Weibo Corporation (WB) Q4 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to Weibo Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Now I'd like to hand the conference over to Ms. Sandra Zhang from Weibo IR team. Please go ahead, ma'am.

Thank you, operator. Welcome to Weibo's fourth quarter and fiscal year 2022 earnings conference call. Joining me today are our Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Fei Cao. The conference call is also being broadcast on the Internet and is available through Weibo's IR website. Before the management remarks, I would like to read you the safe harbor statement in connection with today's conference call. During today's 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 statements. 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 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 would 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 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 payment or are non-recurring in nature or are not 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 would like to turn the call over to our CEO, Gaofei Wang.

[Foreign Language] [Interpreted] Thank you. Hello, everyone, and welcome to Weibo's fourth quarter and full-year 2022 earnings conference call. On today's call, I'll share with you highlights on Weibo's user product monetization, review the progress made in 2022 and elaborate our strategies for 2023. Let me start with our fourth quarter financial results. In the [fourth] (ph) quarter, our total revenue reached $448 million, a decrease of 27% year-over-year or a decrease of 1% quarter-over-quarter as marketing activities on Weibo was largely impacted by the COVID factor, as well as other major affair. In the mid-term, our total revenue decreased 20% year-over-year and remained flattish quarter-over-quarter. Advertising and marketing revenues reached $390.5 million, with 94% of our revenue coming from mobile, leveraging solid execution of our cost optimization initiatives. Our non-GAAP operating income reached $152 million, representing a non-GAAP operating margin of 34%. Meanwhile, non-GAAP net income attributable to Weibo reached $178.5 million, up 50% quarter-over-quarter, representing a non-GAAP net margin of 40%. For full-year 2022, Weibo's total revenue reached $1.84 billion, a decrease of 19% year-over-year or a decrease of 15% year-over-year in renminbi terms. Advertising and marketing revenue were $1.6 billion, a decrease of 19% year-over-year or a decrease of 16% in the mid-term. Our non-GAAP operating income reached $601.1 million, representing a non-GAAP operating margin of 33%, mainly attributable to our strategic focus on improving operating efficiency since Q2 last year. On the user front, in December 2022, Weibo's MAUs reached 586 million, a net addition of approximately 13 million users on a year-over-year basis. Average DAUs reached 252 million, a net addition of approximately 3 million users on a year-over-year basis. In December, 95% of Weibo's MAUs came from mobile. Looking back to 2022, due to negative impact from macro environment and the COVID factor, the overall market continued to face challenges and the ad demand show limited recovery trend. To mitigate through the challenges from the ad demand side, we adhere to the strategy to optimizing cost and expenses and improving operating efficiency throughout the year, adopting a more disciplined ROI requirements for cost, cost expenses and improve efficiency in product operation. As a result, user engagement was largely improved and overall traffic maintained steady growth from the previous year. In 2022, we also made great efforts in content control and content distribution for major political affairs. We get to place Weibo's advantages of resource integration and content distribution for the COVID-related publicity and assistance, representing Weibo's unique social value. Our monetization despite of the challenging market environment in 2022 and the volatile end market with descending trend. We successfully enhanced adoption of our strengthened, our brand plus performance ad with content marketing solutions among advertisers from automobile, handset manufacturers and online gaming industries by allowing celebrities, media, and KOLs to generate topics and content and combining our hot trend product to create industry facts for clients and distribute beyond the audience in the vertical area, and thus, Weibo's core competitiveness and risk resistant capability in brand ad market has further strengthened. Next, let me share with you our progress made in product and monetization in Q4 and they are our key initiatives for 2023. In the fourth quarter, on operational side, we focus on content monitoring and discussion for major public affairs, as well as COVID-related publicity after reopening. And meanwhile, we further optimize the distribution mechanism for relationship-based feed and interest-based feed to improve users’ consumption efficiency. These initiatives contribute to traffic growth in information feed in Q4 on a year-over-year basis. On the channel front, in Q4, our hot trend product has fully covered the core position on the devices of leading domestic handset manufacturers, which increased the content consumption of users from a domestic handset. In December, the number of our hot trend users from domestic handset increased 40% from September, which further enhanced the influence of Weibo's hot trend product among handset manufacturers and strengthened the user consumption of hot trend. On social attributes, in Q4, we continued to optimize the distribution mechanism and product structure of relationship with the feed, which further increased the exposure of high-quality social content to users. Our user and track for relationship-based feed picked up rapidly in December and reached the peak level in 2022, largely attributable to the strengthening of the social functions of our products. We also clarified the position of relationship-based feed and reinforced content distribution based on the social behavior of user social