Phoenix New Media Limited (NYSE:FENG) Q1 2021 Earnings Conference Call May 10, 2021 9:00 PM ET

Company Participants

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

Conference Call Participants

Binbin Ding – JPMorgan
Frank Chen – Macquarie
Carmen Zhang – First Shanghai Securities

Operator

Good day and thank you for standing by. Welcome to the Phoenix New Media First 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] Please be advised 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 New Media’s first quarter 2021 earnings conference call. I’m joined here by our Chief Executive Officer, Mr. Shuang Liu; and Chief Financial Officer, Mr. Edward Lu. On today’s call, management will first provide a review of the quarterly results and then conduct a Q&A session. The first 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. In the first quarter of 2021, the industry-wide competition continued to exert pressure on our business process. We focus on fortifying our core advantages by creating and delivering original, exclusive and high quality content and securing our brand advertising baseline while striving to create new growth curves. Additionally, we remain committed to exploring our new business initiatives to augment our revenue source mix.

In the first quarter, we continue to demonstrate our leading role in news coverage, especially as a go-to place for breaking news. During the government Two Sessions event in 2021, ifeng engaged in full coverage of event through our PC and mobile channels, as well as a conference of all major social platforms. Our original news coverage, especially our featured live broadcast, and exclusive content from Phoenix TV generated a record breaking two billion views across the internet. Our professionalism and credibility in journalism, allow us to stand out among other commercial media and gain more interaction opportunities with government officials.

Additionally, we published our original interview series with dozens of commissions, scholars and experts on issues discussed at the Two Sessions, which were widely republished by other domestic and foreign media, such as CCTV Singapore. We’re at the top bar in Forbes China, and rank our viewers top lists of hot searches. Our coverage extended beyond news articles and short videos. Phoenix TV’s Two Sessions coverage, which included eight important event sessions, was forecasted through our live platform to reach millions of users across the globe.

Our results from the Two Sessions speak for themselves. The number of brand advertising clients for the event reached new highs compared to prior years. And our brand advertising revenues from the event increased by 50% year-over-year. Another major event that we covered was a China-U.S. dialogue held in Alaska in March, as the first in-person dialogue between the Chinese government and Biden administration. This was one of this year’s highest profile events so far, of the four Chinese media outlets got access to the event. We were there sole commercial media outlet by capturing the official dialogue interacting with the Chinese representative outside of the conference rooms and raising questions on general public concerns.

We covered the event from various perspectives as the only commercial media outlets on the front line. We published exclusive live video feeds and interviews, most of which were republished by our peers to generate massive user traffic across all major social media platforms. Our coverage of the dialogues on the post-event interviews accumulated more than 700 million views on social media platforms across the internet.

Other than news content, our original IP programs, such as On The Cover in our financial vertical and Ifeng Talk in our entertainment vertical, continue to gain popularity among viewers and brand advertising customer. We integrated our vertical team’s expertise in capturing trending topics and social buzz, as well as our core sales teams’ in-depth understanding of our advertisers branding needs to create IP programs tailored to those same needs.

Consider Jinping Talks, Jinping time, we delivered this cultural interview program specifically for Xi speakers. Jinping Talks facilitates in-depth dialogue between various industry experts and the celebrities aligned with Xi speakers’ broad image in order to effectively market and promote the brand’s products. Moreover, by making our premium IP programs, such as Jinping Talks, available on Weibo and other main third-party social media platforms, we gain access and exposure to a broader audience base, further enhancing our brand recognition and influence.

While we actively distributed our content to other third-party platforms and executed distribution strategies, tailored to the unique characteristics of each platform, our total number of hours on social media platforms exceeded 100 million in the first quarter. More specifically, our official Weibo account exceeded the 20 million followers mark for the first time and earned eight hot searches – 80 hot searches in the first quarter. The increased exposure of our brand, of course, other social media platforms bring us new monetization opportunities. Although we’re still exploring various possibilities, we believe the monetization of our third-party traffics will serve as a new driver of business growth.

