Phoenix New Media Limited (NYSE:FENG) Q4 2022 Earnings Conference Call March 13, 2023 9:00 PM ET

Company Participants

Muzi Guo - IR

Shuang Liu - CEO

Edward Lu - CFO

Conference Call Participants

Xueru Zhang - 86Research

Alice Tang - First Shanghai

Operator

Good day, and thank you for standing by. Welcome to Phoenix New Media Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there’ll 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 to Muzi Guo, from IR Department. Please go ahead.

Muzi Guo

Thank you, operator. Welcome to Phoenix New Media's fourth quarter 2022 earnings conference call. I'm joined here today by our CEO, Mr. Shuang Liu; and our CFO, 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 fourth quarter 2022 financial results and the 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 move on to the prepared remarks, let me refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements.

Finally, please note that unless otherwise stated, all figures mentioned during the conference call are in RMB.

And now I would like to turn the call over to Mr. Shuang Liu, our CEO.

Shuang Liu

Thank you. Hello, everyone, and thank you for joining our call today. In the last quarter of 2022, restrictions imposed to control the spread of COVID-19 were finally lifted and lockdowns came to an end. Despite the exponential rise in the number of infected cases in December, our teams unwavering commitment to achieve our goals enabled us to close the quarter with the total revenue exceeding our previous revenue guidance. Along with our efforts to improve operational efficiency, operations, operating costs in the fourth quarter decreased by 63% year-over-year, resulting in a profitable quarter.

Additionally, we continued to optimize the production and distribution of premium content and improve our iFeng product to enhance user retention and engagement. In Q4, we continued to demonstrate our leading role in the coverage of major events and breaking news, including the year-long Russia-Ukraine conflict with updates on Ukrainian army's counterattacks on referendums in four Russian occupied regions.

We also reported on the China, Russia, U.S. standups over the conflict, the Nord Stream incident and looming nuclear threats alongside other major events like the U.S. midterm elections, G20 Summit and the passing of former leader Jiang Zemin. Above all, the pandemic and related public policy remains at the forefront of everyone's concerns.

Throughout, we delivered reliable, accurate and timely information, and most importantly, fostered rational discussion among our user community. Our original columns provided extensive coverage of the pandemic from various angles, our health and wellness, [indiscernible] column, Human Intelligence Agency [ph], [indiscernible], not only provided useful information such as home remedies, vaccine usage and when to seek professional help, but also offer insightful analysis on the COVID development.

Articles addressing issues such as the risk of reinfection and public policy trends received over 10,000 views on Weixin. Our commentary column, the message function, published over 100 articles and tackled controversial topics such as the revenues for opening up the overburdened medical system and the challenges faced by individuals with underlying conditions. These common features received widespread recognition and were frequently reported by other mainstream media and WeMedia outlets. Our investigative columns, Eye of the Storm, [indiscernible] continue to fulfill our media oversight role by investigating and reporting of controversial incidents.

For example, it reported on the incidents where insurance companies denied pandemic insurance claims and investigated companies that may have unethically profited from the pandemic. Both generated heated discussions across the internet.

Despite the challenges posted by the pandemic, many of our year-end events, our marketing campaigns were successfully carried out online, resulting in a much lower execution costs while achieving viral online exposure. For instance, our 2020 Fashion award created a viral red carpet show, generating 15 [ph] million views on social media, followed by the presentation of the Fashion Awards, where we celebrated the most impactful role models in fields such as fashion, culture, art and sports. Our iFeng Finance Summit with the same stepping forward with determination, focus on the crucial role of the private sector and economic implications of the epidemic prevention.

The performance data of the event reached a historical high with 35 top searches on Weibo, over 2 billion reads and 1.2 billion video plays across the web, making it one of the most high-profile industry events during the year. In Q4, we further refined our hot topic curation strategy. A hot topic delivered deeper into categories other than news and politics, including finance, technology, culture, entertainment and sports, attracting more diverse user demographics. The interactive features related to hot topics were greatly enhanced. Besides posting comments, users can comment and vote on each other's comments, with rise and fall in the rankings as people comment both on them, providing more incentive for users to interact.

