revenue sharing ratio and also, how you account for your game revenues, do you book it on a gross basis and/or net basis. Thank you.

[Herman Yu:]

Yeah. Good question, Eddie. I think when you look at gross margins, our gross margins have slightly decreased from a year ago, and I think you hit the point, we book our game revenues based on growth. So as game grows, you will see that revenue shares from games increase. That’s one reason. Another reason is because if you look at our revenue last year, a significant portion comes from data licensing, which doesn’t have much cost of sales, as this portion of revenue because of much smaller part of total revenues that would also impact our gross margins.

[Eddie Leung:]

Thank you.

[Operator:]

Our next question comes from Juan Lin of 86 Research. Please go ahead.

[Juan Lin:]

Hi, good morning. Thank you for taking my question. My question is related to your vertical partnership with Alibaba, I’m wondering in second quarter did you generate any revenue via the vertical partnership with Alibaba and also what is the progress of the vertical co-operation in terms of which verticals you have already worked on, what events you were helping in the past quarter and which new verticals are you planning to explore in the second half? And how should we project the revenue from this portion in the near term, meaning the second half of the year? And my second question is related to Weibo commerce, what is the current progress with your Diatone [ph] and Weibo Showcase, how many dials do you have and the number of merchants and convention value on the Weibo platform. Thank you very much.

[Gaofei Wang:]

[Foreign Language] In our last call, we talked about that with Alibaba alliance, due to some internal changes and so forth, we would start talking about the vertical alliance in the second half. [Foreign Language] So the revenues that we generated from Alibaba is by original expectation. It’s one area in which we have the vertical alliance include music, travel and leveraging Socialize to push e-commerce. [Foreign Language] The composition of revenues coming from verticals as a percentage of total revenue from Alibaba is not significant, less than $10 million [ph]. [Foreign Language] Yeah. In the second quarter, these vertical projects we just started and represented maybe half of the quarter as we move in to the second half and next year, we hope to grow these vertical activities in movies and music and so forth.

[Herman Yu:]

With regards to the second question on Weibo e-commerce, so what we’re trying to do with this is to work with our Socialize, because as you know, Alibaba, you have a turbo and we also have worked with another e-commerce app called Weimi. You have a lot of goods that’s been shown and what we can do is leverage the Socialize on Weibo to actually promote and to recommend products that they think are good products. As a result by recommending and as a result of generating revenue who have a revenue share with Socialize? So this is something that we’re trying to launch in co-operation with Alibaba. As its programmed Socialize ecommerce just started promoting, we now have over 2000 of these members that we have accepted to be part of the program and we should be growing this over time.

[Juan Lin:]

Thank you very much, Gaofei and Herman. That’s very helpful.

[Operator:]

Our next question comes from Jin Yoon of Mizuho Securities. Please go ahead.

[Jin Yoon:]

Hey, good morning, guys. From the revenue side first of all, we saw a nice pickup on the revenues from the non-Alibaba side of advertising. Can you just talk about just kind of the attrition rate in terms of what percentage of -- how much of your revenue is coming from new customers versus increased spending from the existing customers? That’s my first question. And the second question is, we continue to see kind of a downward drift on the whole sales and marketing side aspect, can you just kind of give some color in terms of how we should see the spending going forward if we continue to see some downward trajectory, is that because again advertisers are a lot more stickier because of the self-service model or what’s driving that downward trajectory. Thanks guys.