network in a relationship-based feed. We hope that relationship-based feed can help user buildup high-quality and real social connections for a more enriched and diverse social network and encourage high-quality content creator to recognize the value of fans and generate more interaction with other big feeds and fans for more exposure in the relationship-based feed. During the beta test period for the algorithm upgrade, the impression per user and increased follow-on behavior per user has picked up. This year, we will continue to invest on these initiatives to improve exposure of high-quality content and enhance fans accumulation for valuable content creator for a more enriched social network, so as to further enhance Weibo's core competitiveness in the social sector. On the video front, we focus on operation of high-quality video accounts. To this end, we introduced and encouraged video content creators to produce TV and topic-based video content to accumulate more fans and also to produce content in the text and photo on daily life to promote interaction with fans, which could further enhance engagement of video content creators on Weibo. In December, both the number of video accounts that general video and the effective video view grew double-digit year-over-year. And moreover, the optimization of video products continue to improve the recommendation [Technical Difficulty] and video playing experience in the video feed and promoted social interaction on the playback page. As a result, the effective use of the video feed in December 2022 increased over 50% year-over-year, and the number of users, who interact on video playing page increased over 20% year-over-year, which improved the user engagement and increased video ad inventory, laying a solid foundation for the video ad revenue growth in 2023. On the content front, in 2022, we strengthened strategic cooperation with partners in media, entertainment, online gaming and sports vertical and secured the production of IP-related content and hot topics. Coupled with the effective execution of operational strategy, the traffic and number of engaged user in key verticals increased the varying degrees from 2021. On the media front, we reached the full cooperation with state media amid with national inputs in content and monetization side. To elaborate, we encouraged media account to lead discussion around here to discuss the social topics on Weibo, facilitate media’s discussion from this topic to those in vertical areas to ensure the popularity of hot trend in vertical areas. In addition, we motivated media to actively participate in the marketing campaigns on Weibo. With the effect of media endorsement and distribution value, both advertised brand influence and the commercial value of the media were promoted and also build a self-reinforced ecosystem of content distribution and monetization for media accounts on Weibo. As a result, revenue earned by media accounts to scale up in 2022, up 20% from 2021. In terms of entertainment vertical, we work with agents to promote content generation and engagement of top celebrities and also work with video platforms and producers to strengthen the topic generation and discussion around the popular movie and TV series. As a result, the traffic and the number of engaged users in the entertainment vertical resumed its healthy growth trend consistently. In response to the overall flattish end market in 2022, we optimized the monetization model for Weibo's top content creators, and thus the number of content creators, who earned revenue on Weibo increased over 20% year-over-year. In 2023, we will continue to strengthen the monetization for top KOLs to improve Weibo's marketing capability to self-brand and increase top KOLs monetization skill and improve their engagement on Weibo. In 2023, we will continue to focus on growing our user sale, improving operational efficiency to drive up traffic and strengthen the core competitiveness of Weibo. First, on user growth. In 2023, user engagement around hot trend and entertainment verticals that will further recover as the marketing and industry trends gradually improves. For the movie vertical, driven by the blockbuster effect from movies scheduled for the Spring Festival and TV series earlier this year, the number of users who had engagement was up 86% year-over-year, and the total engagement volume grew 136% year-over-year. Entering into 2023, we'll work more actively with our partners in movies, TV series and variety shows in order to promote a healthy development of the ecosystem around entertainment work. On product front, we will also step-up investment in hot trends and thus waiting for users monetize the hot topic consumption as well as voice per user growth and engagement. And meanwhile, we plan to resume investment and operation of certain channels and market campaigns based on the recovery trend of the market and industry this year, so as to further drive user growth. Secondly, on traffic growth, in 2023, we will further focus on strengthening our core competitiveness in hot trends and social attributes and efficiently grow our traffic and its monetization value. On the operational front, we will beef up our efforts to reinforce the content ecosystem in key verticals as well as deepen engagement of social accounts. As for user products, we are dedicated to further optimizing product structure and distribution efficiency to continue to improve the user consumption. In particular, we'll broaden the social network coverage for relationship-based feed and nurture the interaction live within our community products. These initiatives are crucial to solidify our competitive moat in the social product landscape, which will further facilitate Weibo's sustainable and healthy development in future. In the fourth quarter, Weibo's ad revenue decreased 29% year-over-year or 22% year-over-year on a constant currency basis and flattish quarter-over-quarter in -- on constant currency basis as macro headwinds and COVID disruption weighed on the overall advertising demand side. Despite the