Ladies and gentlemen, thank you for standing by, and welcome to Weibo Reports Second Quarter Financial Results Conference Call. [Operator Instructions]. I must advise you that this conference is being recorded today, Wednesday, August 8, 2018. I would like to hand the conference over to your first speaker today, Ms. Wen Li. Thank you. Please go ahead.

Thank you, Operator. Welcome to Weibo's 2018 Second Quarter Earnings Conference Call. Joining me today are our Chairman of the Board, Charles Chao; our CEO, Gaofei Wang; and our Interim CFO, VP, Finance, Fei Cao. The conference call is being broadcasted on the internet and is available through Weibo's IR website. Before the management presentation, I want to review 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 of 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 these and other risks, including the Weibo's Annual Report on Form 20-F and other filings with the SEC. All information provided in this press release is occurring as of the date hereof, and Weibo assumes no obligation to update such information, except as required under applicable law. Additionally, I'd like to remind you that our discussion today include 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 the future prospects. Our non-GAAP financial exclude certain expenses, gains or losses and other items that are now expected to result in future cash payments or that are now recurring in nature and will now be indicative in 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 CEO, Gaofei Wang.

Thank you. Hello, everyone, and welcome to Weibo's Second Quarter 2018 Earnings Call. On today's call, we'll share with you highlights of Weibo's user growth, product and the monetization, as well as our key initiatives in 2018. First, let me discuss our second quarter financial results. We continued to see strong revenue and user growth this quarter. Our total revenue reached $426.6 million, up 68% year-over-year. Advertising and marketing revenue reached $369.9 million, up 69% year-over-year, with 82% of our ad revenue in Q2 from mobile. Non-GAAP operating margin during the second quarter reached 39%. On the user front, Weibo's monthly active user reached 431.1 million in June, an increase of 19% year-over-year or up 20 million on a quarter-over-quarter basis, representing the largest net addition of MAUs in the second quarter 2017. The average daily active users in June reached 189.9 million, up 19% year-over-year. In June, 93% of Weibo's MAU were from mobile. With the recent Fifa World Cup and other events, Weibo has once again achieved strong user growth and user engagement this quarter, leveraging our enhanced offering, consistent user engagement and content distribution, as well as our insights into market opportunities. Weibo's monetization capability was further improved. We have diversified our advertising in the marketing solutions, tailored to different customer segments for individuals to small and medium-sized enterprises to key accounts to offer better marketing experience, and the higher investment returns to our customer. Advertisers are increasingly recognizing our social marketing capabilities. In discussing our operational OpEx for the second quarter, I will cover Weibo's program in areas of users, content and the customers. First, on the user growth. We continue to increase our channel coverage and the efficiency in user acquisition. This quarter, our strategic partnership with the smartphone manufacturers, TV programs and other channels…

Thank you, Gaofei. Welcome to Weibo's second quarter 2018 earnings call. As a reminder, we're adopting new revenue guidance, ASC Topic 606 on January 1, 2018. In order to provide investors with a meaningful comparisons, and we also indicate our revenue with the figures under the old revenue guidance, which excludes barter transactions and added tax - value added tax to the reported figures included in our earnings release. Now let me go through our financial highlights. All comparisons are on a year-over-year basis, unless otherwise noted. For the second quarter, Weibo's net revenue reached $426.3 million, up 68% or up 67% under the old basis. We are pleased that we delivered this growth, with [indiscernible] of the China RMB related to the U.S. dollar had unfavorable impact on the revenue during the quarter. Notably, the foreign exchange rate assumption of RMB6.35 to USD 1 that we provided last quarter is an increase of approximately 2% in the second quarter. [Indiscernible] depreciation of the R&D since June 2018. Looking ahead, we expect to face continued foreign currency headwinds in the second half of this year due to the depreciation of the RMB. Non-GAAP operating income reached $167.4 million, up 67%. Non-GAAP net income attributable to Weibo was $156.1 million, up 18%. Non-GAAP diluted EPS was $0.68 compared to $0.38 a year ago. Advertising and the marketing revenues for the second quarter reached $369.9 million, up 68%. Mobile ad revenue in the second quarter was $305 million, up 91%, with 82% of our total ad revenue. Given our unique market exploitation of China's [indiscernible] social media platform, and with 93% of our MAU for mobile in June, Weibo is continuing to benefit from the shift to corporate SME towards mobile, social and video. As a result, total advertisers exceeded 935,000 in…

[Operator Instructions]. Our first question comes from the line of Juan Lin of 86 Research.

I have two questions. My first question is on user acquisition and channel strategy. I'm curious about the split of new users contributed by different channels and the change of the mix. Are we seeing any change in terms of user acquisition cost? And are we addressing our user channel message strategy in case of slowing down sales? Now second question is on our user growth target. I wonder whether there's any change to the 15% to 20% MAU growth target for this year.

We have no specific line to this decrease or change on our initial plan of MAU growth of 15% to 20%, which we indicated at the very beginning of the year, despite there's slower shipments in the smartphone and also in overall rather internal market. From the user gross point of view, has shown some business in new market. I think, Gaofei indicated in his prepared remarks what was the views today in terms of the penetration into the fourth, fifth, even sixth tiered city very much unlike the time if we went back to year 2013 when we start to penetrate into the third tier city. So that's sort of a time spot. In the other words, we are at the very beginning for the company to penetrate into cities lower than the third tiers. I think the - what Gaofei indicated is as we penetrate more into the lower tiered city, we start to see some of the benefits being a social media product. As a result, we will - to further strengthen our collaboration with our - Tencent manufacturers, our top-tier TV programmers or even the Miaopai video sites, given their contents, are very essential to the lower - their channel and their contents are essential to the lower tier city. And also, once we're - penetration rate to reach to a certain level, we will start to see the social aspect of our product to be further amplified. If we break our user into two categories, one category being the third tier city above and a third tier city below, over 50% of our new user acquired and either acquired or recalled are from cities below the third tier. So our strategy in doing with the penetration into the 4th, 5th and even 6th tier city…

Our next question comes from the line of Tian Hou from T.H. Capital.

Regarding competition, so last quarter, when we're on the call, we're talking a lot on the new players like Tencent. So they cost some pressure to a lot of leading vendors such as Tencent, such as you guys. But this quarter, if we look at the performance, which really are either much better in the older opposition of data, so what's the main driver for that? Is that because media discussion for their actions that can track or what have or the government give a pressure to [indiscernible]? What's the major driver? If those are not the major driver, what is [indiscernible] and sustainable driver for the future growth? Number one question. Number two is now one of your biggest shareholders, Alibaba, also became a shareholder of [indiscernible]. So is there - will there be some handles in the cooperation in the future? And so that's my two questions.

In terms of the competition, I will really like to address from 2 aspects. One is on the short video site, and the other - another angle is from the social future of our product. I indicated in my prepared remarks, in the second quarter, we have significant [indiscernible] for our product experience in the full screen vertical video penetration and also the distribution of content in our ecosystem. As a result, we have observed, there's top content creators who use to generate or create or distribute their content on other platform, have been moving their content distribution to Weibo in the second quarter. And as also I indicated, our viewership for the full screen vertical short video has grown more than 100% on a year-over-year basis for this particular quarter. In terms our core competence, to meet our users demand, we have carefully studied at the - our core competence and believe our product features are quite significantly different from those platforms who solely distribute video content. What we have seen that the other - the short video platform had very little impact in terms of our MAU scale growth in this quarter. However, we did notice that our user product frequency could have been impacted by some of the select platforms, particularly targeting those age group from 20 to 25. As a result, we have some modified - modification in our strategy since first quarter. Instead of purely focusing on the video content itself, we have to shift more our attention to the social relationship establishment, and it boosted the engagement level between our content generators and their fan base. In terms to me, the competition with the short video product, where focus continue to be on - to be to our social attributes for our product. So…

Our next question comes from the line of Gregory Zhao from Barclays.

I have two questions. The first one's about your K and then the SME revenue growth. So can you help us understand the growth outlook of both in the second half? And my second question is about your story. So can you help share some updates of operating metrics and plan to monetize story? And do you think that, going forward, story will be a key revenue driver? And as this quarter, we see Facebook actually substantially cuts second half revenue growth outlook partially due to the story promotion. So we just want to have a better understanding of your monetization plan on story.

In terms to Weibo story, we see quite significant viewership and the traffic that is being consumed on story products in the second quarter. As I indicated in my script, we have opened and there's an advertising inventory since the first quarter. For example, our main page inventory and our video feed and also commentary. So these are - currently, their sell-through rates have been relatively low. So our key task in terms of monetization for the second half of 2018, would it be - shift to more client budget and allocate more money into those new inventory we opened up in the first half. This is quite similar to those years when we had a transition from a PC inventory utilization to mobile inventory utilization. Currently, we have opened up commercial monetization for key accounts to use with the story inventory, and the result has been quite up to our expectations, and we have noted that the first DAU viewership per DAU usage in frequency of Weibo story has been significantly increased in this quarter. However, we are not in a hurry or has the urgency to monetize beyond what we have done so far. In terms your first question on your key accounts and SMU revenue growth for the second half, we generally do not break out our growth rate for each customer segment. I think our overall revenue growth target has been very clearly outlined in our guidance in the earnings release. But I think in the prior calls - prior calls or in the communication with the sell-side analysts, we have made it very clear that our second half growth in terms of revenue growth will be slower than the first half. That's primarily as a result of a higher comparable base we are experiencing. And also, the second half, I'm sure everybody's aware of, we also indicated in our prepared remarks that we are facing a very volatile foreign exchange market with the RMB being depreciated a lot faster than everyone has initially expected.

Our next question comes from the line of Alicia Yap from Citigroup.

I have two very quick ones. One is on the margins. Your second quarter OP margin came in better-than-expected despite the increase in the sales and marketing. I wanted to know how much of the increase in sales and marketing versus the first quarter is attributed to the spend in the workup? And then how much of those workup spend will also be recognized in 3Q? And how should we think about the margin trends for the second half? Second question is quickly on if there's any update or color on the new contract framework from the Alibaba budget commitment for this year. And given the enhanced relationship, especially on the collaboration on the uni-marketing and data integration, how should we think about the Ali revenue for this year?

Alicia, this is Fei. I think to answer your margin - your question on margin, we expect our margin for the second half will be very similar to the levels we were able to achieve in year 2017. Even though we have been writing off our selling and marketing expenses as a percentage of revenue, we continue to see that we're able to derive certain operating leverage from our G&A expenses and also our product and development expenses. For your question on the expenses we spend on World Cup, that's quite limited. These are content, these - most of the content, licensed content, we were able to obtain is through the partnership we indicated with CCTV, with youkou, with China Mobile. So we have not incurred significant incremental cost in terms of World Cup event. So that's the case for the second quarter, and that will be the case for the third quarter as well. In terms of your question on the Ali, Alibaba's claim contract, we - I think, we - they have the basic frame contract with us and the remaining RMB amount of 700 million. But the - similar to prior years, this year, they are spending on Weibo is largely depending on their own strategy and their marketing efforts. So things could have go well beyond the RMB700 million if they decided they needed to beef up their marketing expenditures.

I would like to hand the conference back to today's presenters. Please continue, sir.

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