Now turning to our iPhone app. During the first quarter, in the presence of severe competition from other algorithm-based apps, we put significant – substantial effort in enhancing iPhone’s user experience and retention. Implementing a series of upgrades to boost its algorithm, efficacy to streamline its content operations, and expand its highly differentiated content library. First, we refined our algorithm to differentiate generic trending social topics. From interest-based vertical content and tailored our distribution strategies based on content classifications, allowing us to not only maximize the exposure of these topics across our platform, but also provide our users with easy access to personalized interest-based content. Furthermore, we also refined the segmentation of our user profiles by providing a content flow of aggregated content based on individual user profile and interests. We continue to improve the user experience of our product.

Second, we continue to strengthen the operation of our premium content pool. During the quarter, we focus on maximizing the exposure of the premium content that was closely related to trending hot topics. By providing consistent on complimentary topics and information that users are interested in, we have enhanced the platform’s user experience. In the meantime, we also directed our resources to the production of high quality articles and videos to further enrich and diversify our premium content pool and enhance the overall content quality of our news app.

Third, to provide our users with access to Phoenix TV’s live feeds and classic television programs, we introduced a feature channel, our news app, which further enhance iPhone’s brand influence and user retention. As a result of the efforts mentioned above, our 30-day user retention rate increased by 10% on a sequential basis and user click-through rate increased by 3% on a sequential basis.

Now turning to new initiatives. During the quarter, we remain committed to advancing various new initiatives to further diversify our revenue streams and argument growth. For real estate, we focus on establishing our B2B influence. One of the B2B products we rollout was our smart content generation solution, [indiscernible]. This system provides user with key industry updates and analysis on areas related to real estate companies, including their stock price fluctuations, strategic changes, and property development. On the other hand, our digital real estate news service, [indiscernible] focused on active operation and distribution of B2B content. By closely monitoring the quarterly earnings results of more than 300 listed real estate companies, the product has helped real estate brands to boost their market exposure, while also demonstrating its capacity to function as a premium news service for executives, managers, and other stakeholders of real estate enterprises.

On the online reading front, we have accumulated an extensive library of premium online library IP, literature IP. Our primary goal has been to foster more diverse monetization opportunities for this IP. Our initial work in all the content reproducing, our literature IP was an instant success. By the end of March, our audio channel, Ximalaya, one of China’s largest audio platform, had over 1.51 million followers, and an excess of 570 million plays. We transform other literature IP into video content, our in-house production of [indiscernible] a short form video series has already collected 40 million views since launching on Kuaishou in February. In fact, audience were exception to the series earning a spot on the platform’s top five must watchlist.

On e-commerce front, to enhance our e-commerce platforms overall competitiveness, we continue to strengthen our original content production capabilities and personalize content recommendation algorithm to efficiently convert the user traffic we generated from content into e-commerce customers. We also accelerated the optimization of our independent developer e-commerce platform. In the quarter, we upgraded the PC version on WeChat Mini program of Phoenix premium products to provide a better user experience. As a result of these upgrades, we achieved an increase in user conversion rates on both platforms. More importantly, we’re also actively explored different ways of generating user traffic from third-party platforms through our premium content offerings to lower our e-commerce customer acquisition costs.

During the first quarter, for example, we officially launch our e-commerce live streaming feature. And the progress we have made so far is quite encouraging. Driven by these combined efforts, Phoenix premium products grew it’s GMV by 24%, sequentially and gross profit by 23% sequentially in the first quarter.

In summary, we are aware of the downward pressure on certain segments of our advertising business, and that we are facing existing competition in areas of our new business initiatives. Nevertheless, we have proactively realigned our business strategies to increase user traffic through our exclusive and premium content offerings. At the same time, we continue to invest in new business initiatives in order to diversify our revenue streams. Going forward, we will stay focus on fortifying our leadership in news reporting, expanding our new media influence and optimizing our cost structure to build a solid foundation for sustainable business growth.

This concludes my prepared remarks. I will now hand the call to our CFO, Mr. Edward Lu to provide a closer look into our quarterly financials.

