Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media Second Quarter and 2013 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, August 13, 2013. I would now like to hand the conference over to your host today, Investor Relations Director, Mr. Matthew Zhao. Thank you. Please go ahead, sir.

Thank you, operator. And thank you and welcome to Phoenix New Media second quarter and 2013 earnings conference call. I am joined here by our Chief Executive Officer, Mr. Shuang Liu; our Chief Operating Officer and acting Chief Financial Officer, Mr. Ya Li. 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 second quarter 2013 financial results and the webcast of this conference call are available at the 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 statements 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're very excited to report a strong second quarter with revenues growing by almost 30% year over year significantly exceeding our guidance on three percentage (ph). In particular, this outperformance was driven by a 169 million percent year over year increase in mobile advertising and a 42% increase in overall net advertising revenues. Additionally strong gains in operational efficiency, derived from our convergence model helped drive margin expansion which led to net income of course on non GAAP basis more than doubling year-over-year. In today's continuously evolving media world, we believe that our strong performance is bolstered by two key strategic engines of growth. First our core media DNA of delivering high impact, differentiated content that matters most to our audiences and second, our media convergence model that continuously deliver us cost synergies. Before I start explaining our media value, let me first share with you a few user traffic metrics. In June 2013, the DAUs and MAUs on ipeng.com increased by 44% and 21% year over year respectively according to iresearch. Those figures are well above the average growth rate for the top 10 internet portals in China which was only 11% of DAUs and 10% for MAUs during the same period. Not only did we again significantly outpace our peers, we also achieved phenomenal growth relative to other internet portals which have seen slower growth in recent years dues to the challenges of the social media and the mobile internet. Reflecting on this achievement we recognize that content offering is what drives user traffic and engagement. Now let me talk about the first engine of our growth. The strategy is rooted essentially in our media DNA, a persistent pursuit of fierce journalism. One of the questions we have frequently…

Thank you Shuang and thank you all for joining our conference call today. Let me take you through our financial highlights for the second quarter of 2013. The amount mentioned here are all in RMB unless otherwise noted. ifeng total revenues for the second quarter came in at RMB364.2 million, which exceeded the high end of our guidance. Non-GAAP net income for the second quarter was RMB83.6 million or RMB1.08 non-GAAP net income per diluted ADS, which exceeded Bloomberg’s street consensus by over 130%. Let me now run through the other key financial highlights. Starting with net advertising revenues, net advertising revenues for the second quarter came in at RMB209.5 million, which beats the high end of our guidance and represents a respectable year-over-year growth of 41.9%. Average revenue per advertiser ARPA increased by 9.2% to RMB710,200 and total advertisers numbers increased by 30% to 295. Our top five industry contributors for this quarter are auto, food, beverage and wine, e-commerce, medical service and financial services. Turning to paid service revenue; for the second quarter of 2013 ifeng generated RMB164.7 million paid service revenues, which meets the high end of our guidance. For the second quarter of 2013 mobile value-added services or MVAS, revenues remained stable at RMB131.5 million due to the weak user demand for 2G text message based pay-per-view services. Games and others revenues increased by 387.4% to RMB23.2 million primarily due to increase in revenues generated from the webpage games on our own game platform. As the consumer’s interest shifts towards mobile Internet we expect traditional MVAS revenues will continue to decline as a percentage of total revenues for that was internally offset by growth of mobile video, mobile games, as well as webpage games going forward. Turning to gross margin, our gross margin for the second…

Ladies and gentlemen we will begin the question and answer session, (Operator Instructions), your first question comes from the line of Alan Hellawell of Deutsche Bank. Please ask your question.

One big picture question and one more detailed question. The strength in your numbers in the second quarter and the relatively robust guidance for the third quarter, in your mind, do they reflect a recovery in overall digital ad spend or does it not reflect that and does that mean advertisers are spending more wisely and you are a beneficiary of that? So that's my first question. The second question would be really just to give us some sense as to how we should think of margins over the next couple of quarters, given the beat in the quarter and the various other moving parts.

