Weibo Corporation

Q3 2021 Earnings Conference Call

11/11/2021

spk07: Good day and thank you for standing by. Welcome to Weibo third quarter 2021 financial results conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will 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 R0. And now I'd like to turn the conference over to the management team of Weibo. Thank you. Please go ahead.
spk08: Thank you, operator. Welcome to Weibo's third quarter 2021 earnings conference call. Joining our call today are our Chief Executive Officer, Gao Feiwang, and our Chief Financial Officer, Fei Chao. The conference call is also being broadcast on the Internet and is available through WAVE with IR website. Before management remarks, I would like to read you the safe harbor statement in connection with today's conference call. During today's conference call, we may make four looking statements, statements that are not historical facts, including statements of beliefs and expectations. Four looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ maturely from those contained in any forward-looking statements. We assume no obligation to update the forward-looking statements in this conference call and elsewhere. Further information regarding this and other risks is included in WAVE'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 hereof. 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-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 exclude certain expenses, gains or losses, and other items that are not expected to result in future cash payments or are non-recurring in nature, are not indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management prepared remarks, we will open up the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gao Feiwang. 谢谢,大家好,欢迎大家参加微博采报电话会议。 Thank you.
spk03: Hello everyone, and welcome to Weibo's third quarter 2021 earnings conference call. 本次采报会,我向大家重点介绍2020 Q3微博的用户,产品以及商业化方面的进展。
spk08: On today's call, I will share with you highlights of Weibo's user product and amountization in the third quarter of 2021. On the user front, Weibo's MAUs reached 573 million, and average DAUs reached 248 million in September 2021, adding approximately 62 million and 23 million users year-over-year respectively, which represented the highest net adoption number among the recent six quarters. In September, 94% of Weibo's MAUs came from mobile.
spk03: In terms of commercialization, with the optimization of our competitive strategy and advertising products in the key industries, On the monetization front, leveraging further optimization in your competitive strategies and ad product offerings for key industries.
spk08: Our total revenues reached $607.4 million in the third quarter, an increase of 30% year-over-year. Advertising and marketing revenues reached $537.6 million, an increase of 29% year-over-year. 93% of our revenues came from mobile. Our non-GAAP operating income in the third quarter reached $248.7 million.
spk03: Now, let me elaborate on our progress made in the areas of product and monetization in Q3. Our part of the related business under the policy requirements has undergone a corresponding improvement. The volume has been affected to a certain extent. September has not been able to continue the growth trend of July and August. Also, we have narrowed the growth rate of our system. We have made some adjustments to the product and operation strategy in line with the policy requirements and the rules of the business. On the one hand, the co-operative of the entertainment industry, Jiaxiang is also the announcement of the variety show.
spk08: In the third quarter, driven by seasonality such as summer break and Olympics, we both user scale and traffic both reached record high in July and August, post the spike seen during the pandemic outbreak in March last year. As for September, we will typically see a fallback in traffic naturally due to the back-to-school seasonality. While for this September, In light of rectifications on the entertainment sector, we have also stepped up our compliance efforts and revamped relevant product offerings accordingly. As a result, we saw a pullback in traffic from the July and August level, as well as slowdown of user growth on a sequential basis. In the meantime, we also revisited our product and operations to further conform to regulatory requirements. To elaborate, We cooperated closely with our partners in the entertainment industry to highlight celebrities' work, such as TV series and variety shows, as opposed to celebrities themselves, in the hope of fostering a healthier entertainment ecosystem. We also refined our hot trends mechanism so as to build out a more constructive ecosystem around hot events in the long run.
spk03: In terms of channels, Due to some of the Internet-based industries, such as education, the competitive environment of channels is weakening, and the overall cost of users in the market is declining. In addition, Weibo has an advantage in the cost of users, and our unit user cost continues to decline. At the same time, as we continue to optimize the investment and product efficiency of channels, our channel user flow rate continues to increase. In Huoke, we have obtained more and better target users through the optimization of the investment mechanism. We continue to improve the content and sales experience of channel users, On the channel front, which has been seen certain verticals, such as the crackdown on education,
spk08: The overall user acquisition price has been a descending trend due to less market competition. Coupled with Weibo's competitive edge in channels, our channel cost per user has further decreased. Meanwhile, we are also pleased with better retention rate of users acquired through channels, leveraging improved synergy between channel investment and subsequent product usage. To elaborate, we made progress in optimizing our targeting mechanism and thus acquired an incremental number of high-quality users. In the meantime, we continuously improved subsequent content consumption experience and optimized user recall strategy, driving organic content consumption from channel users. In the third quarter, we stepped up cooperation with major channel partners. such as handset manufacturers and operators in the areas of social features and health trends. In September, the number of users acquired from channel investments increased substantially compared with June. We are well positioned to further enhance our competitive edge on user acquisition, leveraging gradual normalization of competition on the channel front, as well as steady improvements in engagement trend of users acquired through channels.
spk03: In terms of product, On the product front, I would like to share with you our key initiatives on Weibo's information feeds and videos. On information fees,
spk08: Our primary strategy in 2021 is to solidify the competitive edge of Weibo's key social features and core functionalities, and thus drive users' thickness and interactions among Weibo's core user groups. In the third quarter, we further strengthen the data mining and distribution of quality social content and hot trends, as well as step up traffic support to quality accounts. On product features, we focus on amplifying content distribution to fans and facilitating social relations build-out among users, so as to improve content consumption experience and social attributes. Taking Tokyo Olympic Games as an example, Weibo demonstrates its strong platform positioning in a combination of hot trends and social features. underpinned by our advantage in real-time Olympic updates, public discussion, and viral distribution, as well as strong engagement from athletes. Olympic Games-related topics generated over 400 billion views and 170 million discussions on our platform, a phenomenal performance among domestic platforms. As a result, both our user and traffic reached a record high in July and August, Looking ahead, we will further reinforce our hot trends plus social interactions playbook, which features a systematic operational approach that integrates media reports, celebrity and KOL discussion and distribution, as well as social interaction among users. We will also beef up our product features and feed distribution, and thereby further uplifting Weibo's competitive edge.
