Ladies and gentlemen, thank you for standing by and welcome to the Phoenix New Media 2019 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, 14th of May 2019. I would now like to hand the conference over to your first speaker today, Qing Liu. Thank you. Please go ahead.

Thank you, operator. Thank you and welcome to Phoenix New Media's first quarter 2019 earnings conference call. I'm joined here by our Chief Executive Officer, Mr. Shuang Liu; and Chief Financial Officer, Ms. Betty Ho. On 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 first quarter 2019 financial results and webcast of this conference call are available at ir.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 apply 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. I'm pleased to see a solid start in 2019. Our first quarter total revenues reached RMB287.3 million, (sic) [RMB284.9 million], exceeding the high end of our previous guidance. This outstanding performance was the result of new growth initiatives in our content offering strategy, digital reading, and the expansion in the lifestyle-related verticals. We have optimized our flagship product, the ifeng app substantially. We continue to focus on enhancing our AI footprint by further improving the synergies with our editorial system. Our substantial integration of human expertise and AI algorithms has helped us to improve our ability to generate and distribute high quality, unbiased coverage of major events and [Indiscernible]. It also helps to improve our new delivery efficiency. For example, our coverage of the two sessions in March once again demonstrated our preeminence in the field of upcoming major events. During our coverage of the two sessions, we fully utilized the advantages of artificial intelligence and our editorial expertise to produce and to distribute hundreds of editorial articles and videos based on our exclusive interviews with influential leaders, all of which were well received by our users. We believe that consumers read news for three reasons; to obtain information, to fulfill interests and to be entertained. The Good News app should satisfy all three requirements and strike a healthy balance at the same time. The sad reality is that nowadays there are many news apps that only focus on monetary returns and chase after users' time using click-bait content [Indiscernible]. Such practice leads to addictive consumption of worthless and incomparable information. In fact, these practices are also detrimental to new adept user retention rate and the commercial interest. Accordingly, we have decided to uphold our professional and moral standards. Furthermore, we…

Thank you, Shuang and thank you all for joining our conference call today. Now, let me take you through the financial highlights for the first quarter of 2019. 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 method investments net of impairments. ifeng's total revenue for the first quarter of 2019 were RMB284.9 million, which beat the high end of our previous guidance and were flat as compared with the same quarter last year. Non-GAAP attributable to Phoenix New Media Limited for the first quarter of 2019 was RMB111.8 million. Non-GAAP net loss per diluted ADS in the first quarter of 2019 was RMB1.54. Firstly, on revenue, I will provide details on our revenues for the first quarter of 2019. Net advertising revenue for the first quarter of 2019 decreased by 11.3% to RMB216 million from RMB243.4 million in the same period last year, mainly attributable to a 9% year-over-year decrease in PC advertising revenue and a 12.4% decrease in mobile advertising revenue. This decrease was mainly due to macroeconomic headwinds and intense competition. Paid services revenue for the first quarter of 2019 increased by 66.1% to RMB68.9 million. Revenues from paid content for the first quarter of 2019 increased 147.8% to RMB52.9 million from RMB21.4 million in the same period last year, mainly due to the inclusion of digital reading revenues from Tadu. Revenues from games for the first quarter of 2019 were RMB3.1 million, representing a decrease of 35%. Revenues from MVAS for the first quarter of 2019 were RMB7.9 million, representing a decrease of 42%. Revenues from others for the first quarter of 2019 were RMB5 million, representing an increase of 200.8%. It was mainly caused by the increase…

Thank you, Betty. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Frank Chen from Macquarie. Please ask your question.

Good morning Shuang, Betty, and Liu Qing. This is Frank from Macquarie. Thank you for taking my question. I basically have two questions. One is on your traditional core advertising business. We experienced an 11% year-over-year declining ad revenue in the first quarter, while the second quarter guidance suggest a relatively flattish advertising revenue. Could you share more about what's the driver behind the recovery of our advertising business given the still very weak macro condition in China? The second question is on your new initiatives. Could you share more details on the development of your new initiatives, including digital reading and maybe online games, mobile games? For the digital reading, could you share more operating data with us, including the DAU trends, time spent trend, and how many writers do we have? And how do we sign contracts with those writers? And for paid online reading, could you share with us how -- what -- share with us what ARPU looks like for now? And for the new launched free online -- free reading model, could you share some outlook on the potential ad revenue per DAU? And for the online gaming business, it's only contributes a very small portion of our revenue for now. Could you share with us what's the potential in this business? And when should we expect a meaningful revenue contribution from our gaming business? That's all of my questions. Thank you.

Thank you, Frank. That was a very long question. I'll take the first two questions and, if there's anything to add, Shuang will add. So, for your first question regarding the traditional advertising business, we are actually experiencing a transformation period in the coming two years. In terms of advertising, we are seeing the advertisers have cut their budget since Q4 last year and it's prolonging to this year due to macroeconomic headwinds. Our DSP advertising income is decreasing this quarter -- or has been decreased this quarter due to the intense competition among the advertising based on performances. Those advertisers' budgets are always going to big players that's why the competition is becoming very fierce. As a result, we need to strengthen our brand advertising by investing more on innovative advertising solutions, on providing more relevant events, original video content and IP creation, et cetera. We are also diversifying our revenue streams to traditional bases like online literature, e-commerce, et cetera. We have laid a very good foundation for our brand advertising to continue to grow. When we adopted the IP strategy last year, as you may -- as you have heard on the script for Shuang, that the three IPs that we have launched last year were very successful. We are seeing that our brand advertising revenue actually has been increased by 7% this quarter. We will be adding more IP and/or original production this year and we expect that revenue generated from these IPs will be growing at least 300% as compared with 2018. So, this is for the advertising income part. And for your second question regarding the digital reading and mobile games, as for digital reading, I'm sorry that we are not providing the operating metrics at this moment because -- for competitive reasons. At…

All right. Yes, yes, very clear. Can I have a very quick follow-up question on our margin? We are experiencing a loss temporarily. When do we expect a turnaround point in the future? When should we expect -- right.

