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spk02: Good day and thank you for standing by. Welcome to the Waiver Report second quarter 2023 financial results conference call. At this time all participants are in listen only mode. After the speaker's presentation there will be the question and answer session. To ask a question during the session you need to press star 1 and 1 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw your question please press star and 1 again. Please be advised that today's conference has been recorded. I would now like to hand the conference over to our speaker today, Sandra Zhang. Please go ahead.
spk06: Thank you, Operator. Welcome to Weibo's second quarter 2023 earnings conference call. Joining me today are our Chief Executive Officer, Gaofei Wang, and our Chief Financial Officer, Fei Cao. The conference call is also being broadcasted on the Internet and is available through Weibo's IR website. Before the management remarks, I would like to read you a state-published 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. We will assume no obligation to update a 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 findings with the SEC. All the information provided in the press release is occurring as a date hereof. Weibo assumes no obligation to update such information except as required under applicable law. Additionally, I'd like to remind you that our discussion today includes certain non-GAAP measures which excludes 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 the future prospects. Our non-GAAP financials exclude certain expenses, gains or losses, and other items that are not expected to result in future cash payments or are not recurring in nature or are not indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP matters. The lady mentioned prepared remarks. We open the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gao Feiguang.
spk03: Hello, everyone. Welcome to the Weibo Q&A session.
spk06: Thank you. Hello, everyone, and welcome to Weibo's second quarter 2023 earnings conference call.
spk03: At this conference, I would like to introduce the progress of Weibo's users, products, and commercialization.
spk06: On today's call, I will share with you highlights in Weibo's user product and monetization in the second quarter of 2023.
spk03: On the user front, Weibo's MAUs reached 599 million,
spk06: and the average daily use rate 258 million in June 2023, adding approximately 17 million and 5 million users year-over-year respectively. In June, 95% of Weibo's annual use came from mobile.
spk03: In terms of commercialization, the second quarter, with the further recovery of offline consumption and activities, the demand for advertising has also shown a trend of overall recovery, and the overall recovery of advertising revenue has increased. The second quarter, Weibo's total revenue has reached 4.402 billion US dollars, with a decline of 2% that year. On monetization, leveraging for the pickup of offline consumption event in the second quarter,
spk06: we are pleased to see our ad revenues returning to the growth trajectory with a broad-based recovery on the advertising end site. In the second quarter, our total revenues reached $440.2 million, a decrease of 2% or an increase of 5% year-over-year on a constant currency basis. Our ad revenues reached $385.7 million, year-over-year, or an increase of 7% year-over-year on a constant currency basis. 94% of our air revenues came from mobile. Our non-GAAP operating income reached $153.8 million, representing a non-GAAP operating margin of 35%, thanks to the solid execution of our efficiency initiative over the first half of this year.
spk03: In the first half of the year, in the face of the post-pandemic era, the supply and demand of information has changed dramatically, and the global market has resumed its unbalanced challenge. We have significantly adjusted our operating strategy, and we have transformed the core economy of the product industry from the hot spots related to the epidemic in the past three years to the rest of the industry, and we have used new ideas. In the second quarter, we focused on strengthening the operating efficiency of hot spots, fish and consumer-based industries. In the second quarter, the platform's user activity has been further improved.
spk06: While anticipating the post-pandemic challenges generated from a shift in user interest and differentiated progress in ad demand recovery across various sectors in the first half of this year, we adjusted our operational strategy in the first quarter. We shifted our operational focus from pandemic-related hot topics over the past three years to the traffic recovery of vertical content. as well as cultivation of users' mindsight. In the second quarter, we focus on improving operating efficiency of hot trends as well as entertainment and consumption-related verticals in the second quarter, which further enhance the user engagement this quarter.
spk03: Next, let me share with you our progress made in product and monetization in the second quarter. On the channel front,
spk06: Our focus this year is to improve user acquisition capabilities through channels and boost our user scale and engagement. Despite the fact that the recovery of the handset shipment in the first half of this year is below our expectations, we continue to improve the efficiency of Weibo's hot trends and social products over the core positions of the handset devices in the second quarter. Collaborate with manufacturers to improve targeted reach to high-quality users. optimize push mechanism and content consumption experience, and improve retention of users acquired through channels. In the second quarter, the number of average DEUs from handsets which we collaborated with increased 40% from the first quarter.
spk03: In terms of social services, we adjusted the structure of our network products for the fourth quarter of last year. For example, the distribution of two-way relationships, combining the social skills of users in the community, helping users to expand their social relationships to expand the user's social network. At the same time, the combination of the user's improvement in the demand for passive consumer consumption and the relationship flow in the algorithm recommendation strengthens the advantage of the support of passive content and accounts in the passive field. These works are all to enhance Weibo's competitive performance after the epidemic. Second, the size of the relationship flow of human consumption has been further improved. In June, compared with the number of double-digit human efficiency increases in December last year, the passive consumer consumption of users has also been further improved. We will continue to enhance these works in the second half of the year. On social attributes, let me share with you the key progress we made in our products.