challenging marketing environment, we are pleased to see certain key industries sustain the upward trend year-over-year in this quarter. In the fourth quarter, the World Cup was the major campaign event for many clients, especially in the food and beverage industry. Thanks to enhanced operational efficiency this year, the traffic and interaction volume of World Cup surpassed that of the Beijing Winter Olympics. Weibo achieved sizable growth in ad revenue as customer leverage the hot trend fast, build hype in the market. We are pleased to see total ad revenue generated in the World Cup season exceeds that of the Beijing Winter Olympics, especially multiple ad growth of the food and beverage industry on a year-over-year basis. Ad revenues from automobile industry also booked a year-over-year growth, benefiting from better recognition of the new car launch among the industry clients. And meanwhile, we successfully introduced the new product launch model through the handset sector, which delivered double-digit year-over-year growth in Q4 despite a weak market environment of the handset sectors throughout the year. For instance, we showcased our content marketing solution with the launch of Vivo X19 -- X90. From phase of pre-launched product release and to in-depth interpretation, we organized to be in the digital product industry, vertical KOLs capable of breaking the limitation of circles, as well as media to generate and operate client-specific topics. Leveraging the hot topic effect of the World Cup, we delivered brand recognition beyond the clients' expectations. Top views related to the new Vivo X90 exceeded 2.5 billion. Once again, we showcased Weibo's unique value proposition with our counter-marketing solutions and service capabilities in turning our new products into a blockbuster to our clients in the handset industry. Beyond advertising, we have been monetizing our traffic through multiple channels, such as membership and e-commerce to amplify the commercial value of the platform. Social e-commerce has always been a integral part of Weibo's content ecosystem and also the key monetization channel for business. In 2022, in addition to ongoing cooperation with Alibaba and JD.com, we also tapped into the closed-loop e-commerce starting with the aesthetic medicine industry, which enjoys a relatively high-ticket size, featuring KOL live streaming on our platform. In 2022, the annual GMV for the aesthetic medicine e-commerce business on Weibo doubled from the previous year. Currently, although the contribution of revenue and profit on the closed-loop e-commerce business was not material at this stage. The combo of online promotion and offline conversion could be replicated to more similar industries in the future upon the trial and error with the aesthetic medicine e-commerce business. It will also help further strengthen users' mindset of e-commerce on Weibo, facilitating monetization growth of [big play] (ph), as well as providing a strong support for the long-term ad monetization opportunities. Let me share some color on our overall monetization strategy in 2023. We will continue to focus on enhancing the marketing combo, which centers around media and celebrities, supported by KOL distribution across verticals, while underpinned by traffic contact which with strong exposure and mine site cultivation. In particular, we will beef up Weibo's unique hot trend IP and new product launch and offerings, aiming to earn recognition from more industries and customers and thus further strengthen Weibo's core competitiveness in the end market. Based on Weibo's performance in January and February, our overall [Indiscernible] gradual recovery trend month-by-month. Nevertheless, due to the outbreak of COVID-19 in various regions and a Spring Festival, it takes time for clients to gradually return to normal life and work. Although the country has passed an infection peak faster than expected, most companies still need time to determine on the overall marketing plan for 2023. Recently, we are glad to see the issuance of a series of favorable economic and industry policies. However, we may have to wait a while for full recovery of ad demand on the ad demand side since it takes time for the -- on the policy implementation to macroeconomic rebound and then to pick up of demand side of brand ads. While industry with the tailwinds of favorable policy and a stable recovery of the consumer market, the automobile and luxury industry, which had nice growth in 2022 are expected to deliver positive growth in 2023. Hopefully, ad revenues from the cosmetic industry may resume growth in the second half of the year, assuming new products -- new product marketing campaigns in the cosmetic industry come back that time. In 2023, we will strengthen Weibo's capability of capturing ad budget in the cosmetic industry through optimizing the marketing models, featuring celebrities, new product and the shopping festivals. As for the online gaming industry, we have still headroom for further revenue growth with the resumption of the gaming license issuance. In addition, we are also excited to see opportunities for certain industries, such as tourism and real estate to recover following the economic rebound. In 2023, on ad product front, leveraging Weibo's strength in content marketing, we will step up our efforts to drive sales and ad performance of hot trend ad products and maximize the monetization efficiency of hot trend-based traffic. And meanwhile, we also continue to explore and expand the targeting audience package and improve its reach, accuracy and conversion, particularly for industries such as automobile, tourism, real estate and home furnishing that require lead generation. We will further strengthen the synergy between user and ad products to enhance users’ social interaction around ad, aiming to elevate our capability as opportunities to reach users in multiple scenarios and thus optimize the conversion cycle of our social ad offerings, as well as conversion results. With that, let me turn the call over to Fei Cao for a financial review.

