Weibo Corporation

Good day and thank you for standing by. Welcome to Weibo First Quarter 2020 True Earnings 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 star 0. And now, I'd like to hand the conference over to Ms. Sandra Chang from Weibo IR team. Thank you. Please go ahead.

Thank you, Operator. Welcome to Weibo's first quarter 2022 earnings conference call. Joining me today are our Chief Executive Officer, Gaofei Wang, and our Chief Financial Officer, Fei Tao. The conference call is also being broadcasted on the internet and is also available through Weibo's IR website. Before the mentioned remarks, I would like to read you the safe, proper statement in connection with today's conference call. During today's conference call, we may make forelooking statements, statements that are not historical facts, including statements of our beliefs and expectations. Forelooking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forelooking statement. Weibo assumes 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 hereof. Weibo assumes no obligation to update such information except as required under applicable law. I would like to remind you that our discussion today includes certain non-GAAP measures, which include stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating performance and future prospects. Our non-GAAP financials include certain expenses, gains and losses, and other items that are not expected to result in future cash payments. who are non-recurring in nature, who are not inductive of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Below your management's prepared remarks, we will open the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gao Feiwang.

Thank you. Hello, everyone. Welcome to the Weibo Disclosure Conference.

Thank you. Hello, everyone, and welcome to Weibo's first quarter 2022 earnings conference call.

On today's call, I'll share with you highlights in Weibo's users, product, and monetization in the first quarter of 2022.

In terms of users, as of the end of the first quarter, our monthly users reached 5.8 billion. The monthly user size is about 50 million.

On the user front, Weibo's MAUs reached 582 million and average AUs reached 252 million in March 2022, adding approximately 51 million and 22 million U.S. year-over-year respectively. In March,

95% of Weibo's MAUs came from mobile.

Our monetization

The macro environment, industry policy, and recent domestic COVID-19 resurgence have posed a short and medium impact on the production and operation of many companies to different degrees, causing most advertisers to defer or reduce their marketing budget since March. Diversely, thanks to the solid growth of our user scale and traffic, as well as our efforts in key industries, such as gaming and apparel, We have further gained recognition among advertisers for our differentiated market solution that integrates well with our user product and content operation. In the first quarter, our total revenue reached $484.6 million, up 6% year-over-year. And our ad revenues reached $427.1 million, up 10% year-over-year. And 94% of our ad revenues came from mobile. This quarter, our non-GAAP operating income reached $141.7 billion. Next, let me share with you our progress made in product monetization in the first quarter.

In terms of channels, considering the current pattern of Weibo's user size and market, we will pay more attention to the balance between user acquisition cost and user transformation time. The key improvement is the acquisition of ROI. In terms of platform competitiveness, we will continue to add points, strengthen the investment of hot points and social products, deepen strategic cooperation with the media, language, games, and sports partners, and ensure the discussion of hot points and IP.

On product front, we continue to focus on operating efficiency, driving steady user base expansion and engagement improvement so as to uplift our monetization efficiency. On channel front, considering our user skill and the competitive landscape, we will emphasize on balancing user acquisition cost and monetization and improve ROI for user acquisition. On competition, We will continue to step up investment in operations of Hot Trends and social content, deepen strategic cooperation with partners from media, entertainment, gaming, and sports verticals to encourage discussion around Hot Trends and ITs, and maintain our competitiveness in core user functions.

We will continue to step up investment in operations of Hot Trends and social content, In the spring of this year, 25 platforms have been able to live streamed through the topic, video, and live broadcast on Weibo. The number of live broadcasts of the entire evening party is more than 200, and the number of discussions is more than 70 million. The number of discussions increased by 46% last year. Among them, we have launched a new live stream of the topic. Using live streaming as a way of hot-talking, we have temporarily upgraded the cross-screen experience of the user while watching and chatting. With the broadcast of the evening party, the guests, KOL, users,

In the first quarter, with the Spring Festival holiday and Winter Olympics, our user base and traffic grew robustly, demonstrating Weibo's advantages in hot trends and social attributes. During the Spring Festival, content related to the Spring Festival gala of 25 television stations was distributed on Weibo via topics, videos, live streaming, and et cetera. With Spring Festival Gala-related topics, the viewership surpassed 20 billion, and the discussion was more than 70 million, up 46% from last year. And moreover, we launched Live Topics, an upgraded topic feature that allows users to discuss live while watching the Spring Festival Gala. While the gala was on-air, celebrities, KOLs, and users were able to join in the live discussion altogether, igniting the willingness of discussion around the event. As a result, the discussion of the gala-related topics created by users increased by 145% from last year.

