This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Good day and thank you for standing by. Welcome to April 1st Quarter 2021 Financial Results Conference Call. At this time, all participants are in the listen-only mode. After speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. and I'd like to hand the conference over to Ms. Sandra Zhang, Weibo Head of IR. Thank you, please. Go ahead, ma'am.
Sandra Zhang
Thank you, operator. Welcome to Weibo's first quarter 2021 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 broadcasted on the Internet, and it's available through Weibo's IR website. Before the mentioned remarks, I'd like to read you the state public statement in connection with today's conference 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 risk and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. We will assume no obligation to update the forward-looking statement in this conference call and elsewhere. Further information regarding this and other risks is included in Weibo'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. We will assume 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 base compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of labor's comparative operating performance and future prospects. Our non-GAAP financials include certain expenses, gains or losses, and other items that are not expected to result in future cash payment or are non-recurring in nature. or not indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following mentioned prepared remarks, we open up for a brief Q&A session. With this, I'd like to turn the call over to our CEO, Gao Feibang.
Gaofei Wang
Thank you. Hello, everyone, and welcome to Weibo's fourth quarter 2021 earnings conference call. On today's call, I'll share with you highlights in Weibo's user product and monetization in the first quarter of 2021.
Sandra Zhang
On the user front, Weibo's MOU reached 530 million, and average day use reached 230 million in March 2021. And 94% of Weibo's MOUs came from mobile.
Gaofei Wang
In terms of commercialization, with the further recovery of market demand, as well as the deterioration of our strategy for heavy industry competition, on the first record, Weibo's total revenue reached $4.59 billion, which increased by 42% year-on-year. Among them, advertising revenue reached $3.9 billion, which increased by 42% year-on-year. On the monetization front, in the first quarter of 2021, our revenue increased 42% year-over-year to $458.9 million, mainly thanks to the further recovery of market demand and the optimization of our competitive strategy for key industries.
Sandra Zhang
Our advertising and marketing revenue increased 42% year-over-year to 390 million, with 92% of our ad revenue coming from mobile. Our non-GAAP operating income in the first quarter reached 137.5 million. Next, let me elaborate on the progress made in the area of product and monetization in the first quarter.
Gaofei Wang
On the product front, since the start of 2021, we further enhance Weibo's differentiated competitiveness.
Sandra Zhang
in key features such as call trends and social functions, coupled with effective channel strategies. We have further improved our user engagement. Concurrently, we beef up our investment in video products to strengthen users' mindset of using Weibo for video consumption, so as to enhance our product competitiveness.
Gaofei Wang
In terms of channels, our focus is to expand the channel coverage of Weibo in terms of income acquisition, increase the channel coverage, and promote and improve the channel coverage of users. At the same time, we will enhance the connectivity between the channels and the subsequent content consumption, and enhance the activity and storage of the channel to acquire users. In the first quarter, we expanded the channel path, combined with the optimization of the product, and enhanced the efficiency of the channels in the channel, and the optimization of the experience of customer user consumption. In the follow-up, we will continue to enhance the efficiency of the channel to acquire users, and at the same time, focus on enhancing the storage and storage of the channel to acquire users. We will enhance the content consumption of the channel and the edge efficiency, in order to overall enhance the ROI of the channel to acquire users.
Sandra Zhang
On the channel front, we set up our channel investment with the focus on improving user engagement and leveraging Weibo's competitive advantage in use acquisition cost, while strengthening the synergy between channel investment and subsequent content consumption, and thereby improving user engagement and retention. In the first quarter, we standard these channels and improved the content recommendation efficiency and the consumption experience of acquired users by focusing on algorithm optimization. Moving forward, we will continue to improve use acquisition efficiency while focusing on increasing user retention, content consumption, and monetization efficiency so as to improve our eye-for-use acquisition.
Gaofei Wang
In terms of product, I would like to share with you some important work in terms of Weibo's information flow and video product. In terms of information flow, our 20-year product direction is to strengthen Weibo's social core function, improve the sticky and interactive features of Weibo core applications, to ensure the competitiveness of Weibo in the use of integrated functions. In terms of relationship and social media, in the first quarter, we focused on strengthening the excavation of high-quality social media, improving the social structure of the relationship, and using a variety of systems to effectively encourage users to consume and save in the relationship. At the same time, we also increased the investment in the sexual and social media, in the first quarter, we improved the visualization of the core scene and the content of the conversation, and improved users' information source from discovery to consumption, and targeted games, schools, and other fields. It strengthens the interaction function of the overclocking surface, thus improving the community atmosphere. The overclocking frequency and flow of the user are significantly increased by 100%. The overclocking flow is increased by 40%. This is also related to the increase in social materials, and the improvement of the user's social connection in Weibo. In terms of recommendations, we focus on perfecting the recommendation of physical upgrade, and in the calculation, in different channels and the behavior characteristics of regular users, to strengthen the recommended content, thus improving the user's consumption experience.