[Herman Yu:]

Two questions. The first one on attrition, Gene we don’t disclose the attrition numbers. Part of it is hard to analysis because when you’re looking at attrition, some of these are purchases, a lot of our products are based on our new product launches, be it whether it’s social media for promoting new products. So, because you don’t see our vendors or advertisers as you’re promoting products every month or every quarter, really depending on their product releases. So that is not a number I think that’s too meaningful but you do see for example from our SMEs, from our self-service program continue to buy and recharged their payments for the self-service and so forth. With regards to our sales and marketing, if you look at second quarter, it’s slightly below last year and slightly below first quarter. We expect this dollar amount to actually continue to rise in third quarter and fourth quarter. As we mentioned before, you see the slight change is because we’re looking at marketing effectiveness, we’re looking at how we spend our channels and so forth and to try to make the best out of our spending and to make sure that it’s spend most effectively. But I think as a trend, we should expect this to pick up in third quarter, fourth quarter as we did last year, if you look at the sequential variations from quarter to quarter. Okay.

[Jin Yoon:]

Thank you.

[Herman Yu:]

Thank you.

[Operator:]

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

[Tian Hou:]

Good morning Herman, Gaofei and Charles. Couple of questions. One is related to your operating margin. This quarter’s operating margin turned into positive compared with the last quarter same time, it was a significant margin improvement. So I wonder going forward, what’s the outlook for the operating margin, that’s the first question. The second question, I would like to know more about your TV-Weibo interaction program and I want to know how many drama -- TV drama shows and variety shows have you set up in the third quarter and the fourth quarter, that’s the two question. And the third question is truly related to the macro economy and as China’s macro economy is still really not accurate, what’s the potential impact to your key account revenue going forward. Those are my questions.

[Herman Yu:]

So let me answer the first one and the third one, and then Gaofei will answer the second one. With regards to our operating margin, Tian, I think you have a good point that we’re seeing a pretty good expansion. We grew from 1% operating margins in Q1 into Q2 at 9%. I think long-term wise, you can look at Weibo as mini Internet companies in China because we have the benefit of not having to pay for content, this is a UGC platform that we think we have significant room for expansion. I think in the near term what you can do is just look at our current cost structures in Q2 and expect it to have the regular secular trend increase as we did in past years. But I think long-term wise, we have significant opportunity here, plus the scalability of our model the fact that we don’t have pay for content. Secondly, with regards to the macro economy impacting us. We gave our guidance in Q3, we so far have not seen a too much impact to our KA business, part of it is because our KA is driven by several factors especially our new product launches such as our Weibo + TV, such as Big Day, which is basically are using brand advertising to give aversive impact to new product launches. But we realize that the GDP is getting impacted and we will monitor that very closely. With that, I will turn over to our CEO to talk about Weibo + TV.

[Gaofei Wang:]

[Foreign Language]

[Tian Hou:]

Very helpful. Thank you.

[Herman Yu:]

With regard to the number of variety shows, as we mentioned in the call that it’s over 100. And you can see through our partnership with television over the last year that Weibo has now become either the exclusive partner or the preferred partner with a key television station. We actually see that investment from the televisions, they’re gaining more and more market share and so forth. So we expect that their investments in this area will continue and as a result, the revenue coming from this area should continue to grow too. Okay, thank you.

[Operator:]

And our next question comes from Thomas Chong of Citigroup. Please go ahead.

[Thomas Chong:]

Hi, good morning thanks for taking my questions. I have two questions. Can you provide us some color about the geographical spread of your users in tier 1, tier 2, and lower tier cities? And my second question is relating to the revenue split, any color on the geographical distribution in terms of their revenue? Thanks.

[Herman Yu:]

I’m sorry Thomas, can you repeat that one more time?

[Thomas Chong:]

Hi Herman, my question is about the MAU by geographies, what’s the percentage coming from tier 1, and 2 as well as lower tier cities. And the second question is about the revenue from tier 1, tier 2 as well as lower tier cities. Thanks.

[Gaofei Wang:]

[Foreign Language]

[Herman Yu:]

With regard to our MAU, our user base, about 50% to 60% of our user base comes from tier 1, tier 2 and the remaining is in the lower tier cities. And with regards to revenue composition, we actually don’t analyze this by cities, there is many different ways to look at it, you look at where the advertiser is based; you look at where the user is based and so forth. So as you know, as part of our advertising, some of it is pending, some of it performance based and so forth. We don’t think that segregating this by geographic region is too meaningful for us.

