Phoenix New Media Limited (NYSE:FENG) Q2 2021 Earnings Conference Call August 16, 2021 9:00 PM ET

Company Participants

Qing Liu - Investor Relations
Shuang Liu - Chief Executive Officer
Edward Lu - Chief Financial Officer

Conference Call Participants

Xueru Zhang - 86Research
Carmen Zhang - First Shanghai Securities

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I must advise you that today's conference is being recorded.

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 Media's second quarter 2021 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu; Chief Financial Officer, Mr. Edward Lu.

On today's call, management will first provide a review of the quarter results and then conduct a Q&A session. The second quarter 2021 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.

Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which apply to this call as we will make forward-looking statements. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB.

With that, I would like to turn the call over to Mr. Shuang Liu, our CEO.

Shuang Liu

Thank you, Qing. Hello everyone. Thank you for joining us on our call today. During the second quarter of 2021, we continue to encounter downward pressure as competition intensified, regulation tightens, and advertisers remain cautious with their budgets.

As our core competitive differentiation lies in our regional accounts and production capabilities, we have upheld our commitment to originalities and revamp our content strategy. We believe that our newly augmented cost metrics will lay a solid position to attract new users, increase their loyalty, and generate a sustainable revenue stream.

I would like to start by discussing our key efforts in revamping our content strategy. As users suffer from information overload in the digitally-charged world, we're convinced that the most effective way to add value to our users is to produce original content with distinctive characters that are true to our brand. Hence we have repositioned our content metrics and adjusted accounts and production pipelines to produce a series of columns and programs each written and presented in a certain voice and style consistent with our branding differentiation.

Through these efforts, we intend to not only enhance our brand image, but also creates a unique brand affinity among our users and advertisers, which should help us unlock more certain long-term value from our brand equity in turn.

To elaborate in area of original content in order to cater to various user demand, we have focused our resources on producing three distinct venture genre [ph], opinion column, investigators reporting, and premium IP production.

For example, during the second quarter, we launched our original opinion column titled Eye of the Storm [Foreign Language], which is distinctively positioned to examine contentious current events.

We present the audience with our unique authentic and timely information of issues by conducting meticulous research and deploying wide array of viewpoints. Our coverage on various controversial topics and social phenomenon generated an immense number of views across our ADP and other social platforms with the most popular piece gathered modern 140 million views on Weibo. As for in-depth investigative reporting, our trademark columns such as Tianbo and the Human Intelligence Agency continue to bring our user well-rounded and thorough analysis on the hardest topics such as COVID-19 delta variant, latest vaccine development, Miami condo collapse and so on. In addition, our social investigating column [Foreign Language] examine societal issues through live stories of ordinary people that's raining public awareness of these issues and giving voice to open voice.

Our new short video series titled Your Achievements [Foreign Language] pioneer a unique storytelling methods by combining field production with tech talk like tech talk sale speech by 1980s celebrities. The series portrays how other people have overcome tremendous difficulties to accomplish nearly impossible projects. It resonated so much with the current audience aspiration for excellence, success and honor that it became an instant hit across the Internet. The two episodes released during the quarter accumulated over 10 million plays on our APP loans. The second episode became the number one hot search on Bilibili as also record the top iQIYI's feedback for all similar streaming programs.

Your Achievements elevated our premium IP production content to new heights and exemplify our industry-leading plan and production capabilities. In addition to quality production, advertisers also appreciate access to luminaries in our culture, science and politics with backgrounds and trade in sync with the brand images. For example, through video series iFeng Talk, we interviewed Yue Minjun [ph], our renowned contemporary Chinese artists. The program attained a large number of likes and endorsement from top KOLs as well as young intellectuals who constitute the large -- the target demographics coveted by our advertisers.

As for reporting news and events, we continue to distinguish ourselves through industry-leading breaking news coverage. During the quarter, we covered the launch of Chinese Man Spaceship [Foreign Language] through a variety of formats including live streaming, push notification and the focal topic recommendations. Our multidimensional coverage reaped five million users following, particularly through live streaming, which attracted a historical record of over 800,000 live audiences.

