Ladies and gentlemen, thank you for standing by, and welcome to the Phoenix New Media Second Quarter 2017 Earnings Call. At this time all participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, 16th of August 2017. I'd now like to hand the conference over to your first speaker today, Mr. Matthew Zhao, IR Director of Phoenix New Media. Thank you. Please go ahead.

Thank you, operator, and thank you, and welcome to Phoenix New Media second quarter 2017 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu; our Co-President, Mr. Ya Li; and the Chief Financial Officer, Ms. Betty Ho. For today's agenda, management will provide us with the review on the quarter and also include a Q&A session after the management's prepared remarks. The second quarter 2017 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. We are pleased to announce solid improvement in both our financial and operating performances in the second quarter of 2017. Our total revenues increased by 12% year-over-year to RMB 393 million, which beats the high end of our previous guidance. Our net advertising revenues grew 14% year-over-year and 41% quarter-over-quarter to RMB 339 million, out of which our mobile revenue growth was 66% year-over-year. Leveraging our leading position in brand advertisement and continued solid performances on mobile advertising monetization, we have surpassed all of our peers' media advertising revenue growth. In the past quarter, we continued to execute our twin-engine mobile strategy and have achieved greater results in both ifeng News applications and Yidian, especially in terms of user acquisition, viewership improvement, content enrichment and product offerings as well as strategic cooperation. First, let's start with an update of the ifeng News applications. Since we launched our AI-driven news feed on ifeng News app at the end of 2016, we have strengthened our machine-learning technology to provide most relevant content to users. Combined with our professional and proprietary edited contents, ifeng is now able to recommend high-quality content tailored to each user's unique reading interest and preference. Moreover, we continue to leverage the synergies between ifeng News app and Yidian to improve the relevance in personalized recommendation to further improve the user engagement. As a result, the click-through rate on ifeng News app increased by 20% and its sharing rate in social media increased by 35% in the second quarter of 2017 as compared to the previous quarter. These metrics clearly warranted the application of the AI technologies have strongly increased our users' experience and stickiness. In addition, we deepened our ifeng News app's functionality in social reading and recently launched…

Thank you, Shuang, and thank you all for joining our conference call today. I'm pleased to announce that we performed better than we expected on both financial and operating results in the second quarter. ifeng's total revenues for the second quarter of 2017 increased by 12.3% to RMB393.3 million from RMB350.1 million in the same period last year, which beats the high end of our previous guidance, primarily attributable to the 66% increase in mobile advertising revenues. Non-GAAP net income attributable to Phoenix New Media for the second quarter of 2017 increased by 740% year-over-year to RMB29.3 million, and non-GAAP net income per diluted ADS increased to RMB0.41. Now let me take you through our financial highlights for the second quarter of 2017. The amounts mentioned here are all in RMB unless otherwise noted. Differences between GAAP and non-GAAP are share-based compensation, gain and loss from equity investments, including impairments. Starting with revenues. Net advertising revenues for the second quarter of 2017 increased by 14% to RMB338.7 million from RMB297.2 million in the same period last year. The increase was primarily due to a 66% increase in mobile advertising revenues, which was partially offset by a 21.2% decrease in PC advertising revenues. Paid services revenue for the second quarter of 2017 increased by 3.2% to RMB54.5 million from RMB52.8 million in the same period last year. Revenues from digital entertainment increased by 13.6% to RMB45.6 million from RMB40.1 million in the same period last year, primarily attributable to a 62.2% increase in digital reading revenues. The increase in digital reading revenues mainly resulted from stronger demand and the company's strategic expansion efforts in digital reading. Revenues from games and others decreased by 29.4% to RMB9 million from RMB12.7 million in the same period last year, which was primarily due to…

[Operator Instructions] Your first question comes from the line of Natalie Wu from CICC.

A couple of questions from me. First one is regarding the regulation. We know last -- in late June the [SAP PSP] or the [WHS] platforms, including Weibo and you guys, should stop broadcasting what it called as negative commentary in violation of government regulation. Just wondering if management can share with us some color on the follow-ons about these events. And secondly about [phones], you mentioned that the performance-based ads increased by triple digits year-over-year. So if management can update us the base last year, it will be great. Also, what's the -- in terms of the advertising revenue, what's the SME and KA split? And also the growth rate, the expected rate? And lastly, in the last quarter, you guided that traffic acquisition costs to double this year, which means the related expenses were to like increase by RMB150 million. But in the first half of this year, it's only -- the total of the marketing expenses only increased by RMB50 million. So just wondering if the trial guidance [did you host] because of your tax exemption?