spk06: In the first quarter last year, we adjusted the structure of social products and reinforced the content distribution based on the social behaviors of users' social network in a relationship-based feed. On the one hand, we enhanced distribution of super-topic content in a relationship-based feed to improve social stickiness of users and help the user build up high-quality and real social relationships for an extended social network. On the other hand, we refined distribution mechanism to boost the traffic for content and accounts from key verticals in the relationship-based feed, given use of increased demand for content consumption on interest-based content verticals. All these efforts were made to improve Weibo's competitiveness in the interest-based content verticals post-pandemic. In the second quarter, the scale of content consumption per user in the relationship-based feed grew double-digit in June from last December. Users' consumption in interest-based content verticals further grew as well. We will continue to implement these efforts in the second half of this year. By leveraging the similarity during the summer holiday in the third quarter, we will set up a better distribution mechanism to boost traffic for vertical contents and KOLs. and speed up the traffic recovery for the interest-based accounting variables.
spk03: In terms of content quality, we have increased our investment in content-based content. In the advantageous areas of Weibo, such as literature, games, and animation, through the recovery of the external environment and the continuous implementation of our product operation efficiency, the flow and interaction scale of these content-based areas has increased significantly in the second quarter, which has also promoted the growth of the overall flow and interaction of the platform. In the literature area, in the second quarter, we used literature to coordinate activities, music conferences, movie promotions, and other current activities as a recovery mechanism, and deepening cooperation with celebrity companies and industry IPs, and expanding the content related to celebrities based on the production and discussion scale of hot spots. In the first half of the year, the flow and user interaction in the micro-billion area increased by more than 25% in the same period last year. In the first half of the year, gaming and e-sports have also maintained a similar growth rate, especially in the e-sports field. With the recent e-sports competition, we have strengthened the social cooperation of e-sports teams with the platform, In the first half of the year, the number of users increased significantly. The number of users increased by more than 50%. The number of users increased by more than 40%. The number of users increased by more than 100%. In the field of animation, as a second-level opportunity field, we quickly covered and activated the use of artists in Dalian Sea. We quickly gathered fans and boosted the active size of 20-person users. The number of users increased by more than 15% in the second-level of the group of artists. This boosted and strengthened the users' interest in Weibo in the field of animation. With the start of the new season, the number of animation activities We will continue to expand our investment in the ACG field of Weibo to help the ecological cooperative improve the influence and commercial value, strengthen the core of the business, and overall improve the acquisition and return of young users to Weibo.
spk06: On the content ecosystem, we increased our investment in vertical content this year. For Weibo's advantages, vertical, such as entertainment, online gaming, and anime, the traffic and user engagement exhibited a significant year-over-year growth in the second quarter. which benefited from the recovery of market environment and our continuous effort in improving operating efficiency. As a result, we was overall traffic and engagement grew rapidly. To elaborate, for entertainment vertical, we leverage offline activities such as entertainment, galas, concerts, and film promotion events in the second quarter to speed up vertical traffic recovery. We expand cooperation with celebrity agents and IP producers and generate more content and discussion around celebrities and entertainment-related hot topics. In the first half of this year, both the traffic and user engagement for the entertainment vertical grew over 20% year-over-year. The online gaming, esports, and anime verticals also delivered similar growth rates during this period. For the esports vertical, we focused on esports events over the past few years and strengthened cooperation with major esports clubs. In the first half of this year, the average daily traffic and the number of engaged users of this vertical grew significantly on a year-over-year basis, with over 50% growth for traffic, 40% growth for the number of engaged users, and over 100% growth for the user engagement. For the anime vertical, we've grasped market opportunity in the second quarter and rapidly encouraged many global anime artists to verify their accounts on Weibo, which in turn quickly attracted fans and promoted consumption from ACG users on Weibo. The number of engaged users for the anime artists community exhibited a year-over-year growth of 15% in the second quarter, which help to increase the usage of Weibo among users interested in anime. As offline esports events and anime activities resume, we will continue to increase our investment in the ACG vertical on Weibo, help our partners within the ecosystem to enhance their influence and commercial value, cultivate users' mindsets, and improve Weibo's capability in acquiring and engaging young generation users.
spk03: In the past three years, some professional industries have also been strengthened in Weibo, such as the automotive, digital and medical industries. Although the overall traffic size is lower than the language and ACT, but in the past three years, it has built a more complete and positive content business environment. Customer recognition and Weibo continue to explore the value of co-creation in content and marketing. With the recovery of the industry and consumption, the traffic and income in these areas have achieved the same growth in the second quarter. But there are also some users who have more content in their daily life, such as makeup, food, and are affected by the epidemic and external competition.
spk06: Over the past three years, some professional verticals, such as automobile, digital product, and healthcare verticals, have been strengthened. These verticals are more easily monetized, despite having less traffic scale than entertainment and ACG verticals. We have also created a more comprehensive and healthier content ecosystem in the past three years. Our customers are willing to further explore, create value, and achieve winning situation with us in terms of content and marketing. With the recovery of industries and consumption, the traffic and revenues generated from these verticals booked year-over-year growth in the second quarter. However, for the FMCT verticals, which used to be heavily consumed by our users, such as cosmetics and food verticals. The company ecosystem has been facing challenges over the past three years due to disruption from the pandemic and external competition. We anticipate the resumption of these verticals will take time as we are exploring differentiated operational strategy to reconstruct our company ecosystem, aiming to offer better support for the end market for these sectors.
spk03: In terms of the ecology of the head, the first stage of our focus is to complete the added value of the Tianya Xiu platform. Both sides carry out the transformation and completion of the business line for the core of the platform. On the second stage of the platform, we will select more head users with high influence and high commercial value, to provide traffic, operation and transformation support, to create a healthier head ecology. The flow of the head is in the second stage, and the interactive scale and commercial income will continue to increase in the second stage. In June and March, the flow of the head and the interactive scale will continue to improve. For our top content creators, in the first quarter, we have completed the transaction to increase shareholding of InMyShield digital technology. We revamped the VTech platform system together.
