Ladies and gentlemen, thank you for standing by, and welcome to Phoenix New Media 2019 Second 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, the 13 of August, 2019. I would now like to turn the conference over to your first speaker today, Ms. Qing Liu. Thank you. Please go ahead.

Thank you, operator. Welcome to Phoenix New Media’s second quarter 2019 earnings conference call. I’m joined here by our Chief Executive Officer, Mr. Shuang Liu; and Chief Financial Officer, Ms. Betty Yip Ho. On today’s call, management will provide us with a review of the half year results and then conduct a Q&A Session. The second quarter 2019 financial result and webcast of this conference call are available on our website at ir.ifeng.com. A replay of the call will be available on the web site in a few hours. Before we continue, I would like to refer you to our safe harbor statements 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. In a macro environment full of uncertainty, we have held steady fast onto our commitment towards continuing goods and business evolution. Our AI powered content recommendation combined with seasoned editorial curation has constantly delivered highly engaging premium content as well as optimal user experience. Although our evolution as a New Media company is by no means lenient, we have been able to accomplish meaningful progress through the series of small steps. During the quarter, we continuously worked towards refining our content production capabilities, augmenting our premium brand equity and expanding our innovative monetization systems. Furthermore, we expanded our new initiatives in lifestyle verticals and other areas to explore promising future business opportunities. As a result of our efforts, our total revenue surged 38.7% sequentially and exceeded our own guidance. In regards to ifeng, key operating metrics of our flagship news app has steadily increased as a result of our integration of AI technology and editorial expertise. Such integration has effectively improved our content quality, optimize our distribution efficiency and increased our user stickiness. In addition, we enhanced ifeng’s user interface by carefully refining its landing page design and feature page layout. Consequently, ifeng’s user retention rate has improved gradually, starting from a steadily improved operating metrics and positive user feedback and leveraging our unique combination of advanced software algorithm with professional editorial adjustment, we’re confident that not only our user traffic will flourish, but also our revenue will grow consistently over the next two years. Step by step, we’re laying a solid foundation for diversifying our service offerings and monetizing of our premium content. For advertisers, we have expanded our advertising inventory, modified our advertiser page interface and refined our campaign optimization. These improvements, along with the launch of additional news…

Thank you, Shuang, and thank you all for joining our conference call today. iFeng’s total revenue in 2019 Q2 were RMB395.1 million, representing an increase of 8.6% from RMB363.9 million, caused by the consolidation of revenues of RMB49.2 million in the second quarter of 2019 from Tadu and the consolidated revenues of RMB84.6 million from Tianbo starting from April 1, 2019. The company’s net advertising revenues from traditional decreased by 28.5%, due to the macroeconomic uncertainties and increased competitions. Secondly, I will provide details on our revenue for the second quarter of 2019. Consolidated net advertising revenues for the second quarter of 2019 were RMB324.8 million, representing an increase of 2.3% in the same period last year. The increase was primarily attributable to the consolidation of advertising revenues from Tianbo. However, the company’s net advertising revenues from traditional business declined due to the above stated reason. Paid services revenues for the second quarter of 2019 increased by 51.1%. Revenues from paid content for the second quarter of 2019 increased by 126.7%, mainly due to the consolidation of Tadu. Revenues from games for the second quarter were RMB2.6 million, representing a decrease of 34.7%. Revenues from MVAS for the second quarter were RMB6.7 million, representing a decrease of 62%. Revenues from others for the second quarter of 2019 were RMB7 million, representing an increase of 513.4%, which was mainly caused by the increase in revenues from e-commerce and online real estate related services. Non-GAAP gross profit for the second quarter of 2019 was RMB212 million compared with RMB230.2 million in the same period last year. Non-GAAP gross margin for the second quarter was 53.7%, decreased from 63.3%. It was mainly due to a combined effect of decrease in gross margin of the company’s traditional advertising business and the margin contributions from…

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

Good morning, Shuang, Betty, and Liu Qing. Thank you for taking my question. In the prepared remarks, Betty reaffirmed that you are targeting at least 20% year-over-year revenue growth for this year. However, given your third quarter guidance, it only implies mid-teens revenue growth for third quarter. And how should we think about fourth quarter revenue growth to help you achieve the full year guidance? And I also want to ask more about your view on 2020. I understand that the visibility into next year is still limited. However, it would be great if you can share any thought on your revenue targeting next year. And my second question is also on margin. You are talking about breakeven in next couple of years. Do you have any more clear idea about when you are breakeven and turn back to profit? And my third question is on the use of proceeds from Yidian disposal. Can you update us on the time line of the dividend payment, dividend arrangement? And also, do you have any plan on share buyback given the current weak share price performance? Thank you, that’s all my three questions.

Thank you, Frank. I will take the first question and the second and third question will be answered by Shuang. For the full year of 2019, we are expecting a growth of around 20%, because that in general, our first quarter is generally the weakest quarter. And we are seeing the improvement starting from second quarter, third quarter and fourth quarter. And during the fourth quarter, we are expecting a strong growth because most of our IP will be happening during the fourth quarter. That’s why the fourth quarter will be a very strong quarter for the full year. And as a result, we are expecting a growth of around 20% during the full year because, of course, that’s being the – also being the same case for Tadu and Tianbo, because for traditional advertising business, fourth quarter generally is the strongest quarter. This is also the case for Tianbo. Yes, that’s why we are expecting a growth of around 20% for the full year of 2019.

