Weibo Corporation

Good day and thank you for standing by. Welcome to the waiver report second quarter 2024 financial results conference call. At this time all participants are in 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 1 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sandra Chang. Please go ahead.

Thank you, Operator. Welcome to Weibo's second quarter 2024 earnings conference call. Joining me today are our Chief Executive Officer, Gaofei Wang, and our Chief Financial Officer, Fei Cao. This conference call is also being broadcast on the Internet and is available through Weibo's 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 belief 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 20F and other filings with the SEC. All the information provided in this press release is occurring as of the date hereof. Weibo assumes no obligation to update such information except as required under applicable law. Additionally, I would like to remind you that our discussion today includes certain non-GAAP measures, which includes stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Waveboard's comparative operating performance and the future prospects. Our non-GAAP 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. who are not indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management prepared remarks, we will open the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gaofei Wang. Thank you. Hello, everyone. Welcome to Weibo's earnings conference call.

Today, I will share with you highlights in Weibo's product monetization in the second quarter of 2024. On the user front, by the end of the second quarter, Weibo's annual yield reached 583 million, and average daily use reached 256 million.

In light of an already sizeable user community and a mature user mindset, we have proactively adjusted our user strategy this year, with more channel budget allocated to the acquisition and engagement of the high-quality users. This quarter, our DAU versus MAU ratios increased year-over-year and quarter-over-quarter, reflecting further improvement of user engagement.

In terms of commercialization, due to the combination of our two-year focus on enhancing the hot spot and customer sales demand, Hot-point marketing is accepted by more industries and customers. The total revenue of Weibo in the second quarter reached $4.379 billion, including advertising revenue of $3.753 billion. Except for the exchange rate factor, the total revenue of the second quarter increased by 1% year-on-year, and the advertising revenue decreased by 1% year-on-year. The company's operating profit after adjustment of the second quarter reached $1.576 billion. After adjustment, the operating profit rate is 36%, which is slightly increased.

On the monetization front, in the past two years, we have been focusing on combining Weibo's Hot Trend products with Advertising's marketing demand. And thus, our Hot Trend marketing has been recognized by a wider range of industries and advertisers. In the second quarter, our total revenues reached $437.9 million, of which our ad revenues reached $375.3 million. On a constant currency basis, Our total revenue would have increased 1% year-over-year, and our air revenues would have decreased 1% year-over-year. Our non-GAAP operating income reached $157.6 million, representing a non-GAAP operating margin of 36%, a modest pickup year-over-year.

Next, I would like to introduce you to the second part of the progress in product operation and commercialization. In 2024, The company's overall strategy is still to increase the size and activity of platform users, strengthen platform content ecosystem competitiveness, and enhance platform management efficiency as the core goal.

Next, let me share with you the progress made in product and monetization in the second quarter. In 2024, we still focus on growing user skill and engagement, strengthening the competitiveness of content ecosystem, and improving operating efficiency as our key strategic objective.

In the back end of the channel, On the channel front, we maintain close cooperation with handset manufacturers, focusing on the acquisition of high value users and promotion of user engagement.

We also invested to further refine accuracy of algorithm and targeting capability of our business model in order to create enriched content offering for our channel users and increase their user engagement, which laid foundation for monetization.

In terms of social activity, on the basis of the second stage, the product of Guanxilou has further restored the growth of the content on the basis of improving the interaction between bloggers and fans, and improving the social stickiness of the platform. The connectivity of Guanxilou users has been continuously improved. On the other hand, We are investing in user-generated content this year. The financial system has perfected the growth path of UGC content in Vivo. We encourage users to create more UGC content around the virtual content ecosystem, and encourage users to be active. In the first half of the year, the social activity of platform users has significantly improved, and has increased by double. For user-interested sharing, we have further strengthened the core scene of user-interested sharing with the community. For example, We plan to expand star works in the field of music to enhance the excitement of the month. We plan to increase the number of releases and posts in the Japanese market by more than 50% in the second quarter. For the daily life sharing of users, we will improve the distribution mechanism, so that the content of ordinary users can be distributed more fairly into core scenarios, so that users who are able to continue to produce will be able to gain more fans. For example, in the second quarter, we will launch a new Weibo video competition to create a high-quality life sharing video competition for users. On social attributes, in the second quarter, while leveraging our relationship-based feed to further recover vertical content ecosystem, we strengthen the interaction between KOLs and fans, increase their user sickness, and improve user interaction efficiency.

