Ladies and gentlemen, thank you for standing by. And welcome to the Weibo Reports Second Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. There will be a presentation, followed by question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday the 9th of August 2017. I would now like to hand the conference over to your first speaker today [indiscernible]. Thank you. Please go ahead.

Thank you, operator. Welcome to Weibo's 2017 second quarter earnings conference call. Joining me today are Chairman of the Board, Charles Chao; our Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Herman Yu. The conference call is also being broadcasted on the Internet and is also available through Weibo's IR website. Before the management presentation, I'd like to read you the safe harbor statement in connection with today's conference call. During the course of this conference call, we may make forward-looking statements, statements that are not historical facts including statements about our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Weibo assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Further information regarding this and other risks is included in Weibo's annual report on Form 20-F for the fiscal year ended December 31, 2016 filed with the SEC on April 27 and other filings with the SEC. Additionally, I'd like to remind you that our discussion today includes certain non-GAAP measures, which excludes stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating performance and future prospects. Our non-GAAP financial excludes certain expenses, gains or losses and other items that are not expected to result in future cash payments that are non-recurring in nature or that will be indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management's prepared remarks, we will open the lines for a brief Q&A session. With this, I'd like to turn the call over to our Chief Executive Officer, Gaofei Wang.

[Foreign Language] Thank you. Hello everyone and welcome to Weibo's second quarter 2017 earnings call. [Foreign Language] On today's call, I will share with you highlights in Weibo's user growth, product and monetization as well as an update on our key initiatives in 2017. [Foreign Language] Let me first discuss our second quarter financial results. We continue to see strong revenue and user growth this quarter. Our total revenue in the second quarter reached $253.4 million, up 72% year-over-year. Advertising and marketing reached $218.3 million, up 72% year-over-year, an acceleration from 45% year-over-year ad revenue growth in Q2 2016. 73% of our ad revenue in Q2 came from mobile. Non-GAAP net income in the second quarter was $86.7 million, up 144% year-over-year. [Foreign Language] On the user front, Weibo's monthly active users reached 361 million in June, up 28% year-over-year. Average daily active users in June reached 159 million, up 26% year-over-year. In June, 92% of Weibo's MAUs were mobile. [Foreign Language] Last quarter, due to various promotional events in Weibo such as the red envelope giveaway around the Lunar New Year, we experienced significant user growth and user engagement. In the second quarter, we continued our efforts in user acquisition of replacing our core focus -- on increasing user retention and laying out the separation work to support future monetization. At the end of Q2, we can see the impact of our marketing campaigns to acquire new users bearing fruit. Due to the combined efforts of our sales team and ad product optimization from our development team as well as the continued increase in Weibo's influence, we saw the ad budgets from our customers continue to increase, both the number of ad customers and our ad revenue have grown meaningfully. And most notably, the number of pay customers and…

Thank you, Gaofei. Welcome to Weibo's second quarter 2017 earnings call, At the end of June, I travelled to Anaheim, California along with several other Weibo members to attend VidCon, a multi-genre online video conference, the largest of its kind with presenters from social media like YouTube, Instagram, Snapchat, Musical.ly as well as other industry representatives. It is interesting to note that VidCon is in its 8th anniversary and the online video industry is only getting bigger and more popular. Millennials and Generation Z are going up in the mobile environment with direct engagement with Internet endpoint service and public sharing of their daily life, a part of their lifestyle and culture. We are seeing similar trends in China, robust growth of online video consumption on mobile, social accounts becoming an important content distribution channel and users publicly sharing their lives on social platforms. As a leading social media in China, we are benefiting from the conversions of mobile, social and video trends. Weibo allows users to be more social and interactive, creators to quickly build a fan page and monetize, advertisers to take advantage of the variety and vibrancy of Weibo's community. We believe it is against this backdrop that Weibo's traffic, revenue and profitability continue to see strong growth. Let me now go through our financial highlights. For the second quarter of 2017, Weibo's total revenue reached $253.4 million, up 72% year-over-year, exceeding the company's guidance between $240 million and $250 million. Non-GAAP net income attributable to Weibo was $86.7 million, up 144% year-over-year. Non-GAAP diluted EPS was $0.38 compared to $0.18 a year ago. Our adjusted EBITDA reached $103.1 million, up 166% year-over-year and adjusted EBITDA margin reaching 41% in the second quarter compared to 26% last year, the 15 point lift in EBITDA margin from last…

Thank you. [Operator Instructions] Your first question comes from the line of Alicia Yap of Citigroup. Please ask your question.

Hi. Good evening. Gaofei and Herman, thanks for taking my question. I ask the English first. I have questions related to overall ad revenue. Can you share with us the revenue contribution coming from the global international brands versus the domestic brands? And related to that based on the existing ad customer profile, which industry vertical or category that's currently still have a small budget -- ad budget in the social platform that you believe you have opportunity to further penetrate into? [Foreign Language]?

Hi Alicia, I'm going to take the first one and then Gaofei will take the second one. We actually don't look at our advertiser between global or domestic because a lot of the major brands or biggest industry or FMCG or from the IT industry and auto and a lot of the major brands -- international brands are already making the decision domestically. So I would say, the majority of the buying are making the decisions domestically, but they're not necessarily all domestic companies.

[Foreign Language] So we started a social marketing -- we started working with industries and seeing some industries growing pretty fast. For example, the year before last year, we started doing -- selling our social ads to the auto industry and we're seeing growing the growth over 100% year-over-year. [Foreign Language] So when we normally enter a vertical, we first focus on generating good content. So when we have content example -- readership of over 10 billion per month and where we start to look at monetization. And if you look at recently, we've entered markets such as real estate, such as travels, such as game and we've seen a very strong growth particularly from the game industry. So we focused on trying to draw a lot of these large influencers, self-media related to the industry, get them to generate a lot of great content, grow the traffic and then at that point, it would be easier to monetize. [Foreign Language] So there are certain industries when we enter, it's faster to develop and certain industries take longer time. For example, game seem to have a faster ramp up whereas real estate, while we've started entering this industry, it might take us 1 or 2 years to grow that into a significant scale.

Okay, great. Thank you.

Thank you, Alicia.

Thank you. Next question comes from the line of Fan Liu of Goldman Sachs. Please ask your question.

Hi, management. Thanks for taking my question. Can I ask what's your revenue contribution from the mobile and also video ads this quarter? And also would you mind to share with us the revenue breakdown between display ads, promoted feeds and other formats? Thank you. Let me translate in Chinese. [Foreign Language]?

This is Herman. I'll take your questions. So with regards to mobile, as I said in my prepared remarks, its about 73% of our total advertising. With regards to revenue coming from video format, this quarter is just slightly a little bit more than last quarter. Last quarter, we said it was about 18%. This quarter its probably between 18% to 20%, somewhere along that line. And then lastly, with regards to revenue breakdown by product, obviously, the largest component of our ad product is coming from commodities. This quarter is about 51% of our total ads. Historically, display is our second category and that's about 34% and then the rest mostly will be coming from topics and there will be other types of inventory. Thanks.

Thank you.

Thank you. Next question comes from the line of Juan Lin of 86Research. Please ask your question.

Hi, good evening. Thanks for taking my questions and congratulations on a very strong quarter. My question is related to your user growth. So over the last 4 quarters, we have added 80 million MAU. I'm wondering whether we expect growth of MAU to accelerate going forward just like what we have seen over the past 3 years or whether we expect the net add to stabilize at the current level and what are the future strategy for user growth going forward? And the second question is related to sales and marketing expenses. It's actually added 12 million sequentially, which is the highest sequential increase ever. I'm wondering if management can help us to breakdown the sales and marketing expenses by channels and whether we expect the sales and marketing expenses to continue growing at a similar level going forward? [Foreign Language]?

[Foreign Language] So this year, we believe our new user growth will mainly came from Tier 3 and Tier 4 cities and primarily Tier 3 cities because that's where we focus on most with our channel efforts. [Foreign Language] So our channels, we've focused in several areas: number one is we mainly focus with smartphone manufacturers and also with television stations. So the main driver is coming from a channel perspective and then in terms of trying to encourage new users to come on with products, we focus on short videos because the video market is growing very rapidly in China. [Foreign Language] So we focus on our user growth mainly coming from third and fourth tier cities. With regards to third tier cities, we've probably have grown to -- penetration rate growth equivalent to 30% of Tier 2 cities and then with regards to Tier 4 cities, our penetration rate is still very low. So we think that there is still great opportunities coming from Tier 3 and Tier 4 cities. [Foreign Language] Yes, so as we further optimize Weibo and improve our future set and also add more content -- attracting more content, we're seeing that we're able to also get all users to actually come back and reactivate them and have them continue to use Weibo. When you look at how the volume of users this quarter compared to last year same period, the amount of users that we can get to reactivate basically doubled compared to the same period last year.

Okay and then, the second question is on sales and marketing spending. So, yes, as you can see our sales and marketing spending in the second quarter was bigger. I think I mentioned most of this increase is related to channel spending. So in the past as you guys probably know, we embed Weibo apps in smartphones. This quarter we also started doing some branding, working with Appsource of various smartphones. We don't break up the actual spending by these channels because we think that this is pretty sensitive data. As you know, there are many content apps that's competing in this space. So I think this is sensitive, but to answer your question, there's more marketing spending this quarter. Most of it is coming from channel. There are some other ones as we talked about from events, from pushing stories, branding and so forth. And going forward, we think that some of the marketing as a percentage of revenue was probably not going to grow too significantly, but we think that we're going to have to continue to spend more for sales and marketing if we see -- if we can spend it effectively and be able to acquire new users.

Thanks, Herman. Thank you those are very helpful.

Thank you. Next question comes from the line of Alex Yao [JPMorgan Chase & Co.] Please ask your question.

Hi, good evening. Management, thank you for taking my question. I have two. [Foreign Language] So I have 2 questions. When we visit KOL event you guys hosted in the summer, we find that one of the key strategy for KOL operation is MNC institutionalization. Can you talk about how should we think about the implication to the platform in terms of user growth, engagement, monetization et cetera? The second question is about the interaction and engagement of the user base. You guys have been reporting pretty robust MAU growth in the past few quarters. At the same time, you've been adding more rich media features such as a variety show, sports et cetera, et cetera to the platform. Can you share with us the impact on user interaction and engagement? It would be great to talk about the trends in terms of time span, video frequency, retention ratio et cetera, et cetera. Thank you guys, I stop here.

[Foreign Language] So let me first answer why we trying to institutionalize the KOL industry. So the way we're thinking about this not only when influencers come on to Weibo, we're helping them to grow their traffic, we're looking at how to allow them to monetize better and also increase their influence of each of these accounts. So we think that by helping them joining a corporation that they will be able to do these objectives more effectively. [Foreign Language] So from an operational efficiency perspective, if we can support MCNs rather than supporting these key opinion leaders directly, you can see tremendous amount of leverage. In the past, maybe having 10 employees we can support 100 KOLs, but once you now work with the MCNs, then our operating efficiency can be very leverageable. [Foreign Language] So with regards to enthusiasm to produce great content it will be much easier to work with MCNs to support these KOLs, so that we have consistent high quality content. At the same time, having them be very sticky on platform to continuously create the content. [Foreign Language] So when we look at social platforms in the West, we noticed very similar models. For example, YouTube, when you look at YouTube, they also work with MCNs in order to manage a lot of their KOLs. And what happened is it improves their management, improves their operations and ultimately the content quality will be better and there's much stability in terms of continuously working with KOLs. [Foreign Language] So when you look at content coming -- the top contents, premium contents that have IP coming from us [indiscernible] and so forth, we notice is that these contents usually have higher quality. So you're seeing more engagement and you're seeing much more viewer ship of this premium content compared to the Weibo video content.

Thank you. Next question comes from the line of Gregory Zhao [Barclays] Please ask your question.

Hi, Gaofei. Hi, Herman. Congrats on the strong quarter and thanks for taking my question [Foreign Language] Can you share some recent progress and metrics of like Weibo Stories and also the users -- captions of the user engagement interest-based feed? And you also mentioned the new advertising system, the beta testing version, can you share with us a channel for your key advertising metrics? And how the improvements the new system can bring to our CPM, CPC upload and click through rate?

[Foreign Language] So let me take the question with regards to interest-based feed. So interest-based feed went live sometimes last year. And we started focusing on interest-based feed because originally we just had this authority based on relationships. And what interest feed does is it allows the reader of interest-based information feed to be able to acquire more traffic, because they are not just accounts that the user follow up, but also encompasses the content that's pushed by the Weibo platform. So we're able to push them and have the users consume more variety of content. We think that we have an opportunity to actually be able to compete in the market against other interest-based apps, because we can leverage the large breadth of content that we have, and also the larger user scale that we have. So you asked for some metrics, let me give you. I think in terms of the users who can use interest-based feed and in terms of the view refresh, it probably doubled from last year. [Foreign Language] So with regards to our stories, at the end of Q2, we did not fully launch. There's still a lot of users, for example, users in same portions of android that the product has now. So we are really in beta. But let me explain our position for this product. The whole idea is that by offering such product life stories, it should be easier for individuals and for celebrities to actually be able to share the video content. It has -- for professional organizations, they already have very robust video content production system but for individuals we think there's something like stories where they can just kind of casually share the thought that they could easily just share at Weibo using a product like this. [Foreign Language] So with regards to engagement, where we are seeing that users who use stories are getting more engagements than, for example, using short videos and sharing the short videos to their timelines. So our purpose is to allow to there to be more engagements with video. So we think that some products like stories would help meet that objective. And then with regards to the metrics on stories, we currently have MAU, 10% of MAU, so over 36 million users are using stories, even though it was not fully launched. It's still in kind of the beta mode. And we believe that with our product, with the kind of social usage right now with our brand promotion and so forth in the second half of this year, we should these numbers continue to rise.

Thank you. That concludes our Q&A session.

There's one other piece, the question was on our ad system, how it would impact -- how would our advertising be impacted as we launch our ad system?

[Foreign Language] So, we said that we expect to have this product go live by the end of third quarter. One of the reasons we want to have a new ad system is because over the last few years, as we launched our ad products, our products have been undergoing live on a piecemeal basis. So if there is a fully optimized ad we have, so once we launch a system, we believe that we can probably be able to monetize better with our existing ad. [Foreign Language] Our goal is to have ultimately all of our customers be able to pay from one system, as we mentioned earlier. Currently, when customers buy, they buy from multiple different ad systems, and it's not the most efficient, so we are able to consolidate all of our ad product into one system, and with that we should be able to optimize on our ECPM and also be able to create more engagement with advertising, and we tested this product in Q2, and we expect it to go live by the end of Q3, and we believe that it's probably going to take us some time to be able to treat the system afterwards, but ultimately we think we are going to make sure that we should be able to do better with the ECPM and also with the engagement of our ads.

Thank you that concludes our Q&A session. Now I would like to hand the conference back to our presenters.

That concludes today's conference call, thank you for joining us everyone.