Phoenix New Media Limited (NYSE:FENG) Q2 2023 Earnings Conference Call August 15, 2023 9:30 PM ET

Company Participants

Muzi Guo - Investor Relations

Yusheng Sun - Chief Executive Officer

Edward Lu - Chief Financial Officer

Conference Call Participants

Xueru Zhang - 86Research

Alice Tang - First Shanghai

Operator

Good day, and thank you for standing by. Welcome to the Phoenix New Media Second Quarter 2023 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 Muzi Guo from Investor Relations Department.

Muzi Guo

Thank you, operator. Welcome to Phoenix New Media's earnings conference call for the second quarter of 2023.

Joining me here today are our CEO, Mr. Yusheng Sun; and our CFO, Mr. Edward Lu.

During this call, our management team will begin by providing an overview of our quarterly results, followed by a Q&A session. You can find the financial results for the second quarter of 2023 as well as the webcast of this conference call on our website at ir.ifeng.com. A replay of this call will also be made available on the website within the next few hours.

Before we proceed, I would like to draw your attention to our safe harbor statement, which can be found in our earnings press release. This statement is important as it pertains to our forward-looking statements during this call. Additionally, please note that unless otherwise specified, all figures mentioned throughout this conference call are in RMB.

Now, I will pass the call to Mr. Sun, our CEO, for his opening remarks. I will provide the translation.

Yusheng Sun

[Foreign Language]

[Interpreted] Hello, everyone. During the past quarter, Phoenix New Media has been relentlessly working towards maximizing content reach and profits. Thanks to our team news awareness, our team effectively covered major news events, like the Russian-Ukraine War and Shangri-La Dialogue. This resulted in timely and impactful content widely shared across the Internet.

In terms of original content, we have created numerous high-quality programs, such as The Message, Eye of the Storm, Journey and Extraordinary Path. These programs frequently make it to the trending list, sparking discussions across the Internet. This not only enhances the overall impact of our content, but also strengthens our brand advertising sales.

The collaboration between Phoenix TV and Phoenix New Media has also become stronger. We've managed to seamlessly integrate major events reporting and sales of integrated marketing resources, amplifying the synergy effect of the collaboration.

Looking ahead, we will continue to deepen and refine our coverage of breaking news and major events, while also focusing on differentiation in content dissemination. Apart from excelling in current affairs and politics, we will continue to strengthen our position in social trends, legal matters, finance and technology, aiming to secure our competitive advantage in speed and breadth.

Even more importantly, we will further embrace and delve into social media channels. By utilizing various social media platforms, we intend to maximize the dissemination of our content and unlock additional business prospects.

Next, Edward will provide a more detailed rundown of our operation in the second quarter. Edward, please go ahead.

Edward Lu

During the second quarter of 2023, we maintained our commitment to strengthen our media influence by dedicating ourselves to being present at major events. Notably, at the Shangri-La Dialogue in Singapore, our frontline reporter engaged in on-site dialogue and delivered several exclusives and ground-breaking reports. We were the first to break the news about the China-U.S. Defense Secretaries table dinner, the sole Chinese media to question the U.S. Defense Secretary on-site, and the first to publish China's response to the U.S. Defense Secretary's speech.

Our related video content achieved a remarkable total of 77 million views, going viral on platforms like Weixin, Weibo and Douyin, and earning acclaim from other esteemed media outlets such as [indiscernible], Bloomberg, Asahi Shimbun and others.

In late June, during the Wagner rebellion, we organized a series of live broadcasts, providing comprehensive coverage of the event to help the audience understand its unfolding. This exclusive live broadcast became a defining moment in the coverage of the Russia-Ukraine conflict. On the first day of the live broadcast, we reached the top 5 on [indiscernible] trending list, with nearly [14 million] (ph) viewers across all platforms and a surge of 251,000 new followers. We also provided real-time updates through short video clips for broader audience coverage. Our original columns, such as Phoenix Reference [indiscernible] offered insightful analysis of the event, garnering extensive sharing and comments on social media platforms.

