Ladies and gentlemen, thank you for standing by, and welcome to the Phoenix New Media 2018 Second Quarter Earnings Call. [Operator Instructions]. I must advise you that this conference is being recorded today, Wednesday, the 15th of August 2018. I would now like to hand the conference over to your first speaker today, Ms. Qing Liu. Thank you. Please go ahead.

Thank you, Operator. Thank you, and welcome to the Phoenix New Media Second Quarter 2018 Earnings Conference Call. I'm joined here by our CEO, Mr. Shuang Liu; and CFO, 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 second quarter 2018 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 RMB. With that, I would like to turn the call over to Mr. Shuang Liu, our CEO.

Thank you, Qing. Good morning, and good evening, everyone. We are pleased to report that in the second quarter of 2018, while preserving our strong media DNA, we've streamlined our resources and made significant progress in our products and content operations. Experiencing the continued growth momentum, our advertising revenue generated from our FENG app has increased by 43.2% in the second quarter of 2018 under the old accounting standard. In the quarter, we continued to cooperate closely with the government regarding the enforcement of online content regulation in China. Toward this purpose, we leveraged our technology capabilities to optimize our algorithm, significantly augmenting the efficiency and accuracy of our content library through [indiscernible] compliance process. In doing so, we try to strike a fine balance between maintaining market competitiveness and regulation compliance while upholding our commitment to delivering original, unbiased and high-quality news coverage to our users. Now turning to our product innovations. Let me give you an update on our ongoing effort to improve our ifeng News app and our progress in this past quarter. As part of our ongoing effort together with customer feedback, we organized a social event in June where we encouraged our users to identify our shortcomings and deficiencies. Through the feedback that we received, we were able to improve our products and services. In addition, to ensure the optimal user experience, we significantly accelerated the process of product improvements to once every other week. We believe that our continuous product enhancement will not only maintain and engage existing users but also attracting users and thus accelerate our revenue growth for the remainder of 2018. The average time spent per users on our media content increased substantially, and video content accounted for half of user total time spent in the second quarter. Obviously, with respect…

Thank you, Shuang, and thank you all for joining our conference call today. I'm pleased to announce that we are seeing strong revenue growth momentum from our mobile app. Before I update you on the financial details, I would like to shed light on the impact of the newly adopted accounting standard ASC 606, namely revenue from contracts and customers, which took effect from January 1, 2018. By applying the modified retrospective matter under the new standard, sales taxes and surcharges previously presented as a component of cost of revenues are now presented as a reduction item of revenues, and some advertising for advertising partner transactions previously not recognized as revenues are now recognized as revenues. For comparative purposes, here we'll provide our financial highlights under the old accounting standard, ASC 605. For the amount and ratios under the new accounting standard, please refer to our earning release where we have provided the financial items under both the old accounting standard and the new accounting standard. Now let me take you through our financial highlights for the second quarter of 2018. The amounts mentioned here are all in RMB, unless otherwise noted. The differences between GAAP and non-GAAP consist of share-based compensation and income or loss from equity investments, including impairments. ifeng's total revenue for the second quarter of 2018 were RMB396.7 million, which is in line with our previous guidance and represented an increase of 0.9% from RMB393.3 million in the same period last year. Non-GAAP net income attributable to Phoenix New Media Limited for the second quarter of 2018 was RMB53.7 million, representing an increase of 83.7% from RMB29.3 million in the same period last year. Non-GAAP net income per diluted ADS in the second quarter increased 81.1% to RMB0.74 from RMB0.41 in the same period last year.…

[Operator Instructions]. Your first question comes from the line of Frank Chen from Macquarie.

I have basically three questions. First, on the guidance. The 3Q guidance looks pretty weak. Especially, you guide the total paid service to decline around 40% year-over-year. Could you share more color on the reason behind this weak guidance? The second question is on margin. I - we did quite a good job on cost control this quarter, especially on the control over sales and marketing expense. I wonder, how should we look at the margin trend in the rest of this year? And do we have an updated budget on the traffic acquisition for this year? The second question - the third question is on Yidian. Can you share more color on Yidian's revenue growth on the domestic listing time line? Just to be clarified, will we hold any stake in Yidian after its domestic listing?