Edward Lu

Thank you, Shuang and thank you all for joining on our conference call today. Our total revenues in the first quarter of 2021 were RMB226.1 million, in line with our previous guidance. This represents a decrease of 2.3% from RMB231.4 in the same period of last year. I will now provide some additional color on revenue during the first quarter of 2021.

Net advertising revenues in the first quarter of 2021 were RMB201.3 million, representing a decrease of 3.5% from RMB208.7 million in the same period of last year, mainly due to the reductions in advertising budgets from advertisers in certain policy sensitive industries in the period.

Paid services revenues in the first quarter of 2021 increased by 9.3% to RMB24.8 million from RMB22.7 million in the same period of last year. Revenues from paid contents in the first quarter of 2021 decreased by 11.8% to RMB10.5 million from RMB11.9 million in the same period of last year, mainly due to the broader market conditions reflecting the trend towards free online reading.

Revenues from e-commerce and others in the first quarter of 2021 increased by 32.4% to RMB14.3 million from RMB10.8 million in the same period of 2020, mainly caused by the increase in revenues from e-commerce and online real estate related services.

Loss from operations in the first quarter of 2021 was RMB41.9 million, improving from RMB70.9 million in the same period of last year. Operating margin in the first quarter of 2021 was negative 18.6%, improving from negative 30.7% in the same period of last year.

Non-GAAP loss from operations in the first quarter of 2021 was RMB40.7 million, improving from RMB68.3 million in the same period of last year. Non-GAAP operating margin in the first quarter of 2021, was negative 18%, improving from negative 29.5% in the same period of last year.

Net loss from continuing operations attributable to ifeng in the first quarter of 2021 was RMB29.2 million, compared to RMB38.6 million in the same period of last year. Non-GAAP net loss from continuing operations attributable to ifeng in the first quarter of 2021 was RMB27.8 million, improving from RMB50.5 million in the same period of last year.

Moving on to our balance sheet, as of March 31, 2021, the company’s cash and cash equivalents, term deposits and short term investments and restricted cash were RMB1.58 billion or approximately US$240.9 million.

Finally, I’d like to provide our business outlook for the second quarter of 2021. We are forecasting total revenue to be between RMB263.8 million and RMB283.8 million. For net advertising revenues, we are forecasting between RMB244.8 million and RMB259.8 million. For paid services revenues, we are forecasting between RMB19 million and RMB24 million.

In summary, we will continue to build our efforts of producing exclusive and original content to attract and retain our users. We’re also investing product upgrades to enhance user experience and streamline content operations to strengthen brand equity. In addition, we will continue to explore new monetization strategies, diversify our revenue streams and to improve our operating efficiency. This initiatives combined with the gradual recovery of the advertising industry is setting the stage for recovery of our growth and profitability.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from Binbin Ding of JPMorgan. Please ask the question.

Binbin Ding

Good morning, management. [Audio Dip] I have three questions. First one is what is the cause between your organic traffic versus external traffic? And [indiscernible] these two traffic cost growth in the future. Second is, what are the major sources of your third-party traffic? And how do you generate those traffic? Third one is, can management also talk about the monetization plan of your third-party traffic in the future. Thank you very much.

Shuang Liu

Binbin, this is Shuang. Yes, I like to talk about our strategy. Starting from last year, we have more focus on organic growth in our traffic. I think, especially we are more cautious about the user acquisition strategy. We are more focused on the content-driven or brand-driven user growth approach. So that’s why you can see our marketing experience is under control. And at this stage, I cannot quantify the portion of the organic traffic and other traffic. But I like to tell you going forward, most of major portion of traffic will come from organic growth, which means it’s going to driven by our content, by our brand, by our premium content. And we have talking about our social media outlets traffic.