spk03: In terms of video, our overall direction today is to accelerate the process of video optimization of content creators through the video number mechanism to improve the supply and consumption of video content. At the same time, the key areas of focus are to train users to consume video. Weibo content Weibo creators' video number needs to be further strengthened. In the third quarter, the opening scale of the video number has exceeded 20 million. In this quarter, we focus on the vertical field of focus, to train users to consume video. We want to encourage users to consume new fields such as fashion, makeup, games, and sports, and to improve the production of video content. and focus on core scenarios, focus on optimization, quality, video bloggers, and video content recommendation models, so that more video creators suitable for Weibo consumption can quickly reach more users. Overall, due to the gradual improvement of the video ecosystem, as well as the support of the Olympic video hot spot, the number of broadcasts of the three systems and the market in the second quarter continues to grow. In terms of live broadcasts, the combination of Weibo's online products in the third quarter with Aubin has motivated the cooperation between more than 50 athletes, hundreds of KOLs, and multiple top media. Moving on to videos. In 2021, we focused on accelerating content visualization for Weibo's content creators through our video accounts program.
spk08: and thus increase video content generation and consumption. Meanwhile, we emphasize on cultivating users' mindsets of using Weibo for video consumption through content operation in key verticals. Leveraging ongoing progress made in our video accounts program, we are pleased to see the further visualization trend among content generators. As of September, the number of registered video accounts surpassed the 20 million mark This quarter, we focused on several key verticals, such as fashion and beauty, gaming and sports, to cultivate users' mindset toward video consumption. We also enticed a video comment generator in these key verticals through our incentive program, while optimizing the recommendation model under key scenarios to enable video comment creators with right community vibe to reach users more efficiently. Thanks to improving video ecosystem and Olympic effect, the quarterly average video views and time spent in Q3 continue to grow from Q2. On live streaming, we leverage our joint mic live streaming products to attract users with our real-time Olympic updates and build a highly engaged community vibe. During the Olympic season, we are delighted to see over 50 athletes hundreds of KOLs, and multiple top media outlets participate in our joint mic live, generating lots of hot topics for viral distribution and discussion. From the product perspective, we kept optimizing user experience and enhancing the social and consumption features of our live streaming products, laying solid foundation for the upcoming IP-based joint mic live streaming.
spk03: The government has strengthened the management of the entertainment industry and introduced a series of management regulations for the entertainment industry, the media, and the fans. In the short term, the adjustment of measures will have a certain impact on the traffic in the entertainment and news field. However, it is good that Weibo's large-scale effect and continuous investment in the entertainment field have perfectly filled the needs of users in Weibo. For example, in the e-sports field, Weibo has started to invest in the e-sports industry, and has expanded its cooperation with e-sports companies, e-sports teams, and KOL. At the same time, it also increases the investment in e-sports teams. Weibo is a social media platform. On the scale of e-sports content and game users, it has extremely competitive social media transmission, which has a large number of young interest users. It also drives games to become the largest streaming field in the field of news and entertainment. With the recent new League of Legends S11 World Championship, the number of relevant topics has exceeded 100 billion, and the number of discussions has exceeded 60 million. Next, let me give an update on the content verticals.
spk08: In the third quarter, we witnessed a tightening regulatory environment for the overall entertainment sector. Notably, government authorities issued a series of rectification measures on film, TV series, and variety shows, as well as fan culture. In the short run, we would expect certain impact on traffic from the entertainment and news information verticals. That said, leveraging our continuous investment to enrich content verticals We could mitigate such impact by fulfilling users' diversified consumption needs on other content verticals. A good example would be the gaming and esports vertical. Since last year, Weibo has beefed up its investments in various areas in the sector and strengthened partnerships with game developers, esports tournaments, gaming KOLs, and hosts, as well as started our own esports team. The game vertical has now become one of the top content verticals besides news information and entertainment, benefiting from strong social distribution and large engaged Gen Z user groups. For instance, during the recent League of Legends season 11, relevant topics generated over 100 billion views and 60 million discussions in total. As a result, our traffic also reached its peak since Tokyo Olympic Games on the final day of the Season 11 tournament. Additionally, Weibo has also proactively enriched our offerings around the esports sector, including investing and starting several esports teams, organizing a series of esports tournaments of popular games in the market, with investments in the upstream and downstream around the gaming and esports sectors. Weibo is well positioned to better raise young users and improve their engagement, which will boost the monetization for gaming sector in the long run. Now, let me share some cover on our monetization strategies and the progress made this quarter. In 2021, we have further strengthened the competitive edge of our social ad products, solidified our industry-specific marketing capabilities, and enhanced the potential and efficiency of traffic monetization so as to improve Weibo's monetization scale and market competitiveness.