Weibo has attracted a lot of attention in terms of the operation of Dongbao. From the hot event to the hot sports, to the mascot, to the IP hotspot, Weibo, through strategic cooperation with the Tokyo Center, has promoted the continued cooperation of the Tokyo athletes in Weibo. It has contributed to the spread of the message to the media such as Yang, Yang, and Miku, and improved the discussion and spread of the event. Not only did the traffic in Beijing and the Tokyo Olympic Games exceed that of the Tokyo Olympic Games, but the Tokyo athletes and their fans are also more active and interactive on Weibo. The data from last year shows that after the Spring Festival, in addition to the resumption of the opening ceremony, the size and traffic of the users have declined. Since March, Furthermore, our content operation of the Beijing Winter Olympics has attracted massive users to consume content on Weibo. From the Winter Olympics events to sports campaigns and the IPs of the 冰尊尊 and 雪中融,

We work with the Winter Sports Administrative Center to encourage athletes to open accounts and stay engaged on Weibo, and build a content distribution matrix with the state media and Migu, among other media, to enhance the dissemination and discussion of content around the Games. Not only did the traffic driven by the Beijing Winter Olympics surpass that of the Tokyo Olympic Games, but the athletes and their followers were also more engaged on Weibo. Based on historical data, as people return to school and work after the spring festival, the user skill and traffic on Weibo will fall back to a certain extent. However, in March, we grew our user and traffic nicely, made it attributable to more social events occurred, and increased time spent online due to the disruption from COVID-19. Coupled with our optimized channel strategy and improved operating efficiency of our trends and social content.

In terms of channels, we have effectively increased traffic and user activity through Spring Festival and Winter Olympics. In terms of channels, we have also optimized and focused on increasing efficiency. In this regard, we have reduced the investment of the DRI channels. On the other hand, we are trying to bring more budget to the channels where new shoes can bring users to visit with increased frequency. Increase the available traffic and user's long-term flow. On channel front, we further optimize our channel investment strategy with focus on efficiency.

as the content operation of Spring Festival and the Winter Olympic Games helped grow our users and increase user engagement. We cut the budget investment in low ROI channels and tried to shift more budget to channels with potential of raising user visit frequency. And meanwhile, we improved our capabilities of serving products to clients and increased the long-term retention of the monetizable traffic and users to continue to optimize channel ROI. Hence, in the first quarter, we optimized our product from several aspects, driving to precisely targeting users with the recommended content. We also focused on optimizing the push-recall strategy and improving the product experience to increase the frequency of user consumption. In March, the per capita consumption of channel users increased by 40% from the first quarter last year.

We continue to strengthen the sociality of the product, keeping the size and activity of the core user group of Vivo as the focus. In terms of traffic flow, the double index number of the three-part traffic flow circle remains to grow. The increase in the double index number is, on the one hand, conducive to the strategic optimization of traffic flow, effectively connecting the hot spots to bring the user's feedback and activity. On the other hand, we continue to invest in the experience of the diversification of the social media platform, which is used in traffic flow sales experience and social connectivity. In terms of the community, we focus on perfecting the community's product technology. A better integration of the user's core sales scene makes it easier for users to discover the content of the community and establish the relationship and interaction between users. At the same time, the product can enhance connectivity, enter and shorten the community area, enrich the content of each area, and meet the needs of users in the community, such as community socialization and surrounding socialization. In March, the scale of community use reached an increase, and in December, a double number was raised.

On social attributes, we continue to strengthen the social features of our user products by focusing on promoting scale and engagement of Weibo's core users. On relationship-based feeds, the number of feeds refreshment continues to improve from December from December. Benefiting from the optimization in content distribution of the relationship-based feed, we could effectively retain and engage users while to our platform by hot trend. Additionally, we continue to invest in social content enrichment, personalized content distribution, and front-end product experience to improve the experience of user consumption and the social thickness of the relationship-based feed. On community products, we focus on improving the product mechanism to better serve user consumption and enable users to discover content, build relations, and interact with each other, with communities. At the same time, we strengthen the integration of products and operations to further expand the community to more verticals, enrich vertical content, so as to better fulfill users' needs for social relations based on interest and location within the community. In March, the number of users who use community products continued to increase up by double digits from last December. The number of posters and posts in the community surged, and users in gaming, sports, and animation at the campus continued to be engaged. We have seen that community can effectively increase user engagement and promote user intention in the long run, which boosts our confidence in Weibo's new positioning and growth potential in the market of social attributes.

In terms of video, the scale and activity of video accounts are still our key points, especially for those who can improve platform traffic and social areas and users of video accounts. We have given a lot of service and support to products and operations today. to enhance the productivity and interactivity of the users, to guarantee the quality and scale of their videos, and to encourage users to be active. By the end of March, the number of users will reach more than 30 million. In this quarter, we have provided the users with more tools and methods that can promote social interaction, and to enhance the creativity and interactivity of the users. At the same time, the core new trend is to combine the users' consumption characteristics and continue to optimize the recommendation mechanism for the best users and content, to give them more exposure opportunities. For example, the relationship and social characteristics On videos, we continue to focus on the scale and engagement of video accounts, especially on verticals that can drive more traffic and engagement, and also high-quality content creators.

