Phoenix New Media Ltd (FENG) Q2 2020 Earnings Name Transcript

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Phoenix New Media Ltd (NYSE:FENG)
Q2 2020 Earnings Name
Aug 19, 2020, 9:00 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Girls and gents, thanks for standing by, and welcome to the Phoenix New Media Second Quarter 2020 Earnings Name. [Operator Instructions] I need to advise you that at present’s convention is being recorded.

I’d now like to show the convention over to your first speaker at present, Qing Liu. Thanks. Please go forward.

Qing LiuInvestor Relations Supervisor

Thanks, [Technical Issues]. Welcome to Phoenix New Media second quarter 2020 earnings convention name. I am joined right here by our Chief Government Officer, Mr. Shuang Liu; and Chief Monetary Officer, Mr. Edward Lu. On at present’s name, administration will first present a overview of the quarterly outcomes after which conduct a Q&A session. The second quarter 2020 monetary outcomes and webcast of this convention name can be found on our web site at ir.ifeng.com. A replay of the decision might be obtainable on the web site in a number of hours.

Earlier than we proceed, I wish to refer you to our secure harbor assertion in our earnings press launch, which apply to this name as we are going to make forward-looking statements. Lastly, please word that until in any other case said, all figures talked about throughout this convention name are in RMB.

With that, I wish to flip the decision over to Mr. Shuang Liu, our CEO.

Shuang LiuChief Government Officer

Thanks, Qing. Good morning, and good night, everybody. Throughout the second quarter of 2020, the COVID-19 pandemic continued to trigger important macroeconomic uncertainties, in addition to substantial headwinds to your entire promoting trade. Undeterred by these challenges, we upheld our dedication to producing premium new contents and focus our assets to create long-term progress and sustainable aggressive benefits.

Consequently, we concluded the second quarter of 2020 with encouraging monetary outcomes. Our complete income had been inside our earlier steerage vary. As well as, we delivered a constructive quarterly working revenue of RMB25.6 million. Our strong monetary efficiency demonstrates that our prudent price management measures have been successfully in combating the widespread market challenges. It additionally validates our company improvement methods as we additional upgraded our flagship information app, bolstered our model affect and executed new initiatives with favorable monetization potential within the second quarter.

On our flagship information app entrance, we continued to enhance the platform’s capabilities by upgrading its know-how, fortifying its content material operations and enhancing its content material choices. In consequence, we elevated the stickiness of our information app. Our platform’s person retention price grew by 39% year-over-year and each time spent by customers on the platform elevated by 21% year-over-year.

Build up on our experiences in content material operations and experience in AI algorithm, we now have constructed a premium content material library to cater to the wants of our customers. Its progress [Phonetic] competence resides in our seamless integration of content material and algorithm by combining our editor’s skilled judgment with our software program’s automation capabilities. We have now put in place a set of rigorous customary working procedures to make sure each focused and effectivity of our content material distribution system. Our course of begins with our editors, as they leverage their vertical experience and authorities, beneficial sizzling matters of their respective fields and consider the content material high quality, type and social values. Then our AI algorithm mix editorial suggestions with content material categorizations, labels and person traits, make the most of enhanced content material profiling and different demand [Phonetic] methods and ship a big content material to our customers that matched their particular person necessities exactly.

Consequently, we’re capable of fulfill quite a lot of customers’ demand switching from the consumer data to fulfilling private pursuits and indulging in leisure. We have now additionally efficiently resolved the Co-star [Phonetic] drawback, an data [Indecipherable], however data comes [Phonetic] with applied sciences however the suggest comes [Phonetic] fastidiously curated by our editors in an modern and tinting method to raise our premium content material publicity, improve our model consciousness and person revenues [Phonetic] and enhance our content material distribution capabilities.

Along with that, to make sure the well timed protection of societal developments and breaking information occasions, our seasoned editorial staff refined our information monitoring course of repeatedly. Furthermore, to higher fulfill customers’ leisure calls for and seize their consideration, we optimized ifeng’s interface, and launched contemporary new format of content material, comparable to portrait mode movies and editor’s choose. In consequence, our platform is driving stream [Phonetic] of modern, informative and interesting content material additional expanded and our price proposition to ifeng customers compounded accordingly.

