Weibo Corporation

Ladies and gentlemen, thank you for standing by and welcome to Weibo reports fourth quarter and fiscal year 2020 financial results conference call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded. I would now like to hand the conference over to your first speaker, Sandra Zhang, Weibo IR. Thank you. Please go ahead.

Thank you, operator. Welcome to Weibo's fourth quarter and fiscal year 2020 earnings conference call. Joining me today are our Chief Executive Officer, Gaofei Wang, and our Chief Financial Officer, Fei Cao. The conference call is also being broadcast on the Internet and is available through Weibo's IR website. Before the mentioning remarks, I'd like to read you the Safe Harbor Statement in connection with today's call. During today's conference call, we may make forward-looking statements, statements that are not historical facts, including statements of 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. WABOR assumes no obligation to update the full written statement in this conference call and elsewhere. Further information regarding this and other risks is included in WABOR's annual report on Form 20F and other filings with the SEC. All the information provided in this press release is occurring as of the date here. WABOR assumes no obligation to update such information except as required under applicable law. Additionally, I would like to remind you that our discussion today includes certain non-GAAP measures, which includes 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 include certain expenses, gains and losses, and other items that are not expected to result in future cash payments, or are not recurring in nature, or are not indicative of our core operating result and outlook. Please refer to our press release for more information about our non-debt measures. Knowing management prepared remarks, we open the lines for this Q&A session. With this, I would like to turn the call over to our CEO, Gaofei Wang.

Thank you. Hello, everyone, and welcome to Weibo's fourth quarter and fiscal year 2020 earnings conference call.

On today's call, I'll share with you highlights in Weibo's user product and money position, review the progress made in 2020, and elaborate our strategies for 2021. First, let's talk about Weibo's financial performance in the fourth quarter.

In the fourth quarter of 2020, the impact of the epidemic on the Guangdong industry was considerable. At the same time, with the optimization of our brand and effect industry, in the fourth quarter, Weibo's total revenue reached $5.13 billion, and increased by 10% year-on-year. Let me start with our fourth quarter financial results.

In the first quarter, our total revenue increased 10% to $513.4 million, nearly attributable to less impact from COVID-19 pandemic to the advertising business, as well as our efforts to optimize the competitive strategy for brand and performance-added business. Advertising and marketing revenue reached $453.5 million, an increase of 12% year-over-year, with 91% of our revenue coming from mobile. In the fourth quarter, non-GAAP operating income reached $204.1 million, an increase of 21% year-over-year, representing a non-GAAP operating margin of 40%.

From 2020, Weibo's total revenue is $16.9 billion, with a 4% drop year-over-year. Its advertising revenue is $44.9 billion, with a 3% drop year-over-year. The company's operating profit after adjustment in 2020 reached $5.8 billion. The operating profit after adjustment is 34%.

For full year 2020, Weibo's total revenues reached $1.69 billion, a decrease of 4% year-over-year. Advertising and marketing revenues were $1.49 billion, a decrease of 3% year-over-year. Non-GAAP operating income reached $579.6 million, representing a non-GAAP operating margin of 34%. In terms of users, we reached $5.21 billion.

On the user front, Weibo's MAU reached 521 million, and average DAU reached 235 million in December 2020.

94% of Weibo's MAU came from mobile. One is the user side.

The outbreak of the epidemic brought us a scale-up of the news hot spot user group in the first half of the year. However, for entertainment content, there are also parts of any field, such as tourism, sports, and public relations, which also have a negative impact. This has to a certain extent affected the reliability of Weibo in this part of the user group. With the gradual improvement of the epidemic, our strategy has made appropriate improvements in the second half of the year, focusing more on Weibo's investment in hot spots, social media, and video, which are the core competition areas.

As we review 2020, we face two major challenges. First, on the user front, although the pandemic in the first half of the year brought us large scale of user to consume pandemic-related news and hot trends, it had an active impact on the content generation of entertainment vertical and certain other areas such as tourism and sports, which resulted in less user engagement in these sectors. With progress made on the pandemic control, we adjusted our strategy accordingly in the second half of the year, putting more emphasis on our core competence in hot trends, social functions, and video. So far, we have seen an uptick of our overall traffic in the first quarter compared to last December.