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's fourth quarter and fiscal year 2022 earnings conference call. Let's start with user metrics. In December 2022, Weibo's MAUs and average DAUs reached 586 million and 252 million, respectively, representing a net addition of 13 million and 3 million users on a year-on-year basis in 2022. Our user community and engagement remained healthy, despite that we executed well a disciplined channel investment strategy with a 21% cut in sales and marketing expenses versus 2021. Turning to financials. As a reminder, my prepared remarks would focus on non-GAAP results. All monetary amounts are in U.S. dollar terms and all the comparisons are on a year-over-year basis, unless otherwise noted. Now let me walk you through our financial highlights for the fourth quarter and fiscal year 2022. Weibo's fourth quarter 2022 net revenues were $448 million, a decrease of 27% or 20% on a constant currency basis. Operating income was $152 million, representing operating margin of 34%. Net income attributable to Weibo reached $178.5 million, representing a net margin of 40%. Diluted EPS was $0.75, compared to $0.83 last year. For full-year 2022, total revenues reached $1.84 billion, a decrease of 19% or 15% on a constant currency basis. Operating income was $601.1 million, representing operating margin of 33%. Net income attributable to Weibo reached $540.1 million, representing a net margin of 29%. Diluted EPS was $2.27, compared to $3.08 in 2021. Let me give you more color on the fourth quarter and full-year 2022 revenue performance. Weibo's advertising and marketing revenues for the fourth quarter 2022 were $390.5 million, a decrease of 29% or 22% on a constant currency basis, reflecting the disruption from COVID resurgence and the volatile advertising market amid reopening. Mobile ad revenues were $367 million, contributing approximately 94% of total ad revenues. Full-year 2022 advertising and marketing revenue reached $1.60 billion, a decrease of 19% or 16% on a constant currency basis, with mobile ad revenues contributing 94% of total ad revenue. Recapping on Q4 performance first. Consistent with our expectations, Q4 advertising revenue remained under pressure from weak demand set resulted from uncertain macro landscape and sales execution challenges amid COVID effect. In terms of growth, food and beverage was one of the major positive contributors to year-over-year growth in Q4, with customers embracing the World Cup content season. We are also delighted to see solid growth in the 3C products, automobile and entertainment sectors as customers from these sectors leverage our social ad playbook to build tap for their eventful model launches on this path. A few large verticals continued on a descending trajectory year-over-year, such as cosmetics and personal care, suffering from disruption from pandemic wave and broad-based stringent marketing expenses control among our customers. Moving on to full-year 2022 performance. 2022 was challenging in many ways. Weibo's advertising and marketing revenue decreased 19% or 16% versus 2021 on a constant currency basis with uncertain COVID policies and volatile macro economy weighing on overall advertising demand. For industry, our largest three verticals were FMCG, 3C products and e-commerce. With respect to growth, online games, automobile and luxury sectors outperformed underpinned by secular tailwinds, the industry development, as well as unique value proposition of our ad offerings. However, the rest of consumption-related verticals and e-commerce faced broad-based headwinds against the backdrop of weak consumption data and conservative marketing budget, the ad product, promoted feeds was the largest followed by social display ads and topic and search in 2022. In light of industry-wide pricing pressure and subdued among that, we proactively beefed up our performance-based ad capabilities and content marketing offerings to just funnel ad growth. We are also delighted to see further [visualization] (ph) trend in our ad revenue mix, set to review traffic uptick and optimized video ad technologies. Ad revenues from Alibaba for the fourth quarter were $42.3 million, a decrease of 7% or an increase of 3% on a constant currency basis, with pent-up ad margin released to drive inventory clearance during the Double 11 shopping festival. Full-year ad revenues from Alibaba decreased 23% to $107 million, correlating with its conservative marketing strategies in 2022 amid recurrent business disruptions. Before turning to VAS segment, let me share some preliminary color on the chance entering 2023. Apart with and turn with COVID situation during the past three years, we kicked off 2023 with reopening and gradual normalization in business activities, despite limited visibility in the recovery pace of macroeconomy and consumption. We believe the worst is behind us, and we are turning more constructive on the broad recovery of advertising market in 2023. With many sectors rebased in 2022, our team will build up sales execution and work relentlessly to capture higher ad wallet of pent-up budget from consumption sectors, as well as sectors seeing secular growth tailwinds such as automobile and online gaming. Leveraging our full spectrum of social ad offerings, we remain confident in our long-term monetization opportunities that our unique value proposition and a diversified content ecosystem will