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spk04: Good day and thank you for standing by. Welcome to the WIBO reports first quarter 2023 financial results. At this time all participants are in a 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 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 and 1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sandra Shang, Investor Relations. Please go ahead.
spk07: Thank you, operator. Welcome to Weibo Sports Quarter 2023 Earnings Conference Call. Joining me today are our Chief Executive Officer, Cao Fei Wang, and our Chief Financial Officer, Fei Cao. The conference call is also being broadcasted on the Internet and is available through our IR website. Before the 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 forward-looking statements, statements that are not historical facts, including statements of our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. 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 20-F and other filings with the SEC. All the information provided in this press release is occurring as of the date of payroll. Weibo assumes no obligation to update such information, except as required under applicable law. Additionally, I would like to remind you that our discussion today includes certain non-debt measures, which includes stock-based compensation and certain other expenses. We use non-debt financial measures to gain a better understanding of Weibo's comparative operating performance and the future prospects. Our non-debt financials include certain expenses, gains or losses, and other items that are not expected to result in future cash payments or are non-recurring in nature or are not indicative of our core operating result and outlook. Please refer to our press release for more information about our non-debt measures. Following management prepared remarks, we'll open the line for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gao Fei Wang. Thank you. Hello, everyone. Welcome to Weibo's fourth quarter 2023 earnings conference call.
spk03: Today, I'll share with you highlights in Weibo's user product and monetization in the first quarter of 2023. On the user front, Weibo's MAUs reached 593 million, and average DAUs reached 255 million, adding approximately 11 million and 3 million users year-over-year respectively. In the first quarter, 95% of Weibo's MAUs came from mobile. In terms of commercialization, we see that the overall advertising demand is still relatively weak under the influence of the pandemic. In addition, last year, we brought a high-end number of 1 billion total revenue of 4.138 billion US dollars, which dropped by 15% year-on-year. Removing the exchange rate factor, the total revenue dropped by 7% year-on-year, and the advertising revenue reached 3.553 billion US dollars, which reached 95% in the number of mobile ads, and the non-advertising revenue reached 58.5 million US dollars, which increased by 2% year-on-year. On monetization, affected by the overpicked pandemic, macro uncertainties and off-season during the Spring Festival,
spk07: The overall ad demand was still relatively lukewarm in the first quarter. Coupled with the high baseball by the 2022 Winter Olympics, our total revenues reached $413.8 million in the first quarter, a decrease of 15% or 7% year-over-year on a constant currency basis. Our total ad revenues reached $355.3 million of which 95% of our ad revenues came from mobile. Our non-ad revenues reached $58.5 million, an increase of 2% year-over-year, or 10% year-over-year on constant currency basis. This year, we continue to focus on improving operating efficiency, and our non-GAAP operating income reached $128.6 million, representing a non-GAAP operating margin of 31%. On a constant currency basis, our non-GAAP operating income has nearly returned to the same level versus last year, which decreased 1% year-over-year.
spk03: In the past three years, due to the pandemic, users have been more interested in the news, and Weibo has gained stable users and traffic in the past three years. With the spread of the pandemic and the rapid rise in the number of users, we have been able to focus on travel and the demand for offline consumption. Users' demand for content consumption in these vertical fields is growing rapidly. The changes in market environment and user demand have posed a certain challenge to our product application strategy. We are rapidly adjusting and actively responding to the changes in user demand. Our product application strategy is based on maintaining the most advantageous areas and focusing more on the construction of user consumption and demand areas. By using Weibo's hot-point advantage and the comprehensive advantage of cross-areas QoR, we can increase the supply and diversity of content in the platform, meet the needs of user consumption, and improve the reliability of users.
spk07: In the past three years, due to the pandemic, users paid more attention to news-related hot topics, which benefit Weibo's user and traffic growth. With the reopening, the ones that suppressed travel and offline consumption demand have been released altogether, and users' consumption demand for content in vertical areas has increased accordingly. Such changes in the market environment and user demand have brought certain challenges to our product operations strategy. In the first quarter, we quickly adapt to changes in user demand. While maintaining investment in key content verticals, we focus more on the development of content verticals that have a strong user consumption need. With Weibo's advantages of Hot Topic and KOL integration across verticals, we increase the content supply and diversity to meet users' consumption need and boost user engagement.
spk03: 接下来,我具体介绍一下 Weibo一度在产品运营和商业方面的情况。 Next, let me share with you our progress made in product monetization in the first quarter. In 2023, our product strategy is to focus on user skill growth and improve operating efficiency to boost traffic growth and further strengthen platform competitive advantage. In terms of channels, there are many strategies in the market this year. In addition to maintaining the content of Weibo hot dots to cover the core of the company, the two sides will further enhance cooperation based on the system level, focusing on improving the size and availability of users in the medium and high-end models of the factory. In the first quarter, we continue to optimize the product mechanism such as push, and strengthen the use of Weibo hot dots and social content. In the first quarter, the number of Japanese supply users has increased by double in the same period.
spk07: On the channel front, in terms of this year's collaboration strategy with handset manufacturers, in addition to coverage of Weibo's hot content in core positions of the handset, we will also further strengthen our cooperation on a system-level basis, with focus on driving the user scale and engagement. of the need to high-end smartphone users. In the first quarter, leveraging manufacturer's self-built user-rich channel, we continue to optimize our product mechanism such as push to efficiently strengthen our user-rich and reach whole through Weibo's hot topics and social content. As a result, the average DAU from the handset channel grew double-digit year-over-year.