Our opinion poll function, also became a popular tool where users can express an exchange their views regarding the hot topic. The live call results are widely reported and shared delivering more user engagement. Also, we launched an immersive video stream format with an improved algorithm compared to the traditional video layout, the average number of clips played per user increased by 40% and average time spent per user watching videos increased by 30%.

After the launch of the immersive video stream format, total time spent in APB per user increased by 8%. In addition, we further improved the synergies between our AI point and our editorial system. Our AI framework has always played a key role in increasing productivity of the selection and distribution of trending topics. On top of it, our season adages curation and recreation of the content greatly improved the effectiveness of the content recommendation. As a result, during Q4, the click-through rate of our content increased by 20%. The number of shares doubled, which helped acquire new users and activate existing ones.

Moving on to revenue diversification. For online reading, we continue to monetize our premium IP through partnerships with major third-party platforms, such as [indiscernible]. In addition, our audio books garnered enthusiastic reviews on the third-party platforms like Weibo Live [ph], with multiple titles reaching over 10 million places and ranking the [indiscernible] new book topics.

For the real estate vertical, towards the end of 2022, several state support measures were rolled out to boost recovery of the property sector. As a leading media outlet in the sector, our team promptly tracked and intimated these policies, interviewed industry experts and opinion leaders and provided analysis and reports on the major players in the industry, as consumer confidence takes time to rebound, short-time pressure still persists within the tech sector.

In response to the challenging environment, we prioritized cash flows, collected historical bad debts and optimized both our business teams through closure and consolidation while streamlining human resources costs.

As to e-commerce, despite the sluggish consumer market, our health and wellness and food and beverage sectors performed well during the year-end. By leveraging an extensive product collection and a more efficient algorithm-driven recommendation system, our health and wellness sector achieved a sales breakthrough, doubling the sales revenue compared to the previous quarter. Meanwhile, the food and beverage sector resulted in triple revenue compared to the previous quarter with a special focus on holiday gift giving.

To recap, in the fourth quarter of 2022, we remain committed to optimize cost structure and enhancing productivity, all while elevating our differentiation in areas of original content creation, hot topic curation and our flagship APP product. We are hopeful that this quarter marks the end of the disruptive impact of the COVID-19 dynamic and we move forward to a revitalized market and improved economic conditions in 2023. Although there will still be obstacles to overcome, we're dedicated to revitalize our core business and achieve new milestones in revenue diversification.

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

Edward Lu

Thank you, Shuang, and hello, everyone. I will now walk you through our financial performance for the fourth quarter of 2022. All figures mentioned will be in RMB.

Our total revenues were RMB223.9 million as compared to RMB302.9 million in the same period of last year. To elaborate, net advertising revenues were RMB205.4 million compared to RMB279.2 million in the same period of last year. The decrease was mainly due to the reduction in advertising spending of advertisers in certain industries, the intensified industry-wide competition and the negative impact of the COVID-19 outbreak in China in the fourth quarter.

Paid services revenues were RMB18.5 million compared to RMB23.7 million in the same period of last year. The decrease was mainly due to the reduction in the content spending of certain customers.

Gross margin in the fourth quarter of 2022 increased to 39.4% from 34.8%. And at the same time, total operating expenses decreased by 73.9% year-over-year. As a result of strict cost control measures implemented we also recognized life allowance for credit losses in the fourth quarter of 2022 after collecting some long-aged accounts receivables. As a result of these efforts, income from operations was RMB46.7 million compared to loss from operations of RMB53 million in the same period of last year.

Net income attributable to iFeng was RMB41.6 million compared to net loss of RMB35.4 million in the same period of last year.

Moving on to our balance sheet, as of December 31, 2022, the company's cash and cash equivalents, term deposits, short-term investments and restricted cash were RMB1.15 billion or approximately $167.4 million.