I like to share that we have accumulated over 100 million users on third-party platforms. This demonstrated our brand influence, content value and higher monetization potential. We have also already achieved solid progress on WeChat and viewers counting ecosystem. Everyday tens of millions of users consume our exclusive content, while engaging in dynamic social interactions on these two platforms. And also we are making good progress in expanding our user base on short video platforms like Douyin, Kuaishou and Bilibili. We plan to promote hosts from Phoenix TV, as well as other partners, opinion leaders who create content that fits our trademark style. We believe these personalized contents in the form of short videos will appeal to and better service the younger user demographic.

Our massive social media base, user base brings greater monetization potential. And frankly, speaking, we have not yet fully utilize these resources. In the first quarter, we launch our filming program to better monetize this enormous use of social media. We’re also in the process of utilizing our professional marketing and planning capabilities to provide brand clients with more options. These services allow us to provide brand clients with integrated marketing services includes placing their brand advertisement are more top third party social media accounts. Massive social media traffic can not only help our existing advertisers to reach more potential target customers. We believe it also allows us to attract advertisers in new industries, especially winning more budget allocations from advertisers in a fast growing customer goods industries.

So going forward, we will continue to optimize our capabilities to customize original content for third-party platforms to accelerate the exposure of our content, and to increase user interactions. As we continue to improve our stickiness for user on third-party platforms, enhance our monetization capabilities, our user expansion and monetization capabilities will form a self enforcing style. I also want to emphasize that we are at early stage of monetizing our outlets on the social media platforms. With the more integration, more interaction between our portals part and also Phoenix TV part, we’re confident we can leverage our TV hosts their premium content more effectively, and further improve the strengths of our brand recognition and the further monetize these – the traffics on these sites. Thank you.

Operator

Thank you. Your next question comes from Frank Chen of Macquarie. Please ask a question.

Frank Chen

Good morning, I have two quick questions. The first one is can you share more additional [Technical Difficulty] business if you are willing to share more operating metrics? The second question is a follow-up question on your social media initiative. Can you tell us more about the unit economic health that how is your unit user acquisition costs on the monetization potential of unit follow? For example, you have million, over 100 million followers on social media. How should we think of the monetization potential of that amount of followers? And what will be the business model for that? Well, you get revenue sharing from those social media platform or now you have some native ads, and you can protein inside your content? Thank you.

Edward Lu

Hi, good morning, Frank. This is Edward speaking. Regarding the first question of our e-commerce business, actually our progress on the e-commerce business is quite encouraging. On a sequential basis in the first quarter GMV grew by like 24% and gross profit grew by 23%.

At this point of time, the majority of our e-commerce revenues still generating from our iPhone platform by creating original e-commerce content, such as articles and short video and utilizing our content recommendation algorithms. We provide ecommerce services to our iPhone apps, existing users who trust our brand list allows us to explore and improve the monetization potential of our user traffic. Also, this capabilities have allowed us to quickly build our e-commerce service system, let it tailor to our target consumers and has a very low, actually we have a very low consumer acquisition cost.

Of course, to achieve a more significant e-commerce business growth in the long-term, we need to go beyond our existing user traffic. Our e-commerce team has already started to explore different ways of using our premium content to generate user traffic from third party platforms, such as WeChat. In the first quarter, we successfully organized a series of e-commerce live training sessions on short video platforms such as our Kuaishou and Douyin.

And throughout these sessions, we collaborated with well established online influencers for the premium collection of high quality product at a very competitive prices. This result is quite accurate, the result is quite encouraging and we will continue to throw different ways to up higher potential e-commerce users on short video platforms.

We will continue to, we’re definitely continued to refine the fundamentals of our e-commerce business. This business has a lot of headroom for improvements, especially in terms of product selection strategy, and acquiring third party platform traffic at a reasonable price, reasonable cost. Moreover, we need to further enhance our daily operation efficiency to optimize cost structure, although converting our 100 million social media followers into e-commerce consumers remains a challenge. It also has enormous potential to boost our future goals.

Regarding your second question, I’m not sure if I have heard of you clearly. Actually, we don’t spend much on the user acquisition cost on the social platforms, because we provide exclusive and premium content to a lot of channels like a Weibo and WeChat and video platforms such as Douyin, Kuaishou. So users just, they will – they like our content and they will subscribe our accounts on this kind of social media channels. As you already know, like we have like more than 100 million followers on Weibo, WeChat and Douyin, Kuaishou at central.