of relationship-based feed. Meanwhile, this year, we have also been investing in user-generated content by improving the growth path of high-quality UGC in Weibo to encourage more quality content generation around vertical content and boost user engagement. In terms of user interest sharing, we further strengthen Supertopic community as a core domain for users to share interest-related content. In the first half of this year, user social interaction increased significantly with double digit growth year over year. For example, during the first half of this year, we increased the interaction between celebrity and fans by expanding campaigns of celebrity and their work. As a result, in the second quarter, the number of average daily users who posted and the number of posts in the entertainment related super topic increased over 50% year over year respectively. In terms of the daily live sharing content by ordinary users, we improved the distribution mechanism for those high-quality content to be fairly distributed in core feeds and help users who consistently generate content to accumulate fan base. For instance, in the second quarter, we launched a Weibo photography campaign to select high-quality UGC photography around daily life, aiming to encourage all users to record and share their daily life in multiple dimensions. During the first campaign in May and June, nearly 500,000 users shared their photography and contributed over 2.1 million photographs, attracting over 3 million users to engage and interact.

In terms of the content and ecology, we are keeping our focus on the basics of the ecosystem, The focus is on digital, car, games, fashion, makeup, medical health, and so on. At the same time as improving the platform's ecological performance, we will also further enhance our commercial transformation effectiveness.

On the content ecosystem front, in the second quarter, while maintaining our competitiveness in the IP-related content ecosystem of hot trends, entertainment, and events, we focus on increasing investment in verticals such as digital products, automotive, game, fashion, and beauty, and healthcare, to enhance Weibo's competitiveness in the content ecosystem and further improve monetization efficiency.

In terms of the heat and IP ecosystem, in the second quarter, with the abundance of content in Weibo's works, we use the ecological advantages of Weibo's new fans and works, as well as the serious advantages of the cross-division, to attract more users to participate in the consumption and discussion of Weibo content. The number of users in Weibo has increased by double. For example, in the second quarter, Weibo has a Hunan TV music variety show, GOSHO 2024 is a deep-rooted collaboration based on live broadcasts, cross-pollination interactions, and real-time hotline response. Weibo recommends online activities through GOSHO, such as voting for PK candidates on Weibo, as well as real-time hotline response and other interactive forms, as well as programs, which have become the mainstream media in the first half of the year. The total number of readers of GOSHO programs is more than 6 billion, and the number of users is more than 5.6 times. This kind of hotline and social interaction platform model not only makes the program more influential, but also provides a more diversified business plan for brand customers to bring us sustainable growth. The second group of college entrance exams is also a hot topic of attention every year. In this year's college entrance exam operation, Weibo focused on the discussion of professional and academic college entrance exam for the postgraduate professional and graduate school exam of the People's Daily Postal Service. It fully mobilized experts and bloggers in the field of education, medical, digital, car, finance, and so on, to provide professional learning, examinations, In the second quarter, with the release of plentiful entertainment work, we leverage our advantage of celebrity and fans and entertainment work, as well as fans' interaction across verticals

we encourage more users to consume and discuss around entertainment content. As a result, the number of user interactions in the entertainment vertical increased double-digit year-over-year. For example, in the second quarter, we reached in-depth cooperation with the music variety show CINAHR 2024 of Hunan TV station on cross-screen live streaming and real-time hot topics to achieve user interactions. The show became a phenomenal hit in the first half of 2024 through launching innovative campaigns on Weibo, such as allowing users to recommend Thinner across platforms, start candidate polls on Weibo, and roll out real-time call trends around the show. The total views of the show, Thinner 2024, exceeded 60 billion times, and the number of user discussion exceeded 560 million times. This Hot Trend Plus social interaction pattern between TV and social media not only makes the show influential, but also provides brand advertisers with more diversified marketing solutions and generates sustainable ad revenue growth for Weibo through Hot Trend Marketing. During college entrance exam season this year, we cooperated with People's Daily to boost discussion on university's major selection and application after the entrance exam, and organize the expert and KOLs of over 10 verticals, such as education, healthcare, digital product, automotive, and finance, to share with examinees on suggestions of professional learning, application, and industry employment. The total view of college entrance exam-related content reached 38.9 billion times in June, and the number of user discussions exceeded 110 million times, representing an increase of over 50% compared with the same period last year.

