Phoenix New Media Limited

Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, press star 1 on your telephone. I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ching Liu. Thank you. Please go ahead.

Thank you. Welcome to Phoenix New Media Second Quarter 2020 Earnings Conference Call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu, and Chief Financial Officer, Mr. Edward Liu. On today's call, management will first provide a review of the quarterly results and then conduct a Q&A session. The second quarter 2020 financial results and broadcasts of this conference call are available on our website at ir.iphone.com. A replay of the call will be available on the website in a few hours. Before we continue, I would like to refer you to our safe harbor statement in our earnings price release, which applies to this call as we will make a full-looking statement. Finally, please know that unless otherwise stated, All figures mentioned during this conference call are in RMB. With that, I would like to turn the call over to Mr. Shuang Liu, our CEO.

Thank you, Qing. Good morning and good evening, everyone. During the second quarter of 2020, the COVID-19 pandemic continued to cause significant macroeconomic uncertainties as well as substantial headwinds to the entire advertising industry. Undeterred by these challenges, we upheld our commitment to producing premium new comforts and focus our resources to create long-term growth and sustainable competitive advantages. Comfortably, we concluded the second quarter of 2020 with encouraging financial results. Our total revenue was within our previous guidance range. In addition, we delivered a positive quarterly operating income of RMB 25.6 million Our solid financial performance demonstrates that our food and cost control measures have been effective in combating the widespread market challenges. It also validates our corporate development strategies, as we further upgraded our flagship news app, bolstered our brand influence, and executed new initiatives with favorable monetization potential in the second quarter. Our flagship news app runs. We continue to improve the platform's capabilities by upgrading its technology, fortifying its content operations, and enhancing its content offerings. As a result, we increased the thickness of our news app. Our platform's user retention increased by 39% year-over-year, and every timestamp by user on the platform increased by 21% year-over-year. Building upon our experiences in content operations and expertise in AI algorithms, we have constructed a premium content library to cater to the needs of our users. Its core competence resides in our seamless integration of content and algorithms. By combining our attitude's professional judgment with our software's automation capabilities, We have put in place a set of rigorous standard operating procedures to ensure both targeted and efficiency of our content distribution system. Our process starts with our editors as they leverage their vertical expertise and authorities, recommend hot topics in their respective fields and evaluate the content quality, style and social values. Then our AI algorithm blend editorial recommendations with content categorizations, labels, and user characteristics, utilize enhanced content profiling and other manned techniques, and deliver a large content to our users that matches their individual requirements. Consequently, we are able to satisfy a variety of users' demands ranging from acquiring information to fulfilling personal interests and indulging in entertainment. We have also successfully resolved the cold-start problem of information concurrence by innovating content with technologies. We can recommend content carefully curated by our editors in an innovative and enticing manner to elevate our premium content exposure, enhance our brand awareness, and user resonance and boost our content distribution capabilities. In addition to that, to ensure the timely coverage of societal developments and breaking news events, our seasoned editorial team refined our news monitoring process continuously. Moreover, to better satisfy users' entertainment demands and attract their attention, We optimized iPhone's user interface and introduced fresh new formats of content, such as portrait mode videos and Azure TV. As a result, our platform's thriving stream of innovative, informative, and engaging content further expanded, and our value proposition to iPhone users compounded accordingly. That's it for today. We also continue to organize online events during the quarter to enhance our web image and to advertise our value proposition, and generate an additional stream of income. For example, in May, we organized the iPhone Finance Visual Summit, which was the third-largest video-finance event to be held in China since the outbreak of COVID-19. Users throughout the country were highly appreciated for the deep financial and economic influence are still doing this event. The latest event coverage generated 22.9 million views. An event's 20 topics reported around 170 million views on social media at the same time. In June, we outlined the dialogue with the World Online Forum in partnership with the National Academy of Development and Strategy of Yanming University of China. This online forum brought together 32 distinguished guests, hailing from all corners of the globe. In the context of the global pandemic, our ability to host such high-profile online events has proven to be quite effective, enabling us to further augment our brand equity despite our clinical constraints and related safety concerns. In line with these online events, we also continue to expand our library of original IP to ensure that our catalog of content offers remains highly attractive and of superior quality. During the quarter, for example, we continue to produce Junqin plan. The 2017 UK shuttle has already delivered outstanding results. A certain episode of Jinping Time recorded over 18.5 million views on our platform. Besides the success of Jinping Time, we also continue to produce A Line of Heralds. Initially released in September 2019, the show offers in-depth exploration of the Olympics journeys and captivates audiences across the country. As a result of the show's running popularity, A Line of Heralds was aired by Beijing Satellite TV, one of the most influential satellite TV channels in China. Furthermore, we have already secured a sponsorship deal for the second season of Alliance of Heroes, which will be back to launch in August. The warm reception and commercial success of our highly quality original content once again illustrated the premium nature of our brand. Such influence has enabled our brand advertising business to achieve sustainable growth despite the challenging market conditions. We would also like to note that the challenging micro-environment significantly impacted our online real estate vertical in the quarter, making it especially hard for our real estate vertical to achieve its revenue growth targets for this year. In light of these developments, We will remain focused on screening line this segment's operations, executing new product innovations, and implementing additional cost control matters going forward to safeguard our cash flow and profit growth. Now, turning to our new business initiatives. During the quarter, we carefully analyzed a number of business opportunities and boldly stepped up to launch several new promising initiatives in the fields of advertising, media content, and e-commerce. As for our advertising business, we have built several platforms, such as FengYu and FengYi, to both fulfill the diverse needs of advertisers as well as provide customized advertisement solutions to our clients. Following the success of these two platforms, we decided to develop Fengfei a platform capable of bridging the gap between advertising clients and third-party APP developers. By interfacing with over 80 APPs to access more than 60 million data active users, Fengfei is able to help our advertising clients significantly improve their advertising reach. On the developer side, Fengfei's ability to help APP developers convert and monetize the user traffic, has helped to set the platform apart from its competition. Going forward, we plan to produce perform-based advertising solutions on Fei and Fei, while also enabling the platform to interface with other media ESP platforms. As we continue to cultivate from Fei, we believe that it will also become a new growth driver with the potential to generate a handsome return. In order to meet the demands of China's rising middle class for practical and unbiased purchase advice, we also upgraded the Phoenix Lab on Jiaping Teo video series for product reviews this year. By the end of the quarter, the Phoenix Lab video series had already attracted 1.4 million users and generated a total of 43 million views. As Phoenix Labs currently specializes in consumer electronics reviews, we now mainly focus on establishing brand partnerships in this industry. Nevertheless, as the show's user recognition and advertiser endorsements continue to grow, we aim to replicate this innovative success formula in other industry verticals going forward. Recognizing the quality and size of our user base, we have also ramped up the development of our e-commerce marketplace. iPhone Wu Tong Hui. Since its launch, Wu Tong Hui has been made available to users throughout iPhone.com as well as our WeChat official accounts. It attracted around $90,000 in total on WeChat. Additionally, during the 618 Shopping Festival, we developed a membership system to better facilitate user purchase and boosts users' thickness. As a result, Wu Tonghui facilitated a record GMB of RMB 33 million in June. Although Wu Tonghui is still at the very early stage of development, we believe that he has already demonstrated a substantial potential for monetization, and we are optimistic about his future growth prospects. Let me share an update on the EVM transaction. As we have announced previously, the current macroeconomic uncertainties have led to some pressure on the buyers' funding resources. However, if the transaction were to be terminated, then we would face serious immediate challenges, such as financing additional investment in EVM and managing the platform without distracting us from our long-term strategic focus. As a result, we believe that the current total consideration of EDN at US$350 million is within a reasonable range. In addition, after careful consideration and analysis, we are certain that the recent valuation adjustments are in the best interest of all parties, and will serve to maximize our shareholder value in the long term. In the second quarter, we continue to accelerate our growth momentum by upgrading our production news app, qualifying our breadth equity, and executing new business development initiatives on multiple fronts. While the current macroeconomic uncertainty and industry headwinds make forecasting difficult, we believe that our progress to date has helped set the stage for sustainable growth in the future. As we continue to advance throughout the rest of the year and beyond, we plan to remain prudent in our investments and channel our resources only to those initiatives with attractive potential ROI. Looking ahead, we aim to leverage our competitive advantages in professional journalism, abundant working capital, and sufficient distribution network to bolster our new media leadership in China, delivering sustainable growth. and generally increasing shareholder value. With that, I would like to pass to Edward.