Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media Fourth Quarter and Fiscal Year 2012 Earnings Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, March 8, 2013. I would now like to hand the conference over to the Investor Relations Director, Matthew Zhao. Thank you, sir. Please go ahead.

Thank you, operator. And thank you and welcome to Phoenix New Media fourth quarter and fiscal year 2012 earnings conference call. I am joined here by our Chief Executive Officer, Mr. Shuang Liu; our Chief Operating Officer, Mr. Ya Li; and our Chief Financial Officer, Ms. Lily Liu. For today’s agenda, management will provide us with a review on the quarter and also include a Q&A session after the management’s prepared remarks. The fourth quarter and the fiscal year 2012 financial results and webcast of this conference call are available at Investor Relations sections of www.ifeng.com. A replay of the call will be available on the website in a few hours. Before we continue, I 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 this conference call are in renminbi. With that, I would like to turn the call over to Mr. Liu Shuang, our CEO.

Thank you, Matthew. Good morning and good evening everyone. We are very pleased to report strong fourth quarter results in terms of both financial and operational performance that help us complete a challenging, but solid year of strengthening in our overall foundation to year 2012. Because of the strengthening of our convergence technology platforms, unique and sought after content as well as our strong execution during the tough year, we were still able to achieve a major milestone of reaching annual revenue of over RMB1 billion. In addition, we grew net advertising revenue by over 31% to RMB610 million. This growth clearly demonstrated the deepening of our relationships and increasing awareness among advertisers about our fast growing, highly educated higher income readers and viewers would depend on iFeng for obtaining news, finance, technology, entertainment and the lifestyle content. With that today, I would like to discuss three key focus, which is one, elaborating on user base expansions on premium company offerings; two, our year end activities in promoting our iFeng brands and expanding our media footprints; and three, our strategy to further expand our mobile internet business. First, our strong user growth and continued expansion, throughout the year 2012, our web portal continued to significantly outpace our peers’ growth rates and narrowed the viewership gap which according to iResearch, our daily unique visitors grew by over 43% year-over-year reaching 33 million viewers. Likewise, monthly unique visitors grew dramatically by over 64% reaching 262 million. This growth was significantly faster than any other major portal websites in China, and means that over 50% of all Chinese internet users came to iFeng to consume our premium content, this average out to over 338 million page views per day throughout December alone. We believe that our coverage of major domestic and international news…

Thank you, Shuang, and thank you all for joining our conference call today. Let me take you through our financial highlights for the fourth quarter and full year 2012 results. The amounts mentioned here are all in RMB unless otherwise noted. iFeng total revenues for the fourth quarter came in at RMB302 million, which exceeded the high end of our guidance by over 9%. Non-GAAP net income for the fourth quarter was RMB25.8 million or RMB0.33 non-GAAP net income per diluted ADS. Let me now run through the other key financial highlights. Starting with net advertising revenues, net advertising revenues for the fourth quarter came in at RMB193 million, which beat the high end of our guidance by over 13% and represents a respectable year-over-year growth of 28%. Our top five industry contributors for this quarter are auto, food, beverage and wine, e-commerce, financial services, and medical services. Turning to paid service revenues, for the fourth quarter, iFeng generated a RMB109 million paid service revenues, which beats the high end of our guidance by over 4%, and it represents a sequential decline of 16%. As the market in China shift toward mobile internet, we expect traditional WVAS revenues will continue to decline as a percent of total revenues, but that it will in turn be offset by growth of our 3G data services such as mobile video, digital reading as well as webpage games, going forward. Turning to gross margin, our gross margin for the fourth quarter was 45.4%, up from 41.4% for the same period in 2011. The four components of cost of revenues are revenue-sharing fees relating to paid services, content operational cost, bandwidth cost, and sales tax. On a GAAP basis, revenue-sharing fees as a percent of total revenues declined to 15.6% from 28% in the fourth…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Alex Yao from Deutsche Bank. Please go ahead.