Okay. Natalie, this is Shuang. Yes, let me get back to your question regarding the regulatory issues. First of all, [SAPPSP] recent notice actually is not specifically targeting ifeng. It includes other players. In fact many Chinese Internet companies listed in the U.S., including online media, live streaming, gaming and others have disclosed that they have received similar notices. Secondly, this is not a new issue. Our SEC filings, including our annual reports, we have always disclosed that a lack of an Internet audiovisual program transmission licenses might expose us to various regulatory risks, including administrative functions and some other things were clearly as one of the many existing and potential regulatory risks inherent when conducting business in China. And we also have a cumulative significant experience in managing such regulatory risks. We confirm that we have been in continuous active dialogue with the relevant regulatory authorities, and we are taking corrective measures to stay compliant with the relevant requirements of these authorities. And as a preliminary result of our cooperation with authorities, some of our suspended contents has been allowed to be restored on the web portal and the mobile apps. And we also believe the impact of [SARS] tightened regulation on our overall business is limited. Since we operate a leading portal and mobile app in China, our content offering is very broad and diverse. Video content from Phoenix TV currently accounts for actually less than 10% of our overall content. So consequently, we expect any restriction or even suspension of media content from Phoenix TV will have limited impact on our overall advertising revenue and operation. Actually, probably contrary to some public perceptions, we see some opportunities and even benefit for us in current market environment. In the past decade, Internet and the mobile content providers have mushroomed in China. Many of those providers lack professionalism in their content production. So as a result, readers and viewers often have a difficult time differentiating fake from authentic news and rumors from facts. Because our background is rooted in professional realism, all of our self-produced content is professionally produced, verified and edited. So we believe that we stand to gain more users' time now and bigger market share going forward. Yes, I hope that I answered your question regarding the regulatory issues.

Hi, Natalie. Thanks for the question. Yes, regarding Fengyu, the self-serving feeding system actually drove our second quarter ad revenue growth. It -- in itself, it grew over triple digit. Last year, it was at a relatively very low base but overall, I think it has reached about 30% of our total advertising revenue. So the other nonperformance ad contributed to 70% of our revenue. Let me also mention that not all the 30% is from -- performance ad is from Fengyu system. Fengyu -- in addition to Fengyu, we also work with third-party DSP companies like Google, like Baidu and -- to generate some other performance ad revenue. But we do expect Fengyu to increase steadily. But overall, I think the performance ad will remain around 30% of our ad revenue as we continue to, I think, enjoy price premium over the brand advertising for our clients. We are the number 1 online brand advertising platform in China, and so we are relying on both brand and -- for KA customers as well as the performance ad for SME customers. This also relates to your third question about ad revenue mix. Yes, and the KA customer contributes to 70%. And also in the second quarter, the KA customer's actual revenue remained steady despite of the fact that more clients are allocating more ad budget to performance ads. For example, in the auto sector, the auto sector, we enjoyed revenue growth in all of our major auto advertising client partners. But overall, of course, the revenue contribution to our overall advertising revenue decreased as we rapidly increased our performance ads.

Hi, Natalie. This is Betty. For the traffic acquisition expenses, we did save a lot in the second quarter by launching a very innovative Red Pocket marketing strategies to acquire more users at a relatively lower cost. So looking at the second half of the year, we are still actually thinking of different innovative marketing strategies and actually applying a very, very strict ROI requirements on all the traffic acquisition expenses. As a result, we expect that, we hope that we can control the traffic acquisition cost for the rest of the year. And as a result, I think it will help our bottom line. As I mentioned earlier, the full year bottom line will be actually greatly reduced as compared to Street consensus.

Your next question comes from the line of Wendy Huang from Macquarie. Please ask the question.

I have two quick questions. First is a follow-up on your self-marketing cost comment. I think as of now, several other companies, actually in their earnings call, also mentioned that they are going to be more aggressive in second half. And also they are talking about to apply very strict ROI measurements. So I just wonder if you can provide more color, what kind of channels or methods that you are going to do this kind of innovative marketing. And also, with this kind of marketing effort, do you have any user target in mind by the end of 2017? My second question is about Yidian's cost. So can you share some color on the Yidian's content cost and also the revenue-sharing structure, if there's any?

