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spk00: Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-on 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 like to hand the conference over to your first speaker today, Ching Lui. Thank you. Please go ahead.
spk05: Thank you, operator. Welcome to Phoenix Media's second quarter 2021 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu, and Chief Financial Officer, Mr. Edward Lu. On today's call, management will first provide a review of the quarterly results and then conduct a Q&A session. The second quarter 2021 financial results and webcasts 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 four looking statements. 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.
spk02: Thank you, Qing. Hello, everyone. Thank you for joining us on our call today. In the second quarter of 2021, we continue to encounter downward pressure as competition intensified, regulations tightened, and advertisers remain cautious with their budgets. As our core competitive differentiation lies in our original content production capabilities, we have upheld our commitment to originality and revamped our content strategy. We believe that our newly augmented content metrics will lay a solid foundation to attract new users, increase their loyalty, and generate a sustainable revenue stream. I would like to start by discussing our key efforts in revamping our content strategy. As users suffer from information overload in the digitally charged world, we're convinced that the most effective way to add value to our users is to produce original content with distinctive characters that are true to our brand. Hence, we have repositioned our content metrics and adjusted our content production pipelines to produce a series of columns and programs, each written and presented in a certain voice and style consistent with our branding differentiation. Through these efforts, we intend to not only enhance our brand image, but also create a unique brand affinity among our users and advertisers, which should help us unlock more sustainable long-term value from our brand equity in turn. To elaborate in the area of original content, in order to cater to varied user demands, we have focused our resources on producing three distinct genres, opinion column, investigative reporting, and premium IP production. For example, during the second quarter, we launched our original opinion column titled Eye of the Storm, Feng Baoyan, which is distinctively positioned to examine contentious current events. We present the audience with a unique, authentic, and timely interpretation of issues by conducting meticulous research and exploring a wide array of viewpoints. Our coverage on various controversial topics and social phenomena generated an immense number of views across our APP and other social platforms, with the most popular piece garnering more than 140 million views on Weibo. As for in-depth investigative reporting, our trademark columns, such as the Tang Bo Hu and the Tumor Intelligence Agency continue to bring our user well-rounded and thorough analysis on the hottest topics, such as COVID-19 Delta variant, latest vaccine development, Miami condo traps, and so on. In addition, our social investigative column, Living,在人间, examines societal issues through life stories of ordinary people thus reigning public awareness of these issues and giving voice to the open voiceless. Our new short video series titled Your Achievements in the Cheng Jiu pioneered a unique storytelling method by combining few productions with TED Talk-like TED Talk-style speech by A-list celebrities. The series portrays how ordinary people have overcome tremendous difficulties to accomplish nearly impossible projects. It resonates so much with the current audience's aspiration for excellence, success, and honor that it became an instant hit across the internet. The two episodes released during the quarter accumulated over 10 million plays on our app alone. The second episode became the number one hot search on Bilibili and also ranked at the top of iQiyi's heatmap for all similar theme programs. Your achievements elevated our premium IP production comp to new heights and exemplified our industry-leading planning and production capabilities. In addition to quality production, advertisers also appreciated our accessibility. to luminaries in art, culture, science, and politics with backgrounds and traits in sync with the brand images. For example, through video series Junping Talk, Junping Tan, we interviewed Han Meilin, a renowned contemporary Chinese artist. The program attained a large number of likes and endorsements from top KOLs as well as young intellectuals who constitute the large target demographics coveted by our advertisers. As for reporting news and events, we continue to distinguish ourselves through industry-leading breaking news coverage. During the quarter, we covered the launch of Chinese manned spaceship, Shenzhou 7. through a variety of formats, including live streaming, push notifications, and the focal topic recommendations. Our multi-dimensional coverage reached 5 million users following, particularly through live streaming, which attracted a historical record of over 800,000 live audiences. Beyond the cornerstone of our original content and news reporting, We also made strides in expanding our content ecosystem. In the quarter, we launched our own MCM platform called, as we know it, Zhizhi Youshi. As the name suggests, it is positioned as a hub for knowledge-based content created by our contracted influencer, taking into consideration of our professional journalist DNA, our global contact network, and our highly educated user base. By the end of second quarter, our MCN had contracted 14 subject experts, including Phoenix TV reporters, renowned intellectuals, and overseas content creators. Our first original video series, called Phoenix Global Observer Group , brings few reports or live interviews on trending global topics and events to our audience. became