unlock. Value-added service, VAS revenues were $57.5 billion in the fourth quarter, a decrease of 12% or 2% on a constant currency basis. The decrease of VAS revenues was mainly due to less revenue contribution from membership services and live streaming business. Full-year 2022 VAS revenues decreased 13% to $239.7 million, mainly due to less revenue contribution from membership services and live streaming business as well. Turning to costs and expenses. Total costs and expenses for the fourth quarter were $296 million, a decrease of 25%, demonstrating strong execution of our efficiency initiatives. The reduction slowed into each cost and expense items. Thanks to ongoing stringent cost control measures on various operational fronts, especially disciplined channel investments and optimization of organizational structure. Full-year costs and expenses totaled $1.24 billion, a decrease of 13%, speaking to our commitment to stabilize earnings against the top [Indiscernible]. 2023 will continue to be a year of efficiency for us upon solid execution of cost optimization initiatives in 2022. We have emerged with a more focused team and a leaner cost structure, positioning us a clear path to earnings growth in 2023. Operating income in the fourth quarter were $152 million, representing an operating margin of 34%, compared to 36% in the same period last year. Operating income for full-year 2022 were $601.1 million, representing operating margin of 33% compared to 37% in 2021. Turning to income tax and the GAAP measure. Income tax benefit for the fourth quarter was $18.7 million, compared to an expense of $45.6 million last year. The change in income tax amount was primarily due to, first, the reversal of tax liabilities recognized related to uncertain tax positions, and second, lower taxable income in the fourth quarter of 2022 versus the same period last year. Full-year income tax expenses were $30.3 million, compared to $138.8 million in 2021. The decrease was mainly resulting from, first, lower taxable income in 2022 versus 2021, and second, the reversal of tax liabilities recognized related to uncertain tax positions. Net income attributable to Weibo in the fourth quarter was $178.5 million, representing a net margin of 40%, compared to 32% last year. Net income for full-year 2022 was $540.1 million, representing a net margin of 29%, compared to 32% in 2021. Turning to our balance sheet and the cash flow items. As of December 31, 2022, Weibo's cash, cash equivalents and short-term investments totaled $3.17 billion, compared to $3.13 billion as of December 31, 2021. In the fourth quarter, cash provided by operating activities was $158.7 million. Capital expenditures totaled $15.3 million, and depreciation and amortization expenses amounted to $12.4 million. On a full-year basis, cash provided by operating activities was $564.1 million. Capital expenditures totaled $43.1 million, and depreciation and amortization expenses amounted to $54.7 million. With that, let me now turn the call over to the operator for the Q&A session.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Timothy Zhao from Goldman Sachs. Please ask your question, Timothy.

[Foreign Language] Thank you, management for taking my question. I have two questions. First, can management please share with us more detailed color around the monthly trend of ad revenue recovery and year-on-year growth trend from first quarter last year to January and February this year? And how the recovery path differs across various industries? And secondly, on the monetization plan for the new year, is there any new ad product or monetization model that we may launch for this year? Thank you.

[Foreign Language] [Interpreted] Okay. Thank you for the question. Let me answer the first one first. So first of all, in last Q4, especially in October and also in December of last year, we've been having some of the political issues happening. And also from December to January of last year -- of this year, also, we had the COVID ramping and also infections here in Shanghai and Beijing very quickly. So that is to say that in December of last year, we've been having a negative impact on our operations and also some of the negative impact, due to the lower budget allocated by our customers. But we were never having a big impact from the World Cup preparation and also operations, because of the closed-loop preparation of that World Cup itself as an event. So overall speaking, last year Q4, we had some of the missing and also some of the negative impact on the overall business due to a lot of accidents and also a lot of issues happening in December of last year, okay. Got it. And also in January and also February of this year, in January, we had the Chinese New Year, and also, of course, from the standpoint of traffic, we had actually a lot of growth on that. But still, if you're talking about the advertisement businesses, we do not have a very good comparison if you're talking about the year-on-year basis. And also, of course, if you're talking about quarter-on-quarter, and definitely speaking, we had increase, but that was not an appropriate and legitimate comparison. And also, second point is that in February, we had the recovery, but the thing is that if you're talking about the budget given by the customers, while they were doing the marketing plan for Q1, normally, this particular plan was already made in December of last year. So