spk06: and completed various upgrades of our functions. In the second quarter, the platform selected more top KOLs with higher influence and social value and offered support to them in terms of traffic, operation, and monetization, aiming to build a healthier ecosystem for them. As a result, the traffic and the number of engaged users of top KOLs broke double-digit growth in June versus March. and the corresponding air revenues from VTASC grew over 50% year-over-year in the second quarter. By improving the operating efficiency of top content creators, we have created a more favorable monetization environment for them, further driving the continuous and healthier development of Weibo's content ecosystem.
spk03: Next, I will talk about the progress of commercialization. The second quarter followed by the recovery of offline activities to drive the 5G holiday and 618 e-commerce node, For example, travel and consumption demand have been generalized, which leads to a more obvious disarray in the advertising market demand. Most industries have shown a recovery or even a return to growth. For Weibo, we continue to strengthen the advantages of hot-point IP marketing and digital marketing in the second quarter to help the brand gain a faster trend and user awareness. And in this process, the combination of precise marketing discussions, brand experience, and consumer experience to maintain communication can strengthen users' awareness of customer brands.
spk06: Next, let me share some color on the monetization front. In the second quarter, we are encouraged to see that most industries have demonstrated solid recovery trend and returning to the growth trajectory, underpinned by a notable pickup in ad demand side, leveraging resumption of offline activities, as well as tent of travel and consumption demand during May Day holiday and the June 18th e-commerce event. We continue to reinforce our advantages in hot trend IP and new product launch, enabling brands to build market hype and earn recognition from users more efficiently. In the process, coupled with our targeted marketing reach, brands have established ongoing communication with consumers, thereby further cultivating consumers' mindset. This marketing combo has resonated greatly with numerous industries and clients after being introduced to the market.
spk03: The content and business environment of the entire industry on Weibo are interwoven to form a positive cycle. Weibo has not only become a must-select marketing platform for customer new products, but at the same time, in the period of customer marketing, it has entrusted the Weibo platform to build on the influence of IP, as well as to promote the heat production of customers together, enriching the marketing cooperation scene in the period of marketing, thereby strengthening Weibo's budget acquisition ability in the period of customer marketing. The overall driving force of the car number is the increase in revenue of more than 20 million people. For example, the current Gala mobile company's leading image function this year The second phase of Weibo is to promote Weibo mobile phone video activities, create high-end video IPs in the industry, and dig into the story of moving video users. At present, with the addition of Weibo and Honor, Apple and Huawei can determine what to expect. The reasonable influence of Weibo and mobile phone manufacturers on users' awareness and consumption of mobile phone images will promote the long-term development of the mobile phone industry. In the software industry, the growth of customer sales and the warm-up of the entertainment industry, combined with online entertainment and online activities in the second half of the year,
spk06: From an industry perspective, clients from the automobile and digital product sectors have already been highly recognized by Weibo's strengths in hot trends marketing. Therefore, partnerships between Weibo and these clients have entered a more advanced stage, with both sides not only collaborating extensively in advertising, but also investing more resources in product integration and content co-creation. Leveraging such synergies on the continent marketing front, Weibo has become a must-have platform for customers' new product launches, with a virtuous cycle formed around our organic and monetization content ecosystem. In addition, Weibo also strengthens its capability to capture ad wallets entering routine sales phase post the product launch. Leveraging enriched marketing scenarios by building a more influential IP and co-creating hot chats with clients. Driven by such synergies, the automobile and digital product sectors continue to deliver a decent revenue growth rate in the second quarter. For instance, as major handset manufacturers were heavily promoting their photography features. In the second quarter, Weibo launched the Weibo Mobile Photography Year event, aiming to create high-quality photography IP and uncover compelling stories from users. By far, Weibo and Honor have already signed up for the event. Apple and Huawei have also expressed their intent to collaborate. Through this event, Weibo and handset manufacturers are working together to influence users' perception of mobile photography and shape consumer mindsets, thereby promoting the long-term growth of the handset industry. As for the luxury sector, benefiting from increased marketing budget of clients and the rebound of the entertainment sector, we leverage the celebrity and hot-tracks effect of offline entertainment and fashion events in the second quarter resulted in a rapid year-over-year growth in the revenue from the luxury sector.
spk03: In the industry of film and television culture, clothing, health care, and hotels, the demand for online consumption in the second quarter has been released due to the fact that these industry customers hope to bring online sales through the promotion of online brands, and weibo can strengthen the ecological operation and hot points in related fields, effectively awakening and enhancing the mind of users. This industry has been able to increase the recognition and recognition of weibo's marketing. Weibo's ability to recruit customers has also been constantly improving. For example, in the field of medical health, we have strengthened the engagement of professional media and doctors in Weibo to strengthen the ability of medical health related hot spots to operate. The traffic in the field of medical health has increased by nearly 30% in the first half of the year, which has led to an increase of more than 30% in the second half of the second half of the year in the relevant industry. For example, in the field of buying drugs, we focus on health and its medical service platforms. The focus is to strengthen the advertising platform under the hot spot of medical health, to achieve health attention problems, to communicate with target users, and to improve the brand awareness of users.