As I mentioned earlier that due to the economic headwinds and the fierce competitions in the market, we are actually experiencing a transformation period. And I expect that it will be -- for the coming two years, we are still at investment period, so at least another two more years.

Sure. Thank you. Very clear. Thank you, Betty.

Thanks.

Your next question comes from Bin Ding from JPMorgan. Please ask your question.

Good morning management. Thanks for taking my questions. I have a question on your growth strategies, especially the organic growth. So, I think advertising segment has become a very mature business with slowing growth across the Board [technical difficulty] the overall industry. So, other than the disposal of Yidian, you mentioned a number of new initiatives and strategic investment, such as these two, content verticalization and IP strategy. However, [technical difficulty] verticals, we have seen intense competition from incumbents, leading players, who still have a lot of cash in this area. I understood that we have committed 40% to 60% cash in strategic investment moving forward. But in my humble opinion, I think it might be better to concentrate our cash in some very promising areas instead of trying too many different opportunities. So, I was wondering if management have identified some very promising areas that could become an organic growth driver in the mid to long run. Thank you.

Yes. Thank you, Binbin. This is Shuang. You are quite right that advertising business is becoming a very mature business. But I also want to add that it still has room for further improvement. For our core news app in the first quarter, admittedly, we experienced a deceleration in growth. But we have notably improved the efficiency of our algorithm and our content management process. So, as a result of push and [Indiscernible] strategies as well as the integration of AI technology and our editorial expertise, our DAU actually has shown improvement in the first quarter. So, we are confident about the growth trajectory for the remainder of 2019. It is worth to note, 2019 will still be a year of progress and development for our core news apps. Nevertheless, as we continue to invest in this development, we are laying down a solid foundation for the future growth in 2020. So, for our advertising business, we do think there's still room for further improvement, so it will also lead -- lay down the solid foundation for future growth. And as we mentioned the strategic management, we definitely carve out a 30% to 40% of our proceeds, investment return proceeds, for future acquisition and investments. I think as I said in my opening remarks, there are -- the future investment will focus on area, which can achieve -- release the synergy, which is beneficial to our brand and address the unfulfilled needs of our core users. So, the content and AI and vertical areas will be the major focus. Certainly, whether the target can bring a significant -- will -- whether the target can significantly enlarge our user base and better release our superior monetization capability is also a top concern. But for competitive reasons, at the present stage, I cannot disclose too much on the exact target. But definitely, we have definitely identified several targets. We are in the process of due diligence and negotiations, but it's still not the time to disclose too much details. But we will keep the market updated on this. Thank you, Binbin.

Thank you, Shuang Liu. I have a quick follow-up. I mean four to five years ago, you spent around one-third or close to 50% of your cash in Yidian investments. So, moving forward, are we considering such large amount of investments like what we did five -- four to five years ago?

Four or five years ago. Yes, I think that's about the range. Yes, that's about it.

In a single company, like 30% to 50% of your cash position.

It's still too early to tell, yes. I'll keep you updated. Okay.

Okay. Thank you. Thank you very much. Thanks for the call.

Thank you.

Your next question comes from Chuck Li from First Shanghai Securities. Please ask your question.

Hi management, this is [Indiscernible] on behalf of Chuck. And my question is that we don't usually see Internet companies pay dividends and especially when concerning that you are still transitioning your business. So, what are you doing to -- what are you going to do to ensure your growth after you pay the dividends?

Thank you. This is Shuang. As for the dividend policies, I believe that less than 10% of all Chinese Internet companies have paid dividends in the past. Those who adopt a dividend policy are mostly activity engaged in the gaming business and are profitable. Currently, our market cap is deeply undervalued. And if you multiply the dividend payout ratio as planned, its equivalent to a large proportion of our current market cap. In addition, we are still in a transitional period and expect to continue generating loss in the near future. So, while the Yidian transaction has provided a handsome return, it also meant that we relinquished an integral piece of our newsfeed and algorithm development strategy. As a result, we'll need to explore additional investment opportunities that are capable -- as I said in my opening remarks that are capable of contributing to organic business growth. The key areas that we can focus on includes enhancing our AI capabilities, expanding our content library, accelerating our user base expansion, improving the monetization capabilities of our apps, strengthening our brand influence and exploring more investment opportunities in new markets. In fact, we already have identified a few key targets and we will keep our investors posted on our progress. And given our proven record in investment in the last four years, we invested in the [Indiscernible] and we achieved very handsome returns. So, we're confident going forward, we'll replicate this legacy. Thank you.

Thank you.

[Operator Instructions] There are no further questions. At this time, I would like to hand the conference back to Qing. 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.

Thank you all.

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