Beyond the cornerstone of our original content and news reporting, we also made strides in expanding our content ecosystem. In the quarter, we launched our own MCN platform called As We Know it [Foreign Language]. It is positioned as a hub for knowledge-based content created by our contracted influencer. Taking into consideration of our professional journalists' DNA, our global contact network and a highly educated user base. By the end of second quarter, our MCN had contracts -- contracted 14 subject experts including Phoenix TV reporters renowned intellectuals and overseas content creators. Our first original video sales called, Think Global Observer Group [Foreign Language] brings news reports, a live interviews on trending global topics and events to our audience.

The Sears became instance success on Weibo, Bilibili a third-party platforms in addition to our own platform obtaining wide user followings. In the meantime, we're in the process of examining our creator mix to cover subjects such as law economics, health and wellness, culture and social science. Through our MCN platform content creators benefit from our brands versus inputs, while we generate value by enhancing our content metrics, strengthening our brand equity and providing clients with diversified marketing solutions.

Looking ahead, we believe the combination of our cross-border content delivery capabilities with our distinctive creator mix which consists of both banners in China and Chinese subtitles will become a competitive advantage for us as we foresee an ever-growing demand for overseas marketing by Chinese brands.

Next, I will briefly touch on signature events in the quarter. This year marks the 10th anniversary of our Phoenix Financial Summit. Prominent speakers including the Chief Executive of Hong Kong SAR Ms. Carrie Lam together with 31 other political dignitaries and business tycoons congregated at this year's summit. Also for iFeng gourmet food festival in Beijing and currently are center of Chengdu, we attracted over 160 distinguished guests at each location including top chefs, food critics, restauranteurs and celebrities thus greatly enhancing our brand influence in the food sector.

Now let's take a look at our iFeng app. In response to our realigned content strategy, we have implemented a few initiatives to enhance the content ecosystem within our app. We carefully segregated content-related hot issues out of our premium content pool, thus setting time-sensitive content with temporary high views apart from evergreen content with sustainable popularity.

On one hand, we continue to make editorial recommendation of trending topics to cater to user desire to tune in current events. On the other hand, we have also refined our premium content pool to retain in-depth content with large user value including high-quality content from those original columns and programs mentioned earlier as well as from other media terms.

By optimizing our operations and distribution of the premium content pool, we intend to increase both our user retention rate or average user ad spend on app. In fact our monthly repeat user increased by 4% sequentially over the last quarter. As we collaborate more closely with Phoenix TV on distribution rights, we have vastly improved our app's user interface and pay layout to better leverage the exclusive content from Phoenix TV.

For example, we have a segmented Phoenix TV-related content into a stand-alone column with its own landing page and ad content labels to highlight exclusivity.

Because the Phoenix TV brand carries significant user ability on trust, distributing exclusive content from it through the iPhone app, has significantly improved our user stickiness. During the second quarter, within the Phoenix TV column, monthly active users increased by 18% while the click-through rate increased by 27% on a sequential basis.

Lastly, I'd like to share our progress in revenue diversification. For online reading, we have made significant progress in adding more methods of monetizing our premium IP content.

In addition to our cooperation with Ximalaya in audio content production, we have also entered into a long-term strategic cooperation agreement with the Tencent Music Entertainment to expand our audio content licensing program to all of its platforms including QQ, Kugou and Kuwo Music.

For our audiovisual content, we have formed a strategic cooperation with Shandong Film and Television Production Company, a renowned producer of movie and TV programs to jointly create movies and TV shows based on our copyright IP concepts as well as to jointly engage investors and sponsors.

For our real estate vertical, our performance in the first half of the year met our own expectations in spite market regulation, which we believe will likely prevail throughout the rest of the year.

In anticipation of a challenging environment going forward, we are proactively streamlining business operations at our local branch office to boost their revenue generation capabilities. We're also optimizing our revenue composition by gradually diversifying our client base to reduce customer-concentrated risk.

On the e-commerce front, our independently developed e-commerce platforms, was close to completion during the second quarter. We have invested substantial efforts in refining our merchandising strategy to establish our competitive differentiation in the e-commerce arena after review -- after thorough reviews of our user base characteristics.

Our operating performance data and third party market research, we have concluded that our competitive edge lies in selecting and marketing products in two specialty categories. One is high culture and creativity, and the other one health and wellness. Going forward, we will focus on platform resources on those two product categories.

Moreover, we have decided to leverage external resources beyond our own user traffic to achieve faster growth for our e-commerce business. Our team is actively exploring different ways of utilizing our premium content to generate user traffic from third party platforms such as WeChat.

