Earnings Call Transcript - FENG Q3 2022

Operator, Operator

Good day, and thank you for standing by. Welcome to Phoenix New Media Third Quarter 2022 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. Please be advised that today's conference is being recorded. And now, I'd like to hand the conference over to Ms. Muzi Guo from Investor Relations. Thank you. Please go ahead.

Muzi Guo, Investor Relations

Thank you operator. Welcome to Phoenix New Media's third quarter 2022 earnings conference call. I'm joined here today by our CEO, Mr. Shuang Liu; and our CFO, 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 third quarter 2022 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 move on to the prepared remarks, let me 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. And now, 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. The third quarter of 2022 remained a challenging one for our ad business due to weak advertising demand caused by the macroeconomic environment and COVID outbreaks. While we were seizing our monetization opportunities, we continue to build our brand differentiation through content production and distribution and elevate our media outputs in various industries and communities, especially through industry standards and norms. Moreover, we made significant updates to our products to better connect our users to our conference. During this quarter, we continued to demonstrate our media expertise and deliver in-depth news to our users across all platforms. We covered major national and new stories such as the escalation of the Russian-Ukraine war, the tension in the Taiwan Strait, the passing of Queen Elizabeth II of the U.K. and the assassination of the former Prime Minister of Japan, Shinzo Abe. We stayed at the top of the game of running hot topics. Take the heightened tension in the Taiwan Strait as an example. It was a fast news cycle, sending push notifications on more than 75% of the key updates of the event, leading to a high user engagement. Once the push notification is opened, our users are directed to other related highlights on contextualized content. Besides Pelosi's flight tracker, we were also one of the first media outlets live streaming her landing at Taiwan Airport, followed up by live interviews with field experts in military affairs and international relations, who provided their professional opinions and shared their interpretation of the situation. Our hot topics keep users up-to-date throughout the twists and turns of events. Besides a 10% increase in the click-through rates and 20% increase in average time spent year-over-year for our news app, our news accounts on certain platforms also gained substantial popularity. We gained three million new followers during the quarter on our Weixin Official Accounts. Our Weixin video accounts, Douyin, and Kuaishou generated over 100,000 new leads with 65 articles and over a million views from more than 500 videos. We continue to build our media influence and form new partnerships through events. In July, we held the first ever Phoenix Woman conference promoting gender equality and presented the Woman of Influence awards, where we celebrated the most accomplished female role models. Also in September, we collaborated with PhoenixTV and helped with the Phoenix Greater Bay Area Economic Forum. Over 50 senior officials, including John Ka-chiu Lee, Chief Executive of the Hong Kong Special Administrative Region, actors, and entrepreneurs gathered together to exchange ideas and look for solutions and opportunities for the economic development of the Greater Bay Area and China as a whole. Both events generated substantial publicity with nearly 100 media outlets covering these events. The hashtag topics and media clips of the events were widely reported on social platforms. Our original video series Global Insights has consistently proven its commercial value. The series collaborates with journalists and influencers located in 14 countries across five continents and employs domestic and overseas social media as main distribution channels with an accumulated 20 million followers across all channels. As Chinese brands continue their efforts to grow their business and brand overseas, Global Insights became an effective marketing solution for them to increase their international exposure. During the quarter, we collaborated with one of the major electric vehicle brands and fueled their new models rolling out the production line in Indonesia, showcasing their innovative technology and product development. With our global resources, operators, and distribution channels, we are becoming a reliable partner for Chinese brands to build strong, resilient, and truly global brands. We also refined our other original content products such as the micro-documentary series, The Journey. The series is presented in an authentic storytelling style that makes a strong personal connection. The four episodes released in the quarter were viewed by nearly 40 million users across the internet and widely shared on social media platforms. From a positive care doctor’s daily work caring for people living with serious illnesses to a young man from a remote village changing his life through education, the series tells stories about affection, courage, resilience, dedication, and wisdom, all of which are greatly valued by our general audience and by which brands also like to be endorsed. This type of content not only enhances our offerings but also creates long-term value. Moving on to our news coverage, we rolled out several upgrades to improve our interactive features. Specifically, we focused on increasing user engagement by improving the comment feature, allowing users to collect badges. By leaving intriguing comments, users are more motivated to leave their opinions under the articles. Comments can also be quoted by other users and displayed as dialogue, which stimulates more discussion and debate. As a result, we have seen the number of comments increase by 31%. We also refined our algorithm to improve the distribution of video comments. By analyzing users' viewing history, preferences, and engagements, we were able to refine their profiles based on their interests, standpoints, and level of education, and distribute videos personalized to each user profile. Apart from delivering information, we increased the supply of content that fulfills our users' interests and needs for entertainment. The click-through rates of video content have increased by 30% year-over-year. With these joint efforts, the average time spent per user increased by 20%, and retention rates increased by 43% and 44%, respectively. Next, I'd like to move on to our progress in revenue diversification. We continue to develop our online reading segment during the quarter. We collaborated with online reading platforms to monetize our premium content and further expanded our IP library of original content to lay the groundwork for developing new growth drivers. For our real estate vertical, although there have been numerous challenges, new home sales and marketing campaigns remain standard. Our team vigorously promoted innovative solutions to our clients and further optimized their cost basis. Meanwhile, we are focused on growing our B2B influence through industry collaboration and content offerings. We formed the first ESG alliance with the top five ESG data platforms. Together, we are going to refine the ESG rating system for real estate developments, complement company profiles, and drive healthy and sustainable growth for the industry. As for e-commerce, product sales in the health and wellness category continue to grow. As we added a collection of important food components to our product selection, our customer service has expanded to Weixin groups with new product information and coupons regularly shared with our loyal customers, which substantially increased the rate of repurchase. Phoenix, our digital connection platform, launched last quarter, released an action featuring the virtual character Julie, a beloved figure in celebration of the Chinese Mid-Autumn Festival. Combining Julie's charming girl image and landmarks like the Forbidden City, Taipei 101, and Tokyo Tower sends holiday wishes to people all over the world. Going forward, as virtual characters emerge as a new trend in digital marketing, Julie will complement our innovative marketing solutions and future events to assist our advertising clients in reaching younger audiences. In summary, despite the macro headwinds, we remain committed to strengthening our brand influence through breaking news coverage and organizing events while continuing to enrich our offerings and upgrade our products. At the same time, we're working to align resources to sharpen our focus on a clear set of priorities. Going forward, we will remain prudent in evaluating business initiatives, aligning our business with shifting industry dynamics and elevating our brand influence through consistent delivery of high-value content. With that, I will now pass the call on to our CFO, Mr. Edward Lu, to provide a closer look into our quarterly financials.

Edward Lu, CFO

Thank you, Shuang, and hello everyone. I will now walk you through our financial performance for the third quarter of 2022. All figures mentioned will be in RMB. Our total revenues were RMB 194.8 million compared to RMB 244.6 million in the same period of last year. To elaborate, net advertising revenues were RMB 172.4 million compared to RMB 216.6 million in the same period of last year. The decrease was mainly due to the reduction in advertising spending by advertisers in certain industries, the intensified industry-wide competition, and the negative impact of the COVID-19 outbreak in certain regions of China in the third quarter. Paid services revenues were RMB 22.4 million, compared to RMB 28 million in the same period of last year. This decrease was mainly due to the reduction in content spending from certain customers. Loss from operations in the third quarter of 2022 was RMB 36.5 million, compared to a loss of RMB 206.3 million in the same period of last year. This is mainly because the company recognized RMB 140.4 million of allowance for credit losses in the third quarter of 2021, relating to the entire amount of accounts receivable and the notes receivable from Evergrande Group, and we did not recognize such a loss in the third quarter of 2022. Additionally, the decrease was also attributable to the strict cost control measures implemented. Net income attributable to iFeng was RMB 24.3 million compared to a net loss of RMB 134 million in the same period of last year. Moving on to our balance sheet. As of September 30, 2022, the company's cash and cash equivalents, term deposits, short-term investments, and restricted cash totaled RMB 1.3 billion, or approximately USD 159.4 million. Finally, I'd like to provide our business outlook for the fourth quarter of 2022. We are forecasting total revenues to be between RMB 203.2 million and RMB 223.2 million. For net advertising revenues, we are forecasting between RMB 187.8 million and RMB 202.8 million. For paid service revenues, we are forecasting between RMB 15.4 million and RMB 20.4 million. This forecast reflects our current and preliminary view, which is subject to change and substantial uncertainties. In summary, our top line came under increased pressure this quarter due to the current macro headwinds. While we remain dedicated to expanding our media presence and diversifying our revenue streams, we are working to align resources and sharpen our focus on clear priorities. As such, we believe that our continuous efforts will sustain us through this adversity and prepare us to achieve a better margin recovery in the future. This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from the line of Xueru Zhang from 86Research. Please ask your question.

Xueru Zhang, Analyst

Thank you. Good morning management. Thank you for taking my question. I have one question regarding your app business. During the recent quarters, we've seen a slowdown in ad demand, while advertisers are cautious with their spending. I'm wondering what the company is doing to improve its competitiveness against other platforms? Thank you.

Edward Lu, CFO

Good morning, Xueru. This is Edward speaking. Thank you for your question. Actually, we do face a lot of challenges. But for brand advertising, the value of premium and differentiated content and media endorsements remains critical. These are our key strengths, and we never stopped trying to increase our competitiveness in this area. First of all, our breaking news coverage and the creation of hot topics have always been our key streams. This brings us high user traffic, especially high user engagement, which is essential to effective marketing. News and information also carry significant implications for product development and international dynamics. Brands seek to be associated with these topics to elevate their exposure to a larger audience. Our advantage also lies in creating content that resonates with users, allowing advertisers to establish connections with their target customers and associate their brands with universal values such as courage, resilience, persistence, and love. The mini-documentary we mentioned earlier, The Journey, is an excellent example of this type of content marketing. It conveys values shared by our audience and brands alike. We are committed to providing comprehensive marketing solutions to our key account clients. We are catering to middle to small-sized advertisers with creative and combined content marketing solutions, which generally yield higher gross margins. Our brand differentiation also helps us to reach niche markets. For example, a growing number of Chinese enterprises are expanding their business overseas. As they tap into our total market, they often need a completely different marketing strategy to build their brands abroad. With our contracted teams globally, we can promote Chinese brands and their culture more effectively. We are also able to carry out marketing execution overseas under the pandemic. In fact, very few media outlets have that ability in the market. Another important shift in advertiser demand is that they now spend a large portion of their budgets on social media while emphasizing performance marketing instead of spending all of their budgets on mainstream media marketing campaigns. In light of this change, we must break through the barriers of traditional media. We have accumulated a large user base of over 130 million on third-party platforms, including Weibo, Weixin, Douyin, Kuaishou, and BiliBili. The development and monetization of this account have become one of our strategic priorities. We have laid out a detailed action plan for our operations on third-party platforms. Our team structure and resources are also adjusted to target monetization for these accounts. I believe with these efforts we will stay competitive and continue to deliver unique value for our clients. I hope I have answered your question, Xueru.

Xueru Zhang, Analyst

Thank you, that’s very helpful.

Operator, Operator

Thank you for your question. Our next question comes from the line of Alice Tang from First Shanghai. Please ask your question, Alice.

Alice Tang, Analyst

Good morning, management. Thank you for taking my question. So my question is regarding the balance sheet cash items. Can you give us an update on how the cash will be used, since the company still has a fair amount of cash? Thank you.

Edward Lu, CFO

Hi, Alice, thank you for the question. Yes, you are right. Currently, we still have more than RMB 1 billion in cash. With such sufficient reserves, we are now in a very strong position to navigate the ever-changing macro environment. At this point, it's very crucial for us to manage our existing capital cautiously. We have set a very strict goal to bring down cash burn by focusing on returning to profitability and specifying a faster turnaround of our accounts receivable. The business is only sustainable if you can generate healthy cash flows from operations. Another way to reach that goal is to optimize our cost structure and increase operating efficiency. Our cost management efforts during the first half of the year have paid off. During this quarter, our sales and marketing expenses decreased by 22% year-over-year, and our G&A expenses also decreased substantially. Overall, we will continue to manage our operations and cash position cautiously while driving towards achieving positive operating cash flow. Thank you, Alice.

Alice Tang, Analyst

Thank you, Edward.

Operator, Operator

Thank you. Now there was no sign of questions, so I will hand back to the management team for closing remarks.

Muzi Guo, Investor Relations

Thank you. 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 joining us today on this call. Have a nice day.

Operator, Operator

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