spk03: I will introduce the work of product transformation. In the fourth quarter of last year, we made adjustments to the product structure of the network of relationships. While improving the efficiency of user consumption, it helps users to develop more good and real social relationships. In the first quarter of this year, we will further upgrade the product structure and algorithm, and combine the characteristics of user's social relationships, user information, and so on. The spread of good blogging content will be greatly improved. Users can not only consume and interact with the content of the audience in the relationship, but also consume more good content of secondary relationships, and interact with it to build new relationships. These product strategies have led to an increase in the number of users in the first quarter compared to the same period last year, and the annuality of users has been further improved. We also see that users are building new relationships, and the desire to interact is also stronger. The number of relationships has increased twice as much. Users have increased the number of interactions in the relationship by nearly 70 percent. This is brought about by the content of non-focus people. This is especially true for the attention of the central department bloggers. The desire to interact is stronger. This has also played a positive role in promoting the sustainable development of the content ecosystem of our content producers. Social attributes.
spk07: I'll introduce the highlights of product adjustments. In the first quarter last year, we adjusted the social network product to improve user consumption efficiency and help users build more high-quality and real social relations. In the first quarter of this year, we further upgraded the product mechanism and algorithm to incorporate user social relations and interests. And as a result, the distribution efficiency was largely increased for quality content. Now, in the relationship-based feed, users not only can consume and interact with content generated by follow-up accounts, but can also consume and interact with content based on user's social network and build more relations. These product strategies have driven further growth in the per-user view and engagement year-over-year around the relationship-based feed. We are also pleased to see stronger user intentions to form new social relationships and interact on our platform, with the number of new relationships built tripled year over year. Also, around 70% of the incremental user interactions around the relationship-based was generated through content of unfollowed content creators. In particular, users were more willing to interact and follow with mid-tier KOLs. The product adjustment for relationship-based feed also played a positive role in promoting the content generation by KOLs and a suitable development of content ecosystems. In the second quarter, we will continue to optimize product and recommendation algorithms based on user engagement level and focus on accounts in key verticals to help content creators to achieve higher social value and further stabilize Weibo's core social competitiveness.
spk03: In terms of the internal environment, the consumer demand for entertainment and social behavior is rapidly growing. Weibo's advantage areas, such as culture, digital cars, and the transfer of platform users' attention, The size of Japanese traffic and interaction in these vertical areas has increased significantly over the past year. In terms of traffic, it has increased significantly in terms of traffic and interaction in the field of Japanese traffic and interaction. In terms of traffic, it has increased significantly in terms of traffic and interaction in the field of Japanese traffic and interaction in the field of Japanese traffic and interaction in the field of Japanese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic and interaction in the field of Chinese traffic to make Weibo more profitable in the customer market. Other users want to take advantage of the industry, such as tourism, fashion and makeup. We are also increasing the investment in product management to improve the content ecosystem related to the platform. On the one hand, the QoR integration advantage of the platform is used to quickly fill up the content construction in the relevant field. On the other hand, the product uses platform recommendations to promote the public traffic flow system, to quickly cover the high-end users in the field, and to strengthen users' awareness of the new trends in the field. to quickly activate the productivity of the industry. For example, since March, there have been many more fashion industry activities. For example, during the Beijing Film Festival and the Seraphim Show, we have fully downloaded the fashion QL by fashion designers, stylists, and people in the field of cross-segment art. In March, the effective volume of fashion content will reach two months in December. On a content front, the consumption needs for entertainment and lifestyle verticals were growing rapidly. As users' attention shifted, the average daily traffic volume and the number of users who interact grew significantly year-over-year for key verticals.
spk07: such as entertainment, digital, and automobile in the first quarter. For the entertainment vertical, the movies and TV series scheduled during the Spring Festival, such as the Knockout and Three Body, et cetera, has improved the traffic trend of the entertainment sector, with the quarterly average traffic volume and the number of users who interacted grew double digits compared with the same period last year. And the growth trend continues in the second quarter. For the automobile and digital verticals, as the offline users' consumption has improved, we were able to capture more ad budget, leveraging our advantages in hot trend and KOL marketing, even when the offline consumption is due to recover. In terms of other consumption verticals that also have high consumption needs, such as tourism and fashion and cosmetic verticals, we are also accelerating investment in product operations. and improving the content ecosystem. On the one hand, for operation, we will leverage our platform's advantages in cross-vertical KOLs integration and quickly enrich content ecosystem for related verticals. On the other hand, for product, we will utilize recommendation and hot search traffic to distribute vertical hot trends and high-quality content to targeted users. which has strengthened the recovery of users' mindsets in key content verticals and encouraged KOL's willingness to generate content. For example, since March, there has been a significant increase in activities in entertainment and fashion verticals, for example, the Beijing International Film Festival and luxury brand shows during the period. We have organized celebrities, makeup artists, stylists, and KOLs in fashion verticals and KOLs in the humanities and art and popular science verticals to create content around fashion-related hot topics. As a result, in March, the effective views in the fashion vertical and the number of users who interacted with related content increased double digits compared with December last year. with an ongoing growth trend in April and May. We believe with the strategy adjustment and our implementation during the first and second quarters, the traffic will increase significantly and the user consumption mindset will recover as well.