And we believe, like these kind of massive user bases have a big potential for the future. And there’s a business model actually is quite simple. First, like is brand advertising, we provide more exposure opportunities for our existing advertising, brand advertising clients, so they can reach more potential consumers on our social platform. So, social network platforms as well. So this will definitely help our advertising business. Also know for this kind of massive user base, as I already mentioned, above, like forward faster developing e-commerce business.

Because users on social platform like a three or five years ago, consumers only buy from Taobao and Jingdong, this kind of platform, e-commerce platform. But nowadays, people are more and more come to Douyin, Kuaishou and the WeChat platform to do their solving. And so we believe in the future, the massive user base on this social media platform will help our e-commerce business for sure. I hope, I have answered your question.

Edward Lu

Yes. Let me add a few more words. Your second question, actually, I have answered being the same sort of questions. At the beginning, you might want to double check with that. But I want to emphasize that the manifestation of our over 100 million users on social network platforms is due at early stage. As I said, the monetization option includes native apps, and the revenue sharing with third party platforms. But right now, it’s too early stage. So it’s premature to share the data and the portion of the native apps and revenue sharing options. But we’ll definitely keep you updated on.

Frank Chen

Thank you, Shuang and Edwards, very clear. Thank you.

Edward Lu

Thank you.

Operator

[Operator Instructions] Your next question comes from Carmen Zhang from First Shanghai Securities. Please ask a question.

Carmen Zhang

Hi, management. Thanks for taking my question. Can you tell us more about your advertising business in the first quarter, and the main challenges that are currently pressuring your advertising revenue?

Edward Lu

Hi, good morning, Carmen. This is Edward speaking. Actually, for our advertising business, as the macro economy continue to recover in the first quarter, our brand advertising business achieved a healthy growth rate sequentially. However, from a broader perspective, our advertising business as a whole still faces challenges in future revenue growth. We expect our brand advertising business to continue its year-over-year growth trend in the second quarter, this expectation is based on the fact that most of our brand advertisers should continue to experience a rebound.

In addition, as the pandemic continues to be brought under control in China, many offline events such as our food gala can be conducted as normal, this will have a positive impact on our brand advertising growth. Nonetheless, in certain industries, notably real estate, we’re aware of the impact from tackling national macroeconomic policies, which will lead to uncertainties in advertising spending. Therefore, we expect the brand advertising to experience more pressure.

The increasing execution costs for brand advertising project is also a challenge. And we will need to come up with a more refined project management process to better control costs. We’re also adjusting our sales team to balance our sales capabilities across different regions, besides we are enhancing our content offering, especially in terms of original content. This is allowing us to expand our influence in areas such as new consumption, all our education, healthcare and the new energy vehicles.

We believe that our influence in these areas will eventually translate into new growth drivers for our brand advertising business. For our programmatic advertising business, the overall budget in the market continues to be absorbed by the leading show from video platforms, those are actually to survive this kind of competitive environment, we must put more effort to upgrade our ad product features accordingly. Actually, we have already enhanced as a underlying technology of our ad platforms for Sony, we enable the API docking to more efficient data sharing and ad placement, the coordination between our platform and advertisers.

For Sony viewer, we have strengthened our data support system for our platforms’ advertising plans in the finance vertical. This helped to improve our conversion rates for clients throughout the infotainment industry. For Fanyue, [ph] we extended our business development efforts and converted the multiple leading smartphone manufacturers into Fanyue’s aligned partners, which drove additional used traffic to Fanyue in this quarter. This challenges I have mentioned above were improve the efficiency and effectiveness of our programmatic ad delivery and make our programmatic systems more competitive in the market. Thank you.

Operator

[Operator Instructions] I would now like to have the conference back to the management team for closing remarks. Please continue.

Qing Liu

Thank you, operator. We have come to the end of our Q&A session on 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.