We'll also leverage our content production capabilities in various verticals such as Phoenix lab, food and beverage, health and wellness, culture and reading to effectively close the loop of vertical content to specialty commerce.

In summary, while we are fully aware of the multitude of challenges we are currently facing, we remain confident in our business prospects as we zeroing our core competency in original content creation, relying our operational focus, expand our content metrics and adjust our distribution strategies.

With that, I will now turn the call to our CFO, Edward Lu to provide a closer look into our quarterly financials.

Edward Lu

Thank you, Shuang and thank you all for joining our conference call today. Our total revenues in the second quarter of 2021 were RMB 256.7 million, representing a decrease of 17.8% from RMB 312.3 million in the same period of last year. I will now provide some additional color on revenues during the second quarter of 2021.

Net advertising revenues in the second quarter of 2021 or RMB 233 million, representing a decrease of 18.6% from RMB 286.3 million in the same period of last year mainly due to the reductions in the advertising spending of advertisers from certain industries in the period.

Paid services revenues in the second quarter of 2021 decreased by 8.8% to RMB 23.7 million from RMB 26 million in the same period of last year. Revenues from paid content in the second quarter of 2021 decreased by 32.4% to 9.6% RMB 9.6 million from RMB 14.2 million in the same period of last year, mainly due to the trend towards free online reading in the online reading market.

Revenues from e-commerce and others in the second quarter of 2021 by 19.5% to RMB 14.1 million from RMB 11.8 million in the same period of 2020, mainly caused by the increase in revenues from E-commerce business.

Loss from operations in the second quarter of 2021 was RMB 34.8 million, compared to income from operations of RMB 25.6 million in the same period of last year. Operating margin in the second quarter of 2021 was negative 13.5% compared to positive 8.2% in the same period of last year.

As Shuang mentioned, we have made a strategic decision to increase our investment in bolstering our original content production capabilities. While such investment will impact our profit margin in the short term, as we're managing our expenses prudently, we believe that it will help boost our competitive advantage and revitalize our growth trajectory.

Non-GAAP loss from operations in the second quarter of 2021 was RMB 30.1 million compared to non-GAAP income from operations of RMB 27.8 million in the same period of last year. Non-GAAP operating margin in the second quarter of 2021 was negative 11.7% compared to positive 8.9% in the same period of last year.

Net loss from continuing operations attributable to iFeng in the second quarter of 2021 was RMB 7.1 million compared to net income from continuing operations attributable to iFeng of RMB 2.8 million in the same period of last year. Non-GAAP net loss from continuing operations attributable to iFeng in the second quarter of 2021 was RMB 2.1 million compared to non-GAAP net income from continuing operations attributable to iFeng of RMB 23.7% in the same period of last year.

Moving on to our balance sheet as of June 30, 2021 the company's cash and cash equivalents term deposits and short term investments and restricted cash were RMB 1.61 billion, or approximately US$248.9 million.

Finally, I'd like to provide our business outlook for the third quarter of 2021. We are forecasting total revenues to be between RMB 237.9 million, and RMB 282.9 million. For net advertising revenues, we are forecasting between RMB 236.7 million and RMB 256.7 million. For paid service revenues, we are forecasting between RMB 21.3 million and RMB 26.2 million.

Looking ahead, we will continue to prioritize the attraction and the retention of users through the production of exclusive and original content. At the same time, we aim to execute more product upgrades to refine our user experiences and improve our content operations, which should ultimately fuel the growth of our brand equity.

In line with this effort, we will also focus on bolstering our operating efficiency, investigating new monetization strategies and improving our revenue stream mix. Such efforts will allow us to enter a new growth cycle and further improve our overall profitability.

This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from Xueru Zhang of 86Research. Please ask the question.

Xueru Zhang

Good morning, management. Thank you for taking my question. I have one question, regarding advertising, can management share more color on the driver for advertisement growth in the second quarter. So if – just about looking that to understand about, how you see that growth trend and any major initiatives should we expect in second half to further support for the growth?

Edward Lu

Hello. This is Edward speaking. Actually, this is a very good question. Actually, our brand advertising business is still facing challenges in revenue growth. During the quarter, advertisers in certain industries reduced their marketing spending. For example, clients in auto industry, our advertising business mostly important revenue source. But because of the ongoing shortage of auto chip supply, auto industry production capability was reduced and the lower sales target for the industry clients to cut their ad spending, advertisers in other industries such as real estate also trim their advertising activities, as a result of the tightening regulatory environment.