spk03: In terms of the ecosystem of the head office, remember that we have finally completed the equity growth of the TR Show platform. The dual-glow platform is being remodeled to the core of the platform, and will be launched in April. From the original consideration of the value of the flow of the head, adjustment to the flow of the head and the consideration of the social value, the platform focuses more on the ability of the head to influence the consumption and interaction of fans. Through the upgrade of the blogging system, we highlight the head of the platform with high influence and high social value. In the future, the platform will complete the flow of one to two seasons, operate and support the business system to create a healthier and more active head ecosystem. From the data of May, the flow of the head and the scale of interaction will be the same as that of March.
spk07: On the top content creators, in the first quarter, we completed a transaction to increase shareholding of InMyShow digital technology. We upgraded the VTAS platform system and went online in April with a new evaluation mechanism for the top KOLs. The platform now shifts its evaluation mechanism for top content creators from traffic value only to traffic plus social value, putting more emphasis on KOL's capability to interact with fans and monetize on social assets. Upon the upgrade, we have screened top KOLs that have sound influence and high social value and will further reinforce our traffic operation and monetization mechanism in the next one and two quarters to promote a healthy KOL ecosystem. According to the data in May, the traffic and interactions of top KOLs increased double digits compared to that in March, and the ad revenue from VTASK also resumed double-digit year-over-year growth since March.
spk03: Finally, I would like to introduce the use of Weibo in AIGC technology from last year. We have been exploring the right application scenarios for AIGC on Weibo. Recently, we have made a good progress in improving internal products and operating efficiency. As we work with AIGC partners to develop cooperation ideas, we plan to introduce part of the content production tools in the second quarter, and better assist in blogging content production and customer advertising creative promotion. Some large and medium-sized companies are also using Weibo open platform to provide relevant services to users. In the future, we will continue to pay attention to the development trend of AIGC, explore new business areas, and create greater value for users and content creators.
spk07: Lastly, let me introduce the key application areas for AIGC technology on Weibo. Since last year, we have been exploring suitable scenarios for AIGC on Weibo and have made solid progress on improving our product and operational efficiency recently. As we continue to collaborate with AIGC partners, We plan to launch some tools in the second quarter to better assist the content creators in the content generation and to improve the efficiency of creative ad solutions. Some large model companies are also using Weibo's open platform to provide users with relevant services. Going forward, we will keep a close eye on the development of AIGC and explore new application areas to create greater value for users and content creators.
spk03: Next, I will talk about the progress of commercialization. In 2003, with the gradual recovery of the epidemic, we saw that most industries began to increase their investment in the future in the first half of the year. Brand construction, especially the speed of new products, was significantly accelerated compared to last year. Weibo, this year's business strategy will continue to strengthen Weibo's media and celebrity as the core, and cross-border UQR broadcasting as a secondary, and a combination marketing model with a strong exposure and a strong new traffic scene. Next, let me share some color on the monetization front.
spk07: In 2023, leverage the gradual economic recovery post the pandemic. We are pleased to see many vertical start to beef up investment for future in the first half of the year. With accelerated paces in brand building, especially new product release versus last year. As such, our overall monetization strategy will continue to focus on enhancing the marketing combo, which centers around media and celebrities, supported by KOL distribution across verticals, while entertained by traffic contacts featuring strong exposure and mindset cultivation. In particular, we will beef up Weibo's unique hot trend IP and the new product launch ad offerings, aiming to earn recognition from more industries and customers, and thus further strengthen Weibo's core competitive needs in the ad market.
spk03: From the implementation of the first quarter, Weibo's overall advertising business is in a gradual recovery trend. In the first two months of the first quarter, because of the recovery of the epidemic and the higher demand for the winter Olympics last year, the revenue of the first quarter decreased equally. But since March, the revenue has increased equally. From the current trend, The first is that there is a big difference between different industries. Part of the industry, such as the car, mobile, and luxury industry, has seen customers maintain a higher level of confidence in the last two or three years, and investment in new products and brands has clearly increased. For example, in the first half of the car industry, Guangzhou and Shanghai stations continued to expand, and the amount of new products released in the first four months increased by 40% as of the same period as the previous year. Through the new product transfer model, we have a new car with nearly 100% of the commercial cooperation budget, and when it was released, it was chosen to do the same propaganda cooperation on Weibo. At the same time, the first quarter is also the critical release period of the luxury luxury products. The size of the luxury luxury products in the first quarter is close to half of last year. Through the hot advantage of luxury luxury products, we have achieved nearly 90% of the luxury customers in the first quarter. But some industries are still in the process of recovering. One is that the beauty industry itself has a special reason. Some industries are less vulnerable to new products due to their own management. Second, there are many factors in the industry that lead to the slow recovery of each customer's revenue. For the current situation, what we are doing first is to recover our revenue in the industry as soon as possible. At the same time, we are adhering to the commercialization model of hot-light and new products marketing to help customers live better in the market for a long time.