Okay. Thanks. This is Shuang. Yes, this is Shuang. I will address your – the following three questions. Looking forward into 2020, I think despite the macro environment uncertainties and the current state of the industry. As a result of our endless efforts in improving our news apps, we are actually seeing steady improvement on our operating metrics and positive user feedback. We are confident, I think the trend will continue by leveraging the blistering growth trends via our consolidation of Tadu and online real estate. I think not only our user traffic will flourish, but also our revenue will continue to grow at around 20% year-over-year. So basically the trend will remain the same, at least 20% year-over-year overall revenue growth in the coming two to three years. And furthermore, as to the – your third question is about the breakeven point. We are reviewing our cost structure and making sure that our core business is going to be profitable, although, we may not be able to breakeven in a short run, but due to our increased investment in new business – in the short run due to our increasing investment in new business. But we are confident that we’ll be able to narrow our loss by next year significantly by implementing effective cost control initiatives and to eventually breakeven in next three years. As we refine our production process for premium content, improve the effectiveness of our advertisements and leverage the foundation we have laid to monetize vertical channels and develop new business initiatives, we’re confident that all revenue goals will exceed this year’s level over the next few years. Your third question is about dividends. Yes, I think as for the dividend, as for the use of proceeds, in our last call, we mentioned our plan to…

US$200 million.

US$200 million. So, it’s not a time to talk about it, but we want to keep the option open.

Thank you, Shuang and thank you, Betty. Very clear.

Thank you.

Thank you.

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

Good morning, management. Thanks for taking my question. My first question is regarding the sale of Yidian stake. To sign a supplemental agreement, end of July with another buyer and increase the number of shares being transferred to RMB212 million by the same price of US$448 million. So what is the thinking behind such a change? And my second question is a follow-up on dividend trends. So from the agreement it seems that you have already received some cash payment as of August of this year. So can you give us some color regarding the timing of the dividend plan in the future? Are you going to do it in the next few months or waiting until the deal is fully closed in 2020? Thank you.

Yes. Okay. Thank you, Binbin. This is Shuang. I think there are several reasons for the valuation adjustment. First, both party agreed to close the deal regardless of any dispute raised by any party, back to satisfaction of the closing conditions under the original share purchase agreement. Second, from a competitive point of view, the valuations of our comparable companies have been greatly adjusted in the recent period. We see a significant long run of the valuation of comparable companies. This trend has led to major revisions to the old valuation model in terms of previous valuations. Third, China tightened its foreign exchange controls during the China-U.S. trade war in order to proceed with the transaction. We made appropriate adjustment to the definitive agreement. But I want to emphasize, even under the new valuation, we will still receive a very handsome return of almost six times the original investment via a significant cash injection. So this is from investment point of view, basically, this is home-run. We are proud of this. As to the timing of the further payment, I want to say that after receiving the first tranche of $100 million last week, a buyer must pay the remaining US$50 million to us within two working days after receiving approval from the Phoenix TV shareholders meeting. And after we receive an additional deposit of the US$50 million, we will distribute US$200 million in shifts and update the register of shareholders. If the US$50 million deposit is not paid in due time, we’ll confiscate the total US$200 million previously received. So – and also to further reduce the risk of non-payment, we have signed a counter-party agreement. After we transfer US$200 million worth of shares, the voting rights will be shared by the buyer and us. And the buyer will act in concert with us until one of the following three conditions is fulfilled. First, the buyer pays the entirety of the remaining payments within three to six months after paying the first tranche. Second, within three months of the first tranche is paid, the buyer makes the payment of the US$200 million at a valuation of no less than US$1.4 million. And third, the buyer makes a deposit premium of US$30 million in addition to the US$50 million deposit. So therefore the addition of US$50 million on counter-party agreement will serve to significantly reduce the risk involved in the transaction. Yes, Binbin, did I answer your question?

Yes, you did. Thanks very much. Thank you.

Thank you. Thank you.

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

Hi, management. This is Carmen on behalf of Chuck and thanks for taking my question. And could you share your strategy on the short form videos?

Okay. Hi, this is Shuang. Currently, I think the development of video content mostly center – user-generated content and professional video content. The UGC market is incredibly competitive and now where our strength lies additionally, we have to admit. However, stand being full from our expertise in news operation, professional video content remains – remain to be our focus. The development of high quality short form videos is a priority for us. The massive video content library of Phoenix TV covering news, history, celebrity interviews, culture shows and more is at the core of our video app. While the competition is mostly focused on entertainment and variety shows, our rich content library we have is our key differentiator in today’s highly homogenized market. We see a strong demand for this type of culturally rooted and highly differentiated content in our core user base, definitely more demand than what the market is currently capable of supplying. So this is why we planned to integrate Phoenix TV content with high quality documentaries and interview shows by creating new categories of video content such as hiking, reality shows. We will be able to provide innovative and differentiated premium content for China’s video market. As for right now, we are planning to have a separate team spearhead the implementation of those projects. This team will continuously improve our content management, product optimization, self control development and advertisements. We’ll also focus more on the further upgrade of our video app [indiscernible]. We planned to update everyone with more details in the coming quarters. Okay?

Okay. Thanks.

Thank you.

[Operator Instructions] There are no further questions at this time. I would like to hand the conference back to Ms. Qing Liu. Please continue.

Thank you, operator. We have come to the end of our Q&A session on 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.

Thank you, bye.

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