Natalie, for the TAC, for the traffic acquisition Wendy, sorry. For the traffic acquisition cost, actually, there are traditional ways to acquire users, actually you can preinstall the apps with the handphone manufacturers or you can actually place some ads on the online stores. These traditional ways we have all exhausted already. And at the second quarter, we introduced the marketing strategy called Red Pocket, which actually allow users to get some free Red Pocket Money. And actually, we also introduced a exchange of some key items from the game. So you create a social function in the event itself so it helped us to spread the game quickly. As a result, we acquire user quickly. So looking forward, I think we will be using the traditional ways to acquire users, like I said, by preinstallation in the handset manufacturers or online stores. In the meantime, we will still be continuing to -- looking at to create some other marketing strategies at a relatively lower cost, because all the preinstallations on online -- and online store are very expensive nowadays because of the fierce competition in news feed apps.

Also let me add that, actually, we have -- internally we have a very complex model to monitor the ROI of TAC quarter-by-quarter, month-by-month. So we are very prudent in evaluating the ROI of TAC. As you may know that more than 50% of our ifeng News apps users are either Huawei platform or Apple platform, so they are high-end users. So starting from the next quarter, we're going to give more weight on developing -- acquire users on other platforms, especially third, fourth tier cities through our innovative social networking related technique to acquire users.

Okay. Yes. And before I answer the Yidian's accountant cost and revenue-sharing question, I also want to point out, I think we are now entering a world with more uncertainties every day in our neighborhood and in the world. And for ifeng we -- as we've mentioned in our early prepared scripts that we continue to leverage our unique position as the content leader with a unique media gene among all the regional portals as well as the new mobile news feed service providers. I think that help us to attract users and help us to stay the users. It also help us to combine that with our native content marketing strategy. I think -- so content advantage will continue to help us to retain -- to restrict the growth of our TSA cost. Back to the Yidian's content cost. I think Yidian right now, we see most user exposure, user clicks and user sharing, on the UGC self-media, professional UGC contents as well as the -- we acquired the organizational generated contents, but the ratio among the professional UGC versus the organizational generated content is similar to what you are seeing on other mobile news feed platforms. However, I think we are carefully, I think, control our content cost. In addition, we also leverage the synergies we can achieve with ifeng's originally edited or created content, especially in the entertainment and sports area. And for revenue sharing, you can look at Yidian's revenue sharing as a alternative, as a different way of user acquisition cost, especially the revenue sharing with, of course, our two new major partners, Xiaomi and OPPO. Notice that we not only preinstall our apps on these two handsets, we also the unique or major content provider for their browsers. And so combine these app and -- with browser, we see significant traffic growth on both phones as well as revenue growth. The revenue level has reached that of a typical portal on a, I think, monthly rate. And the revenue-sharing cost, when we measured against the ever-increasing traffic acquisition cost, I think it's still a unique way for us to control our expense. Since the TSA has become a part of our revenue instead of just to compete at the same level with all the major players, it offers us unique advantage. Because the revenue-sharing relationship also offers us ability to provide synergies in terms of data, in terms of brand advertising in the case of -- we are providing brand advertising for OPPO now, and there are other apps in addition to the news app. I think this kind of synergy enable us to maintain a long-term relationship with these 2 strategic shareholders. I think that -- hope that answers your question.

Actually, [indiscernible], what Li Ya said quickly, a revenue-sharing arrangement actually help us to align our multiple interests together in terms of data sharing, marketing and all these preinstallments, so it's significantly beneficial to our future strategy.

Your next question comes from the line of Binbin Ding from J. P. Morgan.

I have a quick follow-up on the performance ads question. And I think, previously you mentioned that 30% of your ad revenue came from performance ads. So I'm wondering within the 30%, what's the percentage generated from Fengyu? And how does the trend look like for the past few quarters? And also, I would like to understand more in terms of the ads of leveraging Fengyu as compared to those of third-party advertising platform such as [Grandia], Baidu, Phoenix International. How do you allocate the -- ad inventory across these different platforms? Or is it totally based on the choice of advertisers? And a quick follow-up on Yidian. Can we have an update of the DAU of Yidian in the second quarter? And also regarding the monetization. You mentioned Yidian has already exceeded the full year of -- in 2016. Are you still on track to surpass the full year target of 2 billion for 2017? And regarding the potential consolation schedule of Yidian, can you also help us have an update on that?