Also, during the second quarter, COVID-19 resurged in Southern China, the execution of some of our important off-line operations and events in the region, had to be put on hold. This of course, also negatively, affected our ad revenues in the second quarter.

But in the meantime, various short video and social media platforms obtained an increasing portion of market share in the online advertising industry. So we are at the same time facing intense competition as well.

Having said that, we have carefully reviewed our business operations reevaluated our sales team and made timely operational adjustments to better prepare for the challenges ahead.

We have assessed our industry and customer mix, as well as our original market dynamics to explore more sales opportunities and create the new incentive schemes around business development to acquire more new customers and the enter new industries.

Actually, advertisers' demand for strategic branding and marketing are always evolving. They now require more comprehensive marketing solutions, instead of single ad product.

Aside from our signature events and the regular premium content offering, actually we are leveraging our user traffic and influence on social media and short video platforms including those generated by our -- I'm seeing influencers to enrich our product and service offerings.

Also as Shuang mentioned, earlier, like, adjustment to our original content strategy is very important as well. This will further enhance our brand. Let's combined with our strategic planning in various industry verticals such as, tourism, health and wellness, and automobile will help us improve user loyalty, increase brand influence and ultimately drive the growth of our advertising business in these sectors.

Last but not least, utilizing our international business and their perspective, we are actively launching official accounts on social platforms overseas such as Facebook and YouTube to further amplify our global brand presence and the influence.

At the same time we have utilized our MCN platform to sign money overseas QOLs with international background. I believe these efforts will create enormous value for large-scale corporations in China, helping them to expand their international exposure and conduct more overseas branding activities.

Thank you, and I hope I have answered your question.

Xueru Zhang

Yes. That’s very helpful. Thank you.

Operator

Your next question comes from Carmen Zhang of First Shanghai Securities. Please ask the question.

Carmen Zhang

Hi, management. Thanks for taking my questions. First, can you please share some additional information regarding our operations for third-party social media and [Indiscernible] platform and how do you plan to monetize [Indiscernible] from there?

Shuang Liu

Hi. Thank you, Carmen. This is Shuang. We’re definitely becoming more focused on third-party platforms. This platform is becoming more and more important, because it first can function as a channel for our premium content distribution. Also becoming a very important source of traffic and therefore monetization opportunities.

In terms of brand advertising, our third-party platform traffic has provided existing advertisers with more opportunities to heighten their brand exposure, as well as reach more potential consumers on third-party platforms. It will support our brand advertising revenue in return.

Aside from brand influence, we also believe that in-depth commercial value of these traffic has yet to be fully unleashed. They have helped us to access our large client base with growing demand for content marketing, notably those in the FMCG industry.

Also since an increasing number of consumers start shopping our social media platforms, such as [Indiscernible] and WeChat, the large follower account -- counts, which we have accumulated on these platforms will also drive our E-commerce business growth. As such, we have laid out a detailed action plan for our operation on the third-party platforms. We have a specific aim to further explore their commercial value.

First, we need to concentrate on resources on developing top-tier accounts on third-party platforms and focus on quality over quantity. We have also categorized our accounts on third-party platforms into different groups for varying purpose. For example, our iPhone accounts on Weibo given its broad content coverage with more than 20 million followers, we plan to use it to fortify our brand influence rather than to drive monetization going forward.

On the other hand, we have our vertical content accounts such as finance and economy and fashion. Our IP accounts such as living, side engines [ph] and the accounts of our MCNs contracted influencers. These accounts target more specific audience base with a more detailed user profile, their plans to be the main category for monetization.

Also our focus on building content larger differ from platform to platform in order to attract quality traffic and target followers as the characteristics between platforms are quite different. For example, WeChat has a large user base for finance and culture. Bilibili for tech and knowledge and so on.

These plans would not only work with streamlined operational process and effective performance evaluation, we have established qualitative performance indicators such as numbers on content publishing, article views, followers, reshares and comments across different platforms.

By evaluating these metrics, we can decide whether or not we have met our operational targets. Along with our persistent focus on content quality and influence as well as our sales efforts, we believe our client base and average revenue per customer will both increase. And, of course, the commercial value of these traffic will naturally follow. Yes, this is my answer. Thank you.

Operator

[Operator Instructions] I would now like to hand the conference back to Qing. 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.