Hi, good morning and good evening everyone. And thank you very much for taking my questions. I have a two question number one is on the operating expense side, this quarter our revenue mix continued to shift towards online advertising which is a high margin business and also gross profit increased. But operating expense increased much faster than the revenue. So the operating margin declined, so this suggests that the operating efficiency is weaker than one year ago, how should we think about operating efficiency in 2013. And second question is on the paid service outlook in 2013, given the structural challenge to the traditional mobile value-added service. Can management talk about the solutions you identified to grow the paid service and what are the initial feedback from these initiatives? Thank you.

Alex, I’ll take that question. First question regarding operating efficiency or operating margin. In the fourth quarter our operating margin was approximately 5.5%, which is down from last year. Most of that is due to increased marketing and promotion activities, increased staff related cost as well as increased rental fees. Going forward for 2012, we actually increased our sales and marketing efforts. So, in the fourth quarter we have two new industry wide marketing events that we do not have in 2011. We believe that these two events significantly increased our brand awareness and industry penetration especially for our finance vertical as well as fashion vertical. Going forward for 2013 we expect to at least maintain the same level efficiency if not improve that slightly as time goes. So that’s for the first question. Second question regarding our traditional mobile value-added services, you are right mobile value-added services within that our traditional wireless value-added services which is specifically SMS and MMS related the products will experience a decline for the first time in our company’s history for 2013. However, we believe that business this is – this will not have as much impact on our bottom line, we are growing our 3G related data services such as mobile video and digital reading going forward which for both of these areas still carry a healthy growth rate going forward. And we are – we also launched a gaming platform in 2012 which is growing much faster. So, going forward for 2013, we don’t expect our total paid services to decline. We are expecting our total paid services to maintain at least the level in 2012 or even grow a little bit.

Thank you very much. I’ll get back to the queue.

Great, thank you. And our next question comes from the line of Julia Chung from Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. Can you please provide a breakdown of your sales of your advertising sales by sector and can you please also share with us your view on the outlook of this – of the major sectors. Do you think the advertising recovery is across the board or just focused on few sectors? Thank you.

Thanks Julia. This is Ya. Yeah, our top five sector breakdown is auto by 29%, food, beverage and wine 15%, e-commerce 10%, financial service 8% and medical and healthcare services 4%. And right now we are cautiously optimistic about the advertising outlook and we believe that the economy is better than we feared. And apart of the strong growth of our fourth quarter advertise revenue also came from the completion of our realignment of our sales force as well as the news video ad strategy. And for this sect, among our top sectors, we believe the food, beverage, and wine will still enjoy a relatively stronger growth than auto and e-commerce and financial services, because last year’s CCTV auction, the food, beverage, and wine accounted for 44% of the entire auction revenue. And that’s one of our focus. For auto, we believe that the mixture of the Japanese auto ad revenue, ad budget concern, and also the policy restrictions from the concern for pollution or traffic jam will keep the sector remain where it is today. So, overall, I think that’s our outlook for our top sectors.

Thank you.

Thank you.

Right, thank you. And our next question comes from the line of Shao Jiong from Macquarie. Please go ahead.

Hi, good morning everyone. This is George calling on behalf of Jiong. So, I have a couple of questions. The first one is regarding your advertising revenue, can you provide us the video advertising contribution in this quarter to total advertising revenue. And also among the video advertising itself, can you also give the breakdown of – under the banner and the sponsorship as well as the pre-roll?

Okay. Yes, thanks. This is Ya. The video ad revenue accounted for 18% of the fourth quarter revenue, up from 12% in the third quarter and the actual number actually is over 100% growth from the third quarter, and mainly because first the completion of the realignment of our sales force. So, we have a centralized video ad strategy team with the actual sales team across all regions and all sectors. And secondly because of our new video product and video ad product, including the example of iFeng Daily News, which enjoyed $1 million sponsorship support. Thirdly, because improved of video ad technology like the video ad serving system; and fourthly because of the effectiveness of certain sector, including the food beverage, regional travel line, and also relationship with the TV news advertising agencies. Actually, most of our video ad is sold in the integrated format including both banner and sponsorship and so we are working on two legs. We are fortunate to have the very rich program resources. And so we are selling the video ad by two approaches, one is following the TV program advertising approach, which tends to be more by sponsorship, and at the same time, sale by CPM-based pre-roll or mid-roll. And also our video costs are lower due to the short form factor and the margin structure is different from other non-form video providers. That’s why our video business itself is very profitable unlike the other TV drama or movie focused pure video players. And we believe with the shift of viewership from TV to online or mobile devices, the video ad growth will continue to drive our overall revenue, advertising revenue growth. Thanks.