Finally, I'd like to provide our business outlook for the first quarter of 2023. We are forecasting total revenues to be between RMB123.1 million and RMB143.1 million. For net advertising revenues, we are forecasting between RMB107.4 million and RMB122.4 million. For paid service revenues we are forecasting between RMB15.7 million and RMB20.7 million. This forecast reflects our current and preliminary view, which are subject to change and substantial uncertainties.

In summary, in the face of adversity posted by the COVID-19 pandemic in the fourth quarter of 2022, we achieved a profitable quarter through our team's continuous efforts and effective cost control measures to increase operational efficiency. In addition, we continued to enhance our content creation and distribution capabilities, upgrade our iFeng app features and investigate new monetization strategies to improve our revenue stream mix.

Looking ahead, we will remain steadfast in our commitment to prudent financial management and the creation of sustained value for our shareholders. 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 I show the first question comes from the line of Xueru Zhang from 86Research. Please go ahead.

Xueru Zhang

Thank you. Good morning, management. Thank you for taking my question. I was wondering if you could provide some insights on the app business for the year ’23. Additionally, could you please elaborate on the specific initiatives and efforts the company plans to undertake in the coming year to drive the growth? Thank you.

Edward Lu

Thank you, Xue. This is Edward speaking. In 2023, we expect the economy to gradually recover from the pandemic. But it's uncertain whether it will go back to pre-pandemic levels. As for brand advertising, we anticipate a rebound in industries like automobile, food and beverage and e-commerce. But for real estate, it may be slower.

Despite this, we are well prepared with our rich marketing solutions and meticulous services to secure advertising budgets from our clients. Our original premium content and the refined hot topic strategy continue to bring us loyal and highly engaged users, boosting our media brand influence and value.

We are also upgrading our products to create an engaging community for users and increase user retention, which also helps to boost the brand advertising sales. Actually, our vast traffic on third-party social platforms is another vital marketing resource. It helps our advertisers reach more potential customers and attract new advertisers who prefer social media marketing. To achieve monetization growth, we set clear targets for our social media accounts and evaluate their performance based on metrics, like user reach, engagement, content quality and the user demographics.

We expect our social media marketing sales to grow and complement our brand advertising solutions. As to performance-based advertising, well, the oversupply of ad inventory on short video platforms has affected the market share of other platforms. We are offsetting this pressure by increasing user stickiness and the engagement of our product.

Additionally, we are offering our technical capabilities of programmatic advertisement to help third-party applications, monetize their traffic further offsetting the pressure. Through these combined efforts, we hope to create greater value for our clients and boost our monetization efficiency. Xueru, I hope I have answered your question?

Xueru Zhang

Yes, that’s very helpful. Thank you.

Operator

Thank you. And I show our next question comes from the line of Alice Tang from First Shanghai. Please go ahead.

Alice Tang

Good morning. Thanks for taking my question. My question is related to that ChatGPT or the AI-generated content. So can management share with us how AI GC could impact your business, please?

Shuang Liu

Thank you. It's a very good question. Of course, ChatGPT is an incredible powerful tool that takes content creation and delivery to a whole new level. There are so many ways we can benefit from AI GC from extracting text and summarizing complex information to identify trends and creating relevant content. When implemented properly, it can significantly improve productivity and even have a big impact on recommendation algorithms and content delivery. Actually, we are really excited about AI GC and the trend it's bringing to the industry.

You may already know like Baidu has launched a conversational AI bot call Ernie Bot in China. We have become one of the first ecological partners with Baidu's Ernie Bot. So we are looking forward to fully experiencing and integrating its capabilities.

Moving forward, we will be keeping a close eye on new technologies such as AI GC and potential applications for our business related talent and even investment opportunities just like we did when we found even [ph] in the past. Thank you.

Alice Tang

Thank you.

Operator

Thank you. I'm showing no further questions in the queue. At this time, I would like to turn the call back over to Muzi Guo from management for closing remarks. Please go ahead.

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. And thank you very much for joining us today on this call. Have a good day. Thank you.

Operator

Thank you. That concludes it. You may all disconnect at this time.