Sandra Zhang
On the product front, I would like to elaborate on key initiatives on Weibo's information feed and video. On information feed, our objective in 2021 is to enhance Weibo's key social features and the competitiveness, and thus drive user thickness and interaction among Weibo's core user groups. In the first quarter, for relationship-based feeds, We focus on the data mining on quality social content to improve the social attribute and the content diversity and thus effectively promoting user consumption and retention. Meanwhile, we step up our investment in social interest products. To elaborate in the first quarter, we improve the integration of the super topic into the core feed, optimizing the interest path for the user to discover and consume super topics. For gaming and campus verticals, we also strengthened the interactive features of Super Topic to improve the community vibe, which led to a notable increase of user engagement traffic in Super Topic on a year-over-year basis. Super Topic traffic in the first quarter increased by nearly 40% year-over-year, which generated more social content for relationship-based feed and increased the user's social sickness on Weibo. On interest-based feed, In the first quarter, we focused on the technology, technical upgrade of the recommendation system, as well as algorithm which combines the behavior characteristic of users from different channels and in different scenarios to feed content recommendation. As a result, users' content consumption experience has been improved and we saw a steady increase in the user scale and traffic from the previous quarter.
Gaofei Wang
In terms of video, our overall direction in 2021 to improve the video content of Weibo. At the same time, the key areas of the focus are to train users' video consumption. In the first quarter, we focused on improving the product of the video account, improving the user experience of the video, and further reducing the threshold of the video account to encourage more content creators to join. As of now, the opening scale of the video account has increased significantly, exceeding 5 million. more than 2.5 million fans. In terms of the field, Fan Entertainment and Fan Life are still the core fields of Weibo's video account. In the video account with more than 10,000 fans in March, Fan Entertainment's Fan Life video account has reached about 60% in terms of the number of posts. At the same time, Weibo platforms have also emerged from a field of fast development of video content, such as the field of science and technology, law, and education. This has been a good supplement to the content ecosystem that Weibo has been working on recently. On the video front, in 2021,
Sandra Zhang
We accelerated content visualization for Weibo's content creators through video account mechanism, and thus improved the production and consumption of Weibo's video content, while strengthening users' mindset of using Weibo for video consumption. In the first quarter, we upgraded Weibo's video account products, improving the consumption experience in all video feeds, and lowered the entry barrier for content creators to participate in the program. As of now, we saw a noticeable increase of content registered video accounts, which exceeded 5 million, among which the video accounts with over a million followers each exceeded 25,000. By verticals, entertainment and lifestyle-related verticals remain at our core. As of March, for those video accounts with over 10,000 followers, Approximately 60% of the accounts and video views generated are from entertainment and lifestyle-related verticals. Also, we are pleased to see the rapid visualization trends among certain knowledge-related verticals, including popular science, law, and education, serving as good supplement to the existing graphic and text content ecosystem of the world. On live streaming, in the first quarter, we launched the feature of joint mic live streaming, which enables the interaction between multiple content creators and users through live streaming. Hundreds of KOLs have joined the test run. With enhanced interactive features versus traditional live streaming, joint mic performed well in both user retention and timestamp. In the second quarter, we plan to launch the Join Mike live streaming with top media outlets, cooperating with COL to strengthen Weibo's brand recognition in the live streaming market.
Gaofei Wang
Before we talk about commercialization, I would like to briefly introduce the adjustment we have made to the advertising business from this record. Since the launch, we have been analyzing the advertising customer type, namely KA and SME. The first step is to choose the advertising approach. On the one hand, to show the difference in customer's investment capacity. On the other hand, it also reflects the difference in customer investment speed. For example, K&E customers use brand exposure as the core demand, while SME customers use efficiency to realize the core demand. But with the development of the advertising industry and self-employed businesses, we will see that our customer K&E and SME customer boundaries are becoming more and more blurred. Customers are gradually increasing the investment demand for quality and efficiency. At the same time, the investment capacity of customers There is also a definite difference in the customer group of KA and SME. Therefore, from the point of view of internal sales management, we have also opened the two generations of sales channels of KA and SME to pay more attention to the development of each industry and the satisfaction of each customer's comprehensive marketing elements, as well as the competitiveness of all kinds of advertising products in the market. In terms of external disclosure, we will no longer use the way of KA and SME to carry out advertising business disclosure to maintain the consistency of internal management.