Second, it is a commercial level. The outbreak of the pandemic in the beginning of the year has had a negative impact on the advertising revenue of some of our industries. But although the epidemic is not fully controlled, the demand for advertising has also gradually recovered. And Weibo, through the popularity of the brand, the content marketing advantages of stars, QL, etc., and the re-initiative in the marketing play of the same brand, made Weibo's social marketing value more widely recognized at the brand advertising group level. Brand industry revenue will be relatively fast in the second half of the year. In the fourth quarter, the revenue of brand customers also achieved more than double the number of customers. The number of brand customers has also reached a historical high. And in terms of effective industry advertising, in 2020, Second, on monetization, the pandemic has hit some sectors of our business hard earlier last year. However, with the well-controlled pandemic situation and the recovery of the ad demand,

Weibo's social marketing value proposition earned wider recognition among brand customers, leveraging our unique marketing offerings such as Hot Trends, Celebrity and QL Marketing, as well as Brand Plus Performance Solution. As a result, our brand ad revenues delivered a solid rebound in the second half of the year and achieved double-digit growth year-over-year in Q4, with a number of branding customers standing with us setting a new record. For performance ad business, despite certain pressure from advertisers and the market competition, the decrease of our performance ad revenue in Q4 further narrowed compared with prior quarters, mainly thanks to the fully upgraded ad bidding system Super FST and continued robust growth in gaming and education sectors under the brand plus performance model. 接下来,我具体向大家介绍一下产品运营和商业化在四季度的运营情况。 以及2021年我们的重点工作思路。 Next, let me share some color on our progress in product monetization in Q4, as well as lay out key initiatives for 2021. 2020年四季度开始,我们在产品运营方面更加突出强化微博差异化的经营优势,加强微博在热点、社交等核心领域的竞争力,结合有效渠道策略,稳定用户规模,提升了用户的活跃度,同时在视频方面, On the product front, starting from Q4 last year, we further enhanced Weibo's differentiated competitiveness in Hodgson and social attributes. Coupled with efficient channel strategies, we stabilized our user skill and further drove user engagement. Concurrently, we also beef up our investment in the video sector to strengthen users' mindset of using Weibo for video consumption so as to enhance our competitiveness in user acquisition.

In terms of channel activity, in the fourth quarter, we combined the topic products of the hot spot to optimize the strategy for channel new users and recruiters. When the hot spot event occurred, we used products and operating mechanisms to guide the media and professional users to discuss the hot spot in a diversified way and expand the relevant materials of the hot spot. The further improvement in the number of hot spots in the channel covers the practicality, strengthens the users' recall and flow of hot spots, and allows the content competitiveness and competitiveness of Weibo platforms to be able to be used more efficiently. With the hot spot for the new year, the relevant release amount for the new year is more than 1.2 billion, which increased by 77% last year. The number of users who recall in the new year is more than 16 million.

On a channel front, in Q4, we optimize channel strategy for new and recalled users, combined with hot trend and topic products. When hot events occur, we'll encourage media accounts and KOLs to discuss around topics through product and operating mechanism, providing real-time topic-related content to users. With the optimized strategies, we further enhanced the platform's competence in user recall and retention through Hot Trends, bringing our strengths in content offering into full play. Taking the New Year's Eve as an example, the number of New Year's Eve related posts surpassed 120 million, up 77% compared with last year, and recalled more than 16 million users back to our platform.

In terms of social media, we focus on solving the problem of low consumption frequency and low depth of consumption in the traffic flow. Combined with the frequent visits of high-intensity users, the degree of attention of the audience continues to dig into the content of social media to optimize the user's experience of traffic flow through the continuous consumption and flow rate of user-friendly and effective users. In addition, we stop the structure of the content of the night information stream, improve the diversity of information distribution, On the social front, for these users, we call through hot events for channel investing.

we focused on improving their consumption deaths and user frequency in a relationship-based feed. To elaborate, we focused on improving user experience in relationship-based feeds to data mining on quality social content based on several dimensions, such as intimacy of social relations, frequency of visits, and amount of discussion by followers, et cetera. With such quality content offer, we could further deepen their consumption as well as enhance user retention. Additionally, we focused on enhancing diversity of content distribution in the information feeds in order to drive user sickness, interaction, and consumption. For instance, in the first quarter, we extended real-time consumption of video content through simultaneous distribution in our core feeds. As a result, The effective time span per user on a post-video recommendation feed increased over 30%, and the effective video views posted each recommendation increased over 10% compared with Q3.