spk03: Weibo's ad revenue increased by 29% in three seasons. Although part of the industry in the third quarter has been affected by the environment and industry policy, the rate of inflation has slowed down and even decreased, but thanks to Weibo's further strengthening of marketing services in the central industry, the central industry in the third quarter has still maintained an objective rate, such as makeup products, food and beverage, 3C digital, and so on. At the same time, we have opened a new industry this year, such as games and shoes, which have contributed to a higher income growth. The main reason is that we are exploring these industries to better combine user and commercial products. to improve the volume of traffic and efficiency, and better improve the marketing effect of customers. At the same time, we also see that due to the impact of industry policy, some industries, such as education, and the loss of advertising revenue in the third quarter of the film industry, have appeared in the third quarter of the film industry. The decline in the sales of film industry and advertising in the film industry is mainly due to the impact of the policy of the film industry and the temporary adjustment of advertising demand. We believe that with the gradual regulation of the film industry and the gradual normalization of film and TV shows, the demand for advertising will gradually recover. From an industry perspective,
spk08: Our ad revenues increased 29% year-over-year in the third quarter, despite the deceleration or even cutback of ad spend from certain industries that are facing macro or regulatory headwinds. We are delighted to see resilient growth in key workflows, such as cosmetics and personal care, food and beverage, and 3C products, benefiting from improvements in our service capabilities. Meanwhile, our strategic focus on sectors such as gaming and apparel also paid off, testified by decent growth seen in these sectors, as we strengthened the synergy between our user and ad products to further enhance the monetization efficiency of our organic traffic and ad performance. On the flip side, a few sectors broke a notable decline due to regulatory headwinds, such as education and entertainment. Ad budget decline from the entertainment industry could be temporary due to the cutback on the demand side amidst tightening policies in the sector, which should gradually come back following the normalization and gradual release of blockbuster shows. However, it would be a different story with the education sector, as the crackdown on the industry's ad demand seems irreversible currently. In light of recent policies and industry trends, We have proactively adapted our go-to market strategies and adjusted our sales structure. Looking ahead, we will beef up our efforts to reach and serve customers in those promising sectors, such as the new consumption economy, so as to fulfill their specific marketing needs in the longer term.
spk03: In terms of advertising products, we are focusing on three areas. On the one hand, we continue to optimize the competitiveness of Weibo's commercial advertising products, combined with hot topics and famous KOL information flow, to ensure that our products can enhance the marketing effect of our customers by creating a hot topic event and the focus period of our customers. For example, during the Tokyo Olympics, our car customers, the team, the assistant, the spokesperson, and the athlete, Su Bingtian, successfully created relevant hot topics and obtained nearly 200 million views, which is worth more than 12 times the value of the commercial investment. On the other hand, the continuous optimization of information flow advertising products has made a significant improvement in both the front-end advertising chain and the back-end advertising network model. Especially in the gaming industry, we continue to deepen the link between gaming and the rest of the game industry, strengthen the topic discussion and transmission of new games, and generate social assets. In order to successfully expand this model, more and more game customers have acquired customers' recognition for the game marketing model of Weibo. For example, the IP game Harry Potter, which is based on the fire of 3G, is maximized by using its IP features to scale up the topic in Weibo. The overall topic reading volume is more than 6 billion, and the topic discussion volume is more than 5 million. On the ad product front, we focused on mainly two things in the third quarter. First, we continue to reinforce Weibo's competitive edge in branding plus performance ad offerings.
spk08: Leveraging the compounding effect of our Hot Trends, Celebrity KOL, and Treasure Box ad offerings, we showcase strong ad performance to our customers during major events and their prime campaign windows. For instance, during the Tokyo Olympic Games, automobile company GAC leveraged athlete Bing Tiansu's influence to build hype and relevant topics went viral on our platform. reaching nearly 200 million views and generated over 12 times traffic value compared with the traditional commercial placement. Second, we'll continue to optimize our feed ad offerings, notably on the full funnel conversion model from front to back end. Specifically, for the gaming sector, we further reinforce the synergy between our ad offerings and the content vertical operations. leading to heated discussion on newly launched games and build out of social access. We have successfully extended this industry-specific ad offerings to more gaming clients, which resonated greatly in the market. Taking the blockbuster IP game Harry Potter as an example, we leveraged its strong IP feature and created a series of trendy topics. These topics generated more than 6 billion views and 5 million discussions in total, enabling us to capture higher ad budgets from the clients. Going forward, built upon a success story with gaming industry, we will further explore and extend the model to the e-commerce sector, while beefing up our investment in ad technologies around such ad products with focus on the new consumption sector.
spk03: The government has generally increased the regulatory power of the Internet industry. There are more relevant policies on the table. For example, the requirements of copyright, the requirements of the list, the Internet Security Act, and the Personal Information Protection Act. The compliance of the products, operations, and commercialization of Internet-related companies has made very high requirements. Weibo's product development work this year has also invested more energy in business compliance. In terms of business compliance, Weibo has always maintained close communication with government management departments, understanding the direction and extent of government management, and making adjustments to product management strategies in time. For example, the reform of the fan circle. Half a year before the policy came to light, Weibo had already posted related behavior information on the accounts of the star management company and the fan group. After a period of time of governance, Weibo's fans' interaction with the environment has led to a healthier development, and has also reduced the impact of this regulatory governance to the lowest. In the second half of 2021, government authorities beat up the overall regulatory efforts on Internet platforms
spk08: and issued a couple of new policies, including rectifications of fan culture and celebrity ranking charts, cybersecurity law, and personal information protection laws, just to name a few. The new set of regulatory framework imposes higher compliance requirements across the industry in terms of product, operation, and monetization. As such, Weibo also devoted significant R&D resource to the compliance front, Furthermore, we are in regular communication with relevant government departments to better understand the policies and implementation guidelines so as to adjust our products and operations in a prompt way. For instance, talking about the recent fund culture rectification, Weibo has taken preemptive measures and issued guidelines to celebrity agencies and fund groups actually half a year before issuance of such policies. Upon implementation for a period of time, we have already seen fan interaction head towards a healthier path, allowing us to buffer and minimize the impact from the recent rectification. Similarly, on the whole trends product, since the end of last year, we have proactively taken steps to lower the percentage of entertainment-related trends, which has come down and stabilized at around 25% of total trends. With diversified Hot Trends, our Hot Trends product is well positioned to reach a wider user demographic.
