Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media Third Quarter 2015 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday November 11, 2015. I would now like to hand the conference over to your first speaker today, IR Director of Phoenix New Media, Mr. Matthew Zhao. Thank you. Please go ahead.

Thank you operator, and thank you and welcome to Phoenix New Media third quarter 2015 earnings conference call. I am joined here by our Chief Executive Officer, Mr. Shuang Liu, our President, Mr. Ya Li, and the Chief Financial Officer, Ms. Betty Ho. 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 third quarter 2015 financial results and webcast of this conference call are available at the Investor Relations section 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. In the third quarter, we continued to execute and expand upon our core media DNA, as the leading Internet media pioneer, while blazing new trails as a mobile technology innovator in this rapidly evolving environment for media consumption. The trend towards mobile has brought with it several challenges in 2015, but offers significant opportunities in the periods to come. Allow me to take a few minutes to first discuss the progress we made with our two core complementary mobile applications, Yidian Zixun and ifeng News. Many of you are already familiar with Yidian, but for those who are not, let me explain. Yidian is a personalized content recommendation and aggregation platform. Its core technology is its Interest Engine, which combines both search and recommendation platforms through it’s large database and sophisticated algorithm, Yidian, is able to offer and push content to users based on their exhibited behaviors on selected subscriptions. In recent months we have greatly improved the recommendation function by increasing not only the accuracy of user profile, but also the accuracy of article profiles in terms of metrics like number of page views, reports and time spent. These improvements allow us to better match users with the content they desire and increase the stickiness of the app. Yidian is not only the content distribution platform, but also a content creation platform. Currently Yidian’s platform has attracted over 20,000 individual media outlets to distribute their self-produced contents. The content produced by individual media outlets drives about half of Yidian’s total page views, making it a more efficient platform than other social networks to consume that type of content. Yidian is the first Chinese app to allow a user to personalize their verticals by subscribing using any key words they choose. So…

Thank you Shuang and thank you all for joining our conference call today. Ifeng’s total revenues for the third quarter came in at RMB390.4 million. The advertising sales was RMB300 million, which was in line with our guidance. Adjusted net income attributable to Phoenix New Media for the third quarter was RMB35.9 million. And non-GAAP net income per diluted ADS was RMB0.5. Now let me take you through our financial highlights for the third quarter of 2015 results. The amounts mentioned here are all in RMB, unless otherwise noted. The differences between GAAP and non-GAAP are the adjustments of the stock-based compensation and loss from equity investments. Starting with revenues, net revenue, net advertising revenues for the third quarter came in at RMB300 million, which represents year-over-year decrease of 7.9%. We are continuously experiencing a very strong growth on mobile advertising revenue, which increased by 89.8% year over year. However, on PC front we have facing a decrease on demand and macroeconomic headwinds amidst an internal sales transition, which in fact had affected our PC ad sales. As a result, the total net advertising revenue is expected to be flattish this year. The non-GAAP operating margin will be declined accordingly. Paid service revenues for the third quarter was RMB90.4 million, which represents a year-over-year decrease of 14.6%. Mobile value-added services revenue decreased by 8.7% to RMB71.1 million. Games and others’ revenues decreased by 31.5% to RMB19.3 million due to the decrease in revenues generated from Web-based games on the Company’s games platform. Secondly, gross profit and margin. Adjusted gross profit for the third quarter was RMB184.7 million compared to RMB234.5 million in the same period last year. Adjusted gross margin for the third quarter was 47.3%, compared to 54.3% in the same period last year. In terms of cost of…

[Operator Instructions] Thank you. We do have our first question from Binbin Ding from JPMorgan. Please ask your question Mr. Ding.

Hi. Good morning management. Thanks for taking my question. So first, congratulations on the strong growth of your mobile revenue. And my question is also about mobile ad and other advertising business. I presume a majority of your mobile revenue is still coming from the ifeng News app as you have doubled the mobile ad inventory in the second quarter. So my question is, going forward maybe into 4Q, what could be the driving force of your mobile advert net growth? And will you continue to release more mobile ad inventories, or will you try to drive the improvement of other metrics such as pricing, click-through rates etc? And I have a follow-up. Thank you.