an instant success on Weibo, Bilibili, and other third-party platforms, in addition to our own platform, obtaining wide user followings. In the meantime, we are in the process of examining our creator mix to cover subjects such as law and economics, health and wellness, culture and social science. Through our MCM platform, content creators benefit from our brand's pervasive influence while we generate value by enhancing our content metrics, strengthening our brand equity, and providing clients with diversified marketing solutions. Looking ahead, we believe the combination of our cross-border content delivery capabilities with our distinctive creator mix, which consists of both foreigners in China and Chinese expatriates, will become a competitive advantage for us as we foresee an ever-growing demand for overseas marketing by Chinese brands. Next, I will briefly touch on signature events during the quarter. This year marks the 10th anniversary of our Phoenix Financial Summit. Prominent speakers, including the Chief Executive of Hong Kong SAR, Ms. Carrie Lam, together with 31 other political dignitaries, and business tycoons congregated at this year's summit. Also, for our iPhone Gourmet Food Festival in Beijing and Culinary Arts Center of Chengdu, we attracted over 160 distinguished guests at each location, including top chefs, food critics, restaurateurs, and celebrities, thus greatly enhancing our brand influence in the food sector. Now, let's take a look at our iPhone APP. In response to our realigned content strategy, we have implemented a few initiatives to enhance the content ecosystem within our APP. We carefully segregated content related to hot issues out of our premium content pool, thus setting time-sensitive content with temporarily high views, apart from ever-growing content with sustainable popularity. On one hand, we continue to make editorial recommendations of trending topics to cater to users' desire to tune in current events. On the other hand, we have also refined our premium content pool to retain in-desk content with large user value, including high-quality content from those original columns and programs mentioned earlier, as well as from other We Media columns. By optimizing our operation and distribution of the premium content pool, we intend to increase both our user retention rate, our every user time spent on the app. In fact, our monthly repeat user increased by 4% sequentially over the last quarter. As we collaborate more closely with Phoenix TV on distribution rights, we have vastly improved our app's user interface and pay layout to better leverage the exclusive content from Phoenix TV. For example, we have segmented Phoenix TV-related content into a standalone column with its own landing page and added content labels to highlight exclusivity. Because the Phoenix TV brand carries significant user affinity and trust, distributing exclusive content from it through the iPhone app has significantly improved our user-sickness During the second quarter, within the Phoenix TV column, monthly active users increased by 18%, while the click-through rate increased by 27% on a sequential basis. Lastly, I'd like to share our progress in revenue diversification. For online reading, we have made significant progress in adding more methods of monetizing our premium IP content. In addition to our cooperation with Himalaya in audio content production, we have also entered into a long-term strategic cooperation agreement with the Tencent Music Entertainment Group to expand our audio-content licensing program to all of its platforms, including QQ, Kugoo, and Cool Music. For audio-visual content, we have formed a strategic cooperation with Shandong Film and Television Production Company, a renowned producer of movie and TV programs, to jointly create movies and TV shows based on our copyright IP content, as well as to jointly engage investors and sponsors. For our real estate vertical, our performance in the first half of the year met our own expectations, despite tightened market regulations, which we believe will likely prevail throughout the rest of the year. In anticipation of a challenging environment going forward, We are practically streamlining business operations at our local branch office to boost their revenue generation capabilities. We are also optimizing our revenue composition by gradually diversifying our client base to reduce customer concentrated risks. On the e-commerce front, our independently developed e-commerce platforms was close to completion during the second quarter. We have invested substantial efforts in refining our merchandising strategy to establish our competitive differentiation in the e-commerce arena. After thorough reviews of our user-based characteristics, our operating performance data, and third-party market research, we have concluded that our competitive edge lies in selecting and marketing products in two specialty categories. One is high culture and creativity, and the other one, health and wellness. Going forward, we will focus our platform resources on those two product categories. Moreover, we have decided to leverage external resources beyond our own user traffic to achieve faster growth for e-commerce business. Our team is actively exploring different ways of utilizing our premium content to generate user traffic from third-party platforms. such as WeChat. We also leverage our content production capabilities in various vertical channels, such as Phoenix Labs, food and beverage, health and wellness, culture and reading, to effectively close the loop of vertical content to specialty commerce. In summary, while we are fully aware of the multitude of challenges we are currently facing, we remain confident in our business prospects as we zero in on our core competency in original content creation, relying on operational focus, expand our content metrics, and adjust our distribution strategies. With that, I will now turn the call to our CFO, Edward Liu, to provide a closer look into our quarterly financials.
spk01: Thank you, Shuang, and thank you all for joining our conference call today. Our total revenues in the second quarter of 2021 or RMB256.7 million, representing a decrease of 17.8% from RMB312.3 million in the same period of last year. I will now provide some additional color on revenues during the second quarter of 2021. Net advertising revenues in the second quarter of 2021 were RMB233 million. representing a decrease of 18.6% from RMB 286.3 million in the same period of last year, mainly due to the reductions in the advertising spending of advertisers from certain industries in the period. Paid services revenues in the second quarter of 2021 decreased by 8.8% to RMB 23.7 million, from RMB 26 million in the same period of last year. Revenues from paid accountants in the second quarter of 2021 decreased by 32.4% to RMB 9.6 million from RMB 14.2 million in the same period of last year. Mainly due to the trend towards free online reading in the online reading market, Revenues from e-commerce and others in the second quarter of 2021 increased by 19.5% to RMB 14.1 million from RMB 11.8 million in the same period of 2020, mainly caused by the increase in revenues from e-commerce business. Loss from operations in the second quarter of 2021 was RMB 34.8 million. Compared to income from operations of RMB 25.6 million in the same period of last year. Operating margin in the second quarter of 2021 was negative 13.5% compared to positive 8.2% in the same period of last year. As Sean mentioned, we have made a strategic decision to increase our investment in bolstering our original content production capabilities Well, such investment will impact our profit margin in the short term as we managing our expenses prudently. We believe that it will help boost our competitive advantages and revitalize our growth trajectory. Non-GAAP loss from operations in the second quarter of 2021 was RMB 30.1 million compared to non-GAAP income from operations of RMB 27.8 million in the same period of last year. Non-GAAP operating margin in the second quarter of 2021 was negative 11.7% compared to positive 8.9% in the same period of last year. Net loss from continuing operations attributable to iPhone in the second quarter of 2021 was RMB 7.1 million. compared to net income from continuing operations attributable to iPhone of RMB 2.8 million in the same period of last year. Non-GAAP net loss from continuing operations attributable to iPhone in the second quarter of 2021 was RMB 2.1 million compared to non-GAAP net income from continuing operations attributable to iPhone of RMB 23.7 million in the same period of last year. Moving on to our balance sheet, as of June 30, 2021, the company's cash and cash equivalent, term deposits, short-term investments, and the restricted cash for RMB 1.61 billion, or approximately US dollar 248.9 million. Finally, I'd like to provide our business outlook for the third quarter of 2021. We are forecasting total revenues to be between RMB $257.9 million and RMB $282.9 million. For net advertising revenues, we are forecasting between RMB $236.7 million and RMB $256.7 million. For paid service revenues, we are forecasting between RMB $21.2 million and RMB $26.2 million. prioritize the attraction and retention of users through the production of exclusive and original content. At the same time, we aim to execute more product upgrades to refine our user experiences and improve our content operations, which should ultimately fuel the growth of our brand equity. In line with this effort, we will also focus on bolstering our operating efficiency, investigating new monetization strategies, and improving our revenue stream mix. Such efforts will allow us to enter a new growth cycle and further improve our overall profitability. This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead.
spk00: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and with your name to be announced. If you wish to cancel a request, please press the pound or hash button. Your first question comes from Sheru Zhang of 86 Research. Please ask a question.
spk04: Good morning, management. Thank you for taking my question. I have one question regarding your ad business. Can management share one color on the drivers for ad business growth in the second quarter? So just so that we can better understand how you see that growth trend. Any major initiatives should we expect in second half to further support the growth?
spk01: Hello, this is Edward speaking. Actually, this is a very good question. Actually, our brand advertising business is still facing challenges in revenue growth. During the quarter, advertisers in certain industries reduced their marketing spending. For example, clients in auto industry are our advertising business' most important revenue source. but because of the ongoing shortage of auto chip supply, auto industry production capability was reduced, and lower sales targets forced the industry clients to cut their ad spending. Advertisers in other industries, such as real estate, also trimmed their advertising activities as a result of the tightening regulatory environment. Also, during the second quarter, COVID-19 resurged in southern China. The execution of some of our important offline operations and events in the region had to be put on hold. This, of course, also negatively affected our ad revenues in the second quarter. But in the meantime, various short videos and social media platforms obtained an increasing portion of market share in the online advertising industry. So we are at the same time facing intense competition as well. Having said that, we have carefully reviewed our business operations, re-evaluated our sales team, and made timely operational adjustments to better prepare for the challenges ahead. We have assessed our industry and customer mix as well as our regional market dynamics to exploit more sales opportunities and created new incentive schemes around business development to acquire more new customers. and the inter-new industries. Actually, advertisers' demands for strategic branding and marketing are always evolving. They now require more comprehensive marketing solutions instead of single ad products. Aside from our signature events and regular premium content offerings, actually we are leveraging our user traffic and influence on social media and short video platforms, including those generated by our MSN influencers to enrich our products and service offerings. Also, as Sean mentioned earlier, adjustment to our original content strategy is very important as well. This will further enhance our brand. This combined with our strategic planning in various industry verticals such as tourism, health and wellness, and automobiles will help us improve user loyalty, increase brand influence, and ultimately drive the growth of our advertising business in this sector. Last but not least, Utilizing our international perspective, we are actively launching official accounts on social platforms overseas, such as Facebook and YouTube, to further amplify our global brand presence and influence. At the same time, we have utilized our MCN platform to sign many overseas POLs with international backgrounds. I believe these efforts will create enormous value for large-scale corporations in China, helping them to expand their international exposure and conduct more overseas branding activities. Thank you, and I hope I have answered your question.
spk04: Yeah, that's very helpful. Thank you.
spk00: Your next question comes from Carmen Zhang. First, Shanghai Securities, please ask a question.
spk03: Hi, management. Thank you for taking my question. Could management please share some additional information regarding your operations on third-party social media and short video platforms? And how do you plan to monetize traffic generated from there?
spk02: Hi, thank you, Karen. This is Shuang. We're definitely becoming more focused on third party platforms. This platform is becoming more and more important because it first can function as a channel for premium content distribution. Also becoming a very important source of traffic and therefore monetization opportunities. In terms of brand advertising, our third party platform traffic has provided existing advertisers with more opportunities to heighten their brand exposure, as well as reach more potential consumers on third-party platforms. It will support our brand advertising revenue in return. Aside from brand influence, we also believe the in-depth commercial value of these traffic has yet to be fully unleashed. They have helped us to access a large client base with growing demands for content marketing, notably those in the FMCG industry. Also, since an increasing number of consumers start shopping on social media platforms such as Douyin, Kuaishou, and WeChat, the large follower accounts which we have accumulated on these platforms will also drive our e-commerce business growth. As such, we have laid out a detailed action plan for operation on the third-party platforms. We have a specific aim to further explore their commercial value. First, we need to concentrate our resources on developing top-tier accounts on third-party platforms and focus on quality over quantity. our accounts on third-party platforms into different groups for various purposes. For example, our iPhone accounts on Weibo give its broad content coverage with more than 20 million followers. We plan to use it to fortify our brand influence rather than to drive monetization going forward. On the other hand, we have our vertical content accounts such as finance and economy and fashion, our IP accounts and accounts such as living and the accounts of our MCN's contracted influencers. These accounts target more specific audience base with a more detailed user profile. They are planned to be the main category for monetization. Our focus on building content genres differ from platform to platform in order to attract quality traffic and target the followers as the characteristics between platforms are quite different. For example, WeChat has a large user base for finance and culture, availability for tech and knowledge, and so on. These plans would not only work with streamlined operational process and effective performance evaluation. We have established quantitative performance indicators, such as numbers on content publishing, article views, followers, reshares, and comments across different platforms. By evaluating these metrics, we can decide whether or not we have met our operational targets. Along with our persistent focus on content quality and influence, as well as our sales efforts, we believe our client base and average revenue per customer will both increase. And of course, the commercial value of these traffic will naturally fall. Yeah, this is my answer. Thank you.
spk00: Once again, if you wish to ask a question, please press star 1. I would now like to hand the conference back to Jing to continue.
spk05: Thank you, operator. We have come to the end of our Q&A session and our conference call. Please feel free to contact us if you have any further questions. Thank you for this call. Have a good day.
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