Yes, first on the performance ad, yes, the -- within the 30% contribution of our total ad revenue, I think right now, a larger portion is from our own Fengyu system. I think we started the Fengyu, I think, towards the end of last year and the beginning of this year. It quickly, I think, increased its contribution. That's why we are seeing rapid year-over-year growth in the second quarter. But as we enter into the later part of this year, we will see the sequential growth slowing down. We need some time to improve our, for example, the data management platform to improve the effectiveness in terms of cptrs and also to ensure that we continue to increase the sell-through rate, the -- eventually the CPM to catch up with the industry leaders. So the -- by focusing more on our internal system, it allows us to combine our, I think, the algorithmic-driven content offering technology and data with our DSP system itself. So the insight we gained into the users and also from the account itself can be used across our content offering and also our client-serving, our app-serving technologies. I think that's why we decided to provide the premium ad positioning, first through our internal system. For example, the ifeng News app, right now, we have the priority to serve our internal Fengyu ad. While the PC and the WAP system, we opened them to the third-party systems, especially the PC. That's the detail about the -- yes, about the -- our Fengyu performance ad. And back on Yidian, and Yidian's DAU right now is -- has reached 50 million, and I think according to QuestMobile in June, and its MAU ranked among the top 3 in China compared with other news and information service providers. And our revenue -- first half revenue tripled in the first half of 2016 and reached the whole year level of 2016. And we continue our original expectation of 2 to 3x growth rate over last year's revenue. And we are seeing the revenue growth to accelerate as we improve our -- both traffic and also the monetization.

Your next question comes from the line of [Hui Wen Chan] from Citigroup.

I have a follow-up question on the content strategy, particularly the self-media. Could we shed more color on how we differentiate from other platforms to attract quality self-media content? Can we discuss if revenue sharing is one factor? More color on this and other differentiation would be helpful. And other question would be regarding the advertising. Could we talk a bit about the trend of the top industries in second quarter and potentially in third quarter, please? And the price trend between PC and mobile, the gap would be helpful.

Yes. Let me get back -- this is Shuang. Let me get back to your regarding self-media. I think the beauty of our self-media strategy lies in the synergy between ifeng and Yidian Zixun. ifeng has a big editorial team. We have multiple channels like Tier 3, cultures, sports, entertainment, fashion, current affair channels. All these channels have extensive content in their related areas. And Yidian has a very broad platform, especially very big traffic stream. So by leveraging Yidian's traffic streams we can have a bargain with all these self-media players in the market. So the strategy is, while ifeng's offers a better brand, better media professional journalism and also the major media powers exposure to attract all these self-media players to improve their influence in the market, part of the news, Yidian Zixun can guarantee them the daily board coverage, broad access to the end users. So basically, we have two accounts on each platforms, on Yidian's on ifeng News we have Phoenix account and in Yidian Zixun we have Yidian account. Basically these two accounts, internally integrated. So we have a same -- we have big content library, big content pool, so when you log on one account, you'll be very smoothly installed on the other account as well. So the users on two platforms can have -- can read the premium content on the other account. That gives us a very big leverage in attracting all these top head content -- top accounts in the market and also can achieve revenue -- the cost synergy between these two platforms. Also because of the ifeng's influence in the traditional media market, we have a very deep contact in these -- in the political -- in the account affair, history, culture-related areas. They have relied on Phoenix TV's brand and the Phoenix TV's influences the market to better enhance their influences among the high-end users. So that's the advantage we have. And Yidian Zixun, we have -- we not only have Xiaomi and OPPO's mobile handsets apps. We also have their web [indiscernible]

Browsers.

Browsers. So the total coverage is huge. That guarantee all these top accounts coverage of broader audience.

Let me also add that Yidian has a unique technology and product positioning in a way that we have a rather distributed, I think, a rather, I mean, a less concentrated distribution of self-media consumption, because our traffic is not heavily concentrated in the, for example, entertainment or tabloid category. We -- because we encourage you to express their interests related to their work, life, education, health, consumption or spiritual growth; many areas. And in a way that we can guarantee better content distribution, especially for the mid to long term -- the self-media accounts instead of -- unlike the -- most peers -- peer companies, whose self-media content consumption are heavily concentrated on the top accounts and in the top categories such as the major breaking news or these entertainment and tabloid category, which is also under heavy regulation recently. I think that unique technology, capability and product positioning also allow us to attract many quality vertical mid- to long-term, I think, self-media accounts, at a relatively controlled cost, because they receive better distribution on the base of our broad coverage among our platforms and partners. So that's our unique self-media, I think, strategy. And about your question on the top industry sectors for ifeng and the future outlook, I think, yes, in the second quarter, our top five sector remain mostly the same. Its auto number one, followed by e-commerce, Internet service and FMCG, mainly food, beverage and wine and also financial services. And of course, we continue to see the auto sector remain, I think, sluggish. However, we are leveraging our brand advertising and the native content marketing campaign and to increase synergies between our own content team and advertising team. So we are seeing the increase in our top auto clients. And the e-commerce, I think, especially in the SME e-commerce accounts, we are seeing rapid growth because of our Fengyu system. And food, beverage and wine is a traditional strong area for us. And we are seeing continued strength in this area. Financial services, I think, is affected, I think, by regulations and by the general trend, and we remain cautious on that. And for us, we will continue to grow our -- for example, e-commerce and SME customers through the performance ad strategy. And for auto, for the e-commerce -- I mean, for the auto and for the FMCG customers, I think we will leverage our content marketing and native marketing strengths.

