Phoenix New Media Limited (FENG) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Phoenix New Media Third Quarter 2017 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, November 14, 2017. I'd now like to hand the conference over to your first speaker today, Ms. Nicole Shan, IR Director of Phoenix New Media. Thank you. Please go ahead.

Thank you, operator, and thank you, and welcome to Phoenix New Media Third Quarter 2017 Earnings Conference Call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu; and our 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. Third quarter 2017 financial results and the 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. Shuang Liu, our CEO.

Thank you, Nicole. Good morning and good evening, everyone. In the third quarter of 2017, we continued to witness solid performance in both our financial and operating results. Our total revenues increased by 18% year-over-year to RMB426 million, which exceeded the high-end of our previous guidance range. Net advertising revenues increased by 17% year-over-year to RMB363 million, primarily driven by a 50% year-over-year increase in our mobile advertising revenues. Our strong commitment to continue executing our twin-engine model strategy brought great results to both the ifeng News App and Yidian in the third quarter. I'll first address Yidian's significant progress. We're very excited that our investee, Yidian, received a license for Internet news information service from the Cyberspace Administration of China, or the CAC, on October 31, 2017. This is the first license issued by CAC since the new regulations for the administration of Internet news information services came into effect on June 1, 2017. The license issued to Yidian is applicable to both PC and mobile news services. In addition to news services, the license also explicitly authorize Yidian to operate Yidianhao, Yidian's we-media platform in China. It is the first time that the CAC has authorized a we-media platform to operate in China. We believe this will provide Yidian a strong advantage to attract more we-media accounts, especially professional account institutions, to join Yidianhao, enabling Yidian to provide differentiated and high-quality content to users. We view the license as an official recognition of Yidian's credibility, which will further differentiate Yidian from other Internet news service providers in China. With the license, we expect Yidian to gain additional competitive advantages in channel expansion, partnership establishment, content operation and we-media development, thus accelerating Yidian's user growth. Going forward, the license should also open up additional opportunities for Yidian to strengthen strategic partnerships with content providers and handset manufacturers. As we announced in our recent press release, the license also fulfills a prerequisite for an equity investment in Yidian from Long De Cheng Zhang Culture Communication, Long De Cheng Zhang, a company affiliated with the Beijing Culture Investment Development Group. We are excited that the investment has validated Yidian's valuation, though it took much longer than expected to close due to its complexity. As the major terms of this transaction were conducted last year, with investment from Long De and the other two investors that we discussed in the second quarter, Yidian raised a total of approximately $112.1 million at an estimated transaction valuation of around $1 billion. On the financial and operational level, leveraging cutting-edge algorithm, high-quality content on the strong partnerships with top Chinese content manufacturers, OPPO and Xiaomi, Yidian continues to grow its organic traffic. By the third quarter of 2017, its combined daily average user, or DAU, exceeded 55 million. We believe Yidian's strong growth momentum should continue. Therefore, we're confident that Yidian's revenue will grow at least three times in 2017, which is at the high end of our previous expectations. While we operate independently from Yidian, we will cooperate more closely with Yidian to boost our synergy in content development, advertising sales and algorithm improvement. It is vital for us to continuously improve our algorithm, as it helps us better target users with our apps, push news and display advertisements, which in turn increase our monetization opportunities. As for ifeng's development, I would like to first talk about our programmatic advertising. In the third quarter, revenues from our programmatic apps increased by 106% year-over-year to RMB152 million. The strong increase was primarily driven by the progress of our programmatic advertising platform, Fengyu, which is a customizable, self-service marketing solution. We launched a new version in the second quarter that operates under a bidding system. We've further optimized Fengyu systems and connected it with ifeng's core traffic in the third quarter in order to provide our advertising customers improved targeting capability and maximize their ROI. In terms of advertiser portfolio, Fengyu continues to actively bring in advertising customers in the industry of home furnishing, education and immigration as their apps have brought better quality in terms of content and innovation. With Fengyu, we believe we are strongly positioned to better fulfill advantages – to better fulfill advertisers' growing demand as increasing budget allocations for programmatic advertisements. With respect to our content strategy, we continue to be the leading news distributor of major current affairs around the world. For example, our reporting of the 19th National Congress of the Communist Party of China once again received recognition from our users and advertisers. According to a report from iResearch during the 19th National Congress, the growth rate of weekly active users of the ifeng News apps surpassed that of all of our peers. In addition, we are ranked number one on the PC platform for the number of page views of our featured stories. Also during the third quarter of 2017, we initiated a strategic content cooperation with Youku to further broaden our video content. The cooperation allow our users to access Youku's video database. As a result, our traffic has experienced solid improvement in search visibility and conversion rates. Finally, let me provide an update of our product diversification strategy for digital reading. Our digital reading business was launched to better monetize our traffic and has experienced rapid growth in the past two years, with revenues increasing by almost fourfold. In the third quarter of 2017, online digital reading revenue increased by 51.5%, and all major operating metrics showed strong growth as well. This quarter was incorporated online novel subscription channels on both PC and mobile platforms, which complemented ifeng's core products nicely and generated great synergies. In August 2017, to better convey the attractiveness of our digital reading content, we changed the name of our app, Phoenix Bookstore, to Fengyu Novels. Fengyu Novels represents our initial foray into product expansion for our digital reading business, and we are encouraged by the results so far. In summary, we are pleased to report the solid progress we achieved in the third quarter of 2017 while we also acknowledge the competitiveness of our industry. In order to stay ahead of our competitors, we will continue to invest in traffic acquisition to further expand our market share while adopting strict cost control measures and closely monitoring the ROI of our products. By leveraging our professional journalism, cutting-edge technology, extensive partnership resources, as well as our branding power, we believe we can maintain our leading position in a highly competitive market. We have the right team and strategy in place, and we strive to generate incremental value for all of our shareholders. With this, I will turn the call over to our CFO, Betty Ho.