In our signature series, Dialogue with the World, we continued to hold conversations with prominent figures. In May, we featured an exclusive interview with Poland's President, three-time Pulitzer winner, famous American political commentator and the author during the challenging times between China and the United States, resulting in high-quality rational conversations that align perfectly with Phoenix's journalistic step. Friedman, himself highly praised Phoenix New Media for its professional pursuit, and the interview content received a widespread sharing by influencers on various platforms, domestic and abroad, marking an important step for Phoenix's Dialogue with the World towards global media stage.

In Q2, we continued to enrich our commercially supported content and resources and expanded our client base. In early July, we held the 2023 World Cities Branding Conference in Macau, aiming to create a world-class international forum focused on supporting the development of culture tourism industries and promoting world-class destination brands. With our tenets [rooted] (ph) in Chinese culture global perspective, we play a unique and dispensable role in shaping and disseminating TV and the culture tourism brands in the future.

Additionally, we expanded our marketing services to clients in consumer goods industries, including food and beverages, home improvements and appliances, especially to those venturing into the international markets, leveraging our contracted journalists and KOLs worldwide, along with our global network of resources and highlights, we provided them with compelling overseas content and marketing execution. For instance, through our Phoenix Global observation team, [indiscernible], we tailored a content in Africa, the Middle East, Japan, the U.K., France and other regions for our clients, integrating local hot topics and brand stories. This production showcased of our global content production and the branding capabilities, and continue to attract more clients with this news.

We also incorporate AIGC into our content. Our technology vertical launched AI Vanguard, an original program that utilize AI to revolutionize traditional video production, achieving success with five episodes produced and a total of 420,000 views. The show employs popular AI tools for topic selection, script generation, image creation, and audio and video generation. Focusing on cutting-edge AI content, it covers everything from news briefs, to index analysis, expert industry observations and trend predictions. AI Vanguard is one of the first programs to fully leverage AI for content generation in the industry. We believe that AI has the potential to generate highly-personalized content, catering to the unique needs of diverse audiences while increasing our overall productivity.

On our flagship iPhone app, we made further progress with AI-generated content summaries and AI-powered interactive features, making it easier for users to quickly grasp the essence of the content. Users responded positively to this enhancement, evidenced in our 5% increase in the proportion of logged-in users quarter-over-quarter, a 15% drive in click-through rate in the comment section and a 9% increase in daily average common interaction. Apart from AI-powered enhancements, we optimized the news flash card feature of the app, enabling direct generation of shareable cards from flash news articles, thus facilitating social sharing and dissemination of news content.

Furthermore, we introduced a separate recommendation algorithm and channel for Phoenix TV's video content, resulting in a two-fold increase in exposure and a 10% increase in click-through rates for high-quality TV content. Additionally, we improved the distribution algorithm for hot topics and focused image, creating more opportunities for exposure to hot content. With these joint optimizations in recommendation algorithms and the content editing, the overall click-through rate on our app increased by 12%, and the average time spent per user increased by 8% quarter-over-quarter.

In conclusion, during the second quarter, we continued to bolster our media influence by covering major events and delivering exclusive reports and original content through our flagship app and across all social platforms. We also strengthened our monetization capabilities by upgrading our marketing resources and expanding our client base. As we move forward, our focus will be on aligning resources to strategic business units, thereby solidifying our position as a leading force in the media industry, characterized by both growing media, brand value and commercial value.

I will now walk you through our financial performance for the second quarter of 2023. All figures mentioned will be in RMB.

Our total revenues were RMB180.2 million compared to RMB191.6 million in the same period of last year. To elaborate, net advertising revenues increased to RMB161.8 million compared to RMB160.5 million in the same period of last year. Paid services revenues were RMB18.4 million compared to RMB31.1 million in the same period of last year. The decrease was mainly due to the reduction in the content spending of certain customers and the decline in e-commerce revenues.