Sandra Zhang
Before moving on to monetization, I'd like to touch upon the adjustment we have made on segment disclosure. We used to classify our ad business by customer type since our IPO, mainly pay and ad sending segment. The disclosure measure could help categorize customer with distinction in ad spend and marketing demand. For instance, the marketing demand for pay customer is usually brand focused. While for SME customer, it is usually performance driven. Nevertheless, with the involvement of the advertising industry and the web-based business as well, the distinction between K and SME segment has become increasingly blurred. On the one hand, customer across those segments have an increasing demand for brand plus performance at products. On the other hand, there's no clear distinction of the amount of lifespan. Therefore, we are also de-emphasizing such distinction in our internal management by integrating the two sales teams while increasingly focusing on development of vertical industries, fulfilling each customer's comprehensive campaign needs as well as the competitiveness of all our products in the market. And thus, to be consistent with internal management, we will no longer provide a segment disclosure by KA and SME since the first quarter of 2021.
Gaofei Wang
Next, I would like to share with you the strategy and progress of commercialization. In 2021, we will further strengthen the advantages of micro-blogging, social advertising products, strengthen the ability of commercialization, and improve the flow of transformation space and transformation effects, in order to overall improve micro-blogging's commercialization scale and market competitiveness.
Sandra Zhang
Let me share with you more color on our strategy of monetization and progress made so far. In 2021, we will further strengthen the competitiveness of our social ad product, solidifying industry-specific marketing competence, and unleash the potential and efficiency of traffic monetization, so as to improve Weibo's monetization skill and market competitiveness.
Gaofei Wang
In terms of industrialization, Weibo's advertising revenue has increased by 42%. On the one hand, it is due to the decline in the impact of the epidemic last year, but the overall sales of Weibo in the past 19 years has maintained a growth of 44%. This is mainly due to the recovery of the overall sales environment, and Weibo's ability to maximize customer service in the main sales industry, and the unique performance advantage of playing the game. In the first quarter, the sales of the main industry increased significantly compared to the increase. For example, the fast-selling industry of food and drink and the fast-selling industry of every customer, by fully playing the marketing advantage of star K.O. and product sales, Car and mobile phone digital industry. In the first half of the year, due to the change in market performance, there are more and more new brands. New products are rapidly increasing. By fully combining the hot spots of new products and spreading advantages, it helps us to achieve a large-scale income growth in this field. Car industry. With the overall adjustment of our customers to the domestic market marketing center, and our strengthening of new products live broadcast, and the promotion and promotion of new products, the income growth in this sector is three-digit. From an industry perspective, in the first quarter, our revenue increased by 42% year-over-year on a low base due to the pandemic last year. It also represents 14% growth compared to the first quarter of 2019 before the pandemic.
Sandra Zhang
which speaks to the recovery of the overall market environment recovery as well as our efforts to strengthen Weibo's capabilities to directly serve customers across key industries, marketing-oriented services, and differentiated marketing strategies. In particular, we are delighted to see a robust year-over-year growth in key industries backed by our further enhanced competitive advantage. To elaborate, In FMCG sectors, such as food and beverage, beauty and personal care, we put celebrity and KOL marketing and Grand Plus performance solutions into full play, delivering a notable year-over-year growth in revenue. In those automobile and handset sectors, we are seeing changes in market landscape. with more emerging brands and the shorter intervals between new product release in the first half of the year. In response, we fully utilized our advantage in promoting new products for customers through Hot Trends, resulting in an outperformance of revenue growth of these sectors versus the overall ad business on a year-over-year basis. In a luxury category, most top-ranked customers have shifted their marketing focus toward the domestic market. Therefore, we strengthen their marketing mindset to promote new products through live streaming and with the celebrity and KOL endorsements, and thus increasing the revenue in the first quarter by triple-digit year-over-year. In the education sector, we did see a putback on marketing demands due to a tightened regulation While keeping an eye on the subsequent impact, we are also strengthening the combination of Weibo's unique ecosystem and strategies to encourage customers to try out our content marketing solutions.
Gaofei Wang
In terms of advertising, our key work in the first quarter is to continue to improve the quality content of Weibo's advantageous advertising products. For example, based on the star QR content of the new wave of advertising products, and based on the hot topic of discussion, these products combine the brand and effect advantages It can help customers improve brand awareness, and at the same time, it can meet the requirements of customer service transformation. This helps us greatly improve the recognition of some customer service services for different products and services. In the first quarter, the number of customers and income of hot search and topic-related content marketing products has increased significantly. Second, for the field of online service and game, we continue to improve the basis of the algorithm, focusing on improving the experience of the entire advertising industry, and improving the performance optimization of the customer in the download. For example, the product market has been fully optimized for the download and installation of the application. After the application is online, the application installation rate has increased significantly. Thirdly, in terms of video advertising, in the first quarter, the online and traffic improvement of the mobile video product system has brought us more video scene advertising standards. There are also more customers posting ads using video methods. In this quarter, the volume of video advertising revenue and overall advertising revenue continues to increase. In the future, we will organize and classify the business traffic.