Thank you, Shuang, and thanks to all for our joining our conference call today. I'm pleased to announce that we have delivered a very solid performance in the third quarter. Both top and bottom line exceeded Street consensus. ifeng's total revenues for the third quarter of 2017 increased by 18.2% to RMB425.6 million from RMB360.0 million in the same period last year, which beat the high end of our previous guidance, primarily attributable to the 50% increase in mobile advertising revenue. Non-GAAP net income attributable to Phoenix New Media for the third quarter of 2017 increased by 38.9% year-over-year to RMB34.4 million, and non-GAAP net income per diluted ADS increased to RMB0.48. Now let me take you through our financial highlights for the third quarter of 2017. The amounts mentioned here are all in RMB. Unless otherwise noted, the differences between GAAP and non-GAAP are share-based compensations and gain from equity investments, including impairments. Starting with revenue. Net advertising revenue for the third quarter of 2017 increased by 17% to RMB363.1 million from RMB310.4 million in the same period last year. The increase was mainly due to a 50% increase in mobile advertising revenues, which was partially offset by an 11.8% decrease in PC advertising revenues. Paid service revenues for the third quarter of 2017 increased by 25.9%, to RMB62.4 million from RMB49.6 million in the same period last year. Revenues from digital entertainment for the third quarter of 2017 increased by 41.8%, to RMB52.6 million from RMB37.1 million in the third quarter of 2016. The increase was due to a 51.1% increase in digital reading revenue to RMB17.2 million, which mainly resulted from stronger demand and the Company's strategic expansion assets, and a 37.5% increase in the MVAS revenues related to a short-term new business with telco operators. Revenue from games and others decreased by 21.3% to RMB9.8 million, which was mainly due to the decrease in revenues generated from web-based games on our own platform. Secondly, gross profit and margin. Non-GAAP gross profit for the third quarter of 2017 increased by 38.6%, to RMB238.3 million from RMB172.0 million in the same period last year. Non-GAAP gross margin for the third quarter increased to 56% from 47.8% in the same period last year. The increase in gross margin was mainly attributable to the increase in revenues as well as decrease in certain cost of revenues. In terms of cost of revenues, non-GAAP content and operational cost as a percentage of total revenues decreased to 25.7% from 34.6% in the same period last year. It was mainly driven by the decrease in advertisement-related content production cost and the company's strict control of general operation costs. Revenue sharing fee as a percentage of total revenue increased to 6.6% from 4.6%. Bandwidth cost as a percentage of revenues decreased to 3.3% from 4.6% in the same period last year. Sales taxes and charges remained almost the same at around 8.4% compared to 8.5% in the same period last year. Thirdly, non-GAAP operating expenses for the third quarter of 2017 increased by 31% to RMB200.4 million from RMB152.9 million in the same period last year. Non-GAAP operating income for the third quarter increased by 99.1% to RMB37.9 million in the same period last year. Non-GAAP operating margin for the third quarter increased to 8.9% as compared to 5.3% in the same period last year. The improvement in operating margin was mainly due to the increase in gross profit and partially offset by the increase in mobile traffic acquisition expenses. As I mentioned in last quarter's call, under the fierce competition on mobile front currently, we need to further expand our mobile user base. Thus, we will increase our investment in traffic acquisition expenses for the rest of the year. However, we will remain prudent in our traffic acquisition spending and have proper mechanisms in place to ensure effective return on investment. Fourthly, net income attributable to ifeng for the third quarter of 2017 increased by 3.8%, to RMB32.9 million from RMB31.7 million in the same period last year. Non-GAAP net income attributable to ifeng for the third quarter increased by 38.9%, to RMB34.4 million from RMB24.8 million in the same period last year. Non-GAAP net income per diluted ADS for the third quarter increased by 38.8%, to RMB0.48 from RMB0.34 in the same period last year. In terms of balance sheet items, as of September 30, 2017, the company's cash and cash equivalent, time deposits and short-term investments and restricted cash were RMB1.28 billion, or approximately $191.9 million. Restricted cash represents deposits placed as security for banking facilities granted to the company, which are restricted as to their withdrawal or usage. Lastly, I'd like to provide our business outlook for the fourth quarter of 2017. We are forecasting total revenue to be between RMB433 million to RMB448 million, representing an increase of 5.1% to 8.8% year-over-year. For net advertising revenue, we are forecasting between RMB386.2 million and RMB396.2 million, representing an increase of 9.4% to 12.2% year-over-year. For paid service revenue, we are forecasting between RMB46.8 million and RMB51.8 million, representing a decrease of 20.3% to an increase of 11.8%. In summary, we are able to continue on saving on tax as well as other operating expenses. As a result, we expect to see a slight net profit for the full year of 2017, which is a lot better than we originally forecast. Given the fierce competition in the news feed sector, we expect to see a strong growth on mobile app revenues while we still need to diligently increase our spending on the related traffic acquisition expenses. This concludes the written portion of our call. We are now ready for questions. Please go ahead, operator.