This is Ya. The first question, the answer is both, that's a short answer. I think that first of all we're cautiously optimistic at the current digital ad market recovery, where visibility definitely has improved from the period last year. That's why we can give the guidance of nearly 50% for the third quarter and also I think it does reflect our internal execution capability of access and also our convergence model. I think both factors contributed to the outlook of our own. And in more detail I think the key factors contributing to our advertising revenues such as auto, food, beverage and wine and e-commerce et cetera, I think we do see the actual ad budget remain robust for our clients, and especially for the auto sector, we have seen the number of auto clients, within our top 10 clients increased in Q2, and of course I think that this is all based on our continuous growth of our number of unique users per month and that's why we have been able to improve both our auto and more importantly it's the first time we're increasing number of new advertisers in about more than a year which grew by 30% in the second quarter compared to last year. So I think the factors are both reflecting the market conditions despite the uncertainties remain, and then also our organizational improvement, based on our convergence model. And your second question regarding the margin outlook, we actually, this time we are planning to invest more things (inaudible) touch while balancing our margin expansion for the second half of the year. We are planning to spend more in product development, especially for the wireless internet, in marketing and promotion, in bandwidth costs and also staff related costs for the second quarter. However, we do expect that overall the whole year margins to expand to hopefully around 16% compared to nearly 10% of last year. So that is a significant improvement.

The next question comes from the line of Jiong Shao of Macquarie. Please ask your question.

This is George calling on behalf of Jiong. So I have two questions regarding your non-advertising business. The first one is for your mobile value added service revenue, it is flattish year-on-year but still higher than what was implied by your prior guidance. I'm just wondering which part of the MVAS was actually stronger than what you expected and how should we think about this revenue going forward? Is it going to be more or less similar to the second quarter's level and I have a follow up.

This is Shuang. I think mobile value added service is in a transitional period and this quarter we do see the traditional LP business like Ethernet, like wireless newspapers is down but it is offset by the rise of wireless video and wireless games on IVR. So overall you see modest growth of this business. Going forward, I think it's basically fewer telecom operator dominated business. So the operator’s policy has huge impact on this business. So for the next two quarters and probably the limit will remain stable. We will maintain the same kind of pace but for the coming year I think there is still some uncertainty.

And my second question is related to your game and others' revenue. So I guess, the web game platform is a key driver for this business line, but given the ramp up of mobile games lately, especially those that are on smart devices, like the iPad or the smartphones, do you think the growth of your web game business will start to slow down or it's just at the very beginning you're thinking it will still grow from here? And also what is your plan on the mobile game business, especially, not from the telco operators' part, but the more like a smart device mobile game business?

First of all, our games revenue did grow very strongly compared to last year; however the absolute number and the contribution to overall revenue remain small. And right now we are only rounding the license games and we are considering exclusive licensed games on the PC side. But we do not have a time table yet. We’re very cautious about carefully selecting the right games targeting our right user. And on the mobile games front, especially the smart phone devices, we are also considering all different possibilities because it’s still in its early stage compared to the PC web game and we are looking at all possibilities but this time it’s still little too early. So our second half projection of revenues we haven’t included a strong revenue growth from this mobile games or a very high web game growth, it’s based on other conservative outlook for our existing web game revenue growth.

Let me add to that. For the wireless game, we are seriously considering in investing in this area but still at a stage of internal evaluation. I think we have very obvious competitive advantages. We have very strong presence on PC platform and we have live personnel and team. Our VP (inaudible), he has more than five years’ experience in gaming area. So that’s something we could leverage. But right now we cannot disclose too much details, too much details on the wireless game side that’s something very high on our list, we are seriously thinking about it. But that's something for next year.

Your next question comes from the line of Gillian Chung of Morgan Stanley. Please ask your question.

Hi. Thank you for taking my question and congratulations on the robust quarter's numbers. My first question is about the mobile. And can you please give me some color about your mobile revenue and percentage of the total (optimized) sales and what is the percentage of profit that the mobile as a percentage of total traffic? I have a second question. Thank you.

On the mobile I think the one important number we started to look at is the 3G business revenue contribution the Smartphone device space 3G revenue contribution. That includes all the paid services such as mobile games, mobile reading, mobile digital reading and our mobile games include those operator and also more importantly, our self developed mobile game center. In addition mobile ads. If you add that together it's already 22% of our total revenue, over 20% of our total revenue. So that's already a significant part. And then if you look the paid service, I think the 3G paid service also right now exceeded the traditional legacy of wireless web services as peak revenues already.

My second question is about the games and (others) revenue. Is it possible to share with us some of the operating statistic about that part of business? For example, how many things are there on the platform and how many users are on the platform? Thank you.