spk07: Based on Weibo's performance in the first quarter, our overall ad business exhibited a gradual recovery trend month by month. To elaborate, due to pandemic and the high base of last year's Winter Olympics, advertising revenues in January and February decreased year over year. However, since March, ad revenues has already returned to a positive growth trajectory on an annual basis. In terms of industry trends, we saw diversion trends among different sectors in the first quarter. For certain sectors such as automobile, handset, and luxury products, we are encouraged to see that clients demonstrate strong confidence in 2023 and have picked up their investment in new products and branding. For example, in the automobile industry, the number of new cars released at the Guangzhou and Shanghai international auto shows in the first half of the year increased by 40% compared to the same period last year. Leveraging Weibo's differentiated automotive new product launch model, nearly 100% of the OEMs with ad budget for new model launch in the first quarter chose to cooperate deeply with Weibo for promotions. And meanwhile, the first quarter was also a period of intensive release for luxury booth shows, with the number of luxury booth shows in a single quarter reaching almost a half of last year. Leveraging the hot trend effect around these shows, we achieved nearly 90% coverage of business cooperation with client show in the first quarter. On the flip side, certain industries were still in the course of gradual recovery, such as beauty and personal care sector, mainly due to two reasons. First, some clients in the beauty and personal care industry had a relatively weak pipeline for new product due to industry competition strategy and their own business are having. Secondly, intensified competition landscape of the advertising market across media platform also drags its recovery pace. As such, our first priority is still to quickly restore our competitiveness in the respective content ecosystem post the pandemic. Moreover, we will continue to amplify our monetization model, featuring hot trends and new product marketing, while empowering clients to achieve better long-term growth in the market.
spk03: In the second phase, we will continue to improve its offline consumption. The stability of the consumer market in each industry will also lead to a long-term decline in the advertising market, but there is still a certain difference between the different industries. We will actively take advantage of the market opportunities brought by the 618 e-commerce industry,
spk07: Entering into the second quarter, with further pickup in offline consumption, we expect to see a more meaningful recovery in the demand side of the advertising market, driven by ongoing recovery of various consumer markets. there will still be diversion trends among different industries. In light of such trends, we will actively embrace the market opportunities brought by the June 18th Mega Shopping Festival, leveraging our positioning as a leading social media platform will amplify Weibo's differentiated competitive edge in the hot trends and the content marketing in the hotels capturing incremental ad wallets gradually released into the market. With that, let me turn the call over to Fei Cao for a financial review. Thank you, Goufei and Tyler, everyone. Welcome to Weibo's first quarter 2023 earnings conference call. Let's start with user metrics. In March 2023, we would end the use, un-ending the use, with 593 million and 255 million respectively, representing a net addition of 11 million users and 30 million users on a year-to-year basis, with ongoing execution of this extended channel investment strategy. Turning to financials, as a reminder, my prepared remarks will fork down on gather results. All monetary amounts are in U.S. dollar terms, and all comparisons are on a year-to-year basis, unlike otherwise noted. Now, let me look you through our financial highlights for the first quarter of 2023. Wayward's first quarter of 2023 net revenue was $413.8 million, a decrease of 15%. or 7% on the current basis. Operating income was $1,928.6 million, representing an operating margin of 31%. Net income achievable to Weibo reached $1,911.2 million, representing a net margin of 27%. Diluted EPI was $0.47, compared to $0.56 last year. Let's make it even harder on the first quarter 2023 revenue performance. Weibo's advertising marketing revenue for the first quarter 2023 was $355.3 million, a decrease of 17% or 9% on a comprehensive basis, reflecting conservative ad budgets immediately opening, as well as the analogy factor, compared with the first quarter last year with winter Olympics-related ad budgets. Mobile ad revenues were $336.4 million, contributing approximately 95% of total ad revenues. The industry, our largest portico for FMCG, 3C products, and e-commerce. In terms of growth, we are delighted to see solid growth in 3C and also mobile sectors, underpinned by tailwind of an eventful product launch season. as well as strong sales execution in this vertical industry. Customers in this sector embrace our full spectrum of social ad compounds to build market heads and reach high-value users of strong consumption power. On this side, our largest vertical FMCG continued on a descending trend against the top comp of the Winter Olympics last year. Coupled with relatively conservative ad budgets, by our fans in the early stage of reopening. The ad product, Promotive Feet, was the largest, followed by Social Biz Pay ads, and Topic and Search. We continued to diversify our ad imagery and deep-up our integrated social marketing offerings to jump for further ad goals in the hope of better monetizing our traffic resource. Ad revenue from Alibaba for the first quarter was 18.3 billion, a decrease of 30% or 23% on a constant currency basis, primarily attributable to its own conservative marketing strategy amid reopening and subdued shopping festivals in the last e-commerce season. Before turning to that segment, let me share some preliminary colors on the trends entering the second quarter. On the upside, advertising market has been bottling up month-on-month, with many sectors rebate since the second quarter last year. Leveraging normalization with alternate activities and graduate concentration pickups, our team will beef up sales execution and work relentlessly to capture pent-up budgets during the e-commerce shopping festivals in the second quarter. That said, A full recovery of consumption sentiment in certain discretionary categories might be more drawn out than expected upon the aftermath of a pandemic bringing on consumer confidence. In light of the volatile macro landscape, we are closely monitoring opportunities in those relatively resilient sectors with benefits from secular growth tailwinds and strong new product headlines. such as automobile and handset sectors, while tailoring our content marketing offerings to fulfill customers' brand-slash-performance campaign