Thank you, Frank. Let me answer your question first. If Shuang wants to cover additional information, he will add later. So for your first question about the guidance, our - actually, our ifeng app advertising revenue increased by 43% in the second quarter. It was mainly driven by increasing of pricing and the number of advertisers. But for the rest of the year, we have confidence that the strong momentum of the app revenue will be continued. We expect the app revenue will be increased at least at par with industry at about 40%. We also have new initiatives to boost our revenue growth by creating our own IP and to use big data to enhance our algorithm for our advertisers to be placed to the users at a most relevant way. We have launched 3 IP originally last year, which potentially could become a lasting IP where we saw high demand from our brand advertise - for our brand advertisers. So including all these initiatives, for the full year, we remain very optimistic that our revenue - our advertising revenue will have a double-digit growth, as we mentioned in our first quarter earnings call. So that is for the guidance. And for the paid services, we are seeing further strengthening of the regulations regarding to the MVAS business. The telco actually placed very healthy regulations on that. So the MVAS services will be further declining at about 40% per year. That actually was very consistent with our previous expectation, so no surprise here. And as for the margin, in terms of the TAC, traffic acquisition expenses, as we mentioned earlier, it has - last year, we spent about 320 million in our TAC cost. This year, we increased about 400 million. So we have not increased our budget, but this budget should be enough for the rest of the year. So as for the margin, it will remain our expectation. As we mentioned earlier in our first quarter call, it has not been changed. And as for the Yidian revenue growth, as we mentioned earlier, in 2017, its revenue was doubled. And this year, we expect it was tripled. And this year, we expect the revenue to be doubled. And also, Yidian's DAU experience in two months as compared to April this year has increased high single digit - has experienced a high single-digit growth from 60 million. So it's very healthy and strong growth within Yidian. And as for their Asia listing plan, as we mentioned - as Shuang mentioned in his script, actually, we don't have a definitive plan for Yidian whether to be listed on Asia or overseas. But apparently, in terms for the valuation, it's better for Yidian to be listed on Asia. But nothing has been concluded. And actually, Yidian is doing its round of financing, and it's expected to be completed by the end of the year. I hope that answers your questions. Shuang, do you have anything to add?

Your next question comes from the line of Natalie Wu from CICC.

This is [indiscernible] speaking on behalf of Natalie. So can management...

We can't hear you very clearly. Can you...

Yes. Is this okay now?

Yes, better. Yes.

Yes. So I was wondering, could management share some change of future user acquisition? So given that smartphone shipment in China is slowing down recently and we are seeking more diversified channel for user growth, does management have any targets for MAU or DAU in the next year?

Yes. This is Shuang. As Betty mentioned in her remarks, actually, our total user acquisition cost for the second half of the year will remain the same - will remain unchanged. We're going to hold a very cautious approach to rigorously analyze the ROI on user acquisition. And looking forward for the second half of the year, I think we will do better. In the first part of this year, we're going to increase our investment in our content library, strengthening our algorithm-driven computing team and further recruit more talents on our algorithm team to further optimize our user experience. So our goal is to grow our flagship app, ifeng News, more robustly. In addition, we're also internally exploring new products to further increase our user base, But for competitive reasons, we cannot disclose too much. But this product will definitely focus on younger demographic. We'll play - emphasize on interaction and social networking. And looking forward in the midterm to long-term range, as we mentioned in our opening remarks, there is a possibility - there's a high possibility we're going to let the Yidian to go public domestically. So that provides us with the chance to exit our investment. So with the potential return of our investment, we're going to - also looking at opportunities to do further strategic acquisition to expand our user base, especially in younger demographic. So that's the - overall our user acquisition and user expansion game plan.

Your next question comes from the line of Binbin Ding from JPMorgan.

I have a question on your content strategy. Can management elaborate on your content strategy in this and next year? And also, a related question is your content investment. Can you give us a sense regarding the content budget in this and next year? You mentioned a few key areas of content investment, including self-media content, including documentary programs, video, et cetera. So what are the main areas to spend this budget? And what's the implication on our profitability?

This is Shuang. Yes, Thank you for your questions. I think our content strategies covers four areas. The first is our breaking news. That's where our special - our expertise lies in. Recently, breaking news kept coming on topics between international relations, economics, entrepreneurship and celebrities, et cetera. User demand for cars and reliable information - sorry, reviews and reliable information on those hot topics is emerging. So we will continue to leverage our strength in the timely capture and professional editing of breaking news and deliver the most insightful and authentic content to our users to increase our brand equity and user stickiness. We should not diminish but rather augment our strategy in professional editorial content. And secondly, our original content production. I think we recently conducted a thorough review of our original content categories. Afterwards, we have eliminated some categories with little traffic, monetization or social impact. Going forward, we will concentrate our resources in providing original content in roughly 20 categories, including culture affairs, history, fashion, finance, economics and others. We will place a greater emphasis on product innovation, monetization and multi-channel marketing of our content. Through original content production, we aim to accentuate the uniqueness of our brand, intensify users' reliance on our platforms and enhance our monetization capabilities. And third thing is our we-media. Actually, we have reorganized our we-media operation team and put new leadership in place. And we have conducted a thorough review of our we-media user accounts and remapped our course of collaboration with Yidian. We have laid out a more scientific compensation structure for our we-media content producers based on the traffic generation results. We also reinforced the coordination between we-media and various vertical channels on content production and stressing the top-tier we-media account recruitment operations and monetization in each vertical…

No. Binbin...

Okay. I hope this answered your questions.

[Operator Instructions]. There are no further question at this time. I would now like to hand the conference back to today's presenter. 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 now all disconnect.