[Gaofei Wang:]

[Foreign Language]

[Herman Yu:]

Yeah. So most of our advertisers they’re looking at user profile, user interest and they’re not looking at geographic spend -- geographic targeting or smaller access [indiscernible] they might be more -- they might be more interesting on the geographic location but as a percentage of total revenues this is pretty small. Thank you, Thomas.

[Thomas Chong:]

Gaofei thanks.

[Operator:]

And our next question comes from Wendy Huang of Macquarie. Please go ahead.

[Wendy Huang:]

Thank you. First I want to clarify the rationale behind some numbers. So for the same quarter, it seems that your Portal advertising revenue increased by $17 million while Weibo advertising revenue increased by only $9 million but I thought the Weibo’s momentum actually should have been stronger than Portal. So maybe, can you elaborate why the Portal advertisement seems such more resilient in the second quarter? And also can you provide some breakdown of your Q3 guidance, how should expect the sequential dollar increase to be spread out among the Portal and also the Weibo. And second question is, previously you made an investment in the [indiscernible] so going forward, will you actually consider more investment in the O2O type of companies. Thank you.

[Herman Yu:]

Hi Wendy, this is Herman. Let me elaborate on the two questions. I think with regards to your question on how Weibo revenue compares with Portal revenue, since this is a conference call for Weibo, maybe we can leave that question to the next conference call where Bonnie, CFO of SINA will be able to answer. With regards to our investment in Qiezi, as an overall investment strategy, we are looking at areas where we can take investment and at the same time have the opportunity to form a strategic partnership with these companies so that we can add more feature sets and value to our users. And we will continue to look at companies like this, where it can help Weibo’s [indiscernible] to have us increase our Weibo paying users and so forth.

[Charles Chao:]

Hi Wendy, this is Charles. Regarding your first question, I think you’re talking about the sequential increase in the advertising revenues for Portal compared to the increase for Weibo. Actually, if you look at the components of advertising revenues, actually for Portal we generate more revenues, much, much more with majority from KA accounts we mean the major brand advertisers, but for Weibo, actually we generate more from SMEs, and from Alibaba. So actually the KA market is usually much more affected by the seasonality. If you look at historical numbers we had in the past, between Q1 and Q2, there is always like anywhere between 25% to 35% increase sequentially in advertising revenue for portal where such fluctuation for Weibo is much smaller, so this is always the case in terms of our seasonality pattern. There is nothing special about it. Okay. Thanks.

[Wendy Huang:]

Thank you.

[Operator:]

Our next question comes from Chi Tsang of HSBC. Please go ahead.

[Chi Tsang:]

Great, thanks very much. I just had a question about social commerce again. Can you give us an update in terms of -- your wallet users you said were about I think it is about 46 million which is kind of flat Q-on-Q. I am wondering if you can give us a number in terms of like net GMV sort of transacted on Weibo, the type of things people are still buying, the ticket size and any sort of trends or characteristics would be helpful. Thank you very much.

[Gaofei Wang:]

[Foreign Language] Well, because of GMV we can see that our Weibo user it is about 46 million. The reason we don't see too much increase from Q1 is because in the first quarter we had the red envelope campaign that was around Chinese New Year and that was a major driver for this. And with regard to the absolute GMV for the second quarter, on a year-over-year basis we see an increase of around 10 fold. On a sequential basis it's about 70% growth. We don't disclose the actual figures, because that is not a significant amount, but as we grow this number or figure in the future, we will consider doing that. [Foreign Language] With regards to how our users are using our Weibo page, there is mainly two types. One is to transact e-commerce transactions and the other one is to actually make a payment for services such as the voting of [indiscernible].

[Chi Tsang:]

Thank you.

[Herman Yu:]

Thank you.