spk06: For sectors such as entertainment, apparel, healthcare, as well as tourism, as pandemic receded, the pent-up consumer demand for offline consumption was unleashed in the second quarter. Clients in these sectors aim to drive offline sales through beefing up online brand promotion. In view of such marketing goals, Weibo effectively cultivated and strengthened users' mindsets through county ecosystem operation and in these sectors, leading to ongoing improvement in client recognition. Weibo has thus beefed up opportunities and capabilities to capture higher ad wallet in these sectors. For instance, in terms of the healthcare sector, we deepen the engagement of professional media and doctors on Weibo, and thus enhance our capability in operating on topics related to healthcare. As a result, the traffic of healthcare vertical grew nearly 30% in the first half of this year, leading to over 30% revenue growth for the sector in the second quarter. Medical service platforms such as , medicine delivery, APP, and JD Health focused on placing ad under the healthcare hot topics, which facilitated them to communicate with their target users on health-related concerns. resulting in elevated brand awareness and better recognition from our clients. We are encouraged to see our revenue from medical platform more than doubled in the first half of this year. On the other hand, the recovery rate of the game industry is not as good as we expected. Overall, the recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected.
spk03: The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of the game industry is not as good as we expected. The recovery rate of The budget for new games has slowed down, and the revenue growth of the industry still needs some time. In the gaming industry, after the recovery of the second quarter, more new games will be released. Many mid- and high-end games will have new games, and they will be able to cooperate with other companies. The customer strategy for core games will be adjusted, and the market sales budget will be reduced. Overall, the revenue growth of the second quarter of the gaming industry will increase. But with the long-term development of the second quarter, it will be even more important for game customers to face the big trend of sales. On the flip side, the cosmetic, personal care, and online gaming sector continue to show slower than expected recovery pace.
spk06: striking the overall growth of our ad revenue during the second quarter. To elaborate, some of the top multinational clients in the cosmetic and personal care sector faced headwinds from their own business operations and intensified competition in marketing, and thus slowed down their pace of new product launch. Due to such headwinds, it might take additional time for revenue from this sector to return to positive growth. As for the online gaming industry, We are encouraged to see a higher number of new games released after the resumption of game license approval in the second quarter, with more mid-tier games and new games stepping up their marketing cooperation with Weibo. However, due to the strategic adjustment from key online gaming clients and marketing budget reduction amid cost-cutting trends, the overall revenues from the online gaming industry continue on a descending trend in the second quarter. Universalist with normalizing gaming license issuance as well as greater trend toward premium game clients focusing on content marketing will continue to beef up our competitive edge around Weibo's gaming ecosystem and facilitate the long-term growth of our clients, leveraging the strengths of our hot trends and new product marketing offerings. Hopefully, we will expect to see a more meaningful recovery of ad wallets and online gaming sector in the third quarter. With that, let me turn the call over to Fei Tao for a financial review.
spk05: Thank you, Goufei, and hello, everyone. Welcome to Weibo's second quarter, 2023, Earnings Conference Call. Let's start with user metrics. In June 2023, WeWork MEUs and average DEUs reached $599 million and $258 million respectively, representing a net addition of 17 million and 5 million users on year-over-year basis. We are pleased with the user growth trend amid ongoing execution of a D6-level channel investment strategy. Turning to financials, as a reminder, my prepared remarks would focus on non-gadget results. All monetary amounts are in US dollar terms, and all comparisons are on the yearly basis, unlike otherwise noted. We experience halving to our financials due to the volatility of foreign exchange rates this quarter. Since our business primarily operates in China, while we report our financials in US dollars, our financial performance was affected by Edward's currency movement. Now, let me walk you through our financial highlights for the second quarter, 2023. Weibo's second quarter 2023 net revenue was $440.2 million, a decrease of 2% or an increase of 5% on a constant currency basis. Offering income was $163.8 million, representing a trading margin of 35%. Net income attributable to Weibo was $126.4 million, a 15% or 23% on a constant currency basis. representing a net margin of 29%. Simultaneously, the ETI was 53 cents compared to 46 cents last year. Let me give you more context on the second quarter 2020 revenue performance. We were advertising on the marketing revenues for the second quarter 2023 was 385.7 million, blackish, or up 7% on a constant currency basis. with advertising business improving month over month. Mobile ad revenues were 363 million, contributing approximately 94% of total ad revenues. The industry, in terms of growth, where they led to see a solid growth trajectory of automobile, concept, and e-commerce sectors, was the top largest contributor to ad-worthy increase. For automobile and concept sectors, Weibo has targeted customers with strong demands of building market cap and brand premium, such as customers from new electronic vehicle sectors and high-end manufacturers with high-end product launch. Weibo's brand plus performance social ad offerings resonated greatly with these customers and helped them target high-value users. With respect to e-commerce, underpinned by our comprehensive landscape, our sales team actually well in capturing higher ad budget from comprehensive e-commerce platform. such as Alibaba, as well as tapping into budgets from other key market players. The ad product, Promoted Fees. Promoted Fees ad was the largest, followed by Social Display and Topics and Search. Ad revenues from Alibaba for the second quarter was 26.8 million, an increase of 13% or 21% on a constant currency basis. As Alibaba reaccelerated its ad budget to capture opportunities brought by the first Semicast shopping festival post-reopening, as well as solidified its competitive mode. Before turning to that segment, let me share some preliminary curve on the trend entering the second half of 2023. Advertising market has been bottoming out month by month during the second quarter, with many sectors already returning to growth trajectory. In view of tailwind from policy stimulus and gradual consumption recovery, our team will beef up sales execution and work relentlessly to capture pent-up budget released into the market in the