In terms of video, in 2020, we mainly focused on providing excellent products and operating mechanisms for professional users with original video capabilities, attracting a certain scale of high-quality video creators to come to Weibo and get active. In the second half of the year, we also hope to get in touch with more and more people to expand the size of internalized video creators on Weibo. This will lead to an improvement in the overall video production and consumption scale. From a scale point of view, the size of video accounts has increased significantly. As of now, the size of the opening is over one million. The size of video accounts with over one million fans is more than 150,000. From the perspective of video creators in the field of video, at present, for example, the video of media, variety shows, and top content creators has reached a higher proportion. But among the video creators in other fields of Weibo, there is a greater room for improvement. On the video front, in 2020, we reinforced our product offerings and operation mechanism and attracted a great number of quality video content creators to Weibo. In the second half of 2020,

we launched the video account program to incentivize Weibo's top content creators to shift toward video content generation so as to encourage more video production and consumption. We saw a significant uplift in the number of video accounts. Currently, the number of registered video accounts has surpassed a million, among which over 15,000 video accounts already have more than 1 million followers each. By verticals, There is a good proportion of video produced by top content creators in the media and variety show verticals, but we still need to increase that to many other sections on the platform. This year, we will continue to improve the overall experience for video accounts, scale up video content generation among top content creators, as well as strengthen the effective distribution of video content in C and video community, so as to boost the video content consumption and improve the platform's overall video content ecosystem.

In 2021, in terms of product and operation strategies, we will use the following three aspects to ensure the size and activity of our users. First, we will focus on channel activity. We will make full use of the relative advantages of Facebook in terms of user acquisition costs, ensure the basic channel coverage, Increase the investment in the user activity channel At the same time, enhance the continuity of channel upload and subsequent content consumption Improve the activity and storage of channel users Second, from the platform, the core competitiveness continue to strengthen the competition barrier of Weibo social media In the product function, further enhance the core functions of hot spots and social media Improve the connectivity and interaction of Weibo core user groups Ensure the competitiveness of Weibo in the use of core functions In the content environment We will speed up the path for the first-time content creators and increase the business revenue on the platform. This will also help content creators continue to produce good content and interact with fans, which will drive the activity of the entire Weibo platform. Finally, in terms of video, we will speed up the video-based process of the group of people who make the core content of Weibo through the video-based system, and increase the supply and consumption of video content on Weibo. At the same time, we will focus on the key areas of operation, such as video content such as film, television, entertainment, and games.

Let me briefly lay out our strategies for 2021 on the product and operation front. We seek to extend user base and engagement from the following three aspects. First, on the channel investment, leveraging our comparative advantage in user acquisition costs will ensure channel investments through traditional channels and focus more on channel investment to improve user engagement. while strengthening the synergy between channel investment and subsequent content consumption, and thereby increasing user engagement and retention. Second, on core competence, we will continue to solidify Weibo's competitive mode as a leading social media platform. From product perspective, we will improve core features of hot trend and social interaction, and improve user stiffness and interaction among users' core user groups. On the content system side, we will step up our efforts to empower top content creators to monetize within our ecosystem, which will in turn stimulate their content generation and interaction with Sense, driving Weibo's user engagement. Finally, on video content, through video account, we will accelerate the transformation of Weibo's key content creator group toward video creation and promote the supply and consumption of Weibo's video content. And meanwhile, we are focused on content operations on key verticals such as TV series, variety show, and gaming verticals to cultivate users' consumption behavior through our differentiated video content offerings and further strengthen users' loyalty to the platform through videos.

In terms of commercialization, in the fourth quarter, Weibo's brand industry recorded an increase of 18% In the second half of the year, the revenue of the brand industry has quickly recovered, and the main factors of growth include the following aspects. First of all, from the marketing environment, in addition to the individual industries such as literature and travel, which have not yet fully recovered from the impact of the epidemic, the large-scale industry has achieved normal operations in the second half of the year, and has gradually begun to recover its advertising image. At the same time, after the epidemic, brand customers have further increased their investment in the Internet, including current head brand customers and some new brands. On the brand industry, the focus is on the marketing characteristics of star QoL content IP and marketing integration, actively using the advantages of Weibo content production. On the one hand, it helps investment companies to better use the ability of content marketing to spread. On the other hand, the marketing integration model also significantly reduces the number of brand customers, especially middle-class customers, to the threshold of Weibo, effectively improving marketing efficiency. For example, in 2020, Weibo launched nearly 1,000 content marketing projects throughout the year, which led to hundreds of stars. On the monetization front,

Our KAA revenues in Q4 is 18% year-over-year. The rapid recovery of KAA business in the second half of the year were mainly driven by the following factors. First of all, from the perspective of the marketing environment, most industry sectors have returned to normal operation in the second half of the year and gradually resumed as placement, except for a few sectors such as entertainment and tourism that have not fully recovered from the pandemic. And meanwhile, the pandemic has further driven our budget shift from offline to online with our top brand customer and also those emerging brands embracing internet platforms as their major campaign arena. Secondly, K8 clients have shifted more of their budget from TV and long-form video platforms to social and short video platforms, slowing the user engagement shift. With this trend, Social platform has more strength in KA marketing. Finally, in KA advertising, Weibo highlights its marketing strengths based on KOL content IP and brand-plus performance offerings, leveraging its robust content ecosystem. For one thing, we facilitate better content marketing for top KA clients. For another, we lower ad placement barriers for brand customers, especially mid-tier customers through brand plus performance ad offerings, and thus deliver better ad efficiency. For example, throughout 2020, we had nearly 1,000 content marketing projects leveraging hundreds of celebrities, thousands of KOLs, and more than 30,000 KOCs to participate in brand content-based campaigns. achieving way better results than pure branding campaigns.