We haven't disclosed those detailed numbers regarding the unique players and also the ARPA. However, I think we did disclose that the number of online games in the past, by the end of second quarter we have about 55 webpage games on our platform. On the mobile side we definitely have more games over 150 games on the mobile side.

Your next question comes from the line of Alex Yao from JP Morgan. Please ask your question.

Hi. Good morning, everyone and thank you very much for taking my question and congratulations on a very solid quarter. I have two questions. Number one is can you forecast through your mobile user acquisition strategy? Given that the app distribution channel in China is consolidating, how would you expect this will change the market dynamic and hold would you position yourself in the market? And second question on the video advertising side. Can you tell us your key customer verticals? How do they differ to your overall advertiser verticals? Thank you.

Hi Alex this is Shuang let me answer your third question. Actually there are two different approaches about the mobile advertisement, mobile users acquisition. The first approach is to actively partnering with manufacturer, mobile help the manufacturer and using cash to acquire users. The second point to leading organic growth to basically let the content let the word of mouth to enhance your market share. I think for us, what we have is half, this stage we're focusing on our user experience product development. So at the present stage we're basically focusing our organic growth. But with the development of product we definitely need to invest more … mobile handsets manufacturer, telco operators. We have a very big shareholders' telecom, China Mobile. That's something we could better leverage, so going forward we are very confident about our user extension. I think currently, we feel very comfortable with our market share and user growth. At the end of the day I think what really matters is your content, your user experience, your brand, it’s a long battle. I think by leveraging our strong brand, strong presence our PC side we are confident that we can win this battle.

Yes, let me just also add that, give you some color of the number. Right now know we do have about 20 million PA users on wireless internet. Approximately 38 million unique visitors on our PC ifeng.com we can leverage our internal cross promotions in addition to our cross promoting with all the different channels or based on our accountant confidence to a win mobile users. And let me answer that the industry factors for video advertisement, mostly it also has auto and food, beverage and wine and also medical service, financial service and e-commerce as the top challengers. However, in addition I think we do have first the food, beverage and wine especially the Chinese alcohol, that’s something well suited for our news driven video conference. People think from CCTVs annual auction. These Chinese alcohol tend to be top bidders for their top spot of CCTVs ad-time slots and that’s works well also for our news focused video strategy. And there is also regional travel and government agencies which are also very often saying on the CCTVs news advertisements. Our target is to win the ad budget from the TV news program, rather than the TV drama or movie advertisements. So overall it resembles our news-centric portal with certain factors like Chinese wine, regional travel and government agencies and so that’s factor for our video advertisements.

Just a very quick follow up for the 20 million DAU on the mobile side. Will you be able to share with us the mix between app versus the 3G website? Thank you.

We have not disclosed that fleet and however we are able to monetize our goals the web ends, the ATP related platforms and with our integrated marketing solutions, we found advertisers actually utilizing in a both platforms. Especially, for example only mobile apps, this sponsorship at for breaking news special coverage of featured events are really welcomed combined with traditional banner or (inaudible) advertisements on the mobile handsets. Especially given the fact our mobile webpage is different from the traditional players. Ours have more smart phone device, 3G-based users rather than those feature phones. That’s why we are focusing on the ATP development this year, while balancing the overall wireless internet as they go for (inaudible) on the mobile side.

Also let me add that the after launching the major product update new apps, I think the video clips used by our users jumped significantly. I think that also demonstrates a very enthusiastic reception of our upgraded product.

That’s very helpful. Thank you very much.

The next question comes from the line of Alicia Yap of Barclays. Please ask you question.

Hi. Good morning. Thanks for taking my question and congrats on the strong quarter. My first question is actually I wanted to ask a little bit on your sales team. So just wanted to get a sense that your current sales team are selling the advertising solution as a package on both the PC and the mobile. Then, have you seen any increase after budget allocating to mobile or will that be actually some of the budget taken out from the PC budget?

Now, we have actually two teams selling on the PC and the mobile separating while working together to provide the integrated solutions. Now, we have internal polices in terms of resource and also advertising strategy, planning, execution. In this, you have centralized system and for this and many of clients actually are looking at this integrated solutions across marketing streams as a unique advantage we can provide to their marketing needs. And we do find that with integrated solutions actually increased the budget allocation. We went from over our competitors to our clients. And such as the mobile internet growth of 169% in the second quarter over last year, it is a strong contributor to the overall ad revenue growth. More importantly they also provided the reason for the integrated solutions to be adopted by mainly advertisers, so we definitely see the convergence model working very well.

I see. Thank you.

Also, I want to emphasize that what we are experiencing is different from other players. We have very robust traffic growth on both platform PC and mobile. So the advertising dollars on both sides up and both slowing, so I think we are confident this kind of momentum will remain.

Yes, the number of PC advertisement grew over 35% in the second quarter that excluding video excluding mobile. If you compare it to the other display in the banner display, ad players in the market, you will see that number is very strong, that's why I think it's strong, and there is no cannibalization within our platforms.

I see. That's helpful. Second question is regarding the third quarter guidance. In it you mentioned that some of the operating efficiency, despite some of the macro-environment that you guys are still able to grow very solid. Just wanted to get a sense, also as we heard into the second half of the year, do you see this momentum actually will continue and actually get better? What industry categories that will be driving most of the growth for the third quarter?

Yes, onto the first quarter and the second half of the year as I mentioned already in the year, we’re cautiously optimistic. But I think certain factors contribute our second quarter strong growth will remain effective. Given that, well off course on the bottom line, I did mention that we plan to invest more in private development and the marketing promotions and bandwidth cost, technology things like that. However, the margin expansion will continue and in terms of the advertising sector or the overall advertising growth, which I look from different dimension. First, the number of user growth is back driven by first the high growth of mobile and also the high growth of video in the second quarter video ad growth by 91%. These two screens, these two platforms also contributed to the overall ad growth on the flow in automation in certain sectors especially sectors well suited for our new focused video strategy. And also certain sectors like cosmetics, luxury brands, clothes, we are also seeing very high growth given the fact that we have remained our leadership in verticals like fashion entertainment compared to other portals. So the traditional strong sectors, traditional strong hold of auto e-commerce across the leader centric video friendly sectors of the food, beverage wine, regional travel, government spending, and then plus these strong vertical sectors like cosmetics, cloths, luxury brands I think add all of them together we are looking for the strong over 50% growth in the first quarter compared to last year.

Great, thank you, very helpful.

The next question comes from the line of Haofei Chen of CICC. Please ask your question.

Many thanks. We are happy to see the persistent act of the management got rewarded by the very encouraging results. I have two questions. The first is about our unique content. I think our unique content can bring us a very good pricing power in the future. Can we talk a little bit about the future plan about the price along with our inventory? I also believe the unique content may bring a better opportunity for cooperation. We used to cooperate with operators but now maybe we can cooperate with OTT players or like a set on top box or smart TV. Do we have (any play) on that? I have follow up.

Yes let me just get to you on the first question, yes we actually have increased our average rather aggressively given the current economic conditions. I think we firstly announced price increase on January 1st then told on July 1st these two increased on the PC advertising. Also we have a strong video advertising rate card increased on January 1st resulting in 48% ad inventory increase, mainly from new video ad product and the new video ad positions as well as a rate which now is the actual starting rate of our video ads is just I think not far from the top selling rates by (our vehicle). The PC ad rate of return in this overall affect I think in the first increase, we increased the premium ad rate by 15%, the second increase on July 1st the premium acquisition increased by 20%. So that’s the increase on the non-mobile; on the mobile side we have increased our mobile ad rates in three quarters consecutively since last October that just demonstrates not only our pricing power but more intimately the actual effectiveness of our ad solution in terms of branding effectiveness as well as the self-promotion to the advertisers.

Let me get back to your second question, OTT market is definitely a very big market the whole market is undergoing very fundamental transition. The viewership is migrating from traditional TV to OTT sites including smart TV set top box et cetera. And Phoenix TV has a very strong presence in Chinese TV news market I think this brand is well respected and its program is very popular. And that company, Phoenix TV is a parent company we have long-term public cooperation with them that can fully leverage the company library and aggressively get into this market. Right now we have a separate team to aggressively push into OTT market but at this stage from competitive point of view, I couldn’t provide too much detail but we will up to date.