In 2022, we will provide more support on product and operations to these video content creators to encourage video generation and interaction with fans and ensure the quantity and the quality of video content, which in turn drives user engagement. As of the end of March, the number of video accounts exceeded 30 million. In the first quarter, we provided video content creator with more editing tools and features to promote social interaction around video content to increase video generation and engagement. At the same time, we encourage user consumption in core information-based feed to continuously optimize the recommendation mechanism for high-quality video content creators and their content. For example, for the relationship-based feed, we optimize the recommendation of video accounts based on user social relations which significantly improved the distribution of video accounts and efficiency of user consumption. We also launched the hot video list in the discovery page, which not only stimulated video consumption, but also further strengthened the positioning of discovery page in the consumption of hot trends and popular content.

In this epidemic, Weibo has fully implemented the integration of platform resources and combined the advantages of dissemination. On the one hand, it has mobilized government officials and full-fledged media to disseminate the full-fledged information of the epidemic. For example, Weibo has mobilized Shanghai Post, People's Daily, Yang Ren News, and other government officials and full-fledged media to host Shanghai epidemic-related topics, more than 2,000. The number of views is nearly 200 billion, and the number of discussions is more than 2,200 million. At the same time, Weibo and government departments have established efficient and effective mobilization mechanisms. to deal with rumors and false information in time, and optimize product mechanism to improve user response. On the other hand, Weibo continues to improve our service efficiency and service capability in the public service system. It quickly upgraded the service product on the original copy service mechanism to better integrate service information. At present, more than 5,000 effective service messages have been sent to the government department, and more than 2,600 services have been realized. Finally, let me share some color on our work in the recent battle against domestic COVID resurgence.

Since March, new cases have been reported across the country. During this outbreak, we fully leveraged Weibo's platform advantages in resource aggregation and information distribution. On one hand, we worked with Shanghai Relief, People's Daily, CCTV News, and other official accounts of government and state media. and organized more than 2,200 topics on the COVID situation in Shanghai, which generated nearly 200 billion views and over 22 million discussions in total. We have also established an efficient rumor refuting mechanism in cooperation with government departments to promptly address rumors and misinformation while optimizing our product mechanisms. to amplify information reach to more users. On the other hand, we continue to enhance Weibo's efficiency and capability in a public rescue system. We quickly upgraded our rescue channel based on the existing Super Topic product to better converge requests for help. Up to now, we have reported more than 5,000 valid requests to government departments resulting in more than 2,600 rescue cases. In addition, this year, we also attempt to coordinate with NGOs, business, media, volunteers, big leagues, et cetera, to build a society-wide rescue system against COVID, providing assistance and support for people seeking medical treatment, supplies, psychological consulting, so as to further amplify our values. in a society-wide emergency relief and assistance.

In terms of commercialization, the focus of 205 is to improve the flow of cash flow and cash flow. In order to improve Weibo's commercialization scale, we will use Weibo's commercial advertising model to counter the risk of the core industry. The focus is to apply the commercial advertising plus content operation combination and marketing model to more industries and customers. Increase the ability to commercialize the marketing, strengthen Weibo's core competitiveness in the advertising market,

On monetization, in 2022, we continue to focus on enhancing our potential and efficiency of traffic monetization and thus beefing up our overall monetization skills. Entertained by the resilience of Weibo's brand-class performance ad offerings in key articles, we are dedicated to extending the marketing combo of brand-class performance ads with content operations to more industries and clients. aiming to strengthen our industry-based marketing capabilities as well as our marketing competitiveness.

In terms of marketing and marketing, Weibo's advertising revenue is 10% of the total. This is mainly due to the marketing node of Spring Festival and Winter Olympics, as well as the constant improvement of Weibo's ability to serve customers' quality and demand. For example, during the Winter Olympics, we helped a part of the Olympic Games sponsors combine the hot spots of the competition and the hot spots of the athletes' endorsements. Through the topic of hot search and opening up advertising products, it conveys the value of the customer's brand and increases the sales volume of customers. Weibo's current unique hot-point marketing model has been recognized by more customers, especially local co-consumers, through these two Olympics. The demand for brand investment in Weibo is also significantly improved. In the first quarter, the ad revenue in the co-consumer industry is also increasing faster. Let me introduce the progress of the game industry. From the perspective of ad revenue, the ad revenue in the game industry has maintained a fast-growing trend. In the first quarter, Game ad revenue has maintained a growth of more than 50%. The growth of revenue is mainly due to the fact that we have established a differentiated marketing model in the game industry in the past two years. Our sales and product operations have been strengthened. The focus is to help customers enhance the discussion and transmission of new games, as well as the recognition and registration of social assets. In addition, the ability to continuously optimize the efficiency of advertising allows us to attract some of the brand budget of the new game released by game customers who can only look forward to the performance growth from before. Considering the policy of the release of game versions, In the first quarter, we launched an online sales service for our clients who already have their own games. The customer is more closely connected to the update of the game's large version, the promotion of new characters, and other sales demands. For example, we have deepened cooperation with Genshin Impact, from the update of the game's node version, to the promotion of the sponsor, to the game brand activity. All of Genshin Impact's game nodes are gathering on Weibo. Since the launch of the project, the number of Genshin fans has exceeded 4 million. Genshin's main drawing volume has exceeded 1.2 billion, and the number of drafts has exceeded 6 million.

From an industry perspective, our ad revenue increased by 10% year-over-year in the first quarter, mainly benefiting from the Spring Festival and the Winter Olympics, as well as our improved capability to fulfill customers' brand-class performance marketing needs in key industries. For example, during the Winter Olympics, we helped some Olympic sponsors to build hype in the market, featuring a combo of our ad offerings, such as topic, hot trends, launch screen ad, et cetera, to uplift their brand recognition, leveraging hot trends of Olympic sports events and athlete endorsement. Our unique solution of hot trend marketing has earned wider recognition among most of the advertisers, especially the Chinese footwear and apparel brands during the two Olympic Games seasons. As a result, we are pleased to see higher ad demand for the apparel vertical with ad revenue from this vertical growing very nicely year over year. Next, let me share our progress in the gaming vertical as well. Ad revenues from the gaming vertical sustained strong growth momentum with over 50% year-over-year growth in the first quarter. We primarily attribute the growth momentum to the differentiated ad playbook we developed for the gaming industry in the past two years. To elaborate, we have strengthened the synergies between sales, products, and operations to amplify the distribution and discussion of new games, as well as facilitate the accumulation and activity of social assets Coupled with our ongoing optimization in performance ad offering, we managed to capture incremental brand ad budget for new game release from clients, who traditionally only value conversion results. Considering the approval policy of the game license, we launched event-based ad offering and service for top gaming clients in the first quarter to better align with client's event pipeline and fulfill their marketing needs in connection with major version updates and new character promotion. A good example is Yuan Shen. We worked closely with Game Advertiser and aggregated all marketing events on Weibo, including version updates, brand ambassador official announcements, and branding events, et cetera. From the public text to now, the official account of Yuan Shen Genshin have accumulated over 4 million followers. The number of views and discussion around the major Yanshan topic exceeded 12 billion and 6 million, respectively, with over 4 million long-term active fans of Yanshan's super topic.

I'm doubting the first quarter has business, face and terms.

In the first two months, we had a pretty good start, both in terms of user traffic and financial performance. However, we have seen an inflection since March. Amid geopolitical issues and the COVID-19 resurgence, multinational customers and offline customers started to cut back marketing spend. Some of our channel marketing campaigns were also negatively impacted. As a result, our ad revenue was also negatively impacted in March. Entering the second quarter, with more regions setting up lockdown and prevention measures, various aspects of economic activities have been significantly disrupted, including production, logistics, and other offline activities, which directly weigh on the growth of the overall advertising market.

We strive to face the crisis together with our clients, to improve our own competitiveness, and to fully grasp the recovery of the market opportunity. On the one hand, we have given targeted service policies and resources to customers and industries affected by the pandemic, so that customers can use Weibo's wholesale products during the pandemic, to enhance customers' confidence in social media, and at the same time, to increase the use rate of Weibo's core advertising resources. On the other hand, during the pandemic, we have also optimized the product structure and strengthened Weibo's core competitiveness. For the wholesale advertising product line,

For the second quarter, despite many market headwinds, we are dedicated to join together with our customers to navigate through the difficult times and reinforcing our own competitive edge in the hope of capturing market opportunities post the normalization. For one thing, we offer targeted favorable policies and resources to support several customers and industries hit hard by COVID-19, inviting customers to exploit our brand-class performance ad offering so as to boost their confidence in the social media marketing while raising the utilization rate of Weibo's core ad inventories at the same time. For another, we proactively take the window to further refine our product offerings and reinforce our core competitiveness. Our major initiatives include optimizing our brand price performance at offerings to improve efficiency, beefing up our content marketing service, and expanding customer scenario, just to name a few. We are making solid progress against all these initiatives, as critical moves to further strengthen our competitiveness in the ad market. With that, let me turn the call over to Fei-Tao for a financial review.