Your next question comes from the line of Thomas Chong from BOCI. Please ask your question.

I have a quick question about the overall competitive landscape verticals, social media, et cetera. Are we seeing any changes in terms of the competition? And as a follow-up -- quick follow-up is that, can management give us some color about the number of sales media accounts that we have in the second quarter?

Yes. This is Shuang. As to the broader competitive landscape, I think, every major players in the market start to recognize the importance of AI-backed news feed models. Definitely, it's a very big market. The advertising potential is huge. So every major player start to heavily invest in this area. And this is also an area we cannot -- we have to focus on. Actually, we adopt a 2-engine strategy. ifeng News and Yidian Zixun together account to the cornerstone of our future strategy. These 2 apps are totally complementary to each other. Yidian Zixun is more journalism-driven, targeting high end...

No.

No, ifeng News is more journalism-driven, has stronger media DNA targeting at high-end users, while Yidian Zixun are more AI-driven targeting at the broader audience, and with a very strong -- target at broader audience and backed by 2 major handset players in China. And ifeng News is actually -- the goal is to give the end users the most efficient way to get access to the more authoritative, more reliable information on current affair, world news, and Yidian Zixun actually is entertainment information platform to let users better spend their leisure time. So different products. So it's very natural for one user to both -- to use both of these 2 apps, because they are complementary to each other. So these two apps will be our key strategic focus. And because of the synergy between these 2 apps, because of the players, very strong partners we have in the market and because of the execution capability we demonstrated in the last decade, we are confident in this AI-backed news feed battlefield, we can make a difference.

Let me also add, I think, in terms of the competitive landscape. I think one observation we have is the fierce competition continues. Secondly, increased regulatory environment. So with these 2 forces working together, I think, despite of the continued, I think, capital infused into the overall market, I do expect some kind of consolidation in many areas. I think we have all noticed the regulatory, I think, environment recently. I think, this will result in users constant, I think, allocation -- time allocation on different -- sort of, different categories of, for example, mobile apps from the live broadcasting to the game to online news and to also the social platforms. We also expect evolution in both China and internationally in terms of mobile app usage and mobile phone usage. I think -- so in this rapidly changing environment, what's important is that I -- we have to establish our sustainable competitive advantage based on our unique strength and positioning. Like Shuang mentioned, for ifeng, it's our unique content strength, media gene, and also quickly catch up with the industry trend to enhance our technology offerings in both the content distribution and also performance ad. And for Yidian, it's our unique channel partnership strategy and our very differentiated product positioning in terms of combining search subscription with the recommendation. So we have a better understanding of -- a comprehensive and deeper understanding of the user demographic, which allows us to offer contents, not only interesting and newsworthy but also useful and tasteful to the users, which internally result in better, precise, targeted advertising, and the marketing ROIs for our clients. I think these are all very unique strengths. I think, Yidian and ifeng have tried to enhance -- to meet the changing competitive environment. And then, your last question also -- your last question is about the number of self-media accounts. I think we -- yes. I think the -- recently, we actually have filtered out more self-media accounts compared to couple of markets, because we do realize that the quality of the accounts are more important. Every major player has over hundreds of thousands of self-media accounts. But I think we have a unique model, a 6-laser -- 6-level model of self-media accounts based on the [quality] of the production team and as well as the dynamic data we generated from the user's different kind of behaviors, not only click-through rate but also the completion rate, the social-sharing rate, the -- and commentary is all those, like datas. So I think the balanced quality and content growth of self-media accounts based on our unique distribution logic and platform, I think will enable a healthy self-media ecosystem on our platforms. Thank you.

We have no further questions at this time. I would now like to hand the conference back to Matthew. Please continue.

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.

Thank you. Bye.

Thank you.

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