spk03: Finally, I would like to say that despite facing some uncertain factors, the past three seasons, Weibo has achieved some progress and good results in terms of users, traffic, and commercialization. We are indeed facing an era of major changes in the industry environment. We cannot change some external factors. But Weibo has been paying attention to our core positioning, which is to be the leading social media platform. We pay attention to helping users to make their own sound. We pay attention to the connection between users and make contributions through our products to improve the efficiency of social operation. For example, there have been more floods in the past three seasons, and what we have done in the past year has continued or simplified the epidemic. Lastly, let me reiterate on our positioning. Despite certain uncertainties and hesitancy,
spk08: will deliver solid progress and results in the areas of user traffic products as well as monetization in the third quarter. That said, we are indeed facing an era of change where we have to navigate through many external evolvements. However, what doesn't change is our core positioning as China's leading social media platform. We have always been steadfast in our mission to empower users to be heard publicly and connect with each other as well as our commitment to a better society. We have demonstrated our indispensable value proposition in critical events, such as the recent flood in Zhengzhou City and also during the evolving COVID-19 pandemic situation. We are proud to serve our users and society in recording and discovering what's happening in the world for the past 12 years. With further optimization in our user experience and core features, Weibo will continue to be the go-to platform for users to connect with each other, discover hot trends, and for customers to market effectively. With that, let me turn the call over to Fei Cao for a financial review.
spk06: Thank you, Gao Fei, and hello, everyone. Welcome to Weibo's third quarter 2021 learning conference call. Let's start with user metrics. In September 2021, WeWorth MEUs and average DEUs reached 573 million and 248 million respectively, continuing to grow from prior quarter despite the back-to-school seasonality and regulation headings. On annual basis, we added approximately 62 million MEUs and 23 million DEUs, a solid net addition number primarily driven by strong execution on channel and video fronts. Looking ahead, we remain focused on executing against our user and product strategies while navigating through changes in the regulatory landscape, leveraging 12 years of experience as a social media platform, as well as our indispensable role in serving public conversation. Turning to financials, as a reminder, my prepared remarks would focus on non-GAAP results and all the comparisons on a year-over-year basis, unless otherwise noted. Now, let me walk you through our financial highlights for the third quarter of 2021. We bought third quarter 2021 net revenues was $607.4 million, an increase of 30%. Operating income was 248.7 million, an increase of 39%, representing an operating margin of 41%. Net income attributable to Weibo reached 209.6 million, an increase of 37%, representing a net margin of 34%. Diluted EPS was 19 cents. compared to $0.66 in the third quarter 2020. Now let me give you more color on revenues. We both advertising and marketing revenues for the third quarter 2021 increased 29% to $537.6 million. Mobile ad revenues were $500.4 million, contributing approximately 93% of total ad revenues up from 90% last year. Weibo delivered a solid ad revenue growth, underpinned by robust engagement trend during Olympics, strong sales, execution, and ongoing ad optimization. We are delighted to see advertisers recognize Weibo as the go-to platform to build up with our industry-specific ad playbook during major events. In terms of revenue contribution, our top three verticals were FMCG, 3C products, and e-commerce. Weibo has gradually become the cornerstone of many advertisers in this consumption sector by enabling them to connect with Generation Z users and fulfilling their integrated branding plus performance needs. In terms of growth, FMCG and 3C products continued to outperform, whereas entertainment and education verticals underperformed, mainly due to the regulatory headings. From the ad product perspective, revenue contribution by product category remained fairly stable, with promoted fees being the largest part, followed by social discipline ads and other ad offerings, such as promoted trends and topics. Amidst industry-wide rectifications on long-screen ads and celebrity charts, our team strived to mitigate such impact by revamping ad offerings as well as improving monetization efficiency, which resulted in decent growth for each of the broad product categories. Also, we continued to see good traction with video ads and ample room to further drive its penetration. positioning us well for a long-run way of growth. As we headed into Q4, we are committed to leveraging our unique value proposition in the market and strong execution track record over the years to capture a commercial rate share of wallet, even though the fact that the overall advertising market could be challenging in many ways. Despite short-term macro and regulatory headwinds facing the whole advertising industry, We are committed to driving value for our customers in the long run by leveraging Weibo's full spectrum of social advertising products. Ad revenues from Alibaba for the third quarter decreased 29% to $20.8 million, mainly due to Alibaba's own conservative marketing strategies this quarter, as well as our progressive open-up of ad inventories to other e-commerce platforms. That said, Our cooperation with Alibaba positions us well to capitalize on the ongoing digitalization trend and drive value for brands and merchants on both platforms. Value-added service vast revenues were 69.8 million in the third quarter, an increase of 32%, primarily attributable to the revenue derived from the interactive entertainment company acquired in November 2020, while partially offset by decrease of revenue from live streaming business. Turning to cost and expenses. Total cost and expenses for third quarter was $358.7 million, an increase of 25%. The increase was primarily due to step up in marketing spend and higher personnel related cost. Operating income in the third quarter increased 39% to $248.7 million. Operating margin was 41% up from 39% last year, exceeding our expectations. We are pleased with further operating leverage achieved this quarter as we continue to balance well between investment for growth and margin performance. Turning to income tax and the gap measure, income tax expense for the third quarter was $31.4 million compared to $30 million last year. Net income attributable to Weibo in the third quarter was $209.6 million, representing a net margin of 34% compared to 33% last year. Turning to our balance sheet and cash flow items, as of September 13, 2021, Weibo's cash, cash equivalents, and short-term investments totaled $2.7 billion, compared to $3.5 billion as of December 31, 2020. The decrease was primarily resulted from investment activities we made and was partially offset by cash provided by operating activities. In the third quarter of 2021, cash provided by operating activities was $226 million, capital expenditures totaled $8.3 million, and depreciation and amortization expenses amounted to $14.1 million. Lastly, let's talk about our financial outlook. We anticipate our first quarter of 2021 revenues to increase by 15% to 20% year-over-year on a constant currency basis. This forecast also reflects Weibo's current and the preliminary view and is subject to change. With that, let me now turn the call over to the operator for the Q&A session.
spk07: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and light for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. Our first question comes from the line of Alicia Yup from a CT group. Please ask a question.
spk05: Hi, thank you. Then the second question, I actually want to understand is that the entire advertising industry is facing the challenge of the red line. Thank you, management, for taking my question. First question is... Curious if management can share if there's any change of the way board behavior ever since the effectiveness of the personal information protection law starting in November 1st. Second question is overall advertising industry actually is facing macro and also regulatory challenges. And yet, Weibo has been able to maintain double-digit growth in the online ad revenue. So can management share with us the performance and growth rate for different industry verticals? And how big is the macro impact? And how big is the regulatory impact on each industry vertical? Thank you.
spk03: Thank you. I will answer this question first. This is the case of this information protection law. In general, it is a trend of this personal information protection law. Not only does it happen in China, but also in a global market. We will see that after the introduction of this personal information protection law, it is actually for the calculation of fair competition and corporate social responsibility. In terms of travel, we will indeed invest. more work on product operation and commercialization.
spk02: So, thank you very much for your question. First of all, let me address the question related to the implementation of the personal information protection law. So, overall speaking, this is actually a megatrend not only happening and impacting China, but also the rest of the world as well. Because, you know, after the implementation of the personal information protection law, We've been also having challenges in terms of our algorithms and also the fair competition, as well as the performances of our CSR as well, and also to the other companies. So that is to say that we need to emphasize more on the operation as well as the compliance as well. Okay.
spk03: From the perspective of Weibo, I would like to talk about two things. First of all, Weibo is actually a public social media platform. Users here are actually able to access and questions directly to the company. So historically speaking, we think that some of the functions related to personal privacy in the product itself are still very intuitive. Many users will have some functions of different feedback or different opinions that we will not upload after increasing the number of opinions.
spk02: And also, in terms of Weibo, I'd like to give you two points. The first one is that, you know, Weibo has always been a public social media platform. So actually, you know, during the past, if any user has any questions or any suggestions, they were really feeling free to actually, you know, provide the feedback to us. And of course, that we were always, you know, being very much refrained from making the public the personal privacies and also the other information. So with a very good protection. So that because of this impact, we are going to postpone or not thinking about going online for the features of the function of feedback and also the other relevant functions. Okay.
spk03: And also second point is that Weibo has been operational in China for 12 years already.
spk02: And during the past decades, we've been keeping a very close communication and collaboration with the government as well in terms of all kinds of different details. So as you all know that in this particular industry, Weibo is really a kind of a more compliant company versus the other peers as well. And also this is a normal business operational environment for us to be really regulated pretty much. And also we emphasize a lot on the self-discipline in terms of the data collected and also the other businesses operated.
spk03: Before the launch of this policy, under the guidance of the government and government departments, we have made continuous improvements in terms of personal information protection, algorithmic regularity, data security and protection, in order to maintain active communication with the government departments. And also, before the implementation of this personal information protection law, we received already the guidance and also the trainings from the government
spk02: to actually have the optimization overall algorithm and also the personal information protection as well as the data securities as well. So we already had a very good communication with the government even before the implementation of this law. And also, of course, after the going life of this personal information protection law, of course, that we are going to face a further optimization adjustment as well. However, I believe that such a tight and stringent regulation sustainably is going to benefit not only Weibo, but also the whole industry.
spk03: In terms of the industry, although we have seen the overall advertising industry, including the external industry, facing challenges in marketing and monitoring, we also see that the third-tier brands are maintaining double-digit growth. I think this is due to the structure of the customer industry and the versatility of our product group and the characteristics of social advertising. Okay.
spk02: And also, in terms of your second question, it is indeed correctly mentioned by you during the question that the whole industry and also not only Weibo but also the externalists were facing a lot of challenges since the second half of this year. But of course, having said that, Weibo still had a double-digit growth in the ad industry. And of course, that was pretty much due to two reasons. The first one is a very optimized ad sector and vertical structure, as well as a very good and diversified coverage. And second was because of the nature of Weibo's ad, which was a social media-oriented. Okay.
spk03: From three aspects, First of all, our social industry is divided into the first industry that is heavily influenced by supervision. For example, education, financial insurance, and this time, this is a variety of programs that are more influenced by social policy. The third industry is the education industry, which has a relatively small share of us. The total education industry accounts for less than 2% of our share, and the K12 industry may have a smaller impact. We tested the insurance industry in April of the second quarter, but due to legal issues and user experience issues, we eventually gave up the industry, so we were not affected by this policy. The culture industry is actually a very large industry, but in this industry, our history is more about collaboration through content cooperation. They are not our customers. Therefore, the impact of the foreign policy on our income is not as high as that of other unions.