Thank you, Gao Fei, and hello, everyone. Welcome to Weibo's first quarter 2022 earnings conference call. Let's start with user metrics. In March 2022, Weibo's MEUs and average DEUs reached $582 million and $252 million respectively, representing a net addition of $51 million and $22 million users respectively on a year-over-year basis, while delighting to achieve solid user growth momentum with disciplined marketing spend. Turning to financials, as a reminder, my prepared remarks would fork some non-GAAP results or monetary amounts in US dollar terms And all the comparisons are on a year-by-year basis and lies otherwise noted. Now, let me walk you through our financial highlights for the first quarter of 2022. We both first quarter 2022 net revenues were $484.6 million, an increase of 6%. Operating income was $141.7 million, representing operating margins of 29%. Net income attributable to Webull reached 132.9 million, representing a net margin of 27%. Diluted EPS was 56 cents compared to 57 cents last year. Now, let me give you more color on revenues. Webull's advertising and marketing revenue for the first quarter of 2022 reached 427.1 million, an increase of 10%. Mobile ad revenues for $401.9 million, contributing approximately 94% of total ad revenues. We had a solid start to 2022. Weibo delivered relatively resilient ad growth in the first quarter, even though the overall advertising market was tapping off amid macro uncertainties. Resurgence of COVID-19 and lockdown disruptions for the first quarter of 2022. Our leading verticals in terms of ad revenue contributions were FMCG, 3C products, and gaming. In terms of growth, the farthest-growing verticals were gaming and luxury among major ones. Besides regulatory and macro challenges winning on demand side, the relatively resilient performance of FMCG and 3C product sectors demonstrated that Weibo's brand plus performance ad offerings resonated greatly with customers in these sectors and enabled them to build hype around major events, such as the Winter Olympic Games. For gaming sector, our cultivation in the content vertical as well as improvement of ad performance for the sector boded well for us to tap into higher ad-worthy share of gaming sector. Antli said, e-commerce, entertainment, and education categories booked the descending trend due to sluggish consumption data and regulatory impact. From the ad product perspective, promoted fees continued to be the largest part, followed by social display ads and search and topic ad offerings. That said, as we entered mid-March and second quarter, the Ligurian National Web Omicron outbreaks and subsequent restrictions and lockdown measures have significantly disrupted the advertising market on demand side. Industries with high offline exposures, such as offline merchants and auto industry, cut ad budget due to suspension of offline activities and disruption of production. The restriction and lockdown in major areas in China, especially Shanghai, has also negatively impacted consumption sectors, such as FMCG and e-commerce, which suspended ad campaigns originally scheduled for the quarter and cut ad budget accordingly. Additionally, we also faced major sales and ad campaign execution challenges due to lockdown in Shanghai. As COVID-19 resurgence rapidly involves national wide, and restriction and lockdown disrupt economic activities, including production, consumption, logistics, and offline activities. Based on our current observation and our best estimates, we expect the potential impact on advertising business in the second quarter is material, and even more severe than the COVID-19 impact on our business in 2020. given the major areas impacted, duration of restriction and lockdown, as well as the current macroeconomic condition. We are closely monitoring the involving situation and will make relentless efforts to mitigate such headwinds, leveraging our diverse industry mix and broader sales network coverage national-wide, while doing our utmost to protect our employees, partners, and communities. Despite near-term challenges ahead, we are encouraged to see our user and engagement metrics remain the solid momentum, laying foundation for us to further tap into a wider demographic and increase monetization scale as business recovers. We remain confident in our long-term monetization opportunities that our unique value proposition and a diversified content ecosystem will unlock. Ad revenues from Alibaba for the first quarter decreased 22% to $25.9 million, primarily attributable to its own conservative marketing strategies amid wage consumption and lockdown, as mentioned earlier. Value-added service VAT revenues were $57.5 million in the first quarter, a decrease of 17%. The decrease of VAT revenues was mainly due to less revenue from less revenue contribution from membership surveys, and a decrease of live streaming revenues. Turning to cost and expenses, total cost and expenses for the first quarter was $342.9 million, an increase of 7%. The increase was primarily due to, first, higher personnel-related costs, second, step-up in content costs mainly associated with Winter Olympic Games, third, recognition of cultural business construction fee with slant of the exemption policy this year. The increase was primarily offset by a decrease of sales and marketing expenses with disciplined channel investments and reduced offline events. Operating income in the first quarter was $141.7 million, an increase of 3%, representing operating margins of 29%, exceeding our expectations as we continued to effectively balance growth and margin performance amid uncertainties. Turning to income tax, under GAAP measure, income tax expense for the first quarter was $11.7 million compared to $14.9 million last year. Net income attributable to Weibo in the first quarter was $132.9 million, representing a net margin of 27% compared to 28% last year. Turning to our balance sheet and cash flow items, as of March 31, 2022, Weibo's cash, cash equivalents, and short-term investments totaled $3.3 billion compared to $3.1 billion as of December 31, 2021. In the first quarter of 2022, cash provided by operating activities was $248.6 million. Capital expenditures totaled $8.5 million. and situation and amortization expenses amounted to 15 million. With that, let me now turn the call over to the operator for Q&A session. Thank you.

Thank you.

Thank you.

As a reminder, if you wish to ask a question, please press star 1 on your telephone and lights for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Stand by while we compile the question and answer the roster. Once again, the star 1 for questions. Your first question comes from the line of Alicia Yup from CT. Please ask your question.

Hi, thank you. uh, Thanks for taking my question. My question is related to the COVID impact in the second quarter. So if management can give a little bit more detail or the color in terms of the direction that we see in April and May what kind of the magnitude of the decline that we are seeing for the online ad budget and what is our expectation for June and also into the second half of this year, which industry vertical actually seeing a bigger scale back in terms of their spending the past few months? And then which industries vertical that you think will actually see a bigger rebound once this reopening is actually happening? Thank you.

Thank you.

Okay, so thank you for this question. So first of all, I would like to talk to you about the situation since Q2 because of COVID. So you can see that if we're talking about the mid-March as well as the Q2, in China, due to the COVID, we have been seeing the escalation of the control policies due to COVID here in China. And this is impacting a lot of marketing campaigns offline of our customers as well as those ad budget as well.

Okay. Yeah. From the perspective of the purpose of the ad, our own effect ads, such as our information flow ads, the trend of QR is actually relatively stable, so the impact of the epidemic is relatively small. Of course, there will be some drop in price, but in terms of brand ads, because many important customers, including agents, are actually located in the East China region, the epidemic in Shanghai actually has a very obvious impact on customers' budget decisions, especially sales execution.

And also talking about the different ads, for example, the performance ads, we can see that especially the information flow ads, this kept quite stable in terms of the volume. However, the pricing wise, this has been a little bit reduced. And second of all, talking about those brand advertisements. So you can see that because majority of the agents are located in East China. So I think that in terms of the budget, this has been impacted due to the COVID.

In March, due to the COVID-19 pandemic, in the second half of March, our entire customer base began to decline. In April, because of the influence of logistics, the whole of Huadong, including many sales and promotion of customers, has been suspended. So in April, the demand for our brand has dropped significantly. In May, we can see that the recovery of May is relatively fast. May has almost returned to the level of March. Then we originally thought that by June, it would basically be all restored. But we will see that with the outbreak of the Beijing epidemic, there will be some fluctuations. At the same time, Shanghai is open until June 1st. So we still have a relatively large insensitivity to the June plan. It's not as optimistic as we expected in May. Yes, so we still have to pay attention to one thing, because from the perspective of the commercial ads, we will see that the commercial ads that are published in the market actually have a relatively small impact. But the brand customers, as the customers get paid, they still need to be in the agent, including their producer, including the execution of the customer's marketing activities, they still need a stage to recover, so their recovery will be slower than the commercial ads.

And also, you know, talking about the situation here, you know, since the late March, we have been seeing a driving downtrend in terms of the booking. And also talking about the April, because of the impact to the logistics as well as the execution of a lot of the projects in East China, we have been seeing a driven downtrend of the brand advertisements there. And also talking about May, we used to believe that it will recover very soon. And actually, it was recovered very well to the level of the March. However, still also after June, originally, we thought that it will be fully recovered. However, because of another COVID breakout in Beijing area, we've been seeing some kind of fluctuation of our performance there. And also because Shanghai just resumed works and also all the kind of lifestyles things first of June. So there is a lot of uncertainty here in terms of Shanghai and also the performance in the second half. So we are not going to be as optimistic as we used to be in May. And also, you know, talking about the effectiveness or the performance ad, the impact to that particular category will be the minimized. And also, however, talking about the brand customers, because they have a whole process which is going to be followed if they want to, you know, resume the kind of a budget and also resume the advertisements in terms of the budget allocation and then the marketing plans as well as the execution, et cetera. So we expect that the brand customers are going to recover slower than the performance.

Right. From the industry point of view, we just talked about the industry that has the least impact and now starts the game industry. And also talking about industrial verticals, first of all, we believe that the gaming industry has been least impacted. And also in Q2, there is a kind of an upward trend or going upwards.

And also in May, of course, we had a little bit of impact because of the unavailability of the gaming license, but still, you know, that particular impact could be controlled.

Okay. 另外就是我们整个收入里面大概50%以上的品类, 像FMCG,奢侈品和汽车这些行业, 其实虽然二季度受影响,我们看四五月份受影响比较大, 但我们会看随着疫情的恢复, 只要疫情稍微好转, 希望五月份就会反弹得比较快。 So we think that these industries, from the perspective of the current client's plan, we think that after the pandemic, when the client's marketing activities can be normally expanded, the recovery of the budget will be faster. Including cars, although the cancellation of the Beijing Motor Show affected some of the budget, but we also saw that it was a good opportunity for us, because a large number of new cars began to transfer their budget to the online market, that is, the press conference transferred to the online market. If you remember, the mobile phone industry also appeared in 2020. Once this trend starts to shift from offline to online, I believe we will be more confident in the future of the budget growth of our entire car industry.

And also because 50% of our businesses are focusing on FMCG luxury products as well as the automotive industry. So you can see that these three verticals, they've been impacted heavily in April because of COVID. However, when there was a little bit recovery of the control and also containment of the COVID in May, we've seen a very quick and also robust rebound of these three verticals. So that is to say that in the future, if the COVID could be better contained, we're going to see, for example, more marketing campaigns organized by the customers in those categories or those verticals. We're going to see a very good recovery and rebound of their budget to us. And of course that in Beijing we've got cancellation of the auto show and this does or did impact the budget allocation. However, this brought with us more opportunities to the future because most of the OEMs are now moving their publish and also the launch event of their new models from offline to online. And this is exactly the same that we experienced in 2020 in terms of the mobile and also the smartphone industry, right? So a lot of people move up their campaign from offline to online. So this is going to give us more confidence for us to see a very good increase of the budget, especially for the automotive industry.

In addition, we will see that some industries will still be affected by the epidemic, which may extend to three seasons or longer. For example, some offline sales industries such as the United States and other European customers, there is no doubt that we think that even if the epidemic in Shanghai passes, this offline sales will still have a certain negative impact. In addition, in the mobile industry, we will see that this year, as you can see in the report, the sales of mobile phones have actually fallen more. The second phase is not very influential, but in the future, we think it will have a negative impact. But we all know that the mobile phone industry is our customer, and it is also our main channel. The decline in mobile phone sales will affect our advertising budget, but at the same time, in terms of our cost savings, we can also receive a lot of market sales fees. So in general, it has a great impact on the company's profits. Gordon.

Okay, and then next I would like to say that, you know, talking about the other verticals, especially those offline activity-oriented industries, for example, the aesthetic medicine and also OTO customers, they will also receive the impact after Q3 even. And even if now we've got a reopening of Shanghai, still there will be a little bit impact. And also talking about the mobile or smartphone industry, we also have experienced a driven down of the sales of this particular industry vertical. And of course, in Q2, there wasn't a big impact to the smartphone industry. However, we really believe that in the future, this is going to be impacted negatively. And of course, if we're talking about the smartphone, this is not only the customer that we have, but also this should be regarded as the channel. of course, to do the marketing and also ads. So in terms of the expenses saving and fee saving, this actually has brought with us a positive impact. So if we are talking about the offsetting of these two parts, we are not seeing a big impact to our profit margin.

Overall, the first quarter actually affected us for almost half a month. But the second quarter, we originally thought it would affect us for two months. But it's been a month and a half. But now it's going to be a long time to see the impact. Because you see, Shanghai has just opened up. Many areas in Beijing are still working from home. So it will still affect. And the brand, the client's hair. Relatively speaking, this chain is longer than the storage effect. It needs the cooperation and cooperation of agents and private companies. So we think that the second wave, in fact, this recovery will be slower than we originally expected. We thought it would be fully recovered in June. Yes, it's all about blood.

And also lastly, I would like to say that, you know, in Q1 of this year, we had about one and a half of the month of the impact. And also in Q2, the impact would have been lasting for about one and a half months to two months. And also, I think that this particular impact is larger than our expectation because, you know, Shanghai just reopened itself in 1st of June. And also in Beijing, there are still certain areas that are having people working from home still. And also because talking about the brand customers, they're having a longer process to follow to restart and also reboot their business. And also this requires collaboration closely between publishers and also agents. So we really think that we're going to have a slower recovery of our business than our expectation in June and also the second half. Okay. Thank you.

Thank you. Thank you. Thank you. Our next question comes from Thomas Chong from Jefferies. Please go ahead.

I have a question regarding our cost control and the trend in operating expenses in 2022. And on that front, what should we think about our margin outlook in the remainder of the year? Thank you.

成本控制方面我们简单说一下吧, 然后因为大家都知道我们对于这种渠道投放啊, 包括一些内容购买EASY的来说还是比较保守的, 我们基本上还是对于RY的控制比枪的来讲比较严格。 But in the first quarter, we will see the whole economic situation this year. In fact, in itself, we will be more strict with the assessment of this channel. So some channels, for example, if it can't be within a period of time, for example, within three months or six months, we will cut off these channels. So in the first quarter, we will look at whether our margin is still a good situation. Especially in the first quarter, in fact, in terms of taxes, the cultural compensation fee has already OK.

So first of all, talking about a cost control. So first of all, we're having a stricter control and also a stricter policy in terms of the ROI and also keeping it quite preservative in terms of the placement among different channels and also the purchasing of the feeds, for example. And also, you know, talking about Q1, however, still we had stricter rules on the appraisal of RI and also if the channel, for example, could not provide with us the returns as required within three months or six months, we are going to cancel collaboration with that channel. And also, as a result, we have been seeing a quite good performance in terms of margin in Q1. And second of all, especially in Q1, we are talking about the cancellation of already the decreasing of the tax related to the cultural establishment by 1.5%. And also second point is about the activity-related expenses. And due to the COVID, we could not organize a lot of activities as planned. So this has saved some of the costs relating to the activities and also campaigns. However, those kind of activities are also profit-making. So this did, you know, impact our revenue at the same time. Okay.

Okay. Maybe I can add some color on the margin. So in terms of margin, as a result of better monetization, larger business scale, and the higher operating leverage, we achieved a good profit margin in first quarter and last year. And historically, we will always maintain healthy margin level. And heading into the second half of 2022, as Gopi mentioned earlier, we expect a negative impact on advertising business is material. So amid the difficult market environment and the combined effects of numbers of other factors, such as expiration of the certain tag in sensitive the cultural business construction fee will be reliable, and we have to invest in some sports IPs such as Beijing Winter Olympics and NBA. So we do expect a decline in operating margin compared to last year. But the management has reached a consensus that the highest priority this year is to optimize our cost structure with more disciplined channel investment and other spending strategies. Weibo, as you know, Weibo has always maintained a conservative style. Our goal is improving operating efficiency with stricter ROI assessment to control our overall spending and striving for higher operating leverage to mitigate the margin decline as small as possible and ultimately keep our healthy financial metrics. Thank you, Thomas. Thank you.

Thank you. Thank you.

All right. Thank you. Next question comes from Tianhou from PH Capital. Please ask a question.

Thank you. Mr. Gaofei, can you ask a question about users? In the past years, users on our platform have been growing steadily. I would like to ask Our ultimate goal is to see how far we can go, whether it's our DAO, MAO, or mobile MAO. Because I see that mobile MAO is already 500 million, which is a lot, right? So let's see what kind of level we will eventually reach. In fact, in terms of users, it is more of a competition and a competition in terms of storage. So this year, what kind of plan does the company have in terms of customers? After customers, there is also a kind of active improvement of customers. It's about the user. So what is the eventual goal for the company to accomplish regarding the total number of the MAU DAUs? And also what's the company's plan in 2022 to acquire new users in China, and also how to use content operation to improve user retention and the user activity level on the platform. Thank you. That's it.

The first question, actually, when we were on the market last year, including last year in Hong Kong, when we were on the road for the second time, I answered this question. If Weibo does not do any video-based business, from the experience we saw when it was launched, this kind of social media platform can probably reach 60% of the users of social network platforms. Because in the United States, it is about such a ratio. That was in 2013. Of course, we will see that our Weibo is actually different from Twitter. Whether it is in terms of images or videos, we will actually do more complex work below, including some more business expansion. We will see that in terms of videos, the market is actually bigger than the field of social media, the field of pure social media. Yes, this is also what we have been insisting on in terms of videos for the past few years. Although there is a market competition in the field, we will still add it. Um.

So I think that this question has been answered, you know, previously while we were listing our company and also did the secondary roadshow in Hong Kong last year. So we were saying that if we were not operating any video related content and also strategies and then the social media or the upper limit of the social media will be only 60 percent of that of the social network. But that was about 2013. However, time is different, right? So we are now emphasizing a lot on the differentiation points between Weibo and also Twitter and also the other pure social media. And we have been doing more complicated works and also more works as well in terms of our business operation or business development, especially we're talking about a video. So, you know, in terms of the video, the impact is actually going to be bigger than the social media and also the business driving forces are going to be more as well than the social media only. So that's why that even if we've had a lot of headwinds as well as the market competition in the video content area, we're still trying to invest as many as possible. And so we believe that when we have a very key positioning and also important positioning in the video area, and then we are going to further uplift the upper limit of the number of users and also the others. And now, in terms of the total traffic and data, the video part accounted for about one-third of the total traffic now we have. So this is extremely very important for us to uplift further the upper limit. Okay.

In addition, if you look at it, the company's commercial value is not necessarily related to DAO or MAO, but it is more related to the activity of users. In the first quarter, we actually reached As a whole, our core is to make sure that social media and our media hot spots can perform better than all our products. This is the core of our growth. In terms of the current situation, the literature industry has not fully recovered. Last year, I said that this recovery may be at least until the second half of the year. In fact, we still rely on the investment in the hot spots, social media, and community, so that we can make more investments in the industry in the first half of last year, which led to a decline and a decline in user feedback. So I think from the company's point of view, we usually pay more attention to MAU, DAU, BIM, which is our main job. More importantly, we still look at the year of service for users, the feedback from users on Weibo, and the interaction of users on Weibo.

And also, lastly, I would like to say that, you know, talking about the business value of a company, this does not only relate to the DAU and also an AUM number, but I think it's more relevant to the activity of the users. So especially, you know, in Q1, we've been saying that, you know, our total traffic has been reaching the kind of upper limit or the kind of a peak level before any reconciliation and also some ratification conducted to the entertainment industry, right? So because, you know, activity was all about the stickiness of the users. And also we really believe that with a business model of Weibo combining social media together with the media hot trends, for example, this is going to be our key strategy to be sustainable in the future. And also in Q1, because of the rectification conducted to the entertainment industry, we already said that the entertainment industry will not be recovered until the second half, and this is still the case right now. And also, that's why we've been doing a lot of other works, for example, the launch of Hot Trans and Super Topics, as well as the community, etc., So those businesses are now offsetting the declined activity that we experienced because of that change happened to the entertainment industry. And also, as a result, we are saying that MAUs and also DAUs are important, but this is not the only thing that we're focusing. But we are focusing more on the provision of better quality services to users and also enhance the stickiness of users and enhance the activity of users and the interactivity of the users as well. So these strategies are going to be the long-term strategy and also making us sustainable in the future.

All right. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I'll now hand the call back to Ms. Sandra Zhang for closing remarks.

Thanks, operator, and thank you all for joining us. This concludes our conference call. We'll see you next quarter.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.