Hi. This is Ya. Thanks for the question. And, yes, in third quarter our mobile ad revenue did grow by 90%.And a large contribution was from the increasing our mobile ad inventory and that was also caused by our strong growth in overall mobile traffic. Our overall mobile traffic grew by 26% year-over-year to reach 36 million daily active users on our overall mobile traffic. And so the increase in mobile ad inventory will continue to benefit the fourth quarter and next year's mobile ad sales. And in the second half we did have a slight increase of mobile ad pricing. And we do see the rather soft macroeconomic condition, especially in certain key industries, which are traditionally our strong fields, like the auto sector. So we think pricing will remain probably stable. But ad inventory and also the effective utilization of native marketing on mobile, and also the effective sales of our differentiated news and documentary video mobile ads, these will help to attract new mobile ad revenues. But in addition, we are also applying technology based the programmatic selling of some remaining inventories, in addition to the brand display ads. I think all these together will add to the ifeng's mobile ad revenue sales in the fourth quarter and going forward.

Okay. So my follow-up is I noticed that you have already started to monetize Yidian to promote Alibaba's Double-11 event. I'm wondering, apart from Alibaba, do you have any other advertisers on Yidian Zuxin for the time being? Could this, the monetization of Yidian, be a significant driver to the mobile ad revenue fourth quarter? Thank you.

The fourth quarter, Yidian itself, it’s still, I would say it’s still at the very initial stage of its monetization even though the scale I think is already meaningful, is at meaningful level. And I think a rather significant revenue contribution will be from Yidian in 2016. And I think the driver for the mobile ad revenue on Yidian is, internally, the drivers include the continuous growth of user base and second driver is our innovative interest ad product. On user growth side we did announce recently that, according to the third-party TalkingData’s weekly monitor ranking of the top three Chinese news and information app, I think in the last two weeks Yidian app already for the first time ranked among the top three and leading the number four by 10% and that demonstrates the continuous user growth. And on the effective advertising solution, because of our Interest Engine can better match, can better draw a user profile based on the user’s exhibited behavior and expressed subscriptions so we can provide better targeted ads to provide better outlines for the advertisers. So that gives us the confidence in the advertising revenue growth. And also when you look at peers, I mean other mobile news apps monetization this year, I think we also are rather confident that if we do have remain the top three ranked news app and have user, strong user growth, and with this better targeted technology capacity and big data app solution, our ad revenue in 2016 will grow significantly for Yidian.

Okay. And the advertiser base, apart from Alibaba, is there any other advertiser on Yidian Zuxin?

Of course. Already we have a diversified user base already in the fourth quarter, much more beyond Alibaba or just the ecommerce sector. And because of our ability to actually better categorize users into mainly mid to long detail, mid to long-tailed interest areas, so we can actually provide advertising solutions for many sectors. And also including both brands, display ads and also the performance-based ads, on our platform we have over 220 million channels which are personalized, keyword subscribed by our users. This allows us to provide better characterization of our user profile to meet diverse advertising sectors’ needs. So the advertising base will I think in the mid to long run, it will be much broader than ifeng itself.

Thank you. And the next question comes from Amanda Chen from Morgan Stanley. Mr Chen please ask your question.

Hi. Good morning management and thank you for taking my questions. Congrats on the solid results. I have two questions, very simple. The first one is for the macro outlook for 2016, especially the trend of FMCG and auto industry. That’s the first question. And the second question is could you please give us the revenue breakdown by different categories this quarter, and how is the trend in 2016? And maybe, sorry, maybe I have another question regarding your margins. So do you expect margin will improve further next quarter or 2016? Thank you.

Okay. Thanks. This is Ya. I will answer the first question, the first two questions. First let me give you the sector breakout for our top five contributors. The auto sector I think decreased from a year ago, 34% to 27%, which does indicate a softness rather. And the second is ecommerce, that's 13%.The third is food, beverage and wine, that’s 9%. And the fourth is communication services and equipment, that’s 6%. And financial service and medical/healthcare service each contributed 5%. So these are just the top, actually the top six sectors of our advertising revenue for the third quarter and relating to the first question, as you can see, in the third quarter already that auto industry is experiencing some softness and we see that continues in the fourth quarter and based on our visits to our clients and also our participation in the industry conventions that we do believe that the auto advertising will remain soft in 2016. And for the FCMG, or especially for us the food, beverage and wine, I think the Chinese white wine consumption has seen some softness since two years ago I think partly affected by the government's frugal policy. And however, I did have a chance to talk to one of the major white wine, Chinese white wine producer just last week and we do see some budget I think still being transferred to online from traditional like the China -- like maybe some of the CCTV advertising budget. And overall we think food, beverage and wine, especially the wine sector, probably will come back a little bit. But in general FMCG I think is also very weak in the fourth quarter and for 2016 I think more uncertainty is ahead than the previous quarters. And that I think is our own observation; that's also the precedent among our peers.

Got it. Thank you very much.

Hi. This is Betty. With respect to your margin question, actually our operating margin this quarter was about 5.2% and for the full year last year it was about 17.8%. So looking forward I think as I mentioned in my script that the operating margin was actually affected by two factors. One has been the decrease of gross margin. The decrease of gross margin was because of the increase of the revenue sharing. And then the second factor was because of the increase of the traffic acquisition cost this year. So together it will affect our full year operating margin. It will be greatly affected actually. So you can see that for our third quarter it was 5.2%, as compared to same period last year it was 20.4%.

Got it. But since we are, I think we are controlling economy and we are doing some [indiscernible], so do you think shall we expect some margin improvement in 2016?

I think it's a too bit early to talk about 2016 because we will have more information towards the end of the year. But we have been tightening cost control in the beginning of the year including tight cost control on all sorts of sales and marketing expenses, and also for the restructuring. Combined, we actually had a very healthy operating expenses level. But looking ahead we still need to look at the macroeconomic situation in order for us to provide a more clearer picture.

Thank you. Your next question comes from Ms. Natalie Wu from CICC. Ms. Wu please ask your question.

Thank you for taking my question. I have several questions here. The first one is actually your fourth quarter guidance seems to be a bit conservative. Wondering what's the reason behind that? And paid service actually declined quite a lot in both the third quarter and the fourth quarter guidance. Wondering where will this business go in the future? And for advertising business what do you think the industry growth will be in the next year and will you outperform the industry growth? And also regarding auto advertising, did you see some loss of, maybe some loss of some clients in the past quarters or just some decline in several accounts? And wondering what is the size you may have witnessed in the past two months.

Okay. Thanks Natalie. This is Ya. I will answer the questions related to advertising. First about the fourth quarter guidance regarding -- I think first advertising revenue now accounts for 77% in the third quarter of our total revenue. So advertising revenue actually has a greater impact on the overall revenue guidance. As I mentioned earlier, that the fourth quarter and even for the 2016 right now, we are seeing the uncertainty in the macroeconomic conditions I think, I would say not having seen in the past few quarters, in past two years. So this adds to our conservativeness in terms of giving out guidance. And also that’s also related to your third question about 2016, whether we can outperform the industry. I think that despite the softness in the macroeconomic conditions, or in addition to that we did mention that this year we have some internal transition to go through. First is that we have traditionally benefited from the strong and continuous user growth and revenue growth on our PC advertising. Even for the third quarter this year our PC traffic still grew by 4%. However, the shift from PC to mobile advertising is greater than we had anticipated so that’s something shorttermly will negatively affect our overall revenue. However, as we prepare our mobile strategy including Yidian, including differentiated positioning of our ifeng News app, ifeng video app and ifeng FM, all these I think will, and as we continue to deliver the serious journalism, to utilize our brand influence and to innovate in advertising, in native marketing solutions and more importantly in our technology innovations through Yidian, I think overall mid- to long-term we will benefit from this shift from PC to mobile. And so I think for 2016 that’s our hope even in the short term that we still have to continue to invest in user acquisitions for example for our mobile traffic growth. But we think that the revenue growth in 2016 overall, especially when you include 2016, we’ll see a very strong growth compared to this year. And the last of your question related to advertising was auto advertising revenue. We do see that the industry, auto industry condition really is the main reason behind our third quarter auto sales contribution. Even in the second quarter our auto sales remained rather strong, accounting for 35% of our overall ad revenue. And I would say that it’s both affected the ARPA and also the number of clients, but more from the ARPA side for the third quarter. And I think for 2016 we do hope especially with advertising from Yidian, that overall auto sales revenue will grow from this year.

Thanks Ya-zong. That’s very helpful. And in the past two months, I mean in October and maybe early November, did you see any improving signs regarding the auto sales?

No, I have not seen signs in that. I think also from my talks with the peer companies I think we all have the similar feel, similar, I think that’s the consensus almost, to me personally.

I see.And lastly, I still have a housekeeping question. Can you give us maybe a breakdown among PC, video and mobile advertising revenue contribution?

Yes. For the third quarter our mobile ads contribution is at 28%. That’s double from 14% a year ago. And our mobile actually decreased to 14% from 19% a year ago, yes, video, video additional revenue contribution decreased to 14% from 19% a year ago. Our PC ads contribution is at 58% compared to 68% a year ago. Because our video ad is still now mostly from PC so overall you would say that the double of mobile and the decrease in PC clearly indicates the shift as we discussed earlier.

Great, great. Thank you.

Natalie, you have another question on paid services. For paid services actually it’s about 15%, 23% of our total net revenue. Out of that 23%, about 18% contributed through wireless value-added services. Another 5% was contributed by value-added services it has been decreased by about 8%, which was in line with our expectations as this part of the business is a decreasing business and we expected that it will be decreasing about 10% to 15% every year. So it's totally within our expectation. As for games and others, actually it declined about 30% this year. Actually within the games and others -- there are web games and mobile games. We have mentioned in our earlier calls that we have been shifting our focus from web games to mobile games. So out of which the web games has been decreasing by over 15% but the mobile games actually has been picking up. It increased by about 25% as compared to about a year ago. But for the mobile games, as we had started to invest in about a year ago, a few games have actually been launched in third quarter this year. We will see and we will know more about their performance at the end of this year. So the mobile games at the end of this year we will be able to disclose more on their performances.

Thank you. Betty, did you just mention that the wireless value-added service will decline like 10% to 15% every another year?

Every year. Yes, yes.

That means that channel will be carried into 2016, right?

Yes, yes. Actually mobile value-added services is a very -- it's a legacy business. The whole industry has been declining. So we are actually expecting that this part of the business will be declining every year by like 10% to 15%.

Understood. Thank you Betty.

Thank you. And the next question comes from Wendy Huang from Macquarie. Please ask your question Ms. Huang.

I'm sorry. This is Julia from Macquarie representing Wendy. I'm just wondering what is the advertising inventory in the third quarter and the YOY growth. This is first question. And second question, I know Yidian, the contribution is still low. What's your strategy on Yidian and how do you compete Yidian with Toutiao? That will be all. Thank you.