Moving on to SMEs. In 2020, we continue to see intense competition in the performance and market. That said,

Our SME revenue speaks to 5% year-over-year in the fourth quarter, improving from last quarter in terms of any trend. Let me briefly recap our progress made in our performance as sector in the year of 2020.

From the advertising product aspect, first of all, Weibo's key point is to become a real-time advertising platform that is as efficient as a new product, and has an excellent computing ability. Second, we combined Weibo's characteristics and advantages and introduced some advertising tools that are suitable for industry competition, such as Jubaopeng, On the ad product front, first, we focus on enhancing the overall efficiency of our real-time bidding system, namely SuperFST, and further optimizing its algorithm. Second,

We launched several advertising tools, such as Ju Baopeng, an ad solution which enables marketing content posted by celebrities and KOLs to reach a more accurate target group instantly. Leveraging the influence of celebrities and KOLs, we can maximize the campaign effect while reducing customer cost at the same time.

From sales and operations, first of all, we have optimized the sales model for the key industries. More customers are required through the direct customer model. and solve customers' problems more quickly. In addition, it will further guide the service capability of the service provider to improve its own service capability, and guide its transition to the service provider system. In addition, we provide a targeted effect improvement plan for different industries, and at the same time, fully exploit the operating capability of Weibo in terms of topics and activities, and have achieved the above-mentioned effective landing. This year, Weibo's game and education industries have continued to grow, and the four seasons have still maintained a three-digit growth. On a sales operation front, first, we optimized the SME sales model for key industries to directly serve more clients so that we could respond to and fulfill clients' needs more efficiently.

Secondly, we further led agencies to improve their service capabilities and transform into service providers. Third, we offer industry-specific solutions to improve ad performance for different industries, leveraging operational capability around topic and events. With implementation of these above-mentioned strategies, We saw a robust growth in gaming and education sector this year, maintaining a triple-digit growth year-over-year in the fourth quarter. In the second half of the year, we gradually expanded such industry-specific solution to internet service and some offline O2O industries to capture a higher wallet from key industries. 2021年在商业化上,我们会从以下方面继续提升商业化规模和效率,

First, from the perspective of advertising products, according to Weibo's unique social media attribute and young people attribute, it continues to strengthen Weibo's competitive advantage in social advertising products, grasp the agreed budget of the audience, and expand the sales opportunity of the star K20, to reach more new customers and acquire the revenue and budget increase of medium-sized customers, and to increase the number of customers, make APA as a commercialized, scale-expanded double-layer opportunity. Second, from the perspective of sales operations, continue to continue to draw points in the industry track, From sales policy, operating system, product optimization, service capacity improvement, and many other aspects, this is an industry-oriented sales team to improve organizational efficiency. From an industry perspective, the improvement of advertising market size, and the increase of diversified drive power. Finally, from advertising technology perspective, in an attempt to upgrade the super power supply, continue to optimize the performance of advertising and OCBX, through the optimization of advertising chain, and the improvement of customer investment efficiency, and thus promote the improvement of eCPM. In 2021, we will continue to enhance our monetization skill and efficiency from the following aspects.

Based on Weibo's unique attributes as a social media platform with younger users, we will continue to strengthen the competitiveness of our social ad products and further capture brand plus performance budget and kill our marketing ad dollars to reach more emerging clients, as well as obtain incremental budgets from middle tier and top clients. Hopefully, both client members and our part could serve as drivers of our growth. On sales operations, we will further develop our industry-specific solutions and support our industry-based sales team to improve organizational efficiency from aspects of sales policy, operational energy, product optimization, and service capability, et cetera. As such, we could improve our wallet shares through more diversified drivers from an industry perspective. Finally, on ad technology, Building on the upgraded Super FST, we will continue to optimize the ad targeting and the conversion rate of OCPX, so as to increase the placement efficiency and ROI for clients. Coupled with the full funnel ad optimization, Weibo is well positioned to improve our eCPM in 2021. And meanwhile, we're strengthening our video ad technology and monetization efficiency to gradually unleash the potential of video traffic monetization. To sum up, in 2021, with more monetizable traffic generated from the growth in user base and engagement, we will step up our efforts in ad products, sales operation, and ad technology to increase Reboot's monetization skill, efficiency, and market competitiveness.

Next, let me introduce the financial results of the fourth quarter of 2020.

With that, let me turn the call over to Feitao for a financial review for the fourth quarter and the fiscal year 2020.

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's first quarter and the 16-year county-county earnings conference call. Let's start with user metrics. In December 2020, Weibo's MEU reached 521 million, representing a net addition of 5 million users on a year-on-year basis. Frequent average being used reached 227 million, representing a net addition of 3 million users on a year-over-year basis. Mobile MAUs represented approximately 94% of total MAUs. As a reminder, my prepared remarks would focus on my GAAP results and own comparisons on a year-over-year basis, unlike otherwise noted. Let me walk you through our financial highlights for the first quarter and the fiscal year 2020. Weibo's first quarter 2020 net revenues were $713.4 million, an increase of 10%. Operating income was $204.1 million, an increase of 21%, representing an operating margin of 20%. Net income attributable to Weibo reached $212.7 million, an increase of 21%, representing a net margin of 41%. Diluting the EPS was $0.92, compared to $0.77 in 2019. For fall year 2020, total revenues reached $1.69 billion, a decrease of 4%. Operating income was $579.6 million, a decrease of 12%, representing operating margins of 34%. Net income on three-year-olds available is $547.5 million, representing a net margin of 32%. Diluted EPI was 2.38 compared to 2.78 in 2019. Let's take a look at our first quarter on the full-year 2021 yearbook. Advertising and marketing revenues for 2020 were $453.5 million, an increase of 12%. Mobile ad revenues reached $413.8 million, representing 91% of our total ad revenue, up from 88% last year. Full-year 2020 advertising and marketing revenues reached $1.49 billion, a decrease of 3%, with mobile ad revenue contributing 90% of total ad revenue, up from 87% in 2019. Despite unprecedented challenges from COVID-19 and the resulting four-year single-digit revenue decrease, we are pleased to see solid recovery in the second half of 2020, underpinned by the overall ad demand pickup in the domestic market, growth of new economies bringing incremental marketing demand, as well as our relentless effort to capture new ad budgets and additional ad-worthy shares of existing funds. Let's start with K-8. In the fourth quarter, our key ad revenues were $226.8 million, an increase of 18% or 26%, including the impact from butter transactions. Our K business booked accelerated year-over-year growth, with the number of brand advertisers bonding with us reaching a new record. Industry-wise, the recovery momentum for our K business continues to be broad-based, with key sectors such as FMCG and automobiles close the year on a high note. on sleep debt, entertainment, travel, and real estate sectors remained pressured. As the sporadic COVID-19 cases in China in part postponed the recovery pace of these sectors in late 2020. Four-year 2020 key annual risk reached 741.7 million, an increase of 2%, or 9%, including barter impacts representing 30% of Weibo's total ad revenues. Our case business demonstrated resilience against a tough marketing environment, speaking to Weibo's unique value proposition to brand customers. Weibo has gradually become the point of many advertisers' marketing fans as they offer full-fledged marketing solutions to serve their branding plus performance needs. In 2020, we also notably captured incremental ad volume through our differentiated KOL marketing tools as well as unique products such as search and topic products, as it resonated well with customers' demands. Looking forward, with continuous recovery of ad demand and opportunities brought forth by new economies, We continue to see headroom in funding our customer base as well as potentials to tap into incremental advertising. We believe we are well-positioned to solidify and further uplift our compacted needs in the brand advertising market. Turning to SMEs, in the fourth quarter, We both attended AdRan News with 167.2 million, a decrease of 5%. We continued to narrow the year-over-year decline rate, leveraging the mass momentum of online sectors, particularly gaming, education, and e-commerce. That said, certain offline customers continued to face headwinds, particularly amid sporadic outbreaks of COVID-19 cases in multiple areas in China. Four-year S&E ad revenues were 592.7 million, a decrease of 16%, representing approximately 40% of global total ad revenues, mainly due to significant impact from COVID-19, especially for offline sectors, as well as competition-heavy sectors. Although the performance ad market in 2020 was challenging in many ways, we made strides in expanding OCPX coverage, driving video ad penetration, as well as developing integrated industry specific ad solutions, which all aim to enhance our ad performance. We are delighted to see this initiative already in early stage with the gaming and education sectors who contribute to this world this year. The early momentum for these two sectors demonstrated Weibo's potential in delivering relatively competitive ROI in the market, leveraging our unique strengths in integrating Weibo's resources in content, QL, and traffic. Ad revenues from Alibaba in the fourth quarter were 59.5 million, an increase of 57%, reflecting our cooperation with Alibaba to drive value for both platform brands and merchants during the peak e-commerce promotional season. Four-year ad revenues from Alibaba were 152 million, an increase of 55%. Apart from the fact that 2019 was relatively low-based, the momentum of Alibaba ad revenue also reflected our efforts in serving integrated marketing demands for both platforms' brands and markets. That said, ads sent from Alibaba highly correlated to its own business operations, especially its marketing strategies, which may change from time to time. As communicated earlier, we cannot assure that such robust growth will be sustainable in the future. Value-added service vast revenues were 59.9 million in the first quarter, a decrease of 4%. The decrease was primarily resulted from the decrease of live streaming business and was partially offset by the revenue contribution. from the interactive entertainment company acquired and consolidated to the company in November 2020. Four-year 2020 VAT revenues were $203.8 million, a decrease of 14%. Many resulted from a decrease in live streaming revenues. Turning to costs and expenses. Total costs and expenses for first quarter was $309.3 million, an increase of 3%. The increase was primarily due to higher personnel-related costs and step-up in marketing spend and was partially offset by decreased general and administrative expense. Full-year costs and expenses totaled $1.11 billion compared to $1.10 billion in 2019. Operating income in the first quarter was $204.1 million an increase of 21%, representing an operating margin of 40% compared to 36% last year, reflecting our solid recovery post-COVID-19 and our capability of delivering decent market profile amid market competition. Operating income for full year 2020 was $579.6 million, representing operating margins of 34% compared to 37% in 2019. Turning to income tax and the gap measure, income tax benefit for the first quarter was $25.3 million compared to an expense of $31.1 million last year. The income tax benefit was primarily due to the recognition of preferential tax treatment for certain of the company's PRC subsidiaries, as well as rewards of recognition of deferred tax liabilities in prior periods related to certain investments. Full-year income tax expenses was $61.3 million compared to $109.6 million in 2019. The decrease was primarily resulted from changes in deferred tax liabilities related to fair value change on investments. Net income achieved with GoToWeibo in first quarter was $212.7 million compared to $176.5 million last year. Net margin was 41% compared to 38% in period last year. Net income for full year 2020 was $547.5 million, representing a net margin of 32%. compared to 36% in 2019. Turning to our balance sheet and the cash flow items, as of December 31st, 2020, rewards cash, cash equivalents, and certain investments totaled 1.5 billion compared to 2.4 billion as of December 31st, 2019. The increase was primarily due to lack of fees from the $715 million senior loan issued in July 2020 for general corporate purpose and cash provided by operating activities and was partially offset by the investment activities we made during 2020. In the first quarter, cash provided by operating activities was $321.2 million. Capital expenditures totaled $8.4 million. and the depreciation and amortization expenses amounted to $10.7 million. On a four-year basis, cash provided by operating activities was $741.6 million. Capital expenditures totaled $34.8 million, and the depreciation and amortization expenses amounted to $32.1 million. We delivered approximately $706.8 million free cash flow in 2020, an increase of 30% year-over-year, representing our capabilities of delivering high profitability and generating strong operating cash flow. Lastly, let's talk about our financial outlook. We anticipate our first quarter of 2021 revenue to increase by 25% to 30% year-over-year on a constant currency basis. also reflects Weibo's current and preliminary view and is subject to change. With that, let me now turn the call over to the operator for the Q&A session.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel the request, please press the pound or hash key. Your first question comes from the line of Tian Hu of D&H Capital. Please ask your question.

Good morning, Ms. Guan. It should be good evening. Mr. Gao just talked about some of the company's products and the overall strategy and development of 2021. I would like to ask a more specific question. Can you elaborate in detail about your outlook in user growth and as well as your channel strategy. Thank you.

So relating to this question, before answering the question about 2021, let's talk about the issues that we had in 2020. So for example, due to the COVID-19, you know, that we really had a historical high or reaching a peak of those number of users in Q1.

But actually, normally in the past, after consuming some of our products like the Hot Topic products or Hot Trans products, those consumers or those users are going to leave with us and retain with us to further consume the entertainment and also the other vertical-related products. But actually, because of COVID-19, in the second half of 2020, we had a very good management and also the restrictions on the entertainment-related product consumption. So the retention rate of those kind of customers or users dropped. So those are the major reasons of causing us to have a decrease in number of users in Q2 and Q3, majorly. So in Q4, we have been doing some kind of work, for example, increasing the investment to the user acquisition cost. And also, we really increased some kind of productization in order to attract and also retain those kind of users.

And also,

you can see that we have been doing some kind of things right now because rather than paying attention to MAU, now we pay more attention to the total consumption as well as the frequency of the consumption is specific. So we can interpret that into the following kind of parameters. For example, DAU and also some kind of frequency of the consumption and also the total scale of the consumption. So that is actually going to really help us to improve our competitiveness as well as our kind of inventory of the monetization.

So we will see that in the fourth quarter, including the first quarter of this year, we will strengthen this aspect of work. That is to say, after users come to Weibo through the hot spot event, we can increase their relationship through social recommendation on the one hand, and improve their consumer quality through the relationship. On the other hand, you will see that we can increase the amount of videos posted by these top users on our platform through the video account, and then allow users to consume more and more content of video consumption in the information network. That is to say, to improve their And also, you know, in terms of our strategy in the future, in 2021, we really would like to focus on the following items. So first of all, we had our traditional advantage in terms of acquiring those users through our hot trends.

So in the past, in 2020, actually we had some of the issues occurred in terms of increasing the retention ratio and also helping the users to actually stay with us more and consume more frequently. So actually in 2021 Q1 and also later this year, we're going to further emphasize on these two particular points. So that is to say, first of all, emphasizing on the consumptions related to the relationship-based feed. And also, we are going to encourage those video accounts to actually publish more videos and also help and trigger the consumption around the videos by the users. So actually, through these kind of ways, especially through videos, we're going to really help to increase the retention ratio of our users. So actually, we are very confident in overcoming the difficulty and also get ourselves improved later this year.

From the trend of the whole year in 2021, the first quarter, because last year's first quarter, the first quarter was relatively high, so it is estimated that this year's Q1 of 2021 will be smaller than the previous year, but we still hope to maintain a trend of growth. We believe that this year, combined with the effective channel layout, we now have these product strategies for increasing flow and consumption. In 2021, Weibo still has a chance to achieve a healthier user growth, especially in terms of user activity and flow. There should be a good room for improvement.

And also, lastly, I want to say that in terms of the 2021 trend, so first of all, talking about the year-on-year comparison, because we had a very high historical figure in Q1 of 2020, so it's not that meaningful for us to compare. But actually, we are very confident to realize a month-to-month growth in 2021 Q1. And also, another thing is that in terms of our channel strategy, we're going to really focus on increasing the retention ratio of our users and also really help to build a very good and also healthy growth on the number of users. So we're very much confident in driving the traffic and also driving the activity and also the retention ratio of the users in 2021. Thank you.

It's very helpful. Thank you. That's all my questions.

Your next question comes from the line of Miranda Juang of Bank of America. Please ask your question.

Thank you. Thank you for taking my question. So my question is, can you please share the iSpend outlook for the 2021? and what kind of your app products and services will particularly gain traction and gain the incremental budget allocations among your KA and SME clients across different industry sectors? Thank you.

From Q4, you will see that our KA team has recovered a slight growth, while SME is still the same, but there are some shortcomings. In terms of gaming, online games, as well as some educational industries, the growth rate will remain relatively fast. However, I am not sure if the growth rate of gaming will increase by half as much as it did this year. However, there are some areas of growth that are purely trend-oriented, that is, the trend-oriented industry in the small and medium-sized industries. In other words, we will see that this type of client does not require a brand. And so let me answer this particular question. So first of all, in 2020 Q4, we have been seeing a very good recovery of our KA customer, especially we returned to the

a triple data growth. And also we, although had a year on year decrease on SME in the Q4, but still that particular decrease rate has been reduced. And also further in 2021, we're going to really see a kind of a very good growth on the brand customers, especially the FMCG and also automotives, as well as the luxury as well. And also in 2021, we're going to see also a very good growth for entertainment as well. And also next part is about the SME. So this year, for example, we're seeing a very good trend for gaming or internet service as well as online education, et cetera, et cetera. But actually, we're not quite sure whether or not we're going to see another doubling effect or doubling results of the gaming industry this year. And also talking about the other traffic diverting related SMEs. You know, without a very strong demand on branding. Actually, in 2020, we were talking about those O2O or e-commerce businesses. We had a little bit, not that ideal performance in 2020, but still in 2021, we are going to see a further intense competition in the area that I mentioned.

From our point of view, based on the current market situation of Weibo, we will continue to grasp a relatively unified budget and expand our sales opportunities based on content and IP. From the current situation of the customer market, and the combination of the product and service of the information stream, so that we have a certain advantage in the budget of the current investment customers. Especially, we will see that the overall OTV market is affected by the short-term product. This part of their brand budget, the budget of the previous investment OTV brand, Their requirements for content, IP, and QoL are still high. And Weibo is currently in the marketing field, including some IP users in the head office. Compared to other platforms, there are still some advantages. We are currently taking advantage of this part of marketing, QoL, and content. This part of the OTB transfer budget, we still have a relatively strong competitiveness. In terms of the flow of information, combined with this year's OTPX, including the upgrade in this quarter, the growth trend of ESPM has also maintained a growth of more than 20%. In this part, I can see that our growth in the field of gaming and education is good. On the one hand, this is due to the improvement of our own flow of information. On the other hand, this part of the customer's hair in Weibo, in addition to pure flow, there is also a certain demand for quality. And also, next part is about the product. So based on the social nature of the Weibo,

So we are going to really focus continuously on the kind of a strategy of the brand plus performance and also the content and also IP based marketing strategies. So based on this particular content and IP based marketing, as well as the strategy of brand plus performance, we have a very good advantage in gaining the budget from the top notch customers. And also we do see that the kind of a short video is actually a very big competitor to the OTV area. So we can see that in this particular thing, we do see that those customers from OTV actually had a very high requirement over the kind of content and also the IP as well as the famous KOLs in this area. So based on the unique advantage of Weibo in terms of the IP and KOLs and celebrities, we are very much positive to actually have the advantage of those OTV converted or transferred budgets and gaining that. And also next part is that we had also a very good development in terms of our information flow, like the super FST has been upgraded further. So we're going to see a kind of a triple digit growth on OCPS as well, as well. And also the gaming, as well as the education as to verticals are increasing dramatically. And also because of our upgraded their algorithm in this particular area. And also talking about those particular customers, they do have the requirement not only to gain traffic, but also they would like to do some kind of a brand promotion work. So because of that, we have seen that in 2021, we're very much positive to actually have that particular development, especially talking about the customer and e-commerce and also internet services, etc. Okay, thank you.

Thank you, Wellington. Thank you.

We'll take the final question from Alice Yap of City Group. Please ask your question, Alice.

Hi. Good evening. Thank you for taking my questions. Also, congratulations on the results and the guidance. My question is related to the ag inventory and also the competitive landscape. So how does management, you know, elaborate the situation you are seeing in 2021 versus last year in terms of the ad pricing pressure and the supply for these ad inventory as compared to last year and even, you know, as compared to 2019? And also any comments on the margins trend for 2021? Let me translate very quickly. uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh, uh,

OK.

so first of all talking about the ad inventory so before in the first question and also to that first question i already mentioned that actually this year in terms of our strategies for the users we are going to actually see that more of our investment and also the product related strategies are going to focus more on the dau and also the consumption frequency of the users and the vocabulary consumption traffic of the users from the previous laser focus on MEU. So that's to say this particular DAU increase and also more frequency of the consumption of uses will definitely drive the development and growth of the ad inventory. However, currently speaking, based on the Q1 result, it's very difficult for me to give you a kind of forecast about this particular ad inventory in 2021, especially for Q1. And of course, we do have seen very good growth on the other video platforms. But still, we are very much focused on increasing the DAU and also the frequency of the consumption of users. And these strategies will definitely bring a growth on the ad inventory.

In terms of your margin question, I will try to take this question. With the brand new growth as our primary goal, And at the same time, we want to enhance our competitiveness of our platform so we may increase our investment in marketing channels compared to last year, 2020. So on this basis, we expect our operating margin can still reach a relevant high level, that is to say maybe no less than 30% But there still will be a certain decline. Maybe we expect the decline will be within a single digit, maybe 5% compared to the level of last year. So in summary, in this year, the company's overall strategy is mainly focused on improving our revenue growth and continue to improve the competitiveness of the platform At the user product level, so at cost and expenses level, the main areas of investment will be increased, will include marketing channel investment. In last year, 2020, due to the epidemic and other impact, marketing channel investment was conservative. That is down from the year 2019. So considering the competitive user market and leveraging Weibo's relatively advantage in user acquisition costs, we will ensure our coverage of basic channels such as pre-installation and focus on increasing the investment in user engagement. And another area is personnel related costs. In order to maintain our competitiveness in the market, in some key departments, such as our advertising business department and our R&D department, there are certain personnel increase, high count increase, and also the salary raise. Last year, due to the impact of the pandemic, the company also enjoyed some government benefits This will impact our margin this year. So in summary, they expect our margin will be dropped from year to year.

Okay. Thank you. Thank you.

This concludes our conference call today. Thank you for joining. We'll see you next quarter. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.