goals. Leveraging our full spectrum of social ad offerings, we remain confident in our monetization opportunities that our unique value proposition and diversified content ecosystem will unlock. Value-added service, web revenue, was 58.7 million in the first quarter, an increase of 2% or 10% on content-oriented business. The increase of VAT revenue was mainly attributable to incremental revenue from e-commerce business. Turning to cost and spending. Total cost and spending for the first quarter was 285.2 million, a decrease of 17%. demonstrating ongoing execution of our efficiency initiatives. The decrease was mainly attributable to lower personnel related costs and a deficit in the channel investment. Entering into 2023, we have emerged with a more focused team and a linear cost structure, presenting us a visible path to operating earnings growth. Operating income in the first quarter was $128.6 million, representing an operating margin of 31%, compared to 29% in the same period last year. Turning to income tax, under Jack Niagara, income tax spent for the first quarter was $21.9 million, compared to $11.7 million last year. The increase was primarily resulted from changes in deferred tax liabilities related to variable change of certain investments. Net income attributed to Weibo in the first quarter was $111.2 million, representing a net margin of 27%, less compared to last year. Turning to our balance sheet and cash flow items, as of March 31, 2023, Weibo's tax cash equivalent and short-term investment totaled $278 billion. In the first quarter, cash provided by all present activities was $118.6 million. Cash flow expenditures totaled $18.2 million, and the change in animal consumption expenses amounted to $15.4 million. Before turning to the planning session, I would like to share some color on our newly announced special dividend. Reflecting our healthy profitability and strong balance sheet, we are pleased to announce that our Board of Directors has approved a special cash dividend of $85,000 USD per ordinary share, or ADS, to our shareholders. The aggregate amount of the dividend will be approximately $200 million, with payment dates expected to be in mid and late July. Looking ahead, we will continue to embrace long-term growth opportunities while focusing on financial discipline with commitment to returning value to shareholders and opening market confidence. Besides, I would also like to provide updates on our ESG initiative. In April, we released our second ESG report, outlining the company's progress and performance in ESG areas for fiscal year 2022. The ESG initiative described in the report speaks to our longstanding commitment to sustainable development Carrying the impact to users, content creators, employees, business partners, and other stakeholders, we are dedicated to the vision of making the world a better place with the power of Weibo. As part of that vision, the company's 2022 ESG report showcases our efforts in various areas such as cybersecurity and privacy protection, content quality, company's direction, social responsibility, and brain operation, just to name a few. Looking ahead, we will continue to optimize our ESG governance and further integrate ESG initiatives across our daily operations in the hope of creating value for society and work towards a sustainable future together with Weibo's community. You may visit our IR website to obtain more information of our ESG disclosure. With that, let me now turn it over to the operator for the Q&A session. Thank you.
spk04: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, you can press star 1 and 1 again. Please stand by while we compile the Q&A roster. Thank you. We'll now take our first question. Please stand by. The first question is from the line of Miranda Zhuang from Bank of America Securities. Please go ahead.
spk05: Thank you for accepting my question. My question is about AIGC. You mentioned that you are exploring this direction. Could you please elaborate on what kind of layout do we have in the AIGC field? Thank you. My question is about AIGC. Can you elaborate more on your plan for the AIGC area? What would be the main applications and what are your product plans? Thank you.
spk03: As a social media platform, we see that in terms of users and business, the main competitors are two types. One type is social media, such as WeChat, and the other type is the core content platform, such as Douyin or Xiaomusu. From the characteristics of our own platform, the core content of the Weibo platform is created by the general community. In addition to the media, there are also self-media accounts that are more personified.
spk02: Thank you for your question. So first of all, as a social media platform, we are looking at our competitors, especially among our users, and also in terms of commercialization, two kinds. One is actually a social platform like Weixin, and also another one is like those Douyin and also Xiaohongshu, those kind of recommended based social media platforms. So of course, in Weibo, we confronted actually two kinds of creatives. One is, of course, the content creator of media or by the media. Another one is the WE media that are having a very strong personality.
spk03: Okay. AIGC's application on Weibo is mainly based on the features of our platform. First, it helps to improve the performance of the personalized content production on the platform. That is to say, these personalized, very strong accounts, we can use some of the big models to help them improve the internal ecosystem efficiency. This is also very important for the users to improve the platform's connectivity and interaction.
spk02: Got it. So, first of all, in terms of application of VIGC, we have two areas. One is that on our platform, we have a lot of top-notch web media. And also, we are going to help them to enhance their efficiency of creating more personalized and also individualized content. So, by having a fine-tuning of our big models, we are able to help them to leverage this capability to enhance the efficiency of the content creation and generation.
spk03: Another aspect is to help us optimize and supplement our content-oriented accounts on our platform. The characteristics of Weibo's communication system are that compared to other platforms, the ecology of our header accounts is stronger, while the ecology of the content-oriented accounts is relatively weak. These medium content-oriented accounts, in the current competitive situation, AIG is a big-screen application that can help us to add some of the shortcuts.
spk02: And also, second of all, it is going to help us to optimize and also help those long-tail accounts to have a better creation of content. So now, on our platform and on Weibo, we have actually those top-notch accounts that are having a very strong capability in doing so, but actually it is relatively weaker for those medium-level and also the long-tail accounts. So by applying the AIGC very effectively, this is going to be enhanced.