Thank you. [Operator Instructions] Your first question comes from the line of CICC, Natalie Wu. Please go ahead.

Hi, good morning. Thanks for taking my questions. Congratulations on very strong third quarter. I just have a couple of questions. Firstly, your fourth quarter outlook seems a little bit soft. Just wondering if there’s any kind of considerations beyond the impact of events at 19th Congress Party Conference? And also, the sales and marketing spending seems to be a little bit behind schedule. So I’m just wondering, any update on your sales marketing spend this year? I remember that you mentioned that the marketing this year will add up to like RMB400 million. So I’m just wondering if there’s any modification regarding that. And lastly, regarding Yidian, so you’ve mentioned that Yidian’s valuation was negotiated in late last year, while during the past 12 months, I believe Yidian has largely improved its operational metrics as well as monetization ability. So just wondering if there is any chance as to reevaluate or a valuation lifting regarding the Yidian? And also, can you update us the latest holdings for Yidian? Thank you.

Hi Natalie, this is Betty. Let me address to your fourth quarter guidance. Actually, for our advertising revenue as of the third quarter, the growth is very strong. It grew about 17% and for the mobile advertising, it grew about 15%. And for the fourth quarter, we will continue seeing the strong growth. And actually, for the full year, we’re still maintaining our optimism – about the mobile advertising growth at about industry level. From the latest research of iResearch, we see that industry expected the growth of mobile advertising in 2017 is about 51%, and in 2018, it shows about 40%. So we believe that our mobile advertising will continuously to have a robust growth, at least according at par with the industry growth. And for our PC revenues, we see – we actually see a slower decrease in the third quarter. It was mainly due to the introduction of the programmatic ad buying from our own Fengyu platform this quarter, so it actually helped to slow the decrease of the PC mobile – of the PC advertising revenue growth. So net-net for the full year, we are still very confident that our net advertising revenue will have a high single-digit growth while the mobile advertising revenue will grow at least at par with the industry. As for your marketing spending question, we actually mentioned in last quarter that based on our innovative marketing strategies, we have implemented Red Pocket activity to attract more user base, instead of spending a lot on handset manufacturers by way of pre-installations or online purchases. So this actually has continued to third quarter. And as a result, it’s saved a bit on tax for us. That’s why for the full year, for marketing spending, we are expecting that we will save as we have forecast earlier this year. I’ll let Shuang to address the National Congress issue and Yidian.