Sandra Zhang
On the ad products, in the first quarter, we prioritized on continued optimization of products that leverage Weibo's advantages in brand-plus performance counter-marketing, such as promoting feed products with KLM celebrity marketing concepts and promoting trend and topic products. Not only could these products help increase brand awareness for customers, It could also fulfill customers' performance-driven needs, which largely increased the recognition of this product solution among performance customers. In this quarter, the number of customers who had asked then on either celebrity or KRL marketing or promoting trends and topic products grew notably year over year, with revenues contributed from this product delivering strong momentum as well. And meanwhile, for online service and gaming verticals, While continuing to optimize the algorithm, we upgraded the entire advertising experience and optimized the ad performance for app download customers. For example, we optimized the app download ad and installation link and improved download and installation rate. As a result, the app download increased significantly after the solution was launched. On video ads, In the first quarter, the ramp up of traffic from video accounts brought forth more video ad inventory and also attract more customers to advertise through video. And thus, video ad as percentage of total ad revenues continue to ramp up this quarter. Going forward, we will fine tune the scheduling and distribution of the monetizable traffic and allocate quality and compatible traffic to customers with a stronger performance demand and greater market potential, so as to maximize the efficiency of traffic monetization.
Gaofei Wang
Finally, I would like to talk about Apple. From the iOS 4.5 version, the ADB Checking Transparency policy may have an impact on the platform. This policy no longer allows the APT to directly acquire users. The only identity mark is IDFA. And IDFA is the only reference point for our current APT account group, especially for user behavior monitoring. Therefore, Lastly, I would also like to touch on Apple's recent implementation
Sandra Zhang
of the APP tracking transparency policy since the launch of iOS 14.5, under which new apps are no longer able to access IDFA, namely, identify for advertising by default without user permission. It is expected that such change may compromise the precision of attribution in targeted APP download marketing. since IDFA is a key tracker for the ad attribution, especially with the cross-APP activity tracking. In response, we have adopted Apple's SKAdNetwork attribution as an alternative. Now, versus in the short term, we expect to face on the ad algorithm and strategy front due to change in the attribution algorithm. In the long run, SK-80 network-based attribution could gradually catch up and deliver similar performance as the original model, leveraging model training and advertisers' increasing support. With that, let me turn the call over to Fei Cao for financial review. Thank you, Zhang Fei, and hello, everyone.
Fei Cao
Welcome to Weibo's first quarter 2021 earnings conference call. Let's start with user metrics. In March 2021, we both ended use with 530 million, a decrease of 5% year-over-year, primarily due to a tough time last year with our user traffic reaching peak levels during the pandemic period. On a sequential basis, our ending use represented a net addition of 9 million users Mobile MEUs represented approximately 94% of total MEUs. With most average DEUs, which is 230 million, a decrease of 5% year-over-year due to the same reasons for MEU. On a sequential basis, our average DEUs represented a net addition of 5 million users. Turning to financials, as a reminder, My prepared remarks would focus on my gap results and all the comparisons on a year-to-year basis unless otherwise noted. Now, let me walk you through our financial highlights for the first quarter of 2021. We both first quarter 2021 net revenues were 458.9 million, an increase of 42% exceeding the high end of our guidance. Operating income was $137.5 million, an increase of 85% representing operating margin of 30%. Net income attributed to Weibo reached $130.7 million, an increase of 94% representing a net margin of 28%. Value to the EPS was $0.57 compared to $0.30 in the first quarter 2020. Now, let me give them a color on revenues. Weibo's advertising and marketing revenues for the first quarter of 2021 reached 390 million, an increase of 42%. Mobile ad revenues were 361.8 million, contributing approximately 93% of total ad revenues, up from 89% last year. As Sophie indicated in his prepared remarks, Consistent with market trends and internal management, we will no longer provide a segmented disclosure of ad business like KA versus SME starting from this quarter. Let me share some color on our growth from an industry and ad product perspective instead. For the first quarter 2021, our leading verticals in terms of ad revenue contributions were SMCG, Flint City Products, and e-commerce. Weibo has gradually become the cornerstone of many advertisers in these traditionally highly-spending industries to fulfill their integrated branding plus performance needs. They are also delighted to see great opportunities with new economies, particularly in the consumption sectors, such as those emerging domestic brands. at least customers increasingly recognize Envivo's unique value proposition in connecting with massive young generation of users, implementing celebrity and the QL marketing, and delivering viral effects in their campaigns. In terms of growth, the fastest growing verticals were automobile, luxury, and e-commerce. Apart from low base effect, These verticals have been experiencing rapid sector growth momentum, leveraging tailwinds in consumption behavior shift, as well as our differentiated social marketing