spk03: From the current product application, we are currently evaluating whether the model can be used to replace these Weibo-specific accounts. We can talk about the overall progress. First of all, before the end of last year, we mainly used some GPT-3-type models. At that time, we could not complete the real interaction of this model user. So that let me talk to you about the application. So nowadays, you know, given the strength of the total AIGC capabilities,
spk02: It is not easy for us to say that it is going to actually replace the top-notch WeMedia. So let me talk to you about some of the trials and also applications. So before the mid of 2022, last year, we were primarily adopting the GPT-3 model. So it was not as capable as to mitigate and also mitigate or simulate the interactions with the users. So we used the GBC-3 model back then. for the purpose of learn and also try to keep up with certain solutions in terms of the anti-internet violence, etc., so that we're going to enhance operation of the internet-based business.
spk03: Second, in the second half of last year and the first half of this year, we are using the latest models to improve. We can see that models can better simulate this kind of personalized user interaction, but they can't simulate the real content production of these users.
spk02: And also, second of all, starting from the second half of last year and also the beginning of this year, we are using more advanced model of GPT and also the other AIGC relative models. So it is now able for us to actually simulate the personnel-based interactions but actually it is not able to generate the user's content by its own. So the AIGC is primarily used as assistance for those top-notch creators. And also we are starting already this particular campaign, I think Q2 of this year.
spk03: In the future, I think in half a year or one to two years, we think the progress of this model can be well completed by the replacement of this kind of production by China's content bloggers. And also, in the next one or two years of time,
spk02: with the advancements of this AIGC models and also the AI models as a whole, we believe that it is able for us to use to generate the content replacing those original content generated by the mid-level content creators. But actually for those top-notch content creators which have very strong personality, I still believe that it's challenging for us to use the model to actually replace the content creation process. So overall speaking, I believe that the AIGC and also the relative technologies are actually very good to be used to really enrich the content created on our ecosystem and platform, and also enhance our competitive edge as a whole. Okay.
spk03: From a technical point of view, the technical guidelines we have adopted are actually in cooperation with open source models, or in the form of BN models. At the same time, we are doing it in the form of BN models, and not in the form of self-proclaimed open source models. So as a conclusion, talking about this particular technology, now the collaborative model is pretty much based on the collaboration with those open source ends and also open source models.
spk02: So primarily speaking, we are just having the adoption and also fine-tuning our model, not necessarily proprietary innovate and also invest into the development of the L&M model. So as a result, it is not going to enhance a lot of internal R&D investment in this fund. And also, it is going to help us to improve our commercial efficiency while at the same time reduce the cost related to content creation. Thank you.
spk04: Thank you. Thank you so much. I will now take our next question. Please stand by. This is from the line of Alicia Yap from Citigroup. Please go ahead.
spk06: Hi. Good evening, management. Thanks for taking my questions. Can you hear me OK?
spk07: Yeah. Yes.
spk06: OK, all right, thanks. And then according to the industry, what is the performance of various industry advertisements? And then the other is how, if we want to improve the competitiveness of the market, what are some marketing strategies or some new advertising products that the company has? So my question is related to advertising. So can management share with us the view on the latest advertising market recovery so far, especially in April and May? And then what is your expectation for the ad revenue growth in the second half of this year? And then if you can elaborate the performance by the industry category as well. And then also, if we look forward, what is the company at product and marketing strategy that you can think about to be able to improve the competitiveness in the market? Thank you.
spk03: Actually, we just talked about it in the SCRIM. In the first quarter, we saw Thank you for this question.
spk02: So as we have stated in the script that we have already seen that in Q1, the kind of recovery and also the growth trend of the advertisement industry in our company is actually pretty much weak due to the post-COVID. I mean, the release of the restricted policies, as well as the weak season or low season in the spring festival season. And also in Q2, as we have already stated, after March, we have been seeing that the growth of the advertisement business has been on the positive track, but still, you know, the growth rate-wise, it is still smaller than the same period of our last financial result of the same period.
spk03: In terms of the industry in particular, the major industries, such as mobile, digital, and car, most of the industries have basically recovered their investment in the consumer market after March. Although in some industries, you can see that their sales have dropped, but in fact, the trend of product sales upgrades, including competitive upgrades, is relatively obvious. With mobile phone numbers and cars as an example, in the first quarter, we actually achieved a double-digit increase. Especially in March, the increase was more than 40%. We also saw that the release of new mobile phones basically started in the first quarter. Although we can see that the cycle of change is getting longer, but we can see that all the manufacturers have launched some very high-tech new products in the first quarter to improve the value of their users. From this point of view, Weibo is currently a must-have for every manufacturer. As for the car industry, with the full transformation of traditional brands, in terms of new employees, Weibo has accumulated a relatively strong competitiveness in terms of content development over the past few years. So, second of all, in terms of the industrial verticals, now we have seen, for example, 3Cs and headsets, as well as the automotive industries.