Yes, your first question is about the National Communist Party’s National Congress impact on our business, right, Natalie?

Yes, yes.

Okay, okay. Yes, good question. I think the 19th Congressional report detailed China’s future development plans. It also established new goals for the culture and the media industry, which is very inspiring and encouraging. The Congressional report, the Communist Party’s Congressional report specifically discussed Chinese people’s pursuit of happiness in their daily lives with an emphasis on their cultural life. So the report listed a number of supported measures to boost the Chinese culture industry. Specifically, the measures emphasize the importance of improving China’s communication with the rest of the world and promoting the global culture awareness towards China. Actually, all those measures are playing to ifeng’s strengths. ifeng has launched a series of programs to showcase the Chinese culture to the outside world, including the program called the One Belt One Road program, [Foreign Language]; Spring poetry reading, [Foreign Language]; Global Think Tank, a dialogue with the world [Foreign Language]; and many others. All of our programs and activities are not only well received by our audience, but also very well received – enthusiastically endorsed by the advertisers. So we believe the Party Congress has opened up a significant opportunity for ifeng. ifeng’s competitive strength, as you know, is in its news and multimedia coverage of current affairs. So the unique perspective we bring to our current affairs coverage derives not only from the content contributed by Phoenix TV. Actually, it only contributes a limited portion of our overall content and audience traffic. But more importantly, our strength derives from our own competitive advantage in operating a leading online media destination. Our proprietary techniques in content lies in our content construction, editing and organization, also combined with our original comments, rich interactive features and innovative Internet-based polling functions. All contributed to our content’s unique DNA and professional journalism. So to summarize, the 19th Congressional Report emphasized Chinese people’s desire to improve the quality of cultural life. China needs to increase its dialogue with the rest of the world and the developing global appreciation toward the Chinese culture and China’s progress towards taking the center stage of international affairs. So we believe that we stand to benefit from the tremendous opportunities created by the new strategic directions as set in the Congressional report. We should be able to further differentiate ourselves in a competitive media market, obtain additional endorsement from top brand advertisers and also lay a solid foundation for the future development of our future brand advertising business. Your last question is about – if I remember clearly, is about Yidian’s valuation, right, and the future partnering? Is that right?

Yes, and the latest holdings.

Yes, actually – yes, actually, we just finished – we just released news about our latest – the year-round financing. Actually, the terms of this round financing was heavily negotiated last year. So the valuation reflects the value of the company of last year, last year’s unique visitors, last year’s advertising capability and last year’s overall metrics. Actually, one year has passed. This year, our – we have experienced very significant traffic growth. By the end of the year, our advertising dollars will almost – will at least triple last year’s level. And also, we have new licenses, we have new partnerships, so the situation will be totally different. We are – actually, we have kicked off the ads around financing. The management will certainly be significantly different from the ifeng one. Our current holding of Yidian is 38%, yes. Did I answer your question?

Yes, yes, very clear. And I have a quick follow-up, if I may. The – you finally said your paid service revenue guidance for both quarters, it’s actually indicating a double-digit decline sequentially. But aside your numbers, your digital reading business is actually growing very nicely. So I was just wondering, what’s the reason behind the conservative guidance?

Yes, Natalie, the paid services actually includes two parts: one is coming from digital entertainment; and the other is coming from games. Within the digital entertainment, there are two parts: one is coming from the online digital reading, which has been growing very strong and very good; and the other part is the MVAS business, which represents our traditional value-added services with the telco operators. When we guided this, we understand that this part, the traditional value-added services part has been decreasing about 25%, 30% every year. And we also understand that online digital reading was doing very good at that time, has been doing very good, in fact. So we actually guided that our paid service should be flattish at this year. But as I mentioned in my prepared remarks, that last quarter, we had a very short-term business opportunity with a telco operator which created an increase in our MVAS revenue. That’s why the whole paid services revenue has been increased.

Great, got it. Thank you, Betty.

Thank you.

Thank you, Natalie.

Thank you. Your next question comes from the line of Binbin Ding from JPMorgan. Please go ahead.