Okay. Thanks for the questions. First of all, the ad inventories in the third quarter we did mention that we increased our mobile ad inventory over a 100% in the third quarter. And the ad inventory increase is based on the continuous traffic growth. As I mentioned, our mobile traffic grew by 26% year-over-year and also our PC traffic grew by 4% year-over-year. I think this provides a good base for continuous ad inventory growth. And also right now our sell through rate, after the ad inventory improvement our sell through right now is relatively lower than before, which actually provides us with enough room for revenue growth. And second question, relating to Yidian about our growth strategy and competitive positioning, first you have to realize that Yidian is not just another news, mobile news app or another Toutiao. Yidian revolutionized, I think the mobile content entry point by innovating the Interest Engine in the world. And the Interest Engine is based on the search engine plus the personal recommendation engine, which is Toutiao good at, and plus some other technologies such as RSS and also -- so Yidian is in total different category. And when we look at the mobile content consumption, we look at potentially a rather large market consisting of even the WeChat, Weibo and all the major mobile browsers. All of these, all their daily active users combined is at -- is more than 1 billion DAU in the market. So this is a rather large market. And the portal news apps plus Toutiao, I think added together is just about one-tenth of the total market. So our Interest Engine has a solid technology base. The founding team was from the Yahoo personalization and search team based in Silicon Valley and this strong technology team provides…

Thank you. Your next question comes from Gregory Zhao from Barclays. Please ask your next question Mr. Zhao.

Hi management. Thanks for taking my question. I have several follow-up questions. The first one is about the mobile user traffic acquisition cost. So can you share some color about our currently the key traffic acquisition channels and the trending of the price and the expenses? That’s my first question. My second question is about our PC advertising. We see our PC advertising revenue declined in this quarter. But just want to have some color about is it driven by the declining of pricing or it’s because of the lower adoption rate of advertisers on our PC portals. And my last question is still about auto sectors. So given the revenue contribution from auto has declined from 34% to 27%, we see this quarter our revenue actually declining from auto sector. And, as you mentioned, some of our peers also sees that kind of trend. But like including Tencent and some other auto verticals, we think in Q3 they reported a relatively strong quarter. So just want to understand if we were losing market share to them or it’s mainly because of the overall macro headwind. Thanks.

Hi. This is Shuang. Let me answer the first question regarding the mobile user acquisition cost. This issue has a huge impact on our operating margin and also the mobile arena is a highly competitive market. Every player is trying their best to acquire the cost in the most efficient way. So we have a very vigorous internal system to evaluate the exact acquisition cost of our different apps. For Yidian Zixun we are fortunate to have a very strong partner, Xiaomi, so that gives us a distinct advantage to competing with other users. And ifeng News is one of the top news apps in China as well because of the strong media DNA brand, and because of the strong user stickiness demonstrated by the data collected, we collected from other mobile handset makers. So we are relatively in a very good condition to have deep partnerships with major mobile handset makers. But from a competitive point of view we cannot disclose the exact metric of mobile user acquisition cost. But I can tell you that we're going to increase investment in this area, but definitely in the most cost efficient way. We are very mindful of the quality of different channels, of different distribution channels and different options. That's all I can tell.

Okay. This is Ya. Let me answer your second and third question. First of all, the third quarter PC advertising decrease, I think the main factor is overall, we did mention that before three months ago, that it's affected by a couple of factors. There are two factors which are probably more internal to us. First, of course is our internal restructure of our advertising sales team from the leadership, from a CMO level. That temporarily had negative impact. And secondly, is that we traditionally had a very strong PC revenue growth and the shift from PC to mobile advertising came in at a greater scale, greater degree than we had anticipated. So overall if you look at it I would say it's the demand, the adoption rate has a greater impact than the pricing. The pricing is, I would say is just we did have another increase, slight increase on PC advertising in the second half, a very slight increase. So the pricing did not drop, but it's just the fill rate, the sell-through rate actually came in lower than before. And third question about for the auto sector, yes, you are accurate in the way for the third quarter the other industry peers probably didn't see as significant the drop in auto sales itself. But, however, I think they all pointed to the trend for the fourth quarter and also for the next year, based on the companies who already released the results, the vertical portal and other, [Tencent.] And for just for our third quarter also I would say the internal factors like the sales team restructuring also was a factor, and also the PC to mobile shift also was a factor. And in addition I think for the future we do see some strategies hopefully to…

[Operator Instructions] As we do not have any more questions, I would like to hand the call back over to our presenter today for any closing remarks. Please continue.

Thank you, operator. We now 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 all participating. You may all disconnect.