second half. With momentum of new product lines picking up, we have started exploring market opportunities and amplifying our monetization efficiency, leveraging our differentiated social edge labels. That's it. Given that over half of advertising revenue is generated from consumption sectors, a full recovery of consumption sentiment, especially in certain discretionary categories, will depend on the pace of macroeconomic recovery, which might be more developed than expected before policy stimulus, translating into consumption failure. Value-added surveys Value-added service revenue was $54.6 million in the second quarter, a decrease of 16% or 10% on a constant currency basis. The decrease was mainly due to the resignation of one-time technical service fee in the same period last year, and the last year in the contribution from membership service. Turning to cut and spending. Total cost expenses for the second quarter was $286.4 million, a decrease of 6%. Operating income in the second quarter increased 6% to $153.8 million, representing an operating margin of 35% compared to 32% in the same period last year. Turning to income tax. Under GAAP measures, income tax is spent for the second quarter for 25.5 million compared to 75.5 million last year. Net income attributable to labor in the second quarter increased from 15% to 23% on a constant currency basis to 126.4 million, representing a net margin of 29% compared to 24% in the same year last year. Such a more focused team and a leaner cost structure, we won't forget to deliver earnings growth, outpacing the top-line, demonstrating our ongoing execution of our efficiency initiatives. Turning to our balance sheet and cash flow items, as of June 30, 2023, we both cashed cash equivalents and short-term investments totaled $2.83 billion in the second quarter. Cash provided at operating activities was $142.5 million. Capital expenses totaled $3.4 million, and depreciation and amortization expenses amounted to $14.5 million. Before turning to the Q&A session, we are pleased to announce that we have completed the distribution of special dividends of 85 cents per ordinary share or EDI to our shareholders with aggregate amount of 200 million. Looking ahead, we will continue to embrace long-term growth opportunities while focusing on financial discipline with commitment to returning value to our shareholders. With that, let me now turn call over to the operator for closing session.
spk02: Thank you, dear participants. As a reminder, if you wish to ask a question, please press star 1 1 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 1 1 again. This will take a few moments. Now we're going to take our first question, and the question comes to Lan of Timothy Zhao from Goldman Sachs. Your line is open. Please ask your question.
spk00: Okay. Thank you, Guan Yicheng, for accepting my question. My question is about the resumption of advertising in the second half of the year. Could you, Guan Yicheng, share with us what we've seen from July to August, and what we see in the third and fourth quarters of the second half of the year, and which industries Thank you, Benjamin, for taking my question. My question is regarding the average harvest outlook into the second half of this year. Could Benjamin share any color on ad spending trend in July and August to date? And how should we think about the ad revenue growth in the third quarter and fourth quarter this year? And we've seen the verticals that Weibo has. Is there any specific verticals that we are going to see very strong recovery into the second half? Thank you.
spk03: Thank you. First of all, if we look at the second quarter, we have seen a recovery of about 13% of the total growth rate. This is a little better than what we originally expected. On the other hand, we will see that because of the 5-1 period, oil and the entire current consumption have received an intensive release. In addition, after the COVID-19 outbreak in June 2018, the first large-scale e-commerce node, e-commerce and the main industry advertising groups were relatively active, which led to a significant growth in our advertising revenue.
spk01: Thank you for your question. First of all, in Q2, thank you very much for your question. So first of all, in terms of Q2, we had actually maintained a positive growth year-on-year basis. So we had a 13 percent growth quarter by quarter and 7 percent growth year on year. So this was much better than before. And also, first, there are several reasons. First of all, is that the May Day holiday came. And also you can see that we had more revenues from the verticals like the consumption and also that people's travel as well. And also the 6th, 18th as the one of the biggest e-commerce events. taken place after the COVID, we have seen more placement and also the budget from the e-commerce sector as well. So these are all giving us the boost. Okay.
spk03: Then in July and August, we have seen that in July, we have won. In general, in July, compared to June, its average is a little bit down. I think this, as you can see, is consistent with Hongguan's entire consumption data, because after all, our 3.2% industry is linked to the overall consumption. And also turning to the July and also August, we have already finished our performance in July. So the growth rate has been a little bit down compared with that of the June.
spk01: because that was still associated with the macroeconomy and also the consumption-related performance, because two-thirds of our verticals are pretty much related to consumption. And also in August, we're going to have a better recovery pace than that of July. So overall speaking, we have the confidence over the recovery pace of the whole second half of year, but still we have to keep an eye on the macroeconomic development of China. Okay. Okay.
spk03: In the second half of the year, I will talk about the flow of the public sector. From July to August of this year, we will see the recovery rate of the cultural exchange market is relatively fast. Weibo's overall flow has now reached a historical high point, exceeding the peak during the epidemic. In particular, the whole hot spot and cultural exchange, including the rest of the flow, have been restored. But from our own perspective, we still hope to take advantage of our advantages and grasp some vertical areas of ecology. There will be faster areas, such as cars, mobile phones, and games, to increase the advertising budget of these industries. But in terms of demand, we also have some areas, such as food and tourism. In the past few years, in the past few years, including the foreign competition, the volume of these vertical areas, the overall volume ratio has dropped a bit. Our focus in the second half of the year is to support the development of this ecosystem. For example, in terms of the tourism industry, we launched the Weibo travel guide. This year, in fact, this activity has been suspended for three years. In fact, this year, the number of participants in the project is more than 9 million, and the volume of the topic is more than one billion. It can also significantly increase the consumption and content consumption of our entire tourism industry. It will be of some help to drive the growth of this industry.
spk01: And also further, I think that for the overall second half of this year, in terms of the verticals. So first of all, I would like to talk to you about the supply, which is all about the traffic. So in July and also August, we have seen a very, very good recovery in terms of the entertainment culture as well. And of course, talking about the overall kind of a traffic recovery, this is already better than the period during COVID-19. And still we're having a very good recovery, but still we have to focus on the vertical traffic and hot topics and hot trends, as well as the whole vertical of culture and entertainment. So still we have our strategies that are going to be later focused on certain verticals. For instance, we would like to increase the budget spending by the verticals like automobiles and headsets, as well as the gaming as well. And also still we have experienced some of the headwinds from the verticals like the food and the travel as well. Due to the COVID situation and also the severe competition in the past, we have seen a decline of the percentage of the traffic contribution from these verticals. However, still in the second half of year, we have to further give more traffic support to the verticals like the food and travel in order for them to develop. And also, as for the travel, for instance, we've been regaining the activity of travel with Weibo, which has been stopped for about three years during the past COVID period. So this year, still, when we are regaining this particular campaign or travel with Weibo as an event, we've been seeing the total number of participants exceeding 9 million and also the total number of hot topics exceeding billions or tens of billions. So these are all going to help us to have a very good recovery. Okay.
spk03: Okay. The sales of the entire industry may be fluctuating, but this industry belongs to a new generation. In fact, electric cars are going to be replaced by diesel cars. In fact, electric cars have already exceeded 50% of our sales. In terms of mobile phones, in the first half of this year, mobile phone manufacturers have become more aggressive in the competition for mid- and high-end mobile phones. Everyone is promoting new products. In the second half of these two industries, OK.
spk01: And also, I'd like to share with you some of the colors of those different verticals as our customers. So we have many different verticals, so I'd just like to give you some of the representative ones. So first two are the headsets as well as the automotives. So in the second quarter, we've been having a year-on-year growth of 20% for the headsets industry and also 40% for the automotive verticals. So that was pretty much related still to the sales trend of these two verticals. But still, you know, there are some of the updates and still, you know, the sales of these two verticals are fluctuated. But still, we do see some of the new highlights and some of the events happening for these two verticals. For instance, there is a switch from the ICE vehicles to the electric vehicles. And now the electric vehicles are accounting for about 50% of our sources of the advertisement revenue. And also in the first half of the year, we've been seeing a kind of a launch or promotion of a lot of new products of the headset industries. But still, in the second half of the year, we have to be aware that there might be more new products or new headphones or smartphones that are going to be launched by those brands, especially from Huawei or Apple. It's the same trend. So we are going to experience a pretty much good trend and good growth for the headset industry in the second half of the year. And also, still, we have to be aware that for the automotive industry, in the first half of the year, we had difficulties of seeing the budget, especially from the ICE vehicles because of their poor sales. They've been having a slow-down trend of the placement of new products of ICE vehicles because of the sales. So you can see that we have to have a strategy to focus on the development of the automotive and also the headset industries to actually change our strategies accordingly.
spk03: Okay. There are some industries that may recover faster after the pandemic. For example, like micro-businesses, food, and medical and health tourism. Okay. And also, we have other kind of verticals as our customers that are growing pretty much beautifully.
spk01: For instance, in Q2, we had over 20% of the growth witnessed for the vertical like culture and entertainment, luxurious products and healthcare, as well as the tourism and travel. So in the second half, we're confident that without any accidents of happening, we're going to have confidence of seeing the continuous momentum.
spk03: In addition, as we mentioned earlier, in the industry of makeup and gaming, the new products in the customer market are at a low pace. At the same time, customers may fall into some price points. In this respect, our budget will actually be under a lot of pressure. Although this part is related to makeup 618, the recovery rate is much lower than our original expectation. And also, next two are the gaming and also the cosmetics and personal care, for instance.
spk01: We've been seeing very hardly the case of the new product launch in the first half of the year. And also most of those brands in these two verticals are involved or engaged in the price war. So we have still some of the pressures in gaining the budgeting from these two verticals. We have been seeing a slight recovery of the beauty and personal care and cosmetics industry in the 18th of June of event. But still, you know, this particular recovery trend or recovery pace was still lower than our expectation. So in the second half of the year, still there are some of the headwinds of coming in. So we still have to be precautious over the recovery pace of these two industries.
spk03: Okay. In terms of the overall year-end time of Weibo, I can see that there is a big difference in different industries this year. But as for Weibo's overall strategy, we think that this year's In addition to these sales, we pay more attention to two points. The first is the recovery of our overall traffic, especially the recovery of our high-value users. The other is the recovery of our vertical industry. Because of the timely and discussative characteristics of Weibo in the past three years, I believe everyone can feel that through some news reports of this epidemic, it has been fully played out. Although we have gained user growth and overall influence in terms of sales, It also relatively suppressed the content and content ratio of users in the vertical field of Weibo. For example, some food, makeup, travel, photography related to life consumption. Compared to before the pandemic, the overall flow of Weibo has dropped significantly. So this year's focus is to restore the overall flow. I just mentioned that the flow in 7.8F should have returned to a historical high point. And also, as a whole, standing on this particular time point, I think that there are varied and heterogeneous recovery pace of different verticals.
spk01: So apart from still focusing on the revenue and also the budgeting gain from those verticals, we have another two additional focuses of this year for the rest of this year. First is that still we have to pay attention to the recovery of the overall traffic. And also second is that later focusing on those traffic supported to each and different verticals so that it's all about the traffic for the verticals. So you can see that still in the first half of the year, We have been seeing some of the nature of Weibo. For example, it is a great and popular place for people to discuss upon topics. So we do see actually more users and also the influential power of Weibo as a social platform was also enhancing. However, still this brought to some of the pressure or some of the suppression on the lifestyle and also local service related revenues. For instance, like used to be, we had a lot of traffic related to topics like the food and travel and photography, et cetera, et cetera. But we've been experiencing some difficulties there. So our focus for the rest of the year is, first of all, still overall pay attention to the recovery of the whole traffic for all kinds of different sectors and also topics. And second is that we are going to give a laser-focused support to the traffic, give the traffic laser-focused support to those verticals so that, you know, they are going to have a very good recovery. And also we can gain the momentum from the recovery of those all kinds of different verticals that we are working with. Okay. All right.
spk02: Thank you very much. Excuse me, Timothy, do you have any further questions?
spk00: That's it. Thank you.
spk02: Thank you. Now we're going to take our next question. And then the question comes from Miranda Chuang from Bank of America Security. If your line is open, please ask a question.
spk07: Thank you. In the end, you mentioned that you are more concerned about the recovery of the overall traffic flow this year, and you want to support more vertical traffic. So my question is, I want to follow up, can you share a perspective on the growth of users in the second half of the year, as well as the operation strategy of the content ecosystem in the vertical field of user traffic and our vertical field? I will answer your question. Thank you. So, thanks. I want to follow up management's comment on this year's strategy, which is to increase the overall traffic and also to beef up support for the vertical traffic. So, my question is, can you share your outlook for the user growth in the second half and also your operational strategies to boost the user traffic and then the vertical content areas? Thanks.
spk03: Thank you. In terms of the size of the users, we know that the amount of phone sales this year is not as high as expected. There should be more than 10% drop in the same year. Accordingly, the cost of food and drink has also dropped. Okay, thank you for your question. So first, let's talk about the scale of user. So first of all, you know, everybody is aware that the shipment of the headset in the first half of year experienced a decline.
spk01: of about 10% year on year. And also, as a result, the marketing expenses relevant to that was also decreasing. So our focus for this will be, first of all, increase the efficiency of the traffic, and second of all, focus on those high ARPU value clients, especially the traffic supporting those iPhone users and Huawei smartphone users as well. Okay.
spk03: In addition, from the point of view of the whole traffic, the core is still our news hot spot and Wenyu as the main two hot spots. In terms of traffic recovery, the second record, in terms of Wenyu, especially in terms of Wenyu, with the whole Wenyu event, including concerts, movies, and variety shows, the whole hot spot traffic has been significantly improved. In fact, you can also feel that the entire Weibo traffic increase will be more obvious in July and August. The main reason is And also in Q2, you can see more activities of the
spk01: And also still we are going to focus on the recovery of the traffic, especially from two areas. One is culture and entertainment. The other is the news and hot trends. So in Q2, especially talking about the activities of the culture and entertainment industry, we've been seeing more activities organized. For instance, the movies and theaters and also variety shows as well as the concerts, et cetera. So we had a very clear trend of the recovery and increase of the traffic in July and also August as well. This was mainly due to, for instance, more activity in the entertainment industry in the summer holiday season. And also in the first half of this year as a whole, we've been seeing over 20% of the growth for the interactive users number in the entertainment industry and also 50% growth versus the pre-COVID period. So that we are going to have a very good trend getting from that particular industry. Okay.
spk03: So in the second half of the year, our focus is more on maintaining the overall efficiency of the flow. At the same time, it is more important to maintain the recovery of the flow in the digital field. If we look at it in terms of types, we have some fields, such as mobile phones and cars. In fact, in the past two or three years, the flow ratio of these digital fields has continued to be invested. And also in the second half of year, we're going to focus first on the overall recovery of the traffic efficiency
spk01: also second is that give more support to those different vertical content and verticals as well so i've been already sharing with you some of the colors related to headsets industry and also the vertical of automotives which we had a great investment of traffic for the past one and two years and so in 2023 we have been seeing that you know the overall percentage or the traffic contribution to our total traffic from the headset and also the automotive industry has already been doubled versus the pre-COVID period. So that, you know, because of this very good trend and also a better kind of a revenue, commercial revenue, and also influential power increased, we are going to see more and more significance of the headset and also automotive vertical so that we can give more vertical support, traffic support to these two verticals. Okay.
spk03: At the same time, we will see that some vertical areas, such as makeup, fashion, and tourism, are in the third year of the epidemic. The demand for consumers on Weibo is the most obvious decline. In addition, there is also the pressure of external competition. So we see that when the epidemic just passed, these areas, in fact, in our entire flow rate, have actually fallen to less than half before the epidemic. So, in the first half of this year, we have also done some work in this regard. We will see that fashion is actually now recovering from the period before the epidemic. Then we also see that its corresponding industry, the food industry, its income is also starting to maintain a positive growth. But for the tourism industry such as makeup, it may not have recovered from the period before the epidemic. There is still a relatively large gap. The income of these corresponding industries, especially the income of the makeup industry, And also, next thing I would like to talk about are four of the verticals of beauty.
