Earnings Labs

Weibo Corporation (WB)

Q4 2019 Earnings Call· Wed, Feb 26, 2020

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Transcript

Operator

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Weibo reports fourth quarter and fiscal year 2019 financial results. [Operator Instructions]. I would now like to hand the conference over to your first speaker today, Ms. Sandra Zhang. Please go ahead, ma'am.

Sandra Zhang

Analyst

Thank you, Operator. Welcome to Weibo's Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. Joining me today are Chairman of the Board, Charles Chao; our CEO, Gaofei Wang; and our Senior Group CFO, Bonnie Zhang; and our VP Finance and Interim CFO, Fei Cao. This conference call is also being broadcast on Internet and is available through Weibo's IR website. Before the mentioned remarks, I would like to read you the safe harbor statement in connection with today's conference call. During today's call, we will 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 statements. We will assume no obligation to update the forward-looking statements in this call and elsewhere. Further information regarding this and other risks is included in Weibo's Annual Report on Form 20-F and other filings with the SEC. All the information provided in this press release is occurring as of the date hereof. 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 exclude 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 financials exclude certain expenses, gains or losses and other items that are not expected to result in future cash payments or are nonrecurring in nature or will not 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'll open the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gaofei Wang.

Gaofei Wang

Analyst

Thank you. Hello, everyone. Welcome to Weibo's Fourth Quarter 2019 Earnings Conference call. On today's call, I will share with you highlights in Weibo's user product and monetization, review the progress we've made in 2019 and lay out the strategy for 2020. Let me start with our fourth quarter financial results. In the fourth quarter, our total revenue reached $468.1 million, a decrease of 3% year-over-year or 2% on a constant currency basis. Advertising and marketing revenue reached $405.9 million, a decrease of 3% year-over-year or 1% on a constant currency basis. 88% of our ad revenue came from mobile. Non-GAAP net income for the fourth quarter was $176.5 million, representing a net non-GAAP net margin of 38%. For full year 2019, Weibo's total revenue reached $1.77 billion, up 3% year-over-year with 7% on constant currency basis. Advertising and marketing revenue were $1.53 billion, up 2% year-over-year with 6% on a constant currency basis. Non-GAAP net income reached $637.5 million, representing a non-GAAP net margin of 36%. On the user front, Weibo's MAU reached 560 million in December 2019, up 12% year-over-year, representing a net addition of approximately 54 million users year-over-year. Average daily users reached 232 million, up 11% year-over-year, representing a net addition of approximately 22 million users. 94% of Weibo's MAU revenue came from mobile. As we review the mobile Internet market in 2019, we were confronted with market challenges at the very beginning with escalating user competition in the media, social and video sectors and made an increasing mature Internet market in China. In response to this, we took specific steps to drive both use of scale and engagement growth to achieve platform expansion instead of solely focusing on use of scale. Well executed against this product and operating initiatives in 2019, we delivered significant improvement…

Fei Cao

Analyst

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. Let's start with user metrics. In December 2019, Weibo's MAUs reached the 560 million, representing a net addition of 54 million users on a year-over-year basis. Weibo's average DAUs reached 222 million, representing a net addition of 22 million user on a year-over-year basis. Mobile MAUs represented approximately 94% of total MAUs. The strong growth was primarily driven by continued product improvement and content optimization, along with effective channel investment we made during the year. Turning to financials. As a reminder, my prepared remarks will focus on non-GAAP results and all comparisons on a year-over-year basis, unless otherwise noted. Now let me walk you through our financial highlights for the fourth quarter and the fiscal year 2019. Weibo's fourth quarter 2019 net revenue was $468.1 million, a decrease of 3% or 2% on a constant currency basis. Operating income was $168.9 million, representing operating margin of 36%. Net income attributable to Weibo reached $176.5 million, representing a net margin of 38%. Diluted EPS was $0.77. For full year 2019, total revenues reached $1.77 billion, an increase of 3% or 7% on a constant currency basis. Operating income was $662.2 million, at a similar level compared to 2018 and representing an operating margin of 37%. Net income attributable to Weibo reached $637.5 million, an increase of 2%, representing a net margin of 36% at a similar level compared to 2018. Diluted EPS was $2.78 compared to $2.73 in 2018. Let me give you more color on our fourth quarter and full year 2019 revenue growth. Advertising and marketing revenues for the fourth quarter 2019 were $405.9 million, a decrease of 3% or 1% on a constant currency basis. Mobile ad revenue reached $356.7…

Operator

Operator

[Operator Instructions]. The first question comes from the line of Alicia Yap from Citigroup.

Alicia Yap

Analyst

My question is, given Weibo traffic actually has been positively benefiting from the increased user current spend and also the demand on getting the latest virus information so -- but then the aperture remains soft in the first quarter, which is understandable. Do you think the positive user traffic could have a longer-term benefit that could help Weibo retain advertiser budget allocation my share? And perhaps, translate to higher budget share in the second half of this year or even into 2021? And in relation to that, given the strong demand for paying games during this period, I wonder whether we will have gained back some of the ad dollars from the online gaming companies in the first quarter.

Gaofei Wang

Analyst

First, let me share some color on Weibo's traffic growth and the main driver to the outbreak. During the epidemic, we saw robust growth in Weibo's traffic. And with the total number of feed refreshment and impressions are double in the spring festival. And recently, this impression -- total feed refreshment impression grew over 50% year-over-year. The instant has brought back a considerable example of domain users to our platform, leading to a more diversified use of mix. The organic traffic also clearly improved our this user acquisition efficiency. The robust traffic growth during the epidemic was slightly attributable to the natural advantage we hold as China's leading social media platform. We're also grateful for the quickly response for launching our related functionality such as the coronavirus specific sub feed and the Super Topic. During this coronavirus outbreak, our strategic focus to highlight Weibo's value as a social media has been validated during this period. In the fight against the epidemic, Weibo has demonstrated unique value in information dissemination and discussion among media outlets, professional KOLs and general public. To be specific, Weibo enabled wider dissemination of official information from and government, brought professional opinion discussion to the public, and more importantly, helped general public receive quicker response from government agencies. Moving on to monetization front. In the near term, the epidemic swing on the overall economy and resulting in nationwide business disruption, specific on ad business, advertisers' demand and promotion activity were significantly impacted. As a result, several customers have canceled or postponed their campaign with us. In that sense, the near-term local traffic growth can now be converted directly into ad spend. That said, in the longer term, due to robust traffic, the upside in our -- upside in the traffic (inaudible) to strengthen Weibo's competitive moat and gain recognition from the customers. The robust traffic growth and user base expansion for some content (inaudible) could enhance our ability to capture our wallet from our corresponding industries, taking the game industry as an example. Currently, we saw a nice growth of ad spend from our gaming customer on both an annual and quarterly basis, benefiting from better game advertising demand.

Gaofei Wang

Analyst

The Weibo traffic during the epidemic also brought back a lot of old users, such as those user going in the 1970s and '80s, and that helped to improve our user interest in the education sector. We saw solid revenue growth for both brand and performance ad from education advertisers. Apart from the upside platform global traffic, the increasing result was also attributable to significant user growth in education vertical, boding well for us to further capture a dollar from the education industry.

Gaofei Wang

Analyst

Benefiting from traffic growth during the epidemic and also because the outbreak continue to disrupt the off-line marketing activities, we released a very positive trend for ad body shift from off-line to online. We have also taken the opportunity to launch new ad product to better fulfill advertising increasing demand and also to launch related products to fulfill this demand. Currently, also enhance the -- manufacturer have already tried this product, and we also see opportunity in FMCG and luxury brand to try this product with us and -- which may benefit our ad revenues in the second half. If we see to the short-term impact and look at our platform in the longer term, during the outbreak, Weibo has demonstrated indispensable value as the China's leading social platform and further strengthened our competitive moat with the ramp-up in traffic, our monetization front. We believe advertiser will also have a better understanding of Weibo's unique strength in social distribution and interruptions, which bodes well for us to further improve our monetization capability and capture higher social ad wallet share for us. Thank you.

Operator

Operator

Next question comes from the line of Thomas Chong from Jefferies.

Thomas Chong

Analyst

My question is about Oasis. Can management comment about our marketing plan 2020 as well as our long-term strategy over the next couple of years?

Gaofei Wang

Analyst

Let me give you a decent update about Oasis. As I mentioned in the prepared remarks, we started internal beta test products in September and officially launched the product in December last year. Since the very beginning, Oasis has demonstrated unique value proposition in the content offering and supplement to Weibo's company ecosystem, leverage Weibo's traffic direction and the event operation. We saw great momentum in user engagement growth. In January, Oasis MAU surpassed 10 million. DAU you also see very notable growth, and it's also worth mentioning that the percentage of DAU who generate content on Oasis ramped up strongly in January as well compared with last month. Among these daily content generators, they are also a notable portion of regular user and mid-tier and long-tier vertical KOLs, which match well with our initial purpose of launching this product.

Gaofei Wang

Analyst

Entering (inaudible), user attention has been shifted to the involvement of the coronavirus outbreak and, the data activity has also been pretty limited due to the -- no chance to go out for travel, which have a certain impact on user's willingness to share and post content on Oasis. Moreover, as the epidemic period is not the best needle to promote the product, we have suspended part of our marketing activity accordingly. However, we will take the opportunity to further optimize the use of product and resume promotion after the outbreak is over and attract more users to Oasis. Based on the recent use of traffic, we see the similar level of the user traffic of Oasis compared with the time before the spring festival. After the epidemic is over, we'll review the marketing activities of Oasis product. And for our 2020 product content strategy, we encourage lifestyle-related content offering and distribution with specific emphasis on vertical that is suitable for expression through high-quality picture and short videos, such as photography, fashion, food and travel verticals as users from this vertical generally show better engagement in terms of content generation, consumption and social interaction. For the monetization based our initial top brands, a few brands show interest in promoting our Oasis, and there also might be some self-media promotion of Oasis as well. And -- but it will not be the first quarter -- late first quarter, early second quarter for the monetization to take place.

Operator

Operator

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

Gregory Zhao

Analyst

So my question about market competition. So we have been seeing the coronavirus impact, how do you think about the market competition in 2020? And it would be great if you can help us try to understand calisthenics from both the inventory supply and merchant demand and also expectations on the organic growth of KA and SME advertising in 2020.

Gaofei Wang

Analyst

Let me first talk about demand side situation based on observation. As I just indicated, prior to the outbreak, we actually saw more positive trend than last year when we feed our initial 2020 budgeting. And also KA solid growth trend in November -- in January, sorry in January. Since the outbreak of the coronavirus, we believe the impact from this epidemic is beyond market expectation, and we are unable to assess when the epidemic will be over, which brought forth a lot of uncertainties to demand side of the advertising market and also our business. We see downside risks from the macro and advertiser channel plans and budget as well as industry-specific cyclical issues and especially for our key customers from the entertainment segment, which we see most of the order cancel for the movie sector. And for the e-commerce sector, we also see the impact on the e-commerce merchants due to the lack of activities and also the resumption -- delay of resumption of the e-commerce merchants due to the coronavirus outbreak. For sure, we are pleased to see our higher Internet penetration in our daily life. Certain verticals such as online education, we've been working on cloud services, see some structural benefits. Our demand from this sector to acquire users and improve brand awareness will be incremental to the market. We have taken opportunity to tap into the new customer base and actually saw nice growth from these sectors, particularly for the education sector. The demand is not only from the performance ad market and also from a branding market. Meanwhile, we also saw a positive trend of off-line to online ad budget shift from several existing customers. For instance, we see upside when the customers start to migrate their new product promotion activities from off-line to…

Operator

Operator

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

Sandra Zhang

Analyst

This concludes our conference for today. Thank you for joining us. We'll see you next quarter.