spk02: Okay. And also, I would like to actually talk about the three major industries that have been regulated pretty seriously during the past. So there are education and insurance, as well as the entertainment industry, if you like. So first of all, talking about the education industry, So education vertical actually accounted for a very minor proportion of our total revenue, which was lower than 2%. But of course, if you're talking about K-12 relevant education, this was even lower. And of course, second of all, talking about finance, especially insurance industry. So we had a pilot run of this particular collaboration with the insurance industry. for the ad placement in April in Q2, actually. However, because of the poor user experience and also the other reasons, we gave up on this particular industry. And third of all, talking about the entertainment industry. So this is, of course, a very big contributor to our total revenue. However, in the past, we were pretty much having a collaborative model based on the content instead of regarding those entertainment customers as our customers. So that is to say that even if we had a stringent regulation on the entertainment industry, this hardly impacted our revenue. And also, this particular challenge wasn't as big as the other peers as well. Okay.
spk03: The second aspect is that in the short term, some industries that are not affected will have a certain decline, such as cars and games. Although the entire automotive industry has declined, we are still focusing on commercial advertising in the automotive industry. We are in the position of customer prediction, which is relative to some pure brand media. We are still relatively stable. And in the past two years, we have effectively grasped the trend of automotive, gasoline cars moving to electric vehicles, and obtained a lot of budget for the release of new electric vehicle brands. So the three seasons have maintained the same level of quality. We believe that with the recovery of the chip supply, we also have the opportunity to continue to expand our market share. In the game industry, although there are factors such as under-educated supervision, but based on what I mentioned in the SCRIM, Weibo's rapid growth in the field of gaming and video games, as well as strengthening the discussion and dissemination of new games, we have basically gained a further recognition of the entire industry for Weibo's game marketing model. At present, the trend in the game industry is relatively positive, and the overall gain in the game industry is also very obvious.
spk02: And also, second of all, talking about those verticals that have been badly and also worsely impacted by this particular type regulation. So they were automotive industry as well as gaming. So first of all, talking about the automotives, and of course, we all know that the whole industry of automotive was declining naturally by itself. However, you know, talking about the ad types that we provided to those customers in the automotive industry, this was pretty much on the brand plus performance oriented. So of course that we are still maintaining a very good positioning in the budget pool of our customers in this industry. And also, as I have already stated in the opening remark, that Weibo has grasped the opportunity very well and precisely especially the trend that more and more ICE vehicles are turning to the electric vehicles and penetration of EV has becoming higher so that we got a lot of the budget of the new EV launch for our customers. So we kept a flat performance in Q3 in this area. However, in the future, while the chip shortage issue has been resolved, we're going to see a very good recovery of our leading position in this industry, vertical. And of course, lastly, talking about the gaming, of course, that we had the regulation over non-adults in this area. However, as I have stated, we successfully got the trend of the popular esport games and also, you know, catch a lot of opportunities for the launch of many new popular games. So we really, you know, gain a highly recognition from the gaming industry in terms of our ability of doing business with them. And also, you can see that the percentage of this particular part of the new business has been increasing over time. All right.
spk03: The last one is for those who have not received the promotion, including those with special political influence, such as the fast-selling and digital industries. These industries are still growing relatively fast this year. I also mentioned that Weibo is relatively unified in the market. including stars, QLV sales, and hot points transmission. In these industries, we basically did not receive any impact this year, and we maintained a relatively fast increase. So with such a overall income industry structure, we will see that although some industries face uncertainties in terms of popularity and supervision, our entire advertising revenue range in the third quarter, including the next quarter, should still be able to maintain a good growth.
spk02: Thank you. So all in all, and also lastly, I would like to comment on the other verticals that were not impacted by this regulatory and also the macro headwinds, especially FMCG and also the consumer electronics, et cetera. They were keeping a very good growth. So of course that, you know, Wave will always emphasize on the strategy of having brand plus the performance add, as well as, you know, providing a differentiated, you know, strength by leveraging a lot on the KOLs and also celebrities as well. So you can see that these kind of FMCG and consumer electronics industries were not impacted at all and also maintain a very robust growth. So overall speaking, because of this optimized overall structure of our customers and verticals, and also part of the industries have been impacted by the macro environment and also the regulatory environment, However, still we had a very positive trend in Q3 and also quite optimistic about continuing this trend to Q4. Okay. Thank you.
spk07: Thank you. Next question comes from Ashley Xu from Credit Suisse. Please ask your question.
spk04: Thank you for accepting my question. I would like to ask that in the third quarter, we saw that the entertainment industry was in control to improve the management of the food chain? Can you share with us the trends of the users, traffic, and advertising that we saw in September? How is the current supervision affecting us? In addition, the management mentioned that we have made a lot of investment and improvement in e-commerce and content. Can you share with us more progress and future plans in this regard? Then I will translate it. Thanks, management, for taking my question. My question is related to the regulation in the entertainment sector, especially about the rectification about fan culture. Could management share more color about the impact on our user engagement and monetization? At the same time, you mentioned that we are investing in the esports and gaming-related content. Could management share more color on our progress and future plans? Thank you. OK.
spk02: So first of all, talking about the fan culture. So as I have stated in the previous answer, so we had a very good communication and also the relationship with the government, you know, even before the implementation of any regulation. So actually before the implementation of the policy, we are going to, you know, have a better understanding of the details of implementation as well as the enforcement of the certain regulations. And also, accordingly, adjust our behavior and also performance and also operation. Okay.
spk03: As for FanQuan, in the past one to two years, we have been paying attention to the negative impact of FanQuan on the entire Weibo ecosystem. In fact, if you pay attention to our community announcements, in the first half of this year, we have specially modified the community announcements to prevent some third-party support messages from being published and spread on Weibo, and we have also made some progress in preventing the support of each other. At the same time, these works actually give Weibo a control over the entertainment circle in this round, which has a certain buffer effect, and the influence of our flow is reduced to the lowest. After the three-week policy rules came into force, we actually also further followed the And also, second of all, one or two years ago, actually, we already witnessed an active impact
spk02: of this fan culture to the whole ecosystem of Weibo and also the whole industry. So, you know, that we have adjusted quite actively the announcement of the community. You know, in the first half, if you've noticed that in the adjusted announcement, community announcement, we already said that we have forbidden all kinds of the release of the third-party information and also the relevant, you know, call for and supportive messages sent by the fans as well. And also, you know, these kind of measures that we proactively take or took had a very good buffering effect on this times regulatory change so that we have been reducing the impact to our traffic to the minimum level because of this preparation. And also, you know, in Q3, we, you know, see the real implementation of the detailed rules And of course, for example, we have been changing actively the kind of management over the celebrity agencies as well as the fan groups and also try to manage more tightly in terms of those contents of television and movies, etc. And also we had a very good adjustment over the super topic and also the ranking of celebrities, etc.
spk03: In general, in the past few years, the entire literature industry has been too headstrong. We all know that Weibo is not a media platform for social media. The headstrongness of this content is not conducive to the diversity and richness of content as a social media for Weibo. It is also not conducive to the atmosphere of interaction and discussion between stars and fans. This has also led to too many and few variety shows on Weibo. and few celebrities. This is not the same as when we were in the Taiwan model a few years ago. At that time, there were many kinds of variety shows on Weibo that were discussed and broadcasted. At that time, the interaction between celebrities and fans was also rich enough. We will see that as the policy gradually settles, and the transformation of video platforms and TV stations, we will see that next year, they will be able to increase the number of shows in the film industry. We will also see more opportunities for us and
spk02: And also, I would like to say that in recent years, we've been seeing the development of the entertainment industry more towards the top-notch phenomenon, which was pretty much focused on those top celebrities and also the top shows and also the programs. However, Weibo still, by its nature, is a social media instead of a pure media. So if we follow this particular trend, this is going to be detrimental to our diversification of our content and also going to harm the environment of the interaction between the fans as well as the celebrities and also between the movie lovers and also the programs as well. So that is to say that in recent years we can see that it is already a very obvious trend that the entertainment related topics or just try to rely on a very limited number of variety shows and also a few celebrities on the top ranking. So in the past several years, we've been already noticing that and also try to diversify the contents related to all kinds of different programs and variety shows and also creating a very diversified and rich discussion and also the interaction as well. So as I have already said, of course, the whole industry is taking measure. For example, by collaborating with the video content platform as well as the TV and radio stations in the next several years or next year, we're going to try to launch more content related to all kinds of different movie and also the other programs and variety shows as well and also the TV station is going to do that as well. So we are going to emphasize on the collaborations with those entities more and also try to build a very good and healthy environment for the interactions. Okay.
spk03: China China China China China China China China China China China China As you can see, the data is growing well, but we can also see that the entire game industry is similar to our entertainment industry in that it is a very complex and large scale. We are still in a general period of investment in this area. We will still be the same as our other investment types. We start from the IP side, for example, the cooperation of game manufacturers. Thank you.
spk02: And also, lastly, talking about the esports. So, as we have already said during the opening remark, that we had a huge investment into the gaming industry. And, of course, that making this gaming vertical one of the biggest verticals in Q3 against the others, for example, entertainment and also the traditionally strong vertical in Weibo. So, of course, that you already see a very beautiful figure on the number of reads on the topic of League of Legends season 11 final. And also, of course, that we are heavily investing into building teams and also organizing the tournaments of the esport of public games. So you've been seeing a very good data and also figure in terms of the development because of the investment that we have conducted. But of course, like the entertainment, gaming industry is a very complicated and also a very big industry, big cake. So actually, we are still in the infant phase of still continuing our investment. So of course, like the other industries, of course, our strategy for the gaming industry is to collaborate with the famous IPs and also collaborate with the famous tournament and also esports events. and also try to cooperate with those celebrity team members and also those famous teams as well. So I really believe that we're going to have a much better operational model and operational efficiency compared with our peers. So at the end of the day, we're going to try to diversify the content that Weibo really provides to attract more high-value users. All right. Thank you.
spk07: Thank you. Our next question comes from Alex Ko from Morgan Stanley. Please go ahead.
spk00: 感谢管理层接受我的提问 也恭喜微博强劲的业绩 上个季度的时候 管理层有提到广告行业整体的监管 例如开屏广告 还有IDFA政策的落地 所以不知道管理层可不可以 结合我们三季度跟四季度的情况 谈一下对微博广告的影响 以及微博的应对策略 让我翻译一下 So thank you, management, for taking my question, and congrats on the solid results. So we mentioned regulations on advertising industry last quarter, including the launch screen ads, IDSA policy implementation. So can management share the latest observation in third quarter and fourth quarter, help us quantify the impact on Weibo ads and the measures we have taken to navigate the impact? Thanks.