spk01: the cosmetics and personal care and fashion industry as well as the vertical of travel. So I know before the COVID period or during the COVID period, people's or users actually demand over these different products of these verticals actually declined. And also we had experienced a severe competition during the COVID period. So when the COVID control policy was just alleviated, I'm sorry, was just alleviated, was just alleviated, we can see that the kind of performance and also the traffic contribution percentage from these kind of industries are accounting for only half of the total traffic contribution percentage before the COVID period. So in the first half of the year, we had already, you know, we have already done something to actually support the operation from these, to these different verticals. And also now a very good trend is that the fashion vertical have already recovered their traffic percentage contribution to our overall traffic to the period before the COVID. And also in terms of the luxurious industry, the revenue from this luxurious industry actually was increasing and to a positive trend. And also for the cosmetics and also the travel, still we have been seeing a gap if we're comparing with the situation before the COVID. So as a result, you can see that the overall kind of revenue from the verticals of the cosmetics, had a year-on-year decline. So these will be still the verticals that we are going to laser focus on our operations support in the second half of the year. And also because when we had a very good recovery from those less than expected growth verticals, it is going to give us more influence and also we are going to optimize the total structure in terms of the traffic contribution to our overall traffic so that we can regain to a positive momentum of growth.
spk03: Thank you.
spk02: Thank you. Thank you. Now we're going to take our next question. And the next question comes from Daisy Chen from Haitong International. Your line is open. Please ask your question.
spk04: My question is about AIGC. I would like to ask Guan Licheng to share about the layout of the AIGC on Weibo, the application scene, and the current product planning. And another question is about the current progress. Thank you. I'll translate myself. Thank you, Benjamin, for taking my question. My question is about the AIGC. Can Benjamin hear more color about the deployment application scenarios, and product planning in AIDC, and what is the current stage of the development for this course? Thank you.
spk03: Okay. One is that in the last quarter, I have answered this question. In the last quarter, we mainly defined AIDC in two aspects. One is to help our platform to have a top-up account, and then to improve their individualized content generation speed. At the same time, to improve their interaction and connectivity with users. Okay, thank you for this question.
spk01: So I think that during the last quarter earnings conference call, we had already answered part of this question. So AIGC for Weibo has two functions. First is that we are going to enhance the production speed and productivity of those individualized contents by those key accounts on a platform or the big accounts on a platform, and also help them to enhance the stickiness and customer relationships. And also second is that it could help us to really supplement and also regain some of those medium to long tail accounts on Weibo. So you can see that for Weibo, in terms of the content creation, we have a characteristic, which is that the ecosystem for the top accounts or top ranking accounts is pretty much optimized and also, but still pretty much weaker for those medium to long tail accounts. So AIGC is going to be very much a supplementary in helping with those medium and long tail accounts in terms of the content generation. Okay.
spk03: After some customers order, our ITC producers help them to customize their products according to the customer's needs. This is already in use, but the scale has not been fully opened yet. I guess in the second half of this year, we will start to use it in our main W1 group. In the other hand, it is helpful for us to supplement some of our stock flow. For example, in some of our stock fields, such as food and tourism, And also in Q2, we've been seeing a very good trend of some of those big accounts, like hundreds of those important accounts of already trying the AIGC capability.
spk01: in helping them to actually cater the needs of their customers in writing some of the articles or creating some of the content that will have the similar style that their customers want. But still, this is not fully rolled out to the rest of the community. So I think that in the second half of this year, we're going to see more and more of those top accounts using AIGC capability. And also, second thing is that we really believe that it is going to be very important for giving us a further supplementation of the vertical traffic and also vertical content, especially in terms of the travel and also the food, et cetera. So because the top accounts, of course, are creating very good content in these two areas, but still we are lack of the good quality content for those medium level accounts and also medium level users. So I think that the AIGC is going to be of great help and support in this particular area so that, you know, the efficiency of operation of those medium level accounts could be pretty much enhanced. Okay. 另外一个就是我们现在二极度 在开始做测试的就是在社交互动方面,通过模型和精条,一方面对一些专业性比较强的领域,例如说
spk03: We are working with Dawei to create a model based on some of their historical data and some professional content. We are creating a style and professional AI chat service. We are also helping Dawei and their fans to have a certain amount of income. On the other hand, we are working with celebrities to train them. We are working with celebrities and fans to train them to have a certain amount of income. We are working with celebrities and fans to train them to have a certain amount of income.
spk01: And another two areas. First of all, in Q2, we've been seeing more and more high-efficient interactions created and generated because of the IGC. For those kind of quite professional and also specific topic-oriented accounts. like for the romantic relations and finance and Zodiacs, et cetera, et cetera. So because it does require a lot of very professional and also very much style-oriented answers. So we are using GC to offer those very professional answers. And also the capability of AI chat can also help these accounts of increasing their stickiness with their users and followers as well. and also thus generating certain revenue and income for those accounts. And the second part is that some of the medium-level celebrities are actually using and utilizing the capability of AIGC in generating images through images, and also the function of AI chat as well. So most of those medium level celebrities are already using this capability to enhance their daily operation. So starting from September of this year, we are gonna see more and more top level celebrities of trying and using this capability. Okay.
spk03: Okay, thank you.
spk02: Thank you for your question. Any further questions? Thank you, Daisy. Dear speakers, there are no further questions. And I would like now to hand the conference over to for any closing remarks.
spk06: Thanks, operators. This concludes our conference call today. We will see you next quarter. Thank you.
spk02: Thank you very much for participating. You may now all disconnect.
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