Thank you, Ya. That’s very helpful. And my second question is regarding your web game operations, so can you actually update us on the revenue contribution in the fourth quarter from the web game operations, and in what sort of target going forward in 2013? Thanks a lot.

Okay, thanks for the question. Yeah, at this stage actually, we are still focused on our core existing business. Well, we realized that game is a valid need from mainstream internet users in China. So, with our huge user base and their strong purchasing power is area we are exploring, but we are very careful and at very early stage, I think fourth quarter contribution is still relatively small and this time we are not providing any guidance on that. I think going forward we will update you and it’s more appropriate time. Thanks.

Thank you very much. It’s very helpful.

Thank you. And our next question comes from the line of Eddie Leung from Merrill Lynch. Please go ahead.

Hi good morning. Thank you for taking my questions. I have a couple of questions. The first one is about your advertisers. I am curious on the number of advertisers you had in the fourth quarter and then more interestingly, could you also talk a little bit about the (indiscernible) of your video advertising – advertisers. Should we expect almost all of the video advertisers coming from your portal side or are we seeing in the new advertisers that you obtained it purely on the video business? So, that’s my first question. And then secondly could you also discuss your plan on your cash, it seems to be a very big cash balance sitting on your balance sheet, so any plan for dividends or share buyback or acquisitions? Thank you.

Okay thanks. I will address the first question and Lily will address the second one. And yeah for the – our overall advertiser in the fourth quarter was 319 and it represented 7% sequential growth from the third quarter and 1% growth from a year ago. And in the previous quarters couple of quarters and our number of advertisers didn’t grow much. We have disclosed that we proactively tightened our payment terms and with some smaller advertisers during the difficult economic times and also we changed the way we counts more advertisers through third party agencies which cost the overall advertisers to reduce in the second and third quarter. However, the number of brand advertiser mostly remained the same. In the fourth quarter finally we are seeing the growth coming back both sequentially and also over the year ago. And the main driver for the advertiser growth comes from both the video advertising and also mobile advertising which accounts for 9% of our fourth quarter revenue, up from 6% in the previous quarter. And also the new sectors which fixed well with this video and mobile advertising including the ones I mentioned regional travel, food, beverage and wine and there are indeed advertisers who are pure video advertising or mobile advertising clients. And we do expect number of advertisers to grow because of the efforts of high growth in video and mobile advertising as well as from the new sectors. Yeah, and for the second question Lily please.

Sure for our cash currently the company does not have plans for paying a dividend. We have authorized $20 million share buyback and we’re fully in the process. So, we will wait until that depleted before we go to the Board and decide what to do next.

Ya.

Yeah, for the acquisitions, let me just add to that we are very careful how to use our cash, our overall goal is to maximize shareholder value. And we are actually looking at different investment or acquisition area mostly fall into two categories. One is to increase our profitability by investing in certain vertical areas whose revenue model is already clear such as the online travel, online healthcare, online vendor services. The second category falls into for future growth especially for the wireless internet, for example mobile reading, mobile SMS and mobile video. And but overall as I mentioned we will with – try to maximize shareholder value-add and using the acquisition and investment we go.

Few more words I want to add. Our goal is to be with a nice smart portfolio of media assets, of course, all kind of the media platforms. Our priority is to build these assets organically, but we don’t want to do our possibility of acquisition and the new target got to be supplemental to our existing business, got to help us to expand new share, new market shares and can create huge synergy. So, the bottom line is to maximize shareholder value, but the priority is to build our business organically.

Understood, very helpful. Thank you.

Alright, thank you. And our next question comes from the line of Martin Bao from CICC. Please go ahead.