In terms of industry and digital content, we continue to strengthen our second group. One is digital content and ecological construction, including digital professional content and guided cross-linked bloggers. and the media participate in the production and transmission of CYZ hot spots. The growth of CYZ in the industry has allowed them to get better commercial returns on the platform. In the second quarter, the automotive and digital fields continue to play a role in the operation of CYZ hot spots in the industry, brands, and products. The scale of CYZ in the automotive and digital fields has been improved compared to last year by the volume of the platform, the scale of the goods, and the advertising revenue. For example, in the automotive industry, with the increase in competition in the new energy market, On vertical content operation,

We continue to focus on two aspects in Q2. First, we strengthen the construction of vertical content ecosystem, including supporting vertical content and engaging cross-field accounts and media outlets in the generation and distribution of vertical hot trends. Second, we beef up the support of golden and orange verified account in vertical areas and empower them to earn higher commercial returns on our platform. In the second quarter, we continue to reinforce hot chain operation in automotive and digital product verticals with emphasis on industry brand and product. As a result, the number of Golden Verify account in automotive and digital product verticals, as well as their traffic, interaction, and air revenue on our platform, continue to increase year by year. For example, for the automotive vertical, As competition in the new energy vehicle market intensified, OEMs stepped up their investment in content operation. In the first half of this year, over 30 manufacturers, auto manufacturers, and around 100 executives of auto industry registered or activated Weibo accounts. Thanks to the content contribution from these executives, KOLs and media accounts in the automotive industry also actively created follow-up hot topics. We are pleased to see our client join us in building the automotive content ecosystem, which not only help clients to refine brand operation and product promotion, but also lay the foundation for our long-term business cooperation with clients.

In the field of games, as we continue to invest in the game content ecosystem for the next three years, Currently, it covers 80% of the game operation of PUBG100. Users continue to grow and interact with each other, and continue to grow. It has also contributed to the growth of gaming micro-bloggers. In the second quarter, gaming micro-bloggers grew by more than 80% in the same period as last year. Gaming traffic and interaction increased by more than 30%. Due to the expansion of Weibo game content and the improvement of Weibo gaming micro-bloggers' influence, our cooperation with gaming customers is also closer. As for the online game vertical,

Filled upon content construction of online game ecosystem over the past three years, we have covered over 80% of the top 100 games in terms of content operation. UGC creation and interaction thickness continue to improve, leading to rapid growth of the Golden Verify account in the online game vertical. In the second quarter, the number of Golden Verify account in this vertical increased by over 80% year-over-year. with their traffic and interaction grew over 30% on annual basis. Leveraging Weibo's expanded advantages in the online game ecosystem and higher influence of Golden Verify accounts, we have built closer partnership with online game clients on content marketing. In the second quarter, nearly 50% of the commercial project for green promotion chose to cooperate with Weibo in hard-trade marketing demonstrating better recognition of Weibo's Golden Verify account among clients in this industry. The ad revenue of Golden Verify account from the game industry increased by over four times year-over-year. We are delighted to see that the online game vertical has gradually entered the self-reinforcing cycles between content and monetization ecosystem, similar to the automotive and digital vertical.

Moving on to monetization, in 2024, we will continue to beef up our efforts to reinforce our monetization competitiveness.

Leveraging Weibo's strengths in hot trends and IPs, as well as thriving vertical content ecosystem, will sharpen the competitive edge of our content marketing and performance ad product in the hope of enhancing our capabilities to navigate through business risk in key industries.

In the second quarter, the advertising market is still weak. Our advertising revenue has decreased by 1% compared to the exchange rate. In terms of the industry, in the second quarter, Our advantageous industry, mobile phone and car industry, has still maintained a positive growth. The main benefit is the recognition of customers' recognition of Weibo's hot-point marketing model. Weibo maintains stability in the customer marketing budget and improves it. It is due to the high read-through and discussion volume of the top IP such as singer 2024 on the platform. The platform has attracted a lot of customers to launch hot-point IP. We also brought an increase in hot-point marketing business income. For example, in the second quarter, Weibo and Weibo launched content marketing strategic cooperation. The deep co-creation of content between the platform and the brand will expand the sales related to the release of original new products to the daily hot spot event of the whole year. The comprehensive improvement of the brand and product will have a profound impact on the user and the mind. For the second quarter, Vivo launched the X100 series as an example. After the release of the May new machine, Vivo announced that the second quarter of the live performance will be the peak period of the high-profile variety show singer 2024. The active participation in the hot spot content contributes to the strengthening of Vivo X100, the song will be magical, and the difference in the identity label, Amid a relative soft end market in the second quarter,