[Technical Issues] worth entrance, we additionally continued to arrange on-line occasions in the course of the quarter to reinforce our model picture in our advertiser worth proposition, and generate conventional stream revenue. For instance, in Could, we organized the ifeng finance visible summit, which is the third [Indecipherable] finance occasion to be held in China since outbreak of COVID-19. Customers all through the nation had been extremely appreciative from the deep monetary and financial insights upheld throughout this occasion. Associated occasion protection generated 22.9 million views on our ifeng app, and occasion trending matters reported round 120 [Phonetic] million views on social media on the identical time.

In June, we organized the dialogue with the world on-line discussion board in partnership with the nationwide academy of improvement and technique of Renmin College of China. This on-line discussion board introduced collectively 32 distinguished friends hailing from all corners of the globe — corners of the globe. Within the context of the worldwide pandemic, our means to host such high-profile on-line occasion has confirmed to be fairly efficient, enabling us to additional increase our model fairness regardless of our bodily constraints and associated security issues.

Consistent with these on-line occasions, we additionally continued to develop our library of authentic IP to make sure that our catalog of content material choices stays extremely engaging and of superior high quality. Throughout the quarter, for instance, we continued to provide Jun Pin Tan, [Indecipherable] present has already delivered excellent outcomes, a sure episode of Jun Pin Tan recorded over 18.5 million views on our platform. Moreover the success of Jun Pin Tan, we additionally continued to provide Alliance of Heroes. Initially launched in September 2019, the present affords in-depth exploration of the Olympics journeys and has captivated audiences throughout the nation. Because of the present’s various recognition, Alliance of Heroes, was aired by Beijing Satellite tv for pc TV, one of the influential satellite tv for pc TV channels in China.

Moreover, we now have already secured a sponsorship deal for the second season of Alliance of Heroes. We anticipate to launch in August. The nice and cozy reception and industrial success of our top quality authentic content material as soon as once more illustrated the premium nature of our model. Such affect has enabled our model advertisers, promoting enterprise to attain sustainable progress regardless of the difficult market circumstances.

We’d additionally like to notice that the difficult macro setting considerably impacted our on-line actual property vertical within the quarter, making particularly exhausting for our actual property vertical to attain its income progress targets for this 12 months. In gentle of those developments, we are going to stay centered on streamlining this phase’s operations, executing new product improvements and implementing further price management measures going ahead to safeguard our money move and revenue progress.

Now, turning to our new enterprise initiatives. Within the quarter, we fastidiously analyzed quite a lot of enterprise alternatives and boldly step as much as launch a number of new promising initiatives within the fields of promoting, media content material and e-commerce.

As for our promoting enterprise, we now have constructed a number of platforms, comparable to Fengyu and Feng Yi to each fulfill the various wants of advertisers, in addition to present buyer — personalized commercial options to our purchasers. Following the success of those two platforms, we determined to develop Feng Fei [Phonetic], a platform able to bridging the hole between promoting purchasers and third-party app builders. By interfacing with over 80 apps to entry greater than 60 million every day lively customers, Feng Fei is ready to assist our promoting purchasers considerably enhance their promoting attain.

As for developer aspect, Feng Fei’s means to assist app builders convert and monetize their person visitors has helped to set the platform other than its competitors. Going ahead, we plan to provide perform-based promoting answer on Feng Fei, whereas additionally enabling platform to interface with different quick DSP platforms. As we proceed to domesticate Feng Fei, we imagine that it’s going to additionally turn out to be a brand new progress driver with the potential to generate a good-looking return.

With a purpose to meet the calls for of China’s rising middle-class for sensible and unbiased buy recommendation, we additionally upgraded the Phoenix Lab, [Foreign Speech] video sequence for product opinions this 12 months. By the top of the quarter, the Phoenix Lab video sequence has already attracted 1.Four million customers and generated a complete of 43 million views. As Phoenix Lab at present specialised in client electronics opinions, would now primarily deal with establishing model partnerships on this trade. Nonetheless, because the exhibits, person recognition and advertisers endorsements proceed to develop, we goal to copy this modern success method in different trade verticals going ahead.

Recognizing the standard and the dimensions of our person base, we now have additionally ramped up the event of our e-commerce market, ifeng Wutonghui. Since its launch, Wutonghui has been made obtainable to customers all through ifeng.com, as a part of our WeChat official accounts and attracted round 90,000 followers in complete on WeChat. Moreover, in the course of the 618 Purchasing Pageant, we developed a membership system to higher facilitate person buy and enhance person stickiness. In consequence, Wutonghui facilitated a document GMV of RMB33 [Phonetic] million in June. Though, Wutonghui continues to be at a comparatively total early stage of improvement, we imagine that it has already demonstrated a considerable potential for monetization, and we’re optimistic about its future progress prospects.

Now, let me share you an replace on the Yidian transaction. As we now have introduced beforehand, the present macroeconomic uncertainties have led to some strain on the patrons’ funding assets. Nonetheless, if the transaction had been to be terminated, then we might face a critical quick challenges, comparable to financing further funding in Yidian and managing the platform with out distracting us from our long-term strategic focus. In consequence, we imagine that the present complete consideration of Yidian $350 million is we predict an affordable vary.

As well as, after cautious consideration and evaluation, we’re sure that the latest valuation changes are in the very best curiosity of all events, one will serve to maximise our shareholder worth long-term.

In abstract, in the course of the second quarter, we continued to speed up our progress momentum by upgrading our flagship information app, fortifying our model fairness and executing new enterprise improvement initiatives on a number of fronts. Whereas the present macroeconomic uncertainty and trade headwinds make forecasting tough, we imagine that our progress so far has helped set the stage for sustainable progress sooner or later. Furthermore, as we proceed to advance all through the remainder of the 12 months and past, we plan to stay prudent in our investments, and channel our assets solely to these initiatives with engaging potential ROI.

Trying forward, we goal to leverage our aggressive benefits in skilled journalism, ample working capital and environment friendly distribution networks to bolster our new media management in China, delivering sustainable progress and generate rising shareholder worth in the long term.

Yeah. With that, I might wish to cross to our CFO. Edward, please.

Edward LuChief Monetary Officer

Thanks, Shuang, and thanks all for becoming a member of our convention name at present. Earlier than I replace you personal the monetary particulars, I wish to elaborate on the influence of the disposal of our fairness curiosity in Tadu. On Could 18, 2020, ifeng offered all of its investments in Yitian Xindong, which owns and operates the Tadu apps that present digital studying providers. The disposal of Tadu represents our strategic shift in operation of on-line literature enterprise that had a significant impact on our operations and the monetary outcomes. Subsequently, the disposal of Tadu was certified for reporting as a discontinued operation in our monetary assertion. Accordingly, Tadu’s outcomes of operations have been excluded from persevering with operations within the condensed consolidated statements of complete revenue/loss and are introduced in separate line objects as discontinued operations for the second quarter of 2020 and the prior interval.

Moreover, the associated belongings and the legal responsibility related to the discontinued operations within the prior 12 months consolidated stability sheet are categorized as asset, liabilities held on the market to offer the comparable monetary data. The monetary data and the non-GAAP monetary data disclosed on this press launch is introduced on a unbroken operations foundation until in any other case particularly said. For the small print, please consult with our earnings launch.

Let me take you thru our monetary highlights for the second quarter of 2020. Our complete revenues within the second quarter of 2020 had been RMB312.three million, which had been consistent with our beforehand guided vary and represented a lower of 9.7% from RMB345.9 million in the identical interval of final 12 months. The lower was primarily as a result of adverse influence of COVID-19 outbreak and the intensified trade competitions. I’ll present some further shade on our revenues within the second quarter of 2020.

Internet promoting revenues within the second quarter of 2020 had been RMB286.three million, representing a lower of seven.5% from RMB309.5 million in the identical interval of final 12 months. The lower was primarily attributable to the beforehand said cause.

Paid providers revenues within the second quarter of 2020 decreased by 28.9% to RMB26 million from RMB36.Four minute in the identical interval of final 12 months. Revenues from paid content material within the second quarter of 2020 decreased by 29% to RMB14.2 million from RMB20 million in the identical interval of final 12 months, primarily as a result of market situation, in addition to the tightening of guidelines and laws on digital studying.

Revenue from operations within the second quarter of 2020 was RMB25.6 million, in comparison with loss from operations of RMB75.5 million in the identical interval of final 12 months.

Working margin within the second quarter of 2020 was constructive 8.2%, in comparison with a adverse 21.8% in the identical interval of final 12 months.

Non-GAAP revenue from operations within the second quarter of 2020 was RMB27.Eight million, in comparison with non-GAAP loss from operations of RMB73.1 million in the identical interval of final 12 months.

Non-GAAP working margin within the second quarter of 2020 was constructive 8.9%, in comparison with adverse 21.1% in the identical interval of final 12 months.

Internet revenue from persevering with operations attributable to ifeng within the second quarter of 2020 was RMB2.Eight million, in comparison with internet loss from persevering with operations attributable to ifeng of RMB69.Eight million in the identical interval of final 12 months.

Non-GAAP internet revenue from persevering with operations attributable to ifeng within the second quarter of 2020 was RMB23.7 million, in comparison with a non-GAAP internet loss from persevering with operations to ifeng of RMB67.9 million in the identical interval of final 12 months.

Transferring on to our stability sheet. As of June 30, 2020, the Firm’s money and money equivalents, time period deposits, short-term investments, and restricted money had been RMB1.72 billion or roughly $243.9 million.

Lastly, I wish to present our enterprise outlook for the second quarter of 2020. We’re forecasting complete revenues to be between RMB295.Four million and RMB315.Four million, representing a lower of 14.1% to 7.2% year-over-year. For internet promoting revenues, we’re forecasting between RMB275 million and RMB290 million, representing a lower of 12.2% to 7.4% year-over-year. For paid service revenues, we’re forecasting between RMB20.Four million and RMB25.Four million, representing a lower of 23.7% to five% year-over-year.

To conclude, our determination to take the long-term view and prioritize these investments able to delivering high quality ROI began to point out constructive ends in the quarter. Such progress was not solely illustrated by our profitability enlargement, however extra importantly, additionally by our profitable implementation of efficient price management measures, which have helped to make us leaner and place us in a stronger place to attain our future monetary targets.

Going ahead, to maintain our progress momentum, we are going to spend money on these areas that may enhance our product choices, speed up the event of our new enterprise initiatives and refine our working effectivity, regardless of the challenges brought on by the outbreak of COVID-19 and the ensuing macroeconomic uncertainty. We imagine that our aggressive model benefits and efficient price management measures will allow us to climate the present setting and emerge from the disaster stronger than ever uphold a basis constructed to help our enduring targets.

This concludes the ready portion of our name. We at the moment are prepared for questions. Operator, please go forward.

Questions and Solutions:

Operator

Thanks. [Operator Instructions] Your first query comes from Zhibin Zhang [Phonetic] from First Shanghai Securities. Please ask your query.

Zhibin ZhangFirst Shanghai Securities — Analyst

Hello, administration. Thanks for taking my query. May you share some updates on the promoting enterprise within the second quarter, comparable to restoration standing for the model and performance-based on the advertiser price range increasing in numerous verticals? And the way do you consider the promoting trade within the second half of this 12 months?

Edward LuChief Monetary Officer

Hey, Zhang [Phonetic]. Thanks for the query. No, though the general promoting market continued to be affected by the epidemic within the second quarter, we nonetheless managed to develop our promoting income by 37% on a sequential foundation. Other than seasonality and vacation results, our sequential progress was pushed by our lengthy established model affect, in addition to our means to rapidly modify our promoting enterprise improvement technique to the brand new setting.

For our model promoting and performance-based promoting accounted for 79% and 21% of our quarterly promoting income, respectively. Our technique to deal with premium content material manufacturing and know-how developments enabled our natural model promoting phase to take care of its upward trajectory regardless of the influence of the epidemic. Really in the course of the quarter, for instance, we proceed to optimize our AI algorithms to satisfy the various wants of our model promoting purchasers. We additionally improved the accuracy of our focused promoting providers and developed new advert merchandise by incorporating new media format, comparable to dwell streaming. These efforts enabled us to additional improve the conversion price for our model promoting purchasers.

However, our performance-based promoting underperformed in the course of the second quarter sadly. The lower was as a result of, for my part, two main elements. First, SMEs diminished their total promoting budgets on account of the epidemic. And thus, extra more likely to focus their restricted promoting budgets towards short-form video platforms. Secondly, the recognition of dwell streaming e-commerce resulted in a decline of pragmatic promoting made by our e-commerce purchasers, particularly these small and medium measurement platform purchasers.

By trade, the highest 5 industries of our promoting purchasers are: auto, e-commerce, monetary providers, IT and client electronics, and FMCG. For us, the fastest-growing trade by way of promoting in 2020 to date is IT and client electronics, adopted by FMCG, which is in step with the general pattern of Web promoting. And we anticipate it to proceed to develop within the second half of the 12 months. By and enormous, within the first half of the 12 months our e-commerce promoting, particularly performance-based e-commerce promoting has not been performing very properly, and we’re working exhausting to attempt to enhance the scenario by optimizing our promoting algorithms and advice methods.

As for the auto trade, we recorded a decline in promoting income for the primary half of the 12 months. Nonetheless, the trade has began to recuperate in the course of the second quarter and we anticipate the decline to turn out to be extra average within the second half of the 12 months.

Monetary service promoting revenues is anticipated to be roughly flat year-over-year foundation. Really, the promoting market in China is anticipated to say no by 2.8% year-over-year in 2020 as a result of influence of the COVID-19. Within the second half of the 12 months, the promoting market is anticipated to be affected by the rebound of COVID-19, in addition to US-China tensions and different points. Nonetheless, we’re satisfied that we’ll proceed to leverage our core competencies to maintain the enlargement of our enterprise on this complicated and unstable market.

Thanks, Zhang.

Zhibin ZhangFirst Shanghai Securities — Analyst

Thanks.

Operator

Thanks. Your subsequent query comes from Binbin Ding from J.P. Morgan. Please ask your query.

Binbin DingJ.P. Morgan — Analyst

Hey, administration thanks [Phonetic] as properly for taking my query and congrats on a worthwhile quarter. My query is on progress of the Yidian Zixun transactions. So that you introduced in — primarily based on the sale of Yidian final week, afterwards it is possible for you to to get an extra $100 million. So there isn’t any huge money stability to $350 million in complete. So can administration speak in regards to the particulars? After which how you are going to use such a giant quantity bodily [Phonetic]? Are there any potential M&A exercise we’re taking a look at? And are they going to [Technical Issues]?

Shuang LiuChief Government Officer

Thanks, Binbin. That is Shuang. As we now have introduced, we now have already entered into a brand new share buy settlement with the client, would obtain a second fee for roughly $100 million. So after two transactions, they’ve acquired $350 million in complete. As everyone knows the market setting has skilled dramatic adjustments over the past couple of months, the outbreak of COVID-19, particularly has disrupted capital markets extra severely than many individuals might have imagined. After evaluating the present working circumstances of Yidian and the circumstances of comparable corporations within the capital market, in addition to the funding problem of the client and plenty of different causes, we lastly have agreed on the adjustment to Yidian’s valuation. After the changes, the general valuation for the sale of fairness curiosity in Yidian continues to be largely consistent with present market degree. So, after contemplating our personal scenario and the general market setting, we imagine that is — this transaction is in the very best curiosity of the Yidian and all shareholders.

As to using proceeds, notably, our internet loss within the first half of this 12 months has been considerably diminished in comparison with the identical interval final 12 months. In actual fact, we turned worthwhile this quarter very difficult — below the very difficult setting. It’s a results of a sequence of strategic shifts and stringent price management measures that we now have carried out beginning within the final 12 months. The completion of Yidian transaction has additional strengthened our money reserves and will certainly put us in a greater place to face the challenges forward regardless of the unstable market setting. In the meantime, we will even focus our exploring extra alternatives in our on-line verticals. Our ample capital reserve will assist us to higher seize these alternatives and take our enterprise to a brand new degree of progress.

As to potential M&A initiatives, we will take a extra prudent method within the gentle of the present market uncertainties. We will deal with core competence. We’ll rigorously consider the ROI and to consider whether or not the brand new goal might be supplemental to our current model fairness and present person base.

I hope this answered your query, Binbin. Thanks.

Binbin DingJ.P. Morgan — Analyst

It does. Thanks very a lot. Thanks, Shuang.

Operator

Thanks. The following query comes from Guang Zhao Fang [Phonetic] from Taihe Securities [Phonetic]. Please ask your query.

Guang Zhao FangTaihe Securities — Analyst

Okay. Good morning, administration. [Technical Issues] Thanks for taking my questions. So my query is, might you please additional elaborate in your new enterprise initiatives comparable to Feng Fei, and the Phoenix Lab?

Shuang LiuChief Government Officer

Okay. Thanks. That is Shuang. Feng Fei is an promoting platform that we constructed primarily based on in-app advert options. The platform permits app builders with much less visitors to entry our industrial assets, promoting information and repair capabilities by a set of promoting monetization options. Since its launch, Feng Fei has served practically 100 apps, with a DAU protection of roughly 60 million, as I discussed in my opening remarks. Along with serving to app builders monetize their person visitors, Feng Fei additionally allow our apps to be distributed on extra platforms. So, consequently, we anticipate Feng Fei to convey further income to our promoting enterprise sooner or later.

As to Phoenix Lab, you talked about, it’s designed to supply overview of merchandise and repair which might be each reliable and entertaining within the type of short-form movies, thus offering unbiased buying recommendation to China’s rising middle-class. Its Chinese language title is [Foreign Speech]. We’re at present focusing our opinions on client electronics as we distribute our opinions throughout all main short-form video platforms and social media channels. We have now already attracted over 2 million loyal subscribers. Sooner or later, we plan to develop the product classes to incorporate parenting, cosmetics, and life-style providers. We imagine that our product opinions in these space will even strengthen our content material protection within the associated verticals.

Leveraging our market energy in promoting house, our means to offer invaluable content material to our customers will assist us additional improve the affect of our model and acquire extra recognition from our model promoting purchasers. That is how the mannequin works. We hope that within the subsequent few years — within the subsequent 12 months, Phoenix Lab, [Foreign Speech], will be capable to turn out to be the go-to vacation spot for product opinions in a a number of completely different verticals. As well as, we will even discover the monetization alternatives for Phoenix Labs by dwell stream e-commerce and offline occasions sooner or later.

As at all times, we are going to actively discover new enterprise alternatives by steady innovation. We stay dedicated to strengthening our model fairness, content material manufacturing experience and R&D capabilities. We’re assured we additionally work to develop our person base and diversify our income streams by new services and products.

Thanks.

Operator

Thanks a lot. [Operator Instructions] There aren’t any additional questions right now. I might now like handy the convention again to administration. Please proceed.

Qing LiuInvestor Relations Supervisor

Thanks, operator. We have now come to the top of our Q&A session and our convention name, please be happy to contact us when you’ve got any additional questions. Thanks for becoming a member of us on this name. Have day.

Shuang LiuChief Government Officer

Thanks, all.

Operator

[Operator Closing Remarks]

Length: 38 minutes

Name members:

Qing LiuInvestor Relations Supervisor

Shuang LiuChief Government Officer

Edward LuChief Monetary Officer

Zhibin ZhangFirst Shanghai Securities — Analyst

Binbin DingJ.P. Morgan — Analyst

Guang Zhao FangTaihe Securities — Analyst

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