Loss from operations was RMB35.7 million, narrowing by 62.4% year-over-year as a result of increased gross profit and decreased operating expenses.

Net loss attributable to ifeng was RMB31.3 million, narrowing by 67.3% year-over-year.

Moving on to our balance sheet. As of June 30, 2023, the company's cash and cash equivalents, term deposits, short-term investments and restricted cash were RMB1.08 billion or approximately US$149 million.

Finally, I'd like to provide our business outlook for the third quarter of 2023. We are forecasting total revenues to be between RMB158.5 million and RMB178.5 million. For net advertising revenues, we are forecasting between RMB148.7 million and RMB163.7 million. For paid service revenues, we are forecasting between RMB9.8 million and RMB14.8 million. This forecast reflects our current and preliminary view, which are subject to change and substantial uncertainties.

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] And our first question is from Xueru -- I apologize, Xueru Zhang with 86Research.

Xueru Zhang

Good morning, management. Thank you for taking my question. Can management kindly offer a brief review of the ad business during the first half of the year and share your perspectives on the anticipated outlook for the ad market in the second half? Thank you.

Edward Lu

Good morning, Xueru. Thank you for the question. Actually, in the first quarter, our ad revenue decreased due to the slow economic recovery. But things looked better in the second quarter. Overall, the Chinese advertising market showed a moderate recovery trend. In my opinion, it's still facing challenges, and advertisers are being cautious with their marketing budgets.

Having said that, we have identified possible areas of growth. For instance, after the pandemic, brands are pushing new product development and promotions. We have actively responded to that demand, increasing marketing services for new products launched in many industries, such as automobile, alcoholic beverage, electronics and home improvement sectors. Also, a lot of brands want to break through local growth barriers and get a bigger piece of the growth market. We have been working on this for over a year using our brand and content's global appeal to provide advertisers which choose to reach global audiences.

We are also expanding our share in certain client industries. For example, events like the World Cities Branding Conference and our cultural tourism-related content have helped us attract new clients such as local tourism bureaus, luxury hotel chains, et cetera. In today's market, with tons of different channels and fragmented user attention, advertisers are back to the core of content marketing, and they place great emphasis on top tier media.

So, our game plan is all about boosting our uniqueness and the media strength in the content area. At the same time, we are enhancing our marketing resources and capabilities. I think our ad revenue will be quite stable in the second half of the year. Thank you.

Operator

One moment for our next question, please. It comes from the line of Alice Tang with First Shanghai.

Alice Tang

Good morning. Thank you for taking my question. So, the company experienced a noticeable decline in paid services revenue in Q2. So, could the management team, please, shed light on the future plans for the diversified business and the focus of the operation in the future? Thank you.

Edward Lu

Hello, Alice. Before diving into revenue diversification, actually, our primary focus is on ensuring profitability and maintaining a steady revenue stream. To achieve this, we need to strategically direct our limited resources towards the most critical parts of our business. So our profit centers and our core media operations is the key part of our business.

Regarding our revenue diversification, the main reason why our paid services revenue went down in Q2 is because some parts of our business generated revenue, but they weren't making as much profit as we'd hoped, such as the private label brand for our e-commerce sales. So, we are not continuing with this kind of ventures this year. It's part of our approach to putting profit first.

For our core business, we are setting the bar higher for advertising revenue. Our strategy is market-focused. We are pinpointing our clients and their marketing needs and setting clear goals. We are directing our limited resources toward projects that promise better returns. In addition, we are fostering teamwork across departments to craft powerful plans and contents that both impress advertisers and make an impact. And on top of that, we are all about increasing productivity and keeping costs in check.

These factors are the backbone of our company's healthy operations. Thank you, Alice.

Alice Tang

Thank you.

Operator

Thank you. And with that, we finish our Q&A, and I will turn the call back to Muzi Guo for final comments.

Muzi Guo

Thank you. 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 today on this call. Have a good day.

Operator

And with that, thank you all for participating. You may now disconnect.