Hi, good morning, management. Thanks for taking my question. I have a question regarding the license of the news information services Yidian has just got from the CAC of China. So can management elaborate on the license? So what’s the difference of the license as compared to other Internet service licenses such as [indiscernible]? What can we do with this new license? And if our competitors don’t have such a license, what can they not – they cannot do? And also, who else in China has such a license? And so generally, what kind of competitive advantage will this license bring to us? And a quick follow-up on the current government regulation on the self-media side, so following the acquisition of this new license, can you give us an update on Phoenix and Yidian’s content strategy, especially on the self-media side? And in terms of the recent round of financing, how are you going to leverage the capital raised to drive your business?

Hi, this is Shuang, yes. I think your question has touched three points: first, the license itself, the second is our content strategy, and the competitive landscape. I think the license is very important for us; it’s a major, major bridge stone. It’s issued – I think it’s the only license granted to a commercial application, commercial mobile application in the last couple of years. The license has many far-reaching implications for Yidian because it is the first time that CAC has authorized a we-media platform to operate in China. As you know, the self-media platform in China is a very murky water, so all these players actually are navigating in uncharted waters. So there’s lots of uncertainties, lots of risks. The trend is the government would definitely tighten the grip on this market. So that created lots of uncertainties. I think some small players, some players without license might face very serious legal challenges. So we believe the license granted to us served as an official seal of approval for Yidian’s credentials and Yidian’s future development. And also, the issuance of license is not only a political issue on the legal recognitions, it also allows us to deepen our strategic cooperation with mobile handset manufacturers. They will feel more confident and more comfortable to preinstall Yidian’s applications onto their products. For players with no license, I think the situation will be different. It also grants us greater advantage in developing long-term relations with content providers. In addition, the license helps remove hurdles in our potential capital risks in overseas or domestic capital markets. So we see the license not only – it's not the end of the game, it's the beginning of many new and exciting opportunities for Yidian. We have high hopes for additional favorable development in the future, which will enable us to stand to benefit as the premier online news media outlets in China. So from a competitive point of view, we're probably not in the best position to comment what kind of uncertainties and risks the other players will face. But the license will definitely put us in a more advantageous position. As to the self-media strategy, actually the beauty of our content strategy lies in the synergy between Yidian and ifeng. ifeng is a very powerful brand which has a huge traction among the quality self-media players. Yidian has huge traffic. So the two sides can definitely leverage each other's brand and the huge traffic. And Yidian recently has entered into extensive strategic co-operations with many self-media players and also big media powerhouses, including Youku, iQiyi, Sohu, Mango TV, Baidu video, Tencent Video. Some of the arrangements are exclusive. So that will significantly enrich our content library. That will enrich our user – improve our user's experience. And we also just adopted a very generous incentive scheme. Under this scheme, the Company will leave nothing for ourselves, but we will share all the revenue, advertising revenue, what we obtain from landing page, to the self-media cooperators, of course, excluding the costs. So this will be attractive to self-media players in China and it will also boost and further improve our content delivery capability, especially improve our algorithm to make sure the content delivery is more efficient, more targeting so that to make sure that the CTR, the click-through rate of our self-media accounts will be higher, will be more efficient, will generate more traffic, so certainly, will obtain more revenue. Any point I missed, any?

In terms of the capital raised in the recent round of financing, how are you going to spend?

In terms of the...

The capital raised in the recent round of financing.

How we're going to allocate the capital?

Yes.

Okay, certainly, certainly, yes. Our strategic focus will be our core competence, our algorithm team. We'll certainly more aggressively recruit top talents in AI area to improve our algorithm to, as I just mentioned, to improve our targeting, our content delivery and advertising delivery capability, to improve our CTR of Yidian. So that's the first thing. And also, we'll enter into more extensive co-operations with content providers to enrich our content library. And certainly, we'll further improve our infrastructures, our servers, our operating system, to make sure the better user experience. So these are the three areas we'll focus on.

That’s helpful, thank you very much.

Thank you.

Thank you. Your next question comes from the line of Wendy Huang from Macquarie.

I just have some housekeeping questions. First, is it fair to say that the 19th Congress meeting is actually helping you guys while it’s actually hurting your competitors because of the different content you’re offering? Because I think some of the competitors that you mentioned, the weak Q4 revenues due to restriction on the entertainment content. And second, can you provide some operating metrics around your digital reading business? For example, the number of the paying user and also the monthly subscription fees or other metrics that we should actually think about? And lastly, on the we-media business that you just mentioned, can you share some, like, economics such as content cost and the revenue share data? Thank you.