solutions. From the ad product perspective, promoting fees continued to be the largest part, followed by social display ads and other ad algorithms, such as promoted trends and topics. We are encouraged to see customers buy a combo of these diverse ad offerings to drive users all the way down the funnel to achieve a better ROI. Notely, ad revenue generated from our differentiated promoted trends as a topic product delivered a strong growth, mainly driven by increase of ad inventories and the positive pricing trends. as well as a relatively low base last year during the pandemic. Value contributions from video ads also continue to trend up, many benefiting from continuous growth of ad demand for video ad products, underpinned by good momentum with our video account program. Ad revenues from Alibaba for the first quarter were 33.3 million, an increase of 21%. Despite a relatively high base from Alibaba last year, ad revenue from Alibaba continues to deliver double-digit growth, speaking to the value of our partnership in serving integrated marketing demands for both platforms, brands, and merchants. That said, ad revenue from Alibaba is 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. VAT revenues were 68.9 million in the first quarter, an increase of 44%, primarily attributable to the revenues derived from the interactive entertainment company acquired in November last year. Turning to cost and expenses, total cost and expenses for the first quarter was $321.4 million, an increase of 29%. The increase was primarily due to step-up in marketing spend and higher personnel-related cost. Operating income in the first quarter was $137.5 million, an increase of 55%, representing operating margin of 30%. a decent margin profile amid intense market competition and also in land risk or exploitation as we proactively step up our spending in channel investments and video capabilities. Turning to income tax, under GAAP measure, income tax expense for the first quarter was $14.9 million compared to $15.9 million last year. Net income attributed to Webull in the first quarter was $137 million, representing a net margin of 28% compared to 21% last year. Turning to our balance sheet and cash flow items, as of March 31, 2021, Webull's cash, cash equivalent, and short-term investments totaled $3.4 billion. compared to $3.5 million as of December 31, 2020. In the first quarter of 2021, cash provided by operating activities was $244.3 million, capital expenditures totaled $6 million, and depreciation and monetization expenses amounted to $12.4 million. Lastly, let's talk about our financial outlook. We anticipate our second quarter of 2021 revenue to grow by 25% to 30% year-over-year on a constant currency basis. This forecast also reflects the waveboard's current and preliminary view and is subject to change. With that, let me now turn it over to the operator for the Q&A session.
Operator
Thank you. We will now begin the question and answer session. If you ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound or hash key. Your first question comes from the line of Alicia Yuck from CT Group. Please ask your question.
Fei Cao
Thank you. Good evening, Manager Chen. Congratulations on such a strong business. Thank you for accepting my question. My question is relatively simple. It is about our high-end business, a relatively strong business. I would like to ask, is it because last year's base was relatively low, or is it because we have seen some progress in products and have gained more market share? Congratulations on the very strong results. So wonder to follow up a little bit on this strong outperformance in the first quarter. Was that maybe driven by the secular ad recovery, especially with the low base last year? Or are we actually seeing we are gaining market share in terms of the ad budget allocation from the advertiser? Any color that management could provide in terms of the trend going into the second quarter, for example, like April or the first week of May. Some of these strong verticals that you see in the first quarter, we are also seeing the trend continue into April and May. Thank you.
Gaofei Wang
Thank you. Let me give a brief answer. Actually, in the first quarter of this year, the growth rate, although it was the same as last year, it was relatively high. But if you look at the second quarter, the growth rate should be the same as last year. So I think if you look at it from the perspective of growth, if you look at it from the perspective of the outside world, we will definitely see that most industries, especially the consumer-related industries, including e-commerce, FMCG, cars, including luxury goods, are recovering relatively quickly. Even some competitive industries such as games, including education, are affected by some policies, We will see if we can achieve our goal set for the beginning of the year. So this time, I think one is the foreign market, and the other is the industry. As for the content, I just introduced it. We have been adjusting our sales system since last year. Before that, our K service and our K brand customers are mainly our brand sales team. Their ability to do content marketing and sales services for these brand customers may be slightly We hope to have a stronger competitiveness when acquiring customers' profits. Especially when customers are posting ads on Weibo, they may say that they want to enter Weibo's Zikr system, so that they can solve their content marketing, including brand marketing, as well as the needs of many aspects of effective decision-making. So from the data point of view, it can also be reflected. For example, this year, we have the fastest increase in data in cars. Although the total increase is more than 50%, but the fastest increase in data is the effect of its posting part. So first of all, thank you very much for the question. Let's just be very brief.