I see, I see. That's already encouraging. My second question is about the gaming. I think for the web game and leisure games it's quite niche, our user base. But the thing is do we have any specific strategy how to improve the awareness or the visibility of our gaming platform? If we go to the iPhone, our major website seems, it's not any kind of very clear linkage to our gaming platform. Do you have any (inaudible) in the future?

Thanks for the good question. Actually we, gaming in our business actually receives lots of attention. If you, I think, look more carefully, you will see we have provided many resources. Those are content resources as well as advertising inventory resources, including I think the ones on the IP frontage, to guide users, to attract users to our game center and We have also developed these games at iPhone.com which only in a couple of quarters is already now the top 10 game on user information site in China. And we have held a first electronic spot like a game competition, a sponsor game competition in last quarter and video broadcast and we do plan to work with more third parties as well manufacture who will be using our large internal traffic, on both online also in mobile in order to provide more users to our iPhone game.

The next question comes from the line of Jialong Shi of CLSA. Please ask your question.

Hi, good morning, thanks for taking my question. I have a quick follow-up. Management just mentioned you guys are seeing quite good assets from auto sector. I'm just wondering whether this is because you guys are grabbing market share from your competitors, or it is mainly because the auto sector as a whole is ramping up at stand from Q2, and also for auto (inaudible) is growth mainly from your video or from your portal front? Thank you.

Okay, yes, I think, actually the last question probably answered the reason. We do see strong auto ads across the mobile, the video, as well as the PC advertising. I think compared to the past which only mostly concentrate on the PC side, I think the auto is one of the first one of the fuel sector we think strong ad demand on the mobile price as well as on our video side. And I think definitely we are growing on market share and I think because our growth is higher than the budget both of these auto makers. Perhaps I think we have grown our user base and also if you view user demographic into such an extent that we have now deserved such or actually even more, even higher market share. And in the mean time, I think we are growing in other sectors. So we are seeing our own sector contribution. I think it's going to be a balanced act. We want to go to other sectors as fast and as effectively as we are grabbing the auto market share. Does that answer your question?

The next question comes from the line of David Lee of Daewoo Securities. Please ask you question.

First, I want to congratulate the solid performance of the second quarter and I just wanted to ask a question. Can the (governance) tell us the reasons why the total number of advertisers achieve rapid growth and can we maintain this growth rate in the future?

Yes, I think, there are several factors contributed to the number of user growths. First off there are new sectors, including the ones that we mentioned well suited for our online news focused video strategy and such as the Chinese wine regional travel in the government agencies. And secondly is from the integrated marketing solution of our convergence platform across multiple screens. The advertisers on mobile and advertisers on video, even though in the major sectors remain the same, there are also new editions of new advertisers at least it helps us attract the advertisers to try our integrated market solutions. And thirdly of course, we have been able to complete a very successful internal self-realization and self-training, our execution capability also gets a lot of improvement over the year. I think that’s why we’re seeing this 30% in number of advertiser growths and we do expect the number of advertisers to grow at meaningful rate year-over year for the remaining of the year.

Okay, thank you. My next question is that all these new advertisers, they advertise on which platform? iPhone.com or videos or the 3G website?

Yes and if you can from the numbers, we grew mobile advertising by 169%, we grew the video advertising by 91% while the PC advertising also grew by over 35%. So I think different platforms are enjoying robust growth rate compared to the industry average of these platforms. That’s why I think the new advertisers are from each of these platforms and also are from the integrated solution provided by the combination of these three platforms.

Okay, thank you and I will just stay on the line. Thank you.

The next question comes from the line of Eric Qiu of Guosen Securities. Please ask the question.

Good morning, management team. I have one follow-up question. The mobile user traffic, what percentage of it accounts for the total user traffic for now, and what's the percentage of revenue contributing to the total advertising revenue? Besides what's the number of mobile advertisers and the -- can you give me the upper values of the mobile advertising? Thank you.

Yes, first of all we did disclose that the mobile DAU is 20 million while the PC DAU is 38 million. If you measure by PV, the mobile is about one third of the overall page views and the mobile, the (inaudible) regarding mobile growth rate, 109% growth rate, and the contribution of that for the recent quarter is 9% compared to the first quarter’s 8% or 4.5% of the second quarter in 2012. And we do not want to disclose the APRA or number of our advertisers on the mobile size at this time.

Okay, thank you.

There are no further questions at this time. I would now like to hand the conference back to today’s host Matthew Zhao.

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.

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