Earnings Call Transcript - FENG Q4 2021

Muzi Quo, Investor Relations Representative

Thank you, operator. Welcome to Phoenix New Media's fourth quarter 2021 earnings conference call. I'm joined here today by our Chief Executive Officer, Mr. Shuang Liu; and our 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 fourth quarter 2021 financial results and webcast of this conference call are available on our website at ir.ifeng.com. A replay of the call will be available on the website in a few hours. Before we continue, I'd like to refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Finally, please note that unless otherwise stated, all figures mentioned during the conference call are in RMB. With that, I would like to turn the call over to Mr. Shuang Liu, our CEO.

Shuang Liu, CEO

Thank you, Muzi. Hello everyone and thank you for joining our call today. In the face of growing conditions and macro uncertainties, we stay at the forefront of the media space, thanks to our strong media DNA and our mission to provide high quality and professional news content. During the past few weeks, the Russia-Ukraine conflict has captured the public's attention, starting in mid-February. We were the first online media platform to launch full coverage of the conflict. Since then, our multi-dimensional coverage of the crisis, consisting of frontline updates from a network of Phoenix TV journalists, discussions and analysis from experts in international relations, video clips from content creators in Ukraine, ongoing events, live streaming, and more has attracted an average of 15 million daily views across the internet. Besides breaking news coverage, we continue to emphasize the uniqueness of our content and enhance our user experience. We remain committed to cultivating new business initiatives and expanding our revenue streams. We've successfully held a number of high-profile signature events in the fourth quarter to expand our brand influence despite restrictions and challenges related to the recent COVID outbreak. Our ability to execute given a difficult situation is a result of our effective teamwork, dedication, and creativity. Several of these events include our iFeng food festival, together with a golden Chinese restaurant launch press conference. Our iFeng Fashion Award and the finance, economics summit. We upheld our high standards for event skill, attendee experience, and public reach. Live events were a big success in meeting our clients' marketing needs and set a new historical record in the commercialization of our events and brand exposure. In addition to these signature events, we launched an innovative program called Inside Business Schools. We invited scholars, business leaders, and nearly a thousand students from leading MBA programs to visit the corporate campus of our clients. The program addressed topics such as corporate development, industry transformation, and tax advances through a series of presentations and roundtable discussions. The MBA students gained access to business case studies. As we successfully provided our clients with precision marketing solutions to help them attract high net worth customers and assist them in generating product sales. This event is just one of many ways we're able to monetize our media brand value and our broad business network and resources. While maintaining our offline event presence, we continue to evolve our original content metrics. In the fourth quarter, we rapidly advanced our editor segments, our international news column, published in-depth commentary, and daily headlines regarding international relations issues and events. Having optimized the content production process, we saw substantial improvements in both the quality and quantity of articles published for the column, as the performance indicators of the column, including views and click-through rates ranked among the top tier news media outlets. The column is receiving widespread attention from journalists, influencers, and the academic community from leading Chinese universities. Also, through joint efforts with other media companies, we distributed global top news to international markets, enhancing our brand recognition both at home and abroad. Meanwhile, our commentary column aims to provide our audience with a deeper insight and understanding of today's complex world by covering modern issues and current events. In the fourth quarter, the column reported a wide range of social concerns including celebrity social ethics, public administration issues, women's rights issues, and the evolution of taxation laws. Since its launch, the column's page views, user comments, and new follower counts have all significantly increased, with an increasing portion of these articles exceeding 100,000 views. On the IP Conference front, we successfully validated the monetization capability of Your Achievements, an innovative short video series that combines large scale field production with presentation style storytelling. The series features several super construction projects and highlights the challenges faced by the construction teams and skills that may lead to project profitability. The production seamlessly aligned its theme of transforming challenges into opportunities with our advertisers' brand image, maximizing its content distribution and reach. During the fourth quarter, Your Achievement reached 22 million views through social media platforms across the internet. Besides retail series, our IP production also developed a livestream show focusing on interviews and discussions of trending cultural topics. For example, we invited guests, such as bestselling authors and production teams of popular dramas and movies into our studio to talk about their work. The show acquired a highly engaged user base, as fans of these artistic works are keen to interact with our guests through the medium of live streaming. The show is live-streamed on our iFeng APP, as well as on other social media platforms, generating online discussions. Through a combination of our offline events and online content, we have formed a positive feedback loop that allows both parts of our business to jointly create value and offer a high-quality multi-channel experience to all our customers. On the product side, iFeng APP continues to enhance the distribution of our online content and offline events. During the quarter, we made several updates to improve the APP's user experience. For example, we improved our algorithm to enhance distribution efficiency for our short reader content, which saw an increase in user reach, penetration rate, and click-through rate. Compared to last quarter, our short media content's average viewing time increased by 14%, and penetration rate grew by over 10% during the fourth quarter of 2021. Meanwhile, we're further enhancing the interactive features of our APP, including forums and live chat, which are directly integrated with trending topics. By encouraging our users to participate in text or audio discussions after viewing their topics of interest, they will spend more time on the APP and continue to explore it. This creates a sense of community as well as increases user engagement and boosts user stickiness. All of our hard work in content creation and improving our technology has laid the foundation for us to make solid progress in diversifying our revenue. In the online reading segment, we continue to monetize our original content IP. We completed the sale of the movie rights of Wheel of Time, one of our original reality theme works of online fiction. In addition, at the end of December 2021, we started laying the groundwork to export our online literature content to overseas markets. As of today, we have built a library of English titles ready to be monetized. As for e-commerce, we continue to develop products for our private label brands in the health and wellness segments. In the fourth quarter of 2021, we launched nutritious, low-calorie meal replacements featuring popular superfood ingredients, leveraging traffic from third-party live streaming platforms and our own vertical channels, driving this product into the top selling lists of this category. For culture and creativity, we partner with IP licensing firms to bring carefully crafted art and cultural objects from some of the world's leading museums and galleries to our e-commerce platform. Going forward, we plan to utilize the synergies between e-commerce and areas such as health and fashion to integrate content themes with merchandise selection and capitalize on our user traffic. Finally, we have adapted our real estate vertical to the challenging macro environment despite the market downturn. On one hand, we continue to exercise our media influence in the real estate sector to deliver original content and launch special events. We launched a new column focusing on industry leaders and held our industry summit in the fourth quarter, addressing topics such as urban renewal, land supply, sector debt levels, and the governance policies for real estate developers. We also publish industry-wide papers focused on ESG development and industry dynamics in the real estate sector. On the other hand, our real estate team remained active in exploring new business opportunities during the fourth quarter by addressing customer pain points and marketing needs, while applying new monetization models beyond traditional advertising. As a result, we achieved breakthroughs in customer acquisition and improved our revenue mix. To summarize, we demonstrated vitality and resilience during challenging times in the fourth quarter as we continued to host high-profile signature events, create original and exclusive content, enhance our content distribution technologies, and explore new business initiatives. During the fourth quarter, we continually monitored and planned for external challenges while executing our strategy of revenue diversification and business growth. We started 2022 with a renewed commitment to overcome near-term challenges and build a thriving business in a rapidly changing macro environment. With that, I'll turn the call over to our CFO, Edward Lu, to provide a closer look into our quarterly financials.

Edward Lu, CFO

Thank you, Shuang, and thank you all for joining our conference call today. Our total revenues in the fourth quarter of 2021 were RMB302.9 million compared to RMB362.2 million in the same period of last year, hitting the high end of our previously announced guidance range. To provide some additional context on our revenues, net advertising revenues in the fourth quarter of 2021 were RMB279.2 million compared to RMB336.7 million in the same period of last year. The decrease was mainly due to the reduction in advertising spending by advertisers in certain industries, intensified industry-wide competition, and the negative impact of the COVID-19 outbreak in certain regions in China during the fourth quarter. Paid services revenues in the fourth quarter of 2021 were RMB23.7 million compared to RMB25.5 million in the same period of last year. Revenues from paid content in the fourth quarter of 2021 were RMB7.9 million compared to RMB11.2 million in the same period of last year, mainly due to the reduction in content spending from certain customers. Revenues from e-commerce and others in the fourth quarter of 2021 increased by 10.5% to RMB15.8 million from RMB14.3 million in the same period of 2020. Loss from operations in the fourth quarter of 2021 was RMB53 million compared to a loss of RMB28.8 million in the same period of last year. Operating margin in the fourth quarter of 2021 was negative 17.5% compared to negative 8% in the same period of last year. Non-GAAP loss from operations in the fourth quarter of 2021 was RMB51 million compared to a non-GAAP loss from operations of RMB3.3 million in the same period of last year. Non-GAAP operating margin in the fourth quarter of 2021 was negative 16.8% compared to negative 0.9% in the same period of last year. Net loss from continuing operations attributable to iFeng in the fourth quarter of 2021 was RMB35.4 million compared to a net income of RMB434.8 million in the same period of last year. Non-GAAP net loss from continuing operations attributable to iFeng in the fourth quarter of 2021 was RMB33.2 million compared to RMB8.2 million in the same period of last year. Moving on to our balance sheet, as of December 31st, 2021, the company's cash and cash equivalents, term deposits, short-term investments, and restricted cash were RMB1.51 billion or approximately $237.5 million. Finally, I'd like to provide our business outlook for the first quarter of 2022. We are forecasting total revenues to be between RMB172 million and RMB187 million. For net advertising revenues, we're forecasting between RMB158.5 million and RMB178.5 million. For paid service revenues, we're forecasting between RMB13.5 million and RMB18.5 million. In summary, while the uncertainty from the present macro conditions and the changing industry landscape persists, we remain optimistic that green shoots will emerge. We are confident in our content creation and distribution capabilities and believe that these competitive differentiators will sharpen our market position as we move forward. Looking ahead, while remaining prudent in our investments, we will explore new monetization strategies and improve our revenue mix, as we are convinced that we are on the path to delivering shareholder returns in the long run. This concludes the prepared portion of our call. We are now ready for questions.

Operator, Operator

Thank you. The first question comes from Xueru Zhang from 86Research. Please go ahead.

Xueru Zhang, Analyst

Good morning, management. Thank you for taking my question. I have one question regarding our business. We know that 2022 is a tough year for the markets. I am wondering if you also observe the challenges from macroeconomic conditions on your ad business as well? Is there anything we can do to offset the impact? Thank you.

Edward Lu, CFO

Hi Xueru, this is Edward. I will answer this question. Our brand advertising business revenues did face challenges due to the market downturn in the fourth quarter of 2021. In some industries, such as autos and real estate, clients are cautious with their advertising spending. Also, we usually hold more offline activities and events in the fourth quarter, which were affected by the nationwide COVID-19 outbreaks. Even though we overcame many challenges and successfully held our signature events, such as the finance and economic summit and food festival, we still have some projects being delayed or even canceled, unfortunately. In 2022, I think the macro environment is still uncertain. However, if we look at the trend of marketing demand, advertisers pay more attention to precision marketing as mobile internet traffic growth has picked up. Now, advertisers focus more on comprehensive and IP content rather than fragmented content and short-term attention. So, we will continue to strengthen our differentiation in several ways. First, we will continue to enhance our media brand value through news coverage on signature events, original content, and large scale event planning. We will integrate and distribute live content via live streaming video and other forms of media to create unique marketing resources for our clients. We have unique strengths in providing international marketing solutions with a variety of resources that creators and influencers globally have successfully produced video content to assist domestic advertisers in promoting their brands internationally. We are also building our influence and distribution capabilities abroad by growing our presence on overseas social media platforms. Our collaboration with Phoenix TV will also allow us to integrate marketing and advertiser resources and complement each other. This will enable us to create a total marketing solution that covers both internet and TV audiences. Together, we can further reach and attract new clients such as central and state-owned enterprises. We hope to create greater value for our clients and boost our monetization efficiency through this effort. Thank you, Xueru.

Xueru Zhang, Analyst

Thank you. That's very helpful.

Edward Lu, CFO

Thank you.

Operator, Operator

Thank you for your questions. Next question comes from Alice Tang of First Shanghai. Please go ahead.

Alice Tang, Analyst

I have two questions on my end. The first one is, our company has mentioned diverse revenue streams over the past few quarters many times. So, could you please talk about the company's progress in the services segments?

Shuang Liu, CEO

Hi, I will take this one. Actually, our online reading and e-commerce revenues both grew in 2021. For online reading, we have reorganized our team and recruited more experienced talent. We also improved the core competency of our IP content and created various monetization channels including recording and selling audiobooks, producing and distributing short-form video series, and selling film rights. We expect revenues from these segments to continue to grow in the future. In terms of our reading app, we attract new users by offering free high-quality e-books and earn revenue through advertising. We expect its revenue to scale up in the next few years. For our e-commerce business, we focused on positioning ourselves as the go-to platform for cultural and household products, leveraging third-party platforms such as TikTok and Crenshaw. Our private label brand has achieved meaningful growth in GMV on these third-party platforms. As we continue to create more original content, our followers and influence on these platforms also grow. We are still working on how to convert our increasing number of followers into e-commerce users, but we hope this growing traffic can boost our e-commerce business growth in the future. I hope I have answered your question.

Alice Tang, Analyst

Yes, thank you very much. So, my next question is, by the end of year 2021, the company still had about RMB1.5 billion in cash reserves. Does the company have any investment plans for this cash in the future?

Shuang Liu, CEO

Hi, this is Shuang, let me take your question. We are fortunate to have a large amount of cash on hand, approximately RMB1.5 billion. I think we're lucky to have this amount of cash, especially given the current market condition. It’s a very volatile market, and we experienced panic selling recently. This amount of cash will make us more prepared, independent, and stronger for future challenges and enable us to navigate these turbulent waters. Simply having this cash does not mean we should be more aggressive in our investments. I think at the current stage, we need to be more prudent and conservative in spending it before we clearly analyze the concrete impacts of these uncertainties on our business and financial prospects. In the near future, I think we will be more cautious in making investments. That's it.

Alice Tang, Analyst

Thank you.

Operator, Operator

Thank you for the question. We have no more questions from the line. I would like to hand the call back to the management for closing.

Unidentified Company Representative, Company Representative

Thank you, operator. We have come to the end of our Q&A section and our conference call. Please feel free to contact us if you have any further questions. Thank you for joining us today on this call. Have a good day.

Operator, Operator

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