Yes, let me – this is Shuang. Let me get back to your first question. Actually, please don’t get me wrong. I’m not in a position to comment on other players – the National People’s – National Communist Party Congress impact of other players. I just want to emphasize that we feel very encouraged and inspired by this Congress. And we believe because of the brand or the way we coverage the world and our special DNA, especially our efforts made in promoting Chinese culture, in encouraging Chinese dialogue with the outside world and in our commitment to charity events, we’re certainly – is well addressed by this Congressional report and it’s in line with the Communist Party’s broader game plan. So we’re in a very good position to benefit from this. I’m certainly not in the position to comment on other players’ situation. So to tell you...

But you did mention that your active user figure actually surpassed all the peers during the Congress meeting period, right?

Yes, yes, yes. Betty, though, probably can...

Let me address to the – to your question regarding the operating metrics for our online reading business. Actually, our online business model is very similar to the company,– which was just listed on Hong Kong Stock Exchange recently. This is a model with – we gather all the Internet writers and provide and selling the content by number of words. So we have gathered over 2,000, more than 2,000 writers now, and actually, the whole business has been growing at least four times in terms of revenue for the past two years, and it has been still growing very strongly and the net profit margin is like over 20%. So this is a very promising and growing business. The size as compared to our ifeng revenue is still considerably quite small. So we prefer not to disclose the operating metrics at this time.

Okay. How about we-media platform’s content cost, and what was the revenue share?

So we-media, in terms of we-media, as Shuang just mentioned, we actually combined our – and Yidianhao. And with this combination, the we-media account, once they open the account, they will have the overall distribution of over 88 million, which is the DAU – combined DAU of Yidian and ifeng itself. So this is a very considerable large distribution for the we-media, and especially when we are recognized by the government with Yidianhao. We are having absolute advantage on attracting the we-media accounts. In terms of the economics for the we-media, so I’ll also mention that for Yidian, the policy is to share everything, less necessary costs, to all we-media accounts. And for ifeng, we are actually preparing a brand new strategy for 2018 now for – to compensate the we-media account.

Thank you.

Thank you. Your next question comes from the line of Thomas Chong from Credit Suisse. Please ask your question.

Hi. This is Lisa from Credit Suisse asking on behalf of Thomas, and congratulations on the solid results. And could management share some colors on fourth quarter and 2018 outlook and the margin trend in Q4? And apart from the current existing traffic acquisition strategy, are there any new means for acquiring new users in 2018?

Okay, as for the traffic acquisition, traditionally or based on our history, we actually use about 70% of our traffic acquisition expenses on pre-installations, and about 30% to 40% on online stores. With respect to the pre-installations, our exclusive partner is Huawei. Actually, Huawei's target customer is very, very similar to ourselves. But ifeng's target customer, we are not – we have some cost pretty high, higher income, higher age and higher education. So this is actually the group of customer that Huawei's users use. So this is very a complementary match with this brand. And as for the online stores, most of the online stores that the popular online stores we have invested, including OPPO, Vivo, Xiaomi, et cetera. And in the future, I think these are the two popular ways to gain users. Despite of the traditional ways, we are also actually developing some innovative marketing strategies like in the third quarter – in the second quarter this year, we implemented the Red Pocket campaign, and we are looking forward to more new strategies in the 2018.

This is Shuang. As to our M&A strategy, given our size and the market positioning, we take, relatively, a more conservative approach. We've been monitoring the market very closely in the last couple of years. We placed high priority on a company which can certainly maximize our shareholder value, which can – which is complementary to our business, which has huge synergies to our current business. Particularly, we're looking at an upstream company which specializes in content which can enrich our content library, can boost our content production capability. So especially with the issuance of the new license, it certainly expands – further boosts our political recognition, further improves our visibility among the content producers. That will help us to achieve more extensive either strategic cooperation or joint venture or even investment opportunities. But relatively speaking, we take a very prudent approach in terms of the M&A. Okay?

Thank you.

Thank you. There are no further questions at this time. I would now like to hand the conference back to the management team for the closing remarks.

Thank you, operator. We have come to the end of our Q&A session and our conference call. Please feel free to ask if you have any further questions. Thank you for joining us on this call. Have a good day.

Thank you. Bye.

Thank you. Thank you all.

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