spk02: So after March, we've been seeing actually a recovery trend in terms of our investment into the consumption market. So for some of these industries, although we've been seeing some of the decline on their sales, still there is a trend of the consumption upgrade or the competitive edge or competitive market upgrade as well. So for the industry of headsets and 3C digital products as well as the alternatives, we've been seeing a double-digit growth in Q1 for this third version business, and also after March, we've been seeing, especially in March, we've been seeing over 40% of the growth in this area. And also, in terms of the assets, we do see a lot of product launch and new product launch were happening in Q1. Previously, we said that it is becoming longer and longer in terms of the mobile phone or smartphone switch cycle. However, still, for most of those asset manufacturers, they're still thinking about launching those new products with a lot of technologies inside in Q1 in order to enhance the R pool value of their users. So Weibo is actually a must to choose a platform for them to collaborate with. And also our next one is for the automotive market. So now we've been seeing a further ramping of the electrification and also as a new energy vehicle in our top selected advertisement platform, Weibo had years of experience in terms of the content creation and also the content ecosystem for the automotive market. So actually, we are also a necessary choice among the automakers. So in Q2, on the overall basis, we believe that it is going to enjoy a much quicker growth, which is out of our expectation. I mean, especially surpass the budget that we made in the beginning of the year.
spk03: As for some other industries, although we are in the transition period in March, we can look back at the second quarter at the same time, but in fact, there are still some changes in the previous year. For example, in the e-commerce industry, we have seen some key customers' strategies. In fact, there are some obvious adjustments this year, either in terms of their competitive strategy or in terms of the structure of customers. In this regard, we are still, to put it bluntly, grasping a key point of the e-commerce platform 618. And in March, for some of the other industries, we've been seeing some of them actually are back on a positive trend, or some of the other verticals are going to recover their growth since Q2.
spk02: But actually, for some of the other industries that I'm going to talk to you about later, there has been actually a weaker growth rate than the same period previously. So for instance, for the e-commerce vertical, so for some of the key accounts that they have been adjusting their managing strategies and especially their competitive strategies, as well as their customer structures. So for this, as always, again, we wanted to actually seize the big opportunities, for instance, the June 18th Shopping Festival or the e-commerce big opportunity. So we do actually have seen a lot of order and also placement of the ad budget in this June the 18th of this year, way higher than that of last year, but still, it is still weaker than the previous courses for the e-commerce business.
spk03: On the other hand, FMCG, especially in the cosmetics industry, is still weak in the first quarter. On the one hand, it is due to the relatively conservative marketing plan set up by the advertising groups in December during the epidemic. On the other hand, after three years of repeated epidemics, especially in the second half of last year, the image of the cosmetics industry has been greatly affected. It still takes some time for users to recover from the actual purchase behavior. Um.
spk02: And also turning to the vertical of FMCG and in specific, we are talking about the cosmetics and also personal care products. So you can see that in Q1, they had actually a very weak performance due to two reasons. The first one was that since the December of last year during COVID, we were not releasing the restrictive policies in China. So last year in December, those advertisers in this particular industry were making the budget for the new year. So they were actually intending to be very conservative for the new year of 2023. And also second reason was that, you know, for the past three years, we had a COVID impact and pretty much, and also you can see that the FFCG industry or the cosmetic and also personal care industry is still in the cycle of consuming their existing inventory, so still take time for them to actually fully recover the new user purchase of the products. And also, next I would like to say is that especially for all the customers in this area, they're having a very conservative fashion in making their budget, and specifically we're talking about the new product launch plans. So actually this FMCG industry is actually much weaker than the other industries in terms of their planning of the new product launch. And also, of course, we've been seeing certain recovery during the 18th festival, but still, you know, the recovery speed is actually way lower than the expectation in the beginning of the year. So, you know, the reason for us to have an overall kind of a slower growth for our total business of advertisement is because that we have a very high percentage of the FMCG advertisement business accounted for the whole advertisement business. Okay.
spk03: Finally, in terms of marketing strategy, Weibo is actually a comprehensive platform. For example, there are exclusive articles and videos available. At the same time, it is available in all fields. For example, Weibo is available in all fields. I believe that it should be relatively well-known among all the marketing competitors. In fact, our budget for this platform On the other hand, it depends on the customer's commitment to the whole market, including the brand. If a new product of a certain industry has a higher frequency, and the customer invests more in this industry, our competitive advantage will be relatively strong. On the other hand, from an internal perspective, it depends on the diversity of content construction in our field. In the field of mobile phone, e-commerce, and car, we can see that in terms of content In the past few years, in comparison to most platforms, the competitive advantage is still relatively obvious. But we also know that in some consumer areas, for example, in the field of cosmetics and fashion, in the past few years, because of the epidemic, the flow of Weibo is mainly news, including articles, and this part is related to consumption. In addition, the content related to offline consumption has decreased in the proportion of Weibo platforms. Therefore, our strategy this year is to accelerate the recovery of these So finally, I would like to say that Weibo is a platform that is actually not having everything ready or everything in place and covering almost all the areas, including the text and
spk02: images that sort of videos. So actually, we are a quite diverse and also widely covered platform. So in terms of the total nature of disability, we are having actually a much better positioning than the other platforms. So you know, in terms of the development of our budget, so it is pretty much, you know, subject to the new power launch of our external customers, as well as their investment and strength, and also mindset into the branding activities. So for instance, if for some of the verticals, they have actually a much diverse plan on their new product launch and also pretty much, you know, intensive investment on the branding activities, we are going to enhance our competitiveness in those verticals. However, and also, you know, for instance, in the headset and also e-commerce and also automotive verticals, Weibo has years of experience in accumulating the content and creating a very good content ecosystem. So that is to say we gain a bigger advantage than the other platforms in this area in terms of the diversity of the content. However, in terms of the offline consumption related areas like the cosmetics or the beauty products, that sort of personal care or fashion, we've been actually performing pretty much weak in this area. And also this market is something that we have to further strengthen in the future. So previously in the past, most of our traffic or majority of our traffic were driven from the entertainment and also cultural industry, et cetera, but not that much from the offline consumption. So this year, our strategy is that further we have to strengthen our ability in capturing those opportunities in the offline consumption markets, for example, travel, food and cosmetics and beauty products, et cetera, to further gain momentum. And also, second of all, our strategy is focusing on the application of integrated marketing strategies so that we are going to further enhance our competitive fetch by doing that. Thank you.
spk04: Thank you. We'll now take our next question. Please stand by. This is from the line of Thomas Chung from Jefferies. Please go ahead.
spk01: Good evening, thanks management for taking my questions. May I ask about the margin outlook for this year? Any initiative on operating efficiency improvement May I also ask about our capital allocation plan and also our force on dividends? Thank you.
spk03: Let me answer the first question. The second question is for Cao Fei. The total cost of QE is about 17% lower than the previous one. We also talked about this issue at the last conference. Last year, we started to optimize the structure of the organization and focus on core business. Some of the most profitable positive effects of cost optimization this year will gradually be reflected from the first quarter of this year. At the same time, we continue to improve the advantages of channel breaking and continue to execute strict channel RY assessment strategies. At the same time, you will see that this year's first quarter, because I guess it's the same all year round, because mobile phone sales have not increased, but they continue to decline. So this part of the marketing cost So I will answer the first question and the second question will be addressed by Fei Tao. So first of all,
spk02: As we have already said in the prepared remarks that in Q1 on the overall cost and expenses, we have been having a reduction of 17%. And also in Q1 of this year, we are really sad that since Q4 of last year, we've been having the strategies in making the reorganization or restructuring of our organization structure so that on certain kind of a business. So in terms of the kind of impact to the overall margin and also profitability, we are going to see the value by doing that things this year. And also second is that, you know, we have already mentioned that we have a strategy of a general user acquisition focusing on that, and also further having the ROI related to channel user acquisition as an appraisal indicator. So, of course, in Q1, we'll be experiencing certain challenges in terms of the smartphones, for instance, reduction of the sales of the headset. So, in terms of the marketing cost, originally, actually, we planned that we might have actually an increase in terms of this particular area. But still, I think that due to the decreased sales of the asset and this marketing-related cost, we're going to keep a flat performance versus last year. And also, overall speaking, in terms of the margin, we expect to have a very stable development and also with a little bit increase in terms of the margin of this year. And also seems to too, because we have a now fully reopened market after COVID. So we expect to have more organizations of the offline activities. So this kind of expenses related to the organization of offline activities are expected to having a growth. So for the rest of the quarters, we expect to have the increase on the overall profit and margin.
spk07: Okay, and thank you for the question. Let me add some color on the margin. So most of our marketing funding, including channel investment, is discretionary. So it's all flexible. We could always manage through dynamic adjustments. As Sophie mentioned, we have successfully implemented a series of cost reduction and efficiency enhancement initiatives last year, resulting in a more focused team and a leaner cost structure. We will continue these initiatives this year. Moreover, our primary challenge is to restore our top-line growth in the second half. Rest assured, our focus on margin remains unvarying. As you can see that our margin has consistently maintained at a higher level within the industry. So regarding your second question, the technical allocation and usage of cash, generally we follow several basic principles in use of cash. First, the most important of all is to support the organic growth of our business, as well as the new business model such as our social e-commerce and new product inventing. The second way we will use cash is to invest through M&A within the industry. And third, in addition to investing in our own business development and acquisitions, we will consider to return excess cash to shareholders either by stock buyback or cash dividends. Regarding the announced Special Cash Dividend Program, this program demonstrates our commitment to delivering shareholder value and our confidence for long-term development. This commitment is supported by our consistent profitability track record and relatively joint ability to generate operating cash flows. We would like to share our thoughts and reasons behind this vision. We prioritize long-term competitiveness and financial flexibility, striving to enhance shareholder returns within this framework. As mentioned, Weibo has achieved sustainable profitability and possesses a robust ability to generate operating cash flow. We ensure that we will maintain a nice cash position after this distribution and continue to generate sufficient free cash flow to support the operation of the company. Our commitment to a healthy financial condition enables us to navigate market uncertainties and pursue strategic opportunities while safeguarding our shareholders' interests. Looking ahead, we will continue to explore various ways to reward our investors, including dividend payouts and stock repurchases. These measures will be carefully considered and aligned with our core objectives and subject to our board of school. Likewise, we remain dedicated to delivering sustainable value to our shareholders and maximizing their return. Hopefully this answers your questions. Thank you. Thank you.
spk04: Thank you. At this time, I will now hand back to the speakers for any closing remarks.
spk07: Thanks all Twitter and thank you all for joining our conference call. We'll see you next quarter.
spk04: Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.
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