[Operator:]

And our next question comes from Alicia Yap of Barclays. Please go ahead.

[Alicia Yap:]

Hi, good morning, Gaofei and Herman and Charles. Thanks for taking my questions. I do have a question related to the local commerce service opportunity. So with Weibo having 93 million DAU, it is a very powerful platform for connecting the users to the local -- daily local services. So can management share with us the plans and the strategies that you are working on with Alibaba and maybe co-pay and other strategic partners to capture this opportunity? Thank you.

[Gaofei Wang:]

[Foreign Language] Yeah, with regards to local O2O service offerings, we’ve started pushing a product what we call Weibo radar which leverages location-based services using the geographical region of the user to push. We see that the O2O business in China a lot of the companies are burning fair amount of cash, so our model will not be similar to theirs where we are doing a gateway. We have chosen to actually prepare to be partnering with people that can provide better services so that we can provide those services and our partners include people like Alipay and also Didi Taxi and so forth so that we will become the promotional arms for the services.

[Alicia Yap:]

Thank you, Herman. So second question regarding the Alibaba revenue as well. I guess we are approaching the initial agreement for the three years commitment. So is there any update in terms of the upcoming negotiation or any further partnership and agreements on that front? Thank you.

[Gaofei Wang:]

[Foreign Language] Our regional business cooperation agreement with Alibaba ends at the end of the year. Basically the three type of advertising that we are doing. It is, one, relates to the overall spending and media spend. The second relates to our alliance with them on the vertical side as we mentioned previously on movies, music, travel and so forth and clearly it has to do with Alimama. [Foreign Language] Yeah, so we see further negotiation process with Alibaba in two separate ways. One is looking at how we're going to continue to strategically align with them on the media spend and on the vertical side we think that that should be stable from where we are today. And with regards to Alimama where we continue to monitor this and see if we can actually be able to monetize more from the way Alibaba does or versus our sales if we were to offer this to other customer, so we will have to make a judgment on this as we go forward and probably will not have a massive contract with this area.

[Alicia Yap:]

Great, thank you. Very helpful.

[Operator:]

And our final question comes from Natalie Wu of CICC. Please go ahead.

[Natalie Wu:]

Hi, good morning, thank you for taking my questions. I still have two questions here. The first one is I think a follow-up question on socialized e-commerce. It is mentioned that there is revenue sharing scheme behind that. Just wondering what is roughly revenue sharing ratio. And the second question is, I noticed that you're active user growth had a very nice pace. Can you give us some color on the active user churn rate or retention rate? Thank you.

[Herman Yu:]

I am sorry, can you repeat the first question. What do you mean by our revenue share for e-commerce?

[Natalie Wu:]

I saw, you just mentioned that for your socialized e-commerce Weibo ecommerce, you have some revenue sharing scheme maybe behind -- between you and Alibaba, is that true?

[Gaofei Wang:]

[Foreign Language] So for the two questions, the first one is with regards to leveraging socialized to push e-commerce, the way we arranged with Alibaba is that Alibaba would pay us this as a net advertising fee to us. The second one is because the Weibo, once it is activated and linked to Alipay we don't normally expect the users to accurately activate this. It is a very small percentage of the total, so this is not something that we actually emphasize.

[Natalie Wu:]

Thank you Herman and Gaofei. Actually my second question is regarding the retention rate for your Weibo total active user, not Tina [ph] user.

[Herman Yu:]

I see, Natalie, this is not something that we analyze. This is not something that we disclose on the retention rate because there is many different angles to look at this.

[Natalie Wu:]

Okay, thank you, Herman.

[Herman Yu:]

Okay, thank you.

[Operator:]

That concludes the question-and-answer session. I would like to turn the conference back over to Vanessa Chen for any final remarks.

[Vanessa Chen:]

Okay, that concludes today's conference call. Thank you all for joining us.

[Operator:]

And thank you, the conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines.