Phoenix New Media Limited (FENG) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Phoenix New Media Second Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Muzi Guo from Investor Relations department.

Thank you, operator. Welcome to Phoenix New Media's earnings conference call for the second quarter of 2023. Joining me here today are our CEO, Mr. Yusheng Sun; and our CFO, Mr. Edward Lu. During this call, our management team will begin by providing an overview of our quarterly results, followed by a Q&A session. You can find the financial results for the second quarter of 2023 as well as the webcast of this conference call on our website at ir.ifeng.com. A replay of this call will also be made available on the website within the next few hours. Before we proceed, I would like to draw your attention to our safe harbor statement, which can be found in our earnings press release. This statement is important as it pertains to our forward-looking statements during this call. Additionally, please note that unless otherwise specified, all figures mentioned throughout this conference call are in RMB. Now I will pass the call to Mr. Sun, our CEO, for his opening remarks. I will provide the translation.

[Foreign Language]

[Interpreted] Hello, everyone. During the past quarter, Phoenix New Media has been relentlessly working towards maximizing content reach and profits. Thanks to our team news awareness, our team effectively covered major news events, like the Russian-Ukraine War and Shangri-La Dialogue. This resulted in timely and impactful content widely shared across the Internet. In terms of original content, we have created numerous high-quality programs such as The Message, Eye of the Storm, Journey and Extraordinary Path. These programs frequently make it to the trending list, sparking discussions across the Internet. This not only enhances the overall impact of our content, but also strengthens our brand advertising sales. The collaboration between Phoenix TV and Phoenix New Media has also become stronger. We've managed to seamlessly integrate major events reporting as sales of integrated marketing resources, amplifying the synergy effect of the collaboration. Looking ahead, we will continue to deepen and refine our coverage of breaking news and major events, while also focusing on differentiation in content dissemination. Apart from excelling in current affairs and politics, we will continue to strengthen our position in social trends, legal matters, finance and technology, aiming to secure our competitive advantage in speed and breadth. Even more importantly, we will further embrace and delve into social media channels. By utilizing various social media platforms, we intend to maximize the dissemination of our content and unlock additional business prospects. Next, Edward will provide a more detailed rundown of our operation in the second quarter. Edward, please go ahead.

During the second quarter of 2023, we maintained our commitment to strengthen our media influence by dedicating ourselves to being present at major events. Naturally, at the Shangri-La Dialogue in Singapore, our frontline reporter engaged in on-site dialogue and delivered several exclusives and ground-breaking reports. We were the first to break the news about the China-U.S. Defense Secretaries table dinner, the sole Chinese media to question the U.S. Defense Secretary on-site. And the first to publish China's response to the U.S. Defense Secretary's speech. Our related video content achieved a remarkable total of 77 million views, going viral on platforms like Weixin, Weibo and Douyin and earning acclaim from other esteemed media outlets such as [Foreign Language], Bloomberg, Asahi Shimbun and others. In late June, during the Wagner rebellion, we organized a series of live broadcasts, providing comprehensive coverage of the event to help the audience understand its unfolding. This exclusive live broadcast became a defining moment in the coverage of the Russia-Ukraine conflict. On the first day of the live broadcast, we reached the top 5 on [Foreign Language] trending list, with nearly 14 million viewers across all platforms and a surge of 251,000 new followers. We also provided real-time updates through short video clips for broader audience coverage. Our original columns, such as Phoenix Reference, [Foreign Language], and the [Foreign Language] offered insightful analysis of the event, garnering extensive sharing and comments on social media platforms. In our signature series, Dialogue with the World, we continued to hold conversations with prominent figures. In May, we featured an exclusive interview with Poland's President, three-time Pulitzer winner, famous American political commentator and announcer during the challenging times between China and the United States, resulting in high-quality rational conversations that align perfectly with Phoenix's generalistic steps. Friedman, himself highly praised Phoenix New Media for its professional pursuit, and the interview content received a widespread sharing by influencers on various platforms, domestic and abroad, marking an important step for Phoenix's Dialogue with the World towards global media stage. In Q2, we continued to enrich our commercially supported content and resources and expanded our client base. In early July, we held the 2023 World Cities Branding Conference in Macau, aiming to create a world-class international forum focused on supporting the development of culture and tourism industries and promoting world-class destination brands. With our tenets rich in Chinese culture global perspective, we play a unique and dispensable role in shaping and disseminating TV and the culture and tourism brands in the future. Additionally, we expanded our marketing services to clients in consumer goods industries, including food and beverages, home improvements and appliances, especially to those venturing into the international markets, leveraging our contracted generalists and KOLs worldwide, along with our global network of resources and [indiscernible], we provided them with compelling overseas content and marketing execution. For instance, through our Think Global observation team, [Foreign Language], we tailored the content in Africa, the Middle East, Japan, the U.K., France and other regions for our clients, integrating local hot topics and brand stories. This production showcased of our global content production and the branding capabilities, and we continue to attract more clients with these news. We also incorporate AIDC into our content. Our technology vertical launched AI Vanguard, an original program that utilize AI to revolutionize traditional video production, achieving success with 5 episodes produced and a total of 420,000 views. The show employs popular AI tools for topic selection, script generation, image creation and audio and video generation. Focusing on cutting-edge AI content, it covers everything from news briefs, to index analysis, expert industry observations and trend predictions. AI Vanguard is one of the first programs to fully leverage AI for content generation in the industry. We believe that AI has the potential to generate highly personalized content, catering to the unique needs of diverse audiences while increasing our overall productivity. On our flagship iPhone app, we made further progress with AI-generated content summaries and AI-powered interactive features, making it easier for users to quickly grasp the essence of the content. Users responded positively to this enhancement, evidenced in our 5% increase in the proportion of logged-in users quarter-over-quarter, a 15% drive in click-through rate in the comment section, and a 9% increase in daily average common interaction. Apart from AI-powered enhancements, we optimized the news flash card feature of the app, enabling direct generation of shareable cards from flash news articles, thus, facilitating social sharing and dissemination of news content. Furthermore, we introduced a separate recommendation algorithm and channel for Phoenix TV's video content, resulting in a twofold increase in exposure and a 10% increase in click-through rates for high-quality TV content. Additionally, we improved the distribution algorithm for hot topics and focused image, creating more opportunities for exposure to hot content. With these joint optimization in recommendation algorithms and the content editing, the overall click-through rate on our app increased by 12%, and the average time spent per user increased by 8% quarter-over-quarter. In conclusion, during the second quarter, we continued to bolster our media influence by covering major events and delivering exclusive reports and original content through our flagship app and across all social platforms. We also strengthened our monetization capabilities by upgrading our marketing resources and expanding our client base. As we move forward, our focus will be on aligning resources to strategic business units, thereby solidifying our position as a leading force in the media industry, characterized by both growing media, brand value and commercial value. I will now walk you through our financial performance for the second quarter of 2023. All figures mentioned will be in RMB. Our total revenues were CNY 180.2 million compared to CNY 191.6 million in the same period of last year. To elaborate, net advertising revenues increased to CNY 161.8 million compared to CNY 160.5 million in the same period of last year. Paid services revenues were CNY 18.4 million compared to CNY 31.1 million in the same period of last year. The decrease was mainly due to the reduction in the content spending of certain customers and the decline in e-commerce revenues. Loss from operations was CNY 35.7 million narrowing by 62.4% year-over-year as a result of increased gross profit and decreased operating expenses. Net loss attributable to iPhone was CNY 31.3 million, narrowing by 67.3% year-over-year. Moving on to our balance sheet. As of June 30, 2023, the company's cash and cash equivalents, term deposits, short-term investments and restricted cash were RMB 1.08 billion or approximately USD 149 million. Finally, I'd like to provide our business outlook for the third quarter of 2023. We are forecasting total revenues to be between CNY 158.5 million and CNY 178.5 million. For net advertising revenues, we are forecasting between CNY 148.7 million and CNY 163.7 million. For service revenues, we are forecasting between CNY 9.8 million and CNY 14.8 million. This forecast reflects our current and preliminary view, which are subject to change and that has substantial uncertainties. This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead.

[Operator Instructions] And our first question is from Xueru Zhang with 86Research.

Can management kindly offer a brief review of the ad market business during the first half of the year and share your perspectives on the anticipated outlook for the ad market in the second half?

Xueru, thank you for the question. Actually, in the first quarter, our ad revenue decreased due to the slow economic recovery. But things looked better in the second quarter. Overall, the Chinese advertising market showed a moderate recovery trend. In my opinion, it's still facing challenges, and advertisers are being cautious with their marketing budgets. Having said that, we have identified possible areas of growth. For instance, after the pandemic, brands are pushing new product development and promotions. We have actively responded to that demand, increasing marketing services for new products launched in many industries, such as automobile, alcoholic beverage, electronics and home improvement sectors. Also, a lot of brands want to break through local growth barriers and get a bigger piece of the growth market. We have been working on this for over a year using our brand and content's global appeal to provide advertisers which choose to reach global audiences. We are also expanding our share in certain client industries. For example, events like the World Cities Branding Conference and our cultural tourism-related content have helped us attract new clients such as local tourism bureaus, luxury hotel chains, et cetera. In today's market, with tons of different channels and fragmented user attention, advertisers are back to the core of content marketing, and they place great emphasis on top tier media. So our game plan is all about boosting our uniqueness and the media strength in the content area. At the same time, we are enhancing our marketing resources and capabilities. I think our ad revenue will be quite stable in the second half of the year.

One moment for our next question, please. It comes from the line of Alice Tang with First Shanghai.

So the company experienced a noticeable decline in paid services revenue in Q2. So could the management team, please shed light on the future plans for the diversified business and the focus of the operation in the future? Thank you.

Hello, Alice. Before diving into revenue diversification, actually, our primary focus is on ensuring profitability and maintaining a steady revenue stream. To achieve this, we need to strategically direct our limited resources towards the most critical parts of our business. So our profit centers and our core media operations is the key part of our business. Regarding our revenue diversification, the main reason why our paid services revenue went down in Q2 is because some parts of our business generated revenue, but they weren't making as much profit as we'd hoped, such as the private label brand for our e-commerce sales. So we are not continuing with this kind of ventures this year. It's part of our approach to putting profit first. For our core business, we are setting the bar higher for advertising revenue. Our strategy is market-focused. We are pinpointing our clients and their marketing needs and setting clear goals. We are directing our limited resources toward projects that promise better returns. In addition, we are fostering teamwork across departments to craft powerful plans and contents that both impress advertisers and make an impact. And on top of that, we are all about increasing productivity and keeping costs in check. These factors are the backbone of our company's healthy operations.

Thank you. And with that, we finish our Q&A, and I will turn the call back to use Muzi Guo for final comments.

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 good day.

And with that, thank you all for participating. You may now disconnect.