our ad revenue decreased 1% year-on-year on a constant currency basis. By industry, our advantageous industries, such as handsets and automotive industries, sustained solid growth trends, benefiting from clients' recognition of Weibo's hot-trend marketing. Therefore, our ad-worthy share of clients' marketing budget in this sector either remained stable or increased. Thanks to the impressive topic views and discussion generated by the blockbuster IPs, such as Synerg 2024. Weibo attracted many clients to launch campaigns around these IP-related hot trends, which brought forth incremental hot trend marketing dollars to our platform. For example, in the second quarter, Vivo and Weibo reached strategic cooperation in content marketing, achieving in-depth co-creation of content between Weibo platform and the brand. To elaborate, we expanded the marketing initiative on new product launch to daily hot trends throughout the year, and thus comprehensively enhanced the user reach and nurtured user mindset of the brand and its product. Take the Vivo X100 series launched in the second quarter as an example. After the new product release in May, Vivo took advantage of the peak period of offline concert in the second quarter. and the popularity of a variety show, Dinner 2024, actively participated in the co-creation of Hot Trends and strengthened user awareness of the differentiated tag of the Vivo X100 series concert go-getter to enhance user penetration of Vivo's portrait photography. We successfully helped Vivo achieve the first place in a due track of concerts and telephoto. In the current internet IT market, clients will gradually concentrate on the top IPs. This trend can also be seen from the traffic structure of Weibo. The traffic and monetization opportunities brought forth by the top IPs were significantly higher than those from mid-tier IPs.

In the second quarter of the US industry, the international market is still under pressure. Affecting the rhythm of new products and the investment of customized traffic, making every industry in Weibo the same rate of income is still a certain degree of decline In order to promote the client's willingness to promote new products in Weibo, to enhance the effect of new products, this year we will further strengthen the cooperation between e-commerce platforms and domestic brands to explore the new products of the fast-trade industry in the cooperation promotion of social platforms and e-commerce platforms to achieve a more stable growth in the fast-trade industry in the future In the second quarter, Tianmao and I began to carry out joint promotion of new products in some industries such as make-up, clothing, and shoes. Through Weibo's hot marketing ability, we let the new products of the market obtain the full chain of value from social impact to e-commerce purchases. In addition, customers are aware of the value of Weibo's hot marketing, and the awareness of the new products cultivated and stabilized by users on Weibo. In the third quarter, we will continue to explore this model with Tianmao and cover more industries and customers. As the customers accept Vivo's hot marketing model as a product, and as we expand the coverage of our domestic makeup customers, we hope that the makeup industry will fall in the same direction in the fourth quarter.

On the flip side, in the second quarter, the sales of international cosmetic brands were still under pressure, which negatively affected the pace of new product launch and thus their scalable budgets. Therefore, our air revenue from the cosmetic and beauty sector continue on a descending trajectory year-over-year. In order to boost clients' willingness of new product marketing and its effectiveness, we step up our cooperation with e-commerce platforms and domestic brands this year. To elaborate, we actively explore the synergy of new product launch of the FMCG industry between social and e-commerce platforms and provide clients with better marketing support. We hope these efforts could translate into more stable growth in the FMCG sector in the coming quarters. In the second quarter, we started the cooperation on new product launch marketing with Tmall with focus on the cosmetic and beauty as well as foodware and apparel industries. Leveraging Weibo's strengths in hot trend marketing, we offer full funnel value proposition to clients from social influence to e-commerce conversion. With this partnership, we hope to enhance client recognition of the value of Weibo's culture and marketing and also cultivate and reinforce users' mindsets of discovering new products on Weibo. We'll continue to explore this model with PMO in the third quarter and try to penetrate into more industries and clients. With higher client recognition of Weibo's culture and marketing, and a broadening coverage of domestic beauty brands. We hope to see our ad revenue in the cosmetic and beauty sector stabilize or return to growth year-over-year in the fourth quarter.

From your point of view, Weibo's marketing service is based on the current market structure. Based on the marketing service model of brands and services, it is upgraded to focus on hot IP, star QL, and sales ads as the main content marketing service model. Through the adjustment of the sales system and product service in the past two years, the market performance of these three types of products has also been gradually strengthened, and more and more of them have become the core drive of our income. These three types of sales products directly bring in a total revenue of more than 50% of the total revenue. Among them, hot spot IP marketing services are mainly in the fast-selling, digital and car industries. These customers use Weibo's hot spot marketing services to increase their products' influence through hot spots or become real hot spots. The marketing services of celebrities and KOL mainly focus on shopping, makeup, shoes, clothing, and other industries. Customers can combine with celebrities or professional KOL to increase the accuracy of the sales decision-making of fans and influencers. Although sales ads have been competitive in recent years, we have gradually increased the competitiveness of Weibo sales ads through the combination of algorithmic optimization and social native ads. Although in terms of revenue, these two years have not been the main contribution of revenue increase,

Overall speaking, amid the current competitive landscape, based on the current brand plus performance ad offerings, Weibo's marketing service has upgraded to content marketing solutions with emphasis on hot trend and IP, celebrity and KOL, plus performance ad. Leveraging adjustment in the sales structure and ad product in the past two years the market competitiveness of these three types of ad offerings has gradually improved and become the key driver of revenue. Ad revenue directly generated by these three types of ad offerings account for over 50% of our total ad revenues. From industry perspective, the hot trend and IP marketing finally serve the FMCG digital product and automotive industries. Clients in these industries seek to amplify their product influence, leveraging organic hot trends, or even build market hype around their new products through Weibo's hot trend marketing. The celebrity and KOL marketing mainly caters to the luxurious goods, cosmetic and beauty, as well as foodware and apparel industries. Clients can better reach fans and influence their consumption decision with higher accuracy by working with celebrities, and KOLs in professional areas. Finally, despite the fierce competition in the performance ad market in recent years, we are gradually improving our competitiveness ad through algorithm optimization and social native ad offerings. Although performance ad has not become the main contributor to revenue growth in the past two years, performance ad offerings are crucial for us to broaden client coverage and identify high-quality clients.

Comparing with other platforms, we have the competitiveness of the mass transformation effect. Weibo's competitiveness is more experienced in the marketing of media-based and brand-based headings, and in the content marketing of hot IP stars. This is very important for us to acquire customers' products for the marketing of new market-related products on the internet. Moreover, as we further strengthen the marketing, competition, and industry vertical business construction, we will combine the content business with the business business better, In contrast to other platforms' competitive edge in traffic-based monetization, we have built our competitiveness on media-oriented and brand-oriented eye placement, as well as content marketing based on hot-trend IPs and celebrities.

These differentiation are critical for us to obtain marketing budget for product promotion and user mindset. Meanwhile, as we further strengthen the construction of content ecosystem in the entertainment, sports events, and industry-based verticals, and better integrate organic content ecosystem with commercial content ecosystem, our business model, which is mainly based on brand plus celebrity marketing and content marketing, while supplemented by performance act will be more conductive to improving the platform's monetization efficiency. This is also our most important strategy and objective for strengthening our monetization competitiveness in future.

With that, let me turn the call over to Fei Cao for a financial review.

Thank you, Baofei, and hello, everyone. Welcome to Weibo's second quarter 2024 earnings conference call. Let's start with user metrics. In June 2024, Weibo's MAU reached 583 million, and average DEU reached 256 million. As communicated last quarter in 2024, we have proactively adjusted our user strategy to put more emphasis on the acquisition and engagement of high-quality users, as demonstrated by improved DAU versus MAU ratio this quarter. Turning to financials, as a reminder, my prepared remarks would focus on non-GAAP results or monetary amounts in US dollar terms, and all the comparisons are on a year-to-year basis, unless otherwise noted. Let me walk you through our financial highlights for the second quarter, 2024. Weibo's second quarter 2024 net revenue was $437.9 million, a decrease of 1% or an increase of 1% on a constant currency basis. Operating income was $157.6 million, representing an operating margin of 36%. Net income attributed to Weibo reached $126.3 million, representing a net margin of 29%. Diluted EPS was $0.48. Let me give you more color on the second quarter 2024 revenue performance. Wave was advertising and marketing revenues for the second quarter 2024 was $375.3 million, a decrease of 3% or 1% on a constant currency basis. reflecting muted ad demand amidst typid macro environment. Mobile ad revenues were $352.3 million, contributing approximately 94% of total ad revenues. In terms of growth, 3C products, e-commerce, and entertainment were the largest contributors to growth. We are delighted to see sustained ad-worthy increase of concept sector live quarters leveraging a robust content ecosystem and a dynamic discussion web around 3C products. The entertainment sector demonstrated good momentum this quarter, driven by blockbuster TV programs and Weibo's unique value proposition for hot trends. On Slipstat, the top-land recovery was still jacked by underperformance of the FMCG sector. Despite a modest growth of the food, beverage, and apparel sectors, the cosmetics and personal care sectors still feel behind due to a large ad budget from MNC and the intense competition among ad platforms. For ad products, promoting seed ads was the largest, followed by social display and topics and search. Ad revenues from Alibaba for the second quarter for $32.4 billion, an increase of 21% or 23% on a constant current basis. We are pleased to see the solid ad growth from Alibaba continue throughout the first half of 2024, as Weibo's brand-slash-performance solution resonated well with Alibaba to fulfill its first-funnel marketing goals. Before turning to Red Segment, Let me share some preliminary color on the trend entering the third quarter of 2024. On the upside, Weibo continues to be the go-to platform to discover and discuss around hot trends during the summer Olympics, which boosted user engagement and attracted intensive ad placement. That said, with a chunk of AdWords ad budget allocated to the Olympic Games, We expect relatively low growth at the moment, post the Olympic season, factoring in sluggish consumption data. We will beef up our sales execution and enrich the Wisconsin ecosystem in the second half of the year in the hope of mitigating macro and industry headwinds. Turning to Beth, Beth's revenues were $62.6 million in the second quarter. an increase of 15% or 18% on a constant currency basis, primarily driven by revenue growth of membership services. We have benefited from improved ARPU for membership services since they rolled out premium S-VIP features to cater to the need of BT users. Turning to costs and expenses, Total costs and expenses for the second quarter were $218.3 million, a decrease of 2%. Operating income in the second quarter was $157.6 million, representing an operating margin of 36% compared to 35% in the same period last year. Turning to income tax, under GAAP measure, income tax expense for the second quarter was $33.3 million, compared to 25.5 million last year. The increase was mainly due to the withholding tax accrued related to earnings to be remitted from our WUFI to our Hong Kong subsidiary, which is to fund our demand for U.S. dollars in business operations and the payment of dividends and debt, et cetera, in future. Net income attributable to Revo's shareholders in the second quarter was $126.3 million, sluggish year-over-year. Net margin was 29%, sluggish versus the same period last year. Turning to our balance sheet and cash flow items, as of June 30, 2024, Revo's cash, cash improvements, and short-term investments totaled $2.84 billion. We have made a special tax dividend payment of approximately $199.4 million in May. In the second quarter, cash provided by operating activities was $132.1 million. Capital expenditures totaled $10.3 million, and depreciation and amortization expenses amounted to $14.5 million. With that, let me now turn it over to the operators for the Q&A session.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. We will now take the first question. From the line of Alicia Yap from Citigroup, please go ahead.

Hello, thank you. Then I can share with you that in different vertical industries, have you observed any changes in the advertising industry? That is to say, have you seen any changes in the vertical industry? Then the management team feels that the current Thanks management for taking my questions. Can management comment a little bit how you view the overall macro outlook and how will that translate to your advertising outlook for the second half of this year? And then can you share with us whether you have observed any meaningful change of the advertiser sentiment in the different industry vertical? Any particular shift of the sentiment from any advertiser that you might have observed? And also does management believe the current macro environment could actually last into next year? Thank you.

In the second quarter, our advertising revenue is about the same as that of RMB. In fact, from our point of view, although the consumption of the overall industry in the second quarter has dropped a little, the desire of advertisers is still relatively stable. I think the second quarter, our revenue expectation, including the completion of revenue, is mainly due to the deterioration of the makeup industry that I mentioned earlier. This industry is about 5% of our deterioration. And then most other industries are still growing.

Thank you very much for the question. So first of all, in terms of advertisement revenue in Q2, from a Renminbi standpoint, this was flat versus the last quarter and also year-on-year-wise. And also you can see that although we've been experiencing some of the decline and also the decrease of the overall consumption, but still the willingness of placing the ads with this from the advertisers So in terms of the overall revenue in Q2, we can see that there was a politically negative impact by the verticals like the cosmetics and beauty products by about 5%. But for the rest of the other industries, we're experiencing pretty much a growth. Okay.

There are still some uncertainties in the consumerist consumption, so our overall prediction for the next 24 years will actually be much more cautious. We will also see that the total number of social consumer goods sales in the first-tier cities will actually increase or decrease. This will certainly have a certain impact on the cautiousness of the overall advertising market, including the investment of customers. But we see that after all, Weibo is just a big part of the advertising market. Although the overall customer profile is relatively clear, I just mentioned that for brands or for new products, customers will focus more on the head platform and the head IP. On the other hand, it will be more helpful for us to get the budget.

And also, in terms of the Q3 outlook and also the second half performance, there are still some of the uncertainties in terms of the macroeconomic development, especially about the consumption. So we remain very much precautious over the outlook for the rest of 2024. So still, we will be experiencing some of the challenges in terms of the resumption of the consumption and the macroeconomy in the first-year cities, for instance. And this is, of course, going to impact some of the willingness of placing the ads by the advertisers. But still, you can see that against the other players in this advertising industry, Weibo's advertising business is relatively not that big. So still, we are seeing some of the precautious behaviors of the placing ads by the advertisers. But still, in terms of the new products launch and some of the other relevant advertisements related to the new products, the customer's are tending to choose those top-notch IP and also top-notch platforms to do their advertisement and also promotion. So this is going to help us to acquire additional budget from this standpoint. Okay.

So, from our point of view, we have three types of customers. The first type is more of a fast-selling industry. That includes food and drinks, shoes, and文娱. In these industries, the overall consumption scale is relatively large. Although customers are placing ads more and more cautiously, there is no doubt that they have more to do with the hot spots in advertising, including the combination of investment platforms. This will make it more and more centralized. In these three seasons, we will see the hot spots of the Olympic Games, including IP marketing. Compared to our situation, the level of competition placed by customers in the Tokyo Olympics a few years ago, including the sale rate of the business itself, has been significantly improved. That is to say, customers are more willing to buy the head IP and the head hot spot.

And also, furthermore, we can see that we are able to divide the customers into three categories or three kinds. The first category is in the FMCG industry, including the food and beverages, the apparels and shoes, as well as the entertainment and also the vitamin industries. So still, the scale of the consumption or the volume in total is pretty large. So even if the customers are pretty much precautious in allocating their budgets for developments, but still, they're quite intentious in searching for new IP and also concentrate on those top-notch platforms. So for instance, in Q3, we had the big activities like the Olympic Games. And you can see that in terms of the hot trend selling rate and also the other parameters, we are seeing a very good improvement and also the boost. So meaning that the customers are willing to spend budget on acquiring those top-notch IPs and also collaborating with the top-notch platform. So from this standpoint, Weibo still stands in terms of our advantages. Okay.

The advantage of the hot spot and the ability of us to combine our business and content with the manufacturers, we think it is still more advantageous in the whole market. For example, everyone knows that this year, the number of voting rooms for the ruling party has dropped. And also for the other industries and verticals, for instance, the headsets and automotives and gaming,

as well as films and movies and those entertainment industries, for instance, we were experiencing pretty much pressure and stress over the consumption improvement and resumption. But still, most of the competitions are pretty much around the new products and some of the new movie marketing, for instance, and also promotion. So people and also different companies are competing with each other to get more market share around the marketing for new products and new launches. So Weibo still holds our advantage in this particular area in terms of hotline, you know, social topics, as well as the very good relationship with some of the customers. So in that sense, for instance, in this summer holiday, the box office of most of the new movies, you know, slowed down or decreased a lot year on year wise, comparing with the same period last year, almost halfened in terms of the total value of the box office. But still, because of a very good relationship and our customers are choosing Weibo to promote their new products and also increasing their budget on us. So from this standpoint, we are still increasing our revenue and we do have our advantage in this area.

In addition, as I mentioned earlier, there is still a certain pressure in some short-term industries, such as makeup. We are more worried about whether there will be such a situation in the second half of the year. This industry is indeed experiencing a very strong decline in consumption, and customers are no longer pushing new products to the market. In this case, the sales of customers on the Internet are mainly based on commercial ads and this kind of big sales. And also for the third category, we're talking about those stressful industries, for instance, the cosmetics and beauty products.

and also some of the luxurious brands. We've been seeing a very stressful situation over the resumption and increase of the consumption as a whole. So in this particular industry, the customers are not choosing to launch any new products in order to get better results. So as a result, we've been seeing most of the ads were pretty much performance-based ads or some of the discounts and promotional activities or campaigns. So Weibo is less competitive in this front. So, of course, we can still gain our revenue by getting the budget of the performance-based ads from our customers or organizing some of the campaigns for our customers. But still, Weibo is less competitive versus the previous two categories and also the marketing methods in this arena. Okay.

Thank you.

Thank you.

Thank you. We will now take the next question from the line of Xueqing Zhang from CICC. Please go ahead.

Thank you, management, for taking my question, my question regards on AIGC. We noticed that the company self-developed the two-way large language model successfully passed the registration in July. What are the latest developments in AIGC? How does it help our content production and commercialization efficiency? Thank you.

Thank you. What I shared with you before was mainly AIGC's content production and user interaction. In recent years, we have been selecting our own large model to successfully make changes. On the one hand, this model currently provides core support for our own AI products on the platform, including the interactive comment machine that you sometimes see on the Internet, as well as the AI recovery assistant products that are currently being used by some bloggers in Liangshen.

Thank you for this question. And also, first of all, previously we've been shared with everybody about the application of VI GC by Weibo and the standpoint of generating content for the platform and also enhancing the interaction between the users. and among users. In the second half or later stage of the July, we were hearing about the approval of the LLM that developed by Weibo and by the government. And also we use this technology to further boost and also enhance the AI products that we application. We are applying now, for instance, the comment robots and also some of the AI assistance in getting the response to the users. So we hope that the interaction based on the content by Weibo and on a Weibo platform It's going to be more intelligent and also timely fashion. Okay.

Okay. and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity and its regularity However, in terms of accuracy and the accuracy of multi-mode, we believe that there is still room for improvement, and the computing power in this regard needs to be increased to a certain extent. So we are still observing the data in this regard. Then another one is that in terms of this product, in the recent period, it may be that in the search results, you will see that there is a product that is self-published, that is to say, we have a large number of both media and self-media content in the search results, as well as general user content. uh uh Okay, and also the second thing that I would like to say is that, you know, in Q2, we've been in the first half of this year, also we had a, you know, better

interpretation and understanding capability by this AI model especially the multi model understanding and also interpretation of the contents on Weibo because we know that there are millions of billions of contents generated by the random users and also because these contents were randomly generated by the users it was not standardized and it was not you know structured And also it was not that common, I mean, following a certain pattern in terms of the total user. So also those contents were having the image form, the video, and also text. So at the current stage, the recommendation of those contents to the relevant target users is still based on the correct and precise interpretation and understanding of those contents. So at the current stage, the large language models that we have got approval is primarily used in this font to better understand and also more precisely understand the message and content in order to have a more precise recommendation to the users. And now we have a coverage of almost 90% of the users. But of course, still, there are some of the works that we need to further working on in order to improve the precision of the understanding And also, we need to do some of the further efforts to increase the computational power in this area as well. So still, we are observing the future potential of this particular feature. And second point I'd like to say is that, you know, now in terms of the certain results, there are some of the results that are from the media or we media or from the random users. So this particular AI is able to help the users within one minute to conclude and summarize the search contents. so that the user experience is going to be much better in using the search feature of Weibo. And because of this, in Q2, we had already MAU of this particular feature exceeding 10 million already. But this is only one of the examples that we are trying the capability of AI. And also in the near future, we are going to have a better trial of this in helping us to better interpret and understanding the contents and also to trigger, and based on the information-based flow that we have, And also, based on the other capabilities that we have, we are going to have a better use and application of the AI feature and also this technology.

Thank you. There are no further questions at this time. I would like to hand over to Sandra Tsang for closing remarks.

Thanks, operator. And thank you all for joining our conference call today. We will see you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.