Aichi
So first of all, we have been seeing that in Q1, we had a big growth. And part of the reason was due to the kind of year-on-year base, like low base number of the last quarter on Q1 of last year. But that was only partially the reason. However, we can see that if we're talking about the growth rate of the Q2, this is still as robust as the Q1. So only partially reason. And also, let me talk about the external and also internal reasons of having that high growth of the Q1 performance. of the advertisement. So first of all, externally, we are seeing that the recovery of many verticals are very robust. For example, the consumer-related industries like the e-commerce and also FMCG and automobile and luxurious as well. And also some of the other very competitive markets, for example, the gaming and also the education industry, which was somehow impacted by certain policies. But still, you know, we have SEEK, to strive to realize our target set in the beginning of the year if we're talking about the year-on-year growth. So this is something about a very good vertical performance. And also internally, we're talking about the reasons, for example, last year we have been doing some kind of a restructuring of our sales system. So in the past, for example, we had a branding team and sales team that was very much focused and strong at doing service and providing service to those KA customers. However, they are relatively weaker in providing services to SMEs. And also on the contrary, those SMEs, those teams were very much dedicated in providing services and also get budgets from the gaming and education industry. They're pretty much strong in helping to download or helping to sell the courses but not that much in terms of organizing activity or doing some kind of a branding work for those SME customers. But since second half of last year, we have been doing a restructuring of our sales system. That is the reason that after Q4 that we can see that we're not performing like the other companies that are only focusing on either brand or KA customers or SMEs, but we actually now have combined this and also... That is to say we have a higher and also better strength in gaining the budget from our customers and also improve our competitiveness because the customers could approach Weibo for a lot of effectiveness, for example, content marketing and branding and also effectiveness, et cetera, et cetera. So that is to say that we are providing a whole package of solution to the customers. And also, you know, that in terms of the quickest growing customers One of the quickest growing verticals like automobile, which had over 60% of the performance or growth, that is to say the kind of adaptive and also SMEs ad is the quickest growing part. However, in this education sector, we've been seeing that the brand part is actually the biggest growing sector. So that is to say, in a word, we are having stronger ability to actually gain more budget from our customers. All right.
Operator
Okay, thank you so much. Thank you. Our next question comes from Alex Sher from Credit Suisse. Please ask your question.
Alex Sher
Thank you, management, for taking my questions, and congratulations on very strong results. So I'd like to ask about your strategy focus in the user products. So what will be your key initiatives to increase the user engagement in terms of your product design and operations. And would you like to share any specific targets for some of them? Thank you.
Gaofei Wang
especially in the case of low-end users. In this regard, it actually helps us to improve the quality of some low-end users, which is more effective on the outside. On the inside, in fact, on the one hand, I just introduced that we have been strengthening the distribution and distribution of our entire social product in the core scenarios since the first quarter, especially for those who are interested in social media, for example, the product of Chaohua. based on our interest, we can bring together some common users. For example, some celebrities, or some games, or schools. This part of the user's contract quality will be higher than the normal content quality. This also means that the number of users on Taobao is about 40% of the total. This part of the user's contract quality will be higher. At the same time, the transformation of this part of the user, in fact, we haven't started to launch it yet. More will start to launch in the second quarter. And then the third one is probably the investment in video. This year, we have increased the investment by increasing the number of videos. In addition to the overall user growth and the growth of DAU and MUA, it is more important that users in Weibo The scale of consumption content and the scale of consumption videos. For example, we pay more attention to their consumption in our video recommendation flow system at the same time in the video distribution chain. At present, the increase in the number of videos is also very obvious. And the flow of this video stream will also bring us more flow storage. This is very important for the improvement of our entire efficiency report this year. This time, let's take a look at the three aspects of our user activity. In terms of the second quarter and the third quarter, there should not be much change. There should still be a few aspects. On the one hand, we will get more reviews from the supply and demand side. We will get more reviews from the supply and demand side. Okay, so thank you for this question.
Aichi
First of all, you know, since Q4 of last year and also in Q1, this quarterly report, we have already been mentioning some of the work in Ephesus focusing on the user engagement enhancements. And also, for example, the first is that we are trying to get access to those low-frequency users and especially improving their frequency from the external sources. And also, second, from the internal sources, we are talking about, for example, after Q1, we focus more on those kind of activity and also more engagement on the core scenarios, and especially, for example, those interest-driven or interest-based scenarios like the supertopic. And also, we are going to increase the frequency of the content consumption from the KOLs and also the gamers, as well as the campus, etc. products. And also, like the Super Topic, and that is the exact reason why we had over 40% of the growth on the Super Topic. And also, talking about the monetization, we are going to actually start doing the monetization since Q2 of this year. And also third point is we are emphasizing a lot on the growth of the video account. And also you can see that not only this can help us to develop the EAU and MAU in terms of user size, but also more importantly that we can enhance the consumption of content and also consumption scale of the videos. So that is exactly a focus on the enrollment or enlargement of the time span on the videos within the system. So that is to say that we have been gaining a lot in terms of the traffic inventory in this area. And that is specifically important for us to drive the SME ads industry and also products. And also talking about Q3 and Q2, I don't think that there is any big change. So in a word, we're just going to focus on three areas. The first is that more channel access. to increase the frequency to be more specific. And second is that focusing more on the social content products and also third, video products.
Sandra Zhang
All right.
spk06
Okay.
Operator
Thank you. Our next question comes from Thomas Chow from Jefferies. Please go ahead.
Thomas Chow
Good evening. Thank you for accepting my question. My question is about the cost side. Thanks management for taking my questions. I have a question relating to the cost side. Given that we are going to invest more in content to drive user growth and engagement, can you share about our spending budget for this year together with the trend in R&D and sales and marketing? Thank you.
Gaofei Wang
From a market management perspective, we will definitely increase some content investment, but our current content investment may not be the same as the content of the video platform. It's a bit similar to what we did with NGA, and this year we started to cooperate with CBA and maybe with China. We are still focusing on its... When we cooperate with it, it is more about letting its social accounts log into Weibo, and its official content can carry out some
Aichi
Alright, so first of all, you know, let's give you the answer in relation to the content part. So, you know, since this year, we are talking about a kind of, you know, competitive landscape here. And also we are going to focus more on the investment to the content. But of course, this particular fashion of doing the investment is quite much different from the investment to the content or to the video. So that is to say, we're talking about the collaborations with the NBA last year and also CBA and also China Super League, Football League of this year, quite similar. So that is to say that we are going to focus more on those kind of social accounts like in the Weibo and also to do some kind of monetization or socialization work But we're not going to act like a video actor, which is to say that we are not going to buy a lot of content in that sense. 另外还有一个就是关于商业方面的内容,比如刚才我提到的就是在我们现在给客户提供的商业解决方案里面,
Gaofei Wang
Content marketing is actually one of our major marketing products. That is to say, we will give customers marketing experience, including the effect of the brand, and we will pack in some, for example, the content of the stars and some top KRF production. This part of the content will generate part of the content cost. But this part of the business content cost should be in, if everyone can pay attention, it may pay more attention to the sales profit rate in our business. If we look at it now, it will not cause a significant decline in our entire sales profit rate. So, I think the content itself will definitely increase, but it will not have a very significant increase in our sales style.
Aichi
So, second of all, let's talk to you about the monetization or the business side or commercial side. So, that is to say that, you know, first of all, we are trying to provide to our customers the kind of commercial solution that is pretty much focused on the content marketing. So that is to say that with all together the regular kind of solutions that we are providing to our customers, we're also going to put and include inside package the kind of contents created by the KOLs and also those top-notch KOLs. So that will generate certain costs in this particular area. However, if you are talking about the kind of sales gross margin of this particular area, we are not seeing any deduction on the gross margins here. So that is to say that even though the absolute figure is going to kind of increase, but talking about the percentage against the total sales, this is not changing.
Gaofei Wang
But for the acquisition of this kind of channel, one is the cost of the users. We now see that it is much lower than the product. At the same time, our understanding of the ROI of the users is relatively strict. We will require that within a certain period of time, we should recover the cost of the users in about half a year. And also, third of all, let's talk about the expenditures on the channel side.
Aichi
So as we have already stated last year that things this year, we are definitely not going to expand it or expand more, focusing on the channels. So the reasons are, first of all, because of higher competition and more intense competition here, we're going to spend more money in getting access to users, especially the new users, and also more engaged and active users. And also, that is to say, however, having said that, our kind of user acquisition cost is relatively lower than our competitors'. And also, second of all, we are having a more stringent appraisal over the ROI of this particular area. So that's to say that in half a year of time, we're going to try to balance this particular kind of investment versus the user acquisition cost. So that's to say that the conclusion is that since we won, we have already seen a big increase of this particular expenditure on the channels. However, we are going to definitely focus more on the sustainable kind of growth of the channels, and also we are going to have more stringent policies over the appraisal of this particular indicator and also ROI of this expenditure.
Operator
Great. Thank you. Our next question comes from Alex Coe from Morgan Stanley. Please ask a question.
Alex Coe
Thank you, management, for taking my question. So I'd also congratulate you on the strong result. So we'd like to get a sense of, like, the reason fan economy, like the regulatory headwind or, like, the crackdown. would that have like any impact on like any operational or financial impact on our business fundamentals? Thank you.
Gaofei Wang
First of all, I think this question may be more suitable to answer like Baidu or Aichi. But I can answer it. First of all, I think there are two levels of supervision for fans recently. First of all, my understanding is that Maybe it can't be regarded as tax economy. In China, it can be classified as illegal. I don't think this has anything to do with Weibo. From its initial platform to its main platform, its main propaganda platform is not on Weibo. However, Weibo is indeed the main discussion platform for this matter. On this issue, we maintain close communication with the government. Secondly, I think for the fans economy, whether it is in China or around the world, it is actually a relatively common phenomenon. More importantly, it depends on how we guide it. In fact, if you pay attention to the recent half year or these few months, some discussions about the fans economy, we will see that the real top stars, such as those who have a relatively high response rate on Weibo, in fact, their fans economy is moving towards public opinion with the platform. and positive energy. For example, one of the most important factors in the star market is the public opinion of the stars. For example, how much public opinion do the stars bring to the fans? This is actually a positive direction. But in the past one or two years, in some new stars, especially in some shows that spread relatively quickly, because these new stars came on stage, Yes.
Aichi
And also, you know, talking about this question, first of all, I have to say that this is not a very good question for Weibo to comment, but rather Baidu or IT should comment on this. However, let me just show you some of my opinions. So I think that we're talking about the two levels of regulation. The first one is that, you know, first of all, we're not talking, you know, about this particular fan economy, but I think that this is more like a kind of illegal funding or cross-sourcing and also to help those fans to hit the rankings. But the thing is that all those kind of launching or initiating kind of a platform or the funding platform or the promotional platforms, they are not Weibo. But actually, people are discussing, however, all those topics on Weibo. So we are keeping a very close eye on this topic and also a very close relationship and also communication with the government. And also, second of all, talking about the fan economy, I think that this is pretty common here in China or also in the other part of the world. And also, I think that, you know, in Weibo, we're trying to divert this particular to a very good direction and positive direction. So that is to say that this topic has been talked and discussed for a month and also for the past half a year. And also, for example, talking about the KOLs servicing Weibo, I think that... their fan economy is more like engaging their fans to really do some pro bono activities or charity activities or some of the positive energy-oriented activities. For example, one of the indicators that we care and concern about is the charity value created by their KOL together with their fans and followers. So that is to say that this is something very positive-driven. And also, having said that, still, for this particular problem or issue as you have described, this may occur and emerge due to the period of time when the reality show actually was quite popular but the platform wasn't quite complete and there wasn't a very complete agent system or the servicing system in place So some of the platforms were taking advantage of that and trying to, you know, promote this so-called planned economy of that. But that wasn't something quite virtuous and benign. So I think that needs to be eradicated afterwards. 另外如果您关注到的话,您会看到其实在过去的一个记录里面和我们其实在主管部门的
Gaofei Wang
uh, uh, uh, This kind of relationship, in fact, whether it is from the development of the industry or from the flow of the platform itself, and the healthiness of the platform stars and fans, it is beneficial to the entire industry. But you said that because of the current influence, if there is a slowdown effect on long-term platforms and show shows, it may have some impact on the short-term flow. But I think that as for the organization and management of the fans' economy, or the management of the regulations, in fact, for Weibo,
Aichi
So and also another thing is that in the past one quarter, we have been seeing a very active communication of Weibo and also our regulatory bodies. So that is to say that for the platform and big platforms such as Weibo, we are having a very stringent requirement over the management of the fans and also the fans group as well as the agency and also the KOLs themselves. So we should manage that to say that verification of the identities of the followers and also the fans group of that particular agent company or the KOL is a must and also necessary thing for us to do. So that is to say we are not allowing any activities organized by the irrelevant fans group according to that regulation. And also, I think that this is a beneficial thing for the development of this industry and also a very healthy development and management of this whole fancy economy. But the thing is that, you know, this might see a kind of a temporary impact on the pause and stop of some kind of a reality show programs. And this may have seen a kind of a reduction over the short-term traffic on that. However, I think it's pretty much important for Weibo to manage this as a whole. And also, we are going to gain long-term benefit by managing strictly on this particular notion. All right.
Operator
All right. Thank you. So we have reached the end of the question and answer session. With that, we conclude our conference for today. Thank you for participating. You may all disconnect.
Disclaimer