spk03: Okay. As for this aspect, as I mentioned earlier, the growth in the third and fourth seasons, in addition to the structure of the industry, there are also some characteristics of our product combination and social advertising. In fact, this has a certain relationship with open-air advertising and ITFA. In terms of open-air advertising, in recent years, the entire government has focused on open-air advertising for apps, and gradually strengthened the management regulations. Indeed, this will have a certain impact on the entire industry. From the perspective of the third season, Our revenue from opening ads has been slowed down. The increase in return is actually lower than the growth of our entire ad collection. This is mainly due to the decline in the click rate of opening ads, which has affected some of the results as a guide to the client's investment plan. However, we will see that because of Weibo's entire user size and our hot spot effect and our brand's outstanding ability, For open advertising, it will not make the customer budget leave the Weibo platform. We also successfully turn the customer demand into other hot products. For example, most of their customers' headlines will turn to the discovery industry, to the information stream, to our hot search products. And also, first of all, definitely speaking, I think that in Q3 and also Q4, we had a very good momentum for this ad particular business.
spk02: not only because of our very optimized structure of our customers, but also because of very good portfolio of our product, as well as the nature of Weibo as a social ad platform. So first of all, of course, you know, talking about the open screen ad or the splash ad, actually in the first half, definitely speaking, we had a more stringent regulation over the apps launching the splash ad. And that did impact the whole industry. But of course, seen from the data and also statistics, you can see that in Q3, this particular revenue actually slowed down its growth rate. And the month-to-month growth rate was only single digital, which was lower than the industry, the whole kind of ad revenue growth. And of course, that was majorly due to the lower down click rate on this particular splash ad. And also, that did impact part of our performance oriented kind of ad customers but of course having said that still because of the very good ability of weibo in terms of our customer and brand access those budgets from those impacted customers never leave weibo meaning that we successfully you know transfer their budget from the splash ad to other areas like utilizing the feed information feed and also the hot trend search and also the other relevant products as well. And also, especially during the Double Eleven Festival, we've launched several new products and also tried to increase the click rate by several folds and that really increased the demand from our customers. Okay.
spk03: For IDFA, we will see that in the third quarter, we will see that IDFA, as well as iOS 15 online, should have basically all landed. And it has some more obvious impact on some advertising peers. But in the case of Weibo, at least from the third quarter, the impact is not too big. Mainly because the customer's investment in Weibo, in addition to the precise effect, in fact, the customer will still have a relatively strong marketing purpose, which is to spread, for example, a lot of games, OK.
spk02: And also, second of all, related to IDFA, of course, that, you know, since the launch of iOS 15 in Q3, IDFA-related details have all been implemented and also landed. Of course, that did impact a lot of the peers in this advertisement industry. However, in talking about Weibo, we did not have that large impact in Q3. That was because, you know, in talking about our customers, the reasons for them to collaborate with us on their ad placement was not only because of a higher precision, but of course, more focusing on the marketing effectiveness as well as the information dissemination. So for example, for many kind of game developers, they tried to collaborate with Weibo while they launched the new games and not only because of a higher and better precision, but of course, try to disseminate this big information of the new game as far as possible. So that is to say, of course, in Q2, we already started to support to the Apple official SK ad network attrition strategy. So that was a very good effectiveness that improved the final results of this particular business and also tried very well to enlarge our market share at the end. Okay.
spk03: Overall, we have noticed that from the perspective of advertising products, there are some disadvantageous factors in the entire industry. For example, the management of this kind of open advertising and the political influence of this kind of ITFA advertising, they are respectively targeted at some apps that rely on open advertising tools for income, and apps that rely on the flow of accurate advertising for income. However, As mentioned earlier, Weibo provides a relatively rich social advertising product, which actually satisfies the needs of customers from exposure to transformation of the whole chain. In addition, we provide customers with a comprehensive advertising system. Therefore, the management of some individual advertising products or the impact generally does not make customers leave our social platform. I think in yesterday's Tencent report, we actually mentioned the characteristics of social advertising. Customers will look for other forms of advertising products in this social platform, or the transformation of the user input method. For example, customers' budget will not leave, but we need to invest more product development resources and our sales resources to help customers achieve their marketing goals. So we think that this kind of part-form advertising cover-up will have a relatively milder impact on social media platforms. Thank you.
spk02: So lastly, in conclusion, of course that we did see and witness such a bad impact on the whole advertisement industry. So because of this regulation over the IDFA as well as the open up screen related ads. Of course that these kind of two regulations really had a serious impact on those apps that depended a lot on the splash ad or depended a lot on the precision marketing strategy. But of course that Weibo is a social media platform that emphasizes a lot on the social nature of advertisement placement. So of course that we really cover the whole chain from the exposure in the first time all the way till the final conversion and transfer of the customers. And also really we emphasize a lot on the brand plus performance strategy. So such kind of a single directional crash strategy certain type of a product will never impact very heavily on our overall business and also thus as a result make some of the customers leaving our company or stop the collaboration or giving the budget to us. No. And also yesterday as the interim result I mean the Q3 result announcement made by Tencent also talked a lot about this particular point which is a social ad platform. So of course that we do provide all kinds of other products to our customers and also help them to really boost the consumer access because of the other innovative products. Of course, having said that, still, we need to invest a lot into a more product R&D fashion and also cost of goods sold as well. So, of course, in the conclusion, definitely speaking, we are going to further leverage our advantage as a social media platform to really enhance more the collaborations with our customers. Okay. Okay, thank you.
spk07: All right, thank you. We have reached the end of the question and answer session. I'll hand the call back to the management team for their closing remarks.
spk08: Yes, thank you for joining us today. See you next quarter.
spk07: Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating.
Disclaimer

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Q3WB 2021

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