Phoenix New Media Limited (FENG) Q2 2022 Earnings Report, Transcript and Summary

Thank you all for standing by, and welcome to the Phoenix New Media Second Quarter 2022 Earnings Call. [Operator Instructions]. And I'd now like to hand the conference over to your speaker, Muzi Guo from Investor Relations. Thank you, please go ahead.

Thank you, operator, and hello, everyone. Welcome to Phoenix New Media's Second Quarter 2022 Earnings Conference Call. I'm joined here today by our CEO, Mr. Shuang Liu; and our CFO, Mr. Edward Lu. On today's call, management will first provide a review of the quarterly results and then conduct a Q&A session. The second quarter 2022 financial results 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 website in a few hours. Before we move on to the prepared remarks, I'd like to 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 the conference call are in RMB. And now I'd like to turn the call over to Mr. Shuang Liu, our CEO.

Thank you, Muzi. Hello, everyone, and thank you for joining our call today. In the second quarter of 2022, the nationwide COVID resurgence continued to exert pressure on our business. While some of our marketing executions will postpone the cancels, many of our advertisers choose to tighten their branding budget in a highly uncertain macro environment. Nevertheless, we remain resilient during challenging times. We concentrated on expanding our media presence through offering premium content, made significant upgrades to our products and continued to explore new business opportunities to diversify our revenue streams. This year marks the 11th anniversary of our Phoenix finance summit. We took this signature event online in light of the challenges of holding off-line events. This year, Mrs. Carrie Lam, former Chief Executive of Hong Kong Special Administration Region and nearly 30 other political dignitaries and business tycoons gathered at our online premise to exchange and share insights and ideas on the global and Chinese economy. The summit generated an immense number of views and discussions on social platforms with 300 million views on Weibo and was reported by more than 60 media outlets, making it one of the most high-profile events during the quarter. In terms of new events coverage, we jointly planned a 2-day special coverage with PhoenixTV on the 25th anniversary of the establishment of the Hong Kong SAR. We invited scholars and actors to participate in feature interviews and discussions focusing on hot topics such as opportunities and challenges faced by the region in areas of politics, finance, innovation and education. In addition, we reacted 10 memorable moments in 25 years of Hong Kong SAR history into digital, collectibles which were not only sought after in the digital marketplace but also attracted more younger generations to our event coverage. Our additional content continued to deliver value to our users and society. Our investigative column, Eye of the Storm, [Foreign Language], focused on availing and exposing relevant facts behind controversial topics and social phenomena, ranging from financial scam targeted at seniors to the pollution caused by electric car manufacturers. The column received widespread praise for raising public awareness and seeking answers to difficult questions. Our in-depth opinion column, the messages function explore trending hot topics with a focus on ordinary individuals and life stories, especially on the pandemic prevention and control. It covers these topics from different angles, such as laws and regulations, industry standards, social economy, public policy using an authoritative rational and constructive style consistent with our content strategy and differentiation. The message attracted a group of loyal followers with a considerable number of articles, each generating over 100,000 views on WeChat. On the video content front, our newly launched original series, the Journey, [Foreign Language], went viral across all social platforms. The Journey is a micro video film documentary that records people [indiscernible] and sweetness in their lives. in our spotlight was a tech company executive suffering from ALS but is resilient and persistent, a restaurant owner struggling to support its business under the pandemic and a mid-age [indiscernible] navigating his life after losing his jobs. These stories resonated well among our audiences. Each series episode received 10 million views across the Internet and generated over 100,000 new followers on Douyin and Bilibili. In terms of our product, we continue to refine our iFeng app during the quarter. The newly developed page, integrating all news articles in app with audio functions allow users to listen to the interactive latest update of their preferred news while performing other tasks. They can now also choose to listen to PhoenixTV's live programs instead of watching. This has resulted in noticeable improved user engagement. The average time spent by users using the audio function has increased by 26%. Meanwhile, we continue to refine our content curation strategy. On the other hand, our algorithm distribute content based on nearly 60 user profiles to fulfill their news and interest-based content needs. On the other hand, by adding their own captions, our editors carefully choose and presented information they publish. A sentence or 2 of their own sorts or calling out a quote helped highlight the content in the news feed, which leads to more clicks and a few interactions and discussions. These enhancements have greatly improved our user experiences. As we continue to optimize our traffic acquisition costs, our user traffic remains stable, while our user engagement has improved. The average click-through rate has increased by 22% year-over-year. Average time spent by users increased by 15%. And the net retention rate increased by 15%. Lastly, I would like to share our progress in revenue diversification. For our online reading, we continue to monetize from our collection of premium IP literature. Our audio book [Foreign Language] jointly produced with Himalaya reached 9 million views with 2 months since its release. Meanwhile, 6 of our self-produced audio books rank in the Himalaya new book top list. Monetization of our audio books also made a significant progress as we entered into a copyright sales agreement with NetEase Cloud music. For our real estate vertical, the aftershock of the industry regulation and liquidity concerns lingered and the macro environment remained uncertain. While driving growth in real estate advertising was challenging, our team vigorously promoted innovative solutions to our clients, including selling customized appliance packages. On the content side, we focused our reporting issues concern by homebuyers, such as the quality of construction and renovation. In the meantime, our ESG index released in the second quarter became the first comprehensive ESG ranking in the real estate industry, highly recognized by investors and property developers. Our 2B and C influence were both growing, thanks to these efforts. In addition, the team optimized the sales team structure and eliminated certain city divisions that did not meet expectations for profitability to improve operational efficiencies. As for e-commerce, we launched our digital collectible platform, Phoenix Artworks, [Foreign Language], during the quarter. As previously noted, we published a compilation of digital historical moment in honor of the 25th anniversary of the establishment of Hong Kong SAR. What sets us apart from the other platforms is our genre in art and culture and our partnership with world-leading museums and art institutions. The first collection launched One Thousand Li of Rivers and Mountains, a 12th century painting in the collection of the Palace Museum was sold out within 1 hour of release. West interactions, such as the impressionist world series by Van Gogh, Hassam and [indiscernible] were likewise extremely popular and quickly sold out. The digital collectible can generate considerable discussion and enthusiasm online. This is especially important for events, emerging IP and brand that want to increase their recognition and exposure quickly. As such, we believe that, in addition to the sale of digital collectibles, they can complement our future events and marketing solutions. In summary, despite the macro headwinds we remain committed to strengthening our brand influence through bridging new coverage at our signature events, while continuing to enrich our content offerings and upgrade our product. At the same time, we cautiously evaluated and invested in new business initiatives to diversify our revenue streams. In the future, we will prudently manage our business operations while focusing on business development and emerging growth areas. With that, I will now turn the call to our CFO, Edward Lu to provide a closer look into our quarterly financials.

Thank you, Shuang, and hello, everyone. I will now walk you through our financial performance for the second quarter of 2022. Our total revenues were RMB 191.6 million as compared to RMB 256.7 million in the same period of last year. To elaborate, net advertising revenues were RMB 160.5 million compared to RMB 233 million in the same period of last year. The decrease was mainly due to the reduction in advertising spending of advertisers in certain industries, the intensified industry-wide competition and the negative impact of the COVID-19 outbreak in certain regions in China in the second quarter. Paid services revenues were RMB 31.1 million compared to RMB 23.7 million in the same period of last year. The increase was primarily driven by the increase in the content sales to certain customers. Loss from operations in the second quarter of 2022 was RMB 94.8 million compared to RMB 34.8 million in the same period of last year. Net loss attributable to iFeng was RMB 95.8 million compared to RMB 7.1 million in the same period of last year. Moving on to our balance sheet, as of June 30, 2022, the company's cash and cash equivalents, term deposits, short-term investments and restricted cash were RMB 1.33 billion or approximately USD 198.5 million. Finally, I'd like to provide our business outlook for the third quarter of 2022. We are forecasting total revenues to be between RMB 197.2 million and RMB 217.2 million. For net advertising revenues, we are forecasting between RMB 179.6 million and RMB 194.6 million. For paid service revenues, we are forecasting between RMB 17.6 million and RMB 22.6 million. This forecast reflects our current and preliminary view which are subject to change and substantial uncertainties. In summary, our advertising business experienced continued pressure due to the impact of the COVID outbreak during the second quarter of 2022. In response, we proactively managed our expenses, streamlined our operations and optimized our team structure to improve operating efficiency. Going forward, we will continue to investigating new business initiatives to improve our revenue stream mix. Despite the short-term setbacks, we believe our endeavors will sustain us through these adversities and prepare us to achieve a better margin recovery in the future. This concludes the prepared portion of our call. We are now ready for questions. Operator, please go ahead.

[Operator Instructions]. Our first question comes from Xueru Zhang from 86 Research.

I have one question about the app business. So the first half of this year was tough for the app market. As we head into the second half, I wonder does management observe any recovery trend? Also, could you share some color on the growth outlook for the second half?

Thank you. Actually, the answer is yes. Many companies suffered from the macro headwinds during the last quarter, and we were no exception. Our teams in Shanghai and Beijing had to work remotely from home for some time. And so did many of our major clients. With the economy growth slowing down and so much uncertainties, advertiser demand softens. shows that from January to May, the total marketing spending decreased by over about 10% year-over-year Certain industries were affected even more. For example, the auto industry, one of our major client industries, their marketing spending dropped by around 25% from January to May. From June, however, as the economy gradually recovers from COVID impact, businesses once again started to invest in branding and marketing to help their sales growth. So for the rest of the year, given this trend continues, we hope our advertising revenue will pick up. Having said that, we have to admit that the competition is very intense. As advertisers tighten their budget, their demand for comprehensive marketing solutions is ever growing. We have to quickly respond to that and fund our own differentiation. First, our brand image and media influence are our core advantages. Actually in the first half of the year, through our breaking news coverage and original content, not only did we increase user engagement in our iFeng app, but also our user base on the third-party platforms increased by 30%, reaching nearly . While we help advertisers to convey their brand stories and escalate their brand exposure, we can help them reach a broader customer base. At the same time, we are introducing creative marketing tools such as digital collectibles and virtual characters to fulfill advertisers' need for creative marketing, also utilizing our international background and perspective. We have created a series of products helping advertisers to expand their international exposure and conduct more overseas branding activities. Our Global Observer service, for example, was well received by our advertisers. With all these joint efforts, we are hoping to see growth recovery in our advertising revenue in the second half of the year. Thank you, Xueru.

Our next question comes from Alice Tang from First Shanghai.

So my question is regarding the cost side. It was mentioned earlier that the company was implementing cost control measures. So will this be a continuing trend in the future? And could you please disclose the company's long-term cost strategy?

Alice, thank you for your question. Actually, as mentioned on our last call, our goal is to return to profitability in the next 2 to 3 years. As such, optimizing our resource allocation and increasing efficiency is our top priority. And this will continue to be our focus in the near future. During the second quarter, we continue to drive efficiency in all areas on day-to-day project execution level, we closely reviewed the cost structure of each project, demanding a higher gross margin. In terms of business lines, especially the new initiatives, we set clear growth and performance measurements and conduct frequent reviews. With limited resources, we have too be cautious with our pilot projects. If they had not met previous expectations, we respond quickly as to whether or not, they have to be scaled down or even being closed. Also on a higher level, we did thorough analysis on bandwidth, marketing, labor cost and so on to drive overall cost optimization, which should pay off with better results in the following quarter. Alice, I hope I have answered your question.

Yes. That's very helpful.

Thank you. That was our final question. So I will hand back to management for closing comments.

Thank you. We have now come to the end of our Q&A session and our conference call. Your time is very much appreciated. If you have any further questions, please feel free to contact us. Thank you for joining us today on this call, and have a good day.

Thank you so much. This does conclude today's conference call. Thank you all for joining. You may now disconnect.