Thank you for taking my question. Two questions regarding – and the first one is on the traffic growth within our mobile segment. And second question is which – what kind of mobile advertising format you’ll see will grow the fastest in the 2013? Thank you very much.

Martin can you repeat the first question.

Actually the first question is, yeah. The first question is regarding the traffic growth trend with our mobile business and what the mobile ads and all the other 3G mobile services?

Yeah, Martin, yeah I will take this question. I think we have experienced very rapid traffic growth on our mobile platform, but the product we have a nice portfolio of media applications and wireless products. The product I think is still at the developmental stage. So, it’s probably not the best time to elaborate too much on the exact numbers of the mobile traffic growth. But we feel comfortable with the graphic growth. And on the PC side, tablet side we also experienced the same kind of rapid growth. I think a lot of factors behind this. First, our media driven approach towards content aggregation is different from other players. We are the one of very few internet companies in China openly advocating serious journalism in internet world. We are proud of the media DNA, we believe in value of professional, organizing professional generated content. And we are committed to in speeding media spirit in our product. So, if you look at our portal you will find very strong media type of user interface and very sharp viewpoint commenting world events and intensive use of online interview and offline investigator report and unique angle in selecting news. So, this fundamentally set aside us from other players and also plus our blending power of premium content. These are all helpful for our traffic growth. And second thing as I mentioned in my opening remarks, our portal as a product is involving, we involve our portal to get adopted to market changes especially the changes of consumer habit. You will find a lot of unique features on our portals like user friendly format targeting at recommended consumption of media and I emphasize on our user interaction especially online survey and lots of micro level innovations. So, unfortunately we are still we are committed to involve our product. So, while the other players are losing focus, are distracted by some SMS stuff, but this will help us well. Going forward we are still very confident about the future traffic growth. I think the outside market changes are in favor of us. The new cabinet leadership changes further arouse peoples’ interest in political and economic life in China. And as rise of middle class further enhance peoples demand for quality news and lifestyle content. And all of these are very helpful for our future traffic growth. I think so across all these platforms I think we are going to continue to grow our traffic, continue to grab shares from competitors. But given the huge size of our user base I think growth rate – that the growth rate will slowdown, so the next priority will be on manifestation.

Martin, this is Ya let me address your second question about mobile advertising format. In early days our multiple formats flowing to banner mini sites and but we are integrating along with our industry peers. And we have noticed that the loading page advertisement the mobile video advertisement and also the newly emerged native advertising format could become – could grow much faster, I think for the mobile read advertising mostly especially for the pad, pad screens I think that’s one area we are experimenting and for the native advertising, this area which – the portals or mobile portals can maintain its CPM rate while seamlessly includes the advertising message within the information flow. And so we are carefully learning and also cooperating with our peers to innovate and to better monetize, but as Shuang mentioned and our current focus is still on the content user experience and user growth.

One more thing I want to add we didn’t see that much cannibalization or user migration from our PC side to mobile side. This is very – this equation is fundamentally different from other players. We see very robust traffic growth on every major front on PC, on tablet, wireless, so that provides further room for our future manifestation on both PC side and mobile side.

Thank you very much, that’s very, very helpful.

Alright, thank you. And our next question comes from the line of William Huang from Barclays. Please go ahead.

Hi, thank you, thank you for taking my call, just want to – first question is a follow-up on mobile monetization, in terms of the mobile ads format you just commented I just – we are just curious have we talked to any advertisers previously or what kind of the mobile ads format owns the highest interest from advertisers so far, such as mobile (puzzle) or mobile video ads and what is their feedbacks or concerns right now and when do we expect a meaningful ramp in terms of the mobile advertiser revenues? Thank you.

Yeah, thanks for the question. This is Ya, actually we are at the very early stage of mobile ads monetization. So, we are experimenting with all kinds of advertising formats and different times, different format will emerge as effective way. For example on last November 11th on the so called single stay promotion and the loading page format was the most effective and earned the most dollar revenue for many advertisers – for many media online – mobile media and including us. And so shortly, the short answer is that we are experimenting with all different formats and we believe the ones which I mentioned earlier the loading page format, the mobile video format or the native advertisement format along with the more traditional ones mini sites, they can be very effective for different kind of advertisers ranging from SMCG to e-commerce or to other online services advertisers.

This is Shuang, few more words I want to add, what we are very encouraged that even though the product is still at the developmental stage, we see that the advertisers enthusiasm on the mobile advertising is huge. They are trying different kind of pilot projects on our platform. We believe that the wireless competition is a long battle it’s not a six months or one year thing. So, our top priority will be given to improving the product, improving the user experience. So, we don’t want to compromise my ability user experience too much at this stage. So, we want to strike a balance between our market expansion and monetization.

Okay, just a quick question on advertising, moving to 2013, can you update us in terms of your pricing rate increased for both puzzle and video ads. Thank you.

Okay, thanks. Yeah, we disclosed that we had our price hike on January the 1st. And for the video advertising the inventory grew by 48% and the A plus our price cut increased by 15% and for the long video part the A plus category price hike was 18% on January 1st. That’s our most significant price hike compared to the previous one in 2012. The next one will come is scheduled – hopefully will be on July 1st, but at this time, we have not decided the actual rate.

Okay, very helpful. Thank you.

Thank you.

Thank you. (Operator Instructions) Next, we have a follow-up question from Jiong Shao from Macquarie. Please go ahead.

Thank you very much for taking our follow-up questions, sorry being a bit late on the call. I just want to have a follow-up question again on the mobile side, could you please share with us some of the user metrics if you are able to, for example, how many downloads you have for your mobile app, what’s sort of the daily DAUs or MAUs, anything you can share will be helpful?

Okay, Jiong, this is Ya. And for the mobile platform, we have two categories of main products one is the 3g.ifeng.com mobile website. It has 235 million daily page views or 17 million daily unique visitors. And for the mobile apps, we have the flagship apps are the iFeng news and iFeng video apps. We have accumulated downloads of 25 million and we are still working on improving the product and user experience and to grow the daily user base for these apps.

Jiong, there are few more words to add. I think the product is still under development stage. I think we take a different approach towards developing our apps rather than spending a lot of money on marketing, on advertising campaign, on bus or bus stations. We want to focus on the product itself, because there are numerous ways easily to improve the traffic boost users, but right now at this stage, we want to focus on the product itself. It’s going to be a long battle.

Okay. Hey, thanks. And I just follow-up on that now, obviously your strength has been in the news and this media area, but once you get into the mobile, all sort of the media and news area, are there other segments you are seeing in a mobile area either advertising or commerce related, you are thinking about entering down the road, once you build up a very big base of mobile app users?

Okay. Yeah, thanks for that question. I think fundamentally, our competitive advantage comes from the brand’s power and also the future user base, existing user base, and their purchasing power. And right now if you look at overall mobile revenue contribution, even excluding their traditional WVAS revenues. We have mobile advertisement. We have mobile digital rating. We have mobile game and mobile video. Adding altogether is really about more than 20% of our overall revenue and these are all 3G-related mobile revenues. And it leverages on as I mentioned the purchasing power and the brand power. And even just for the apps category, we did mention in our CEO script that we have a audio app, which is now number one non-music audio app in China called iFeng FM. And that’s platform category of application, which provides contents much more than what Phoenix or even iFeng provides online. And so that’s just example of how we are expanding into related areas on the wireless platform.

Okay, okay.

This year, our focus will be on our two flagship apps, the ones who take a step-by-step approach towards developing our wireless business. I think we need to strike a balance, because between market share expansion and the margin improvement. So, we want to make the investment in wireless also controllable. So, we want to take a step-by-step approach. This year we are going to leverage these two flagship apps to jumpstart our whole wireless business. So, later on, we’ll definitely be aggressive to tap into a new territory like commerce, like some pay driven models.

Okay. Sounds like good plan. Thank you very much guys.

Thank you.

Thank you.

Right, thank you. (Operator Instructions) Thank you. It seems that there are no further questions on queue. We’ll just like to hand it back to the management for closing remarks.

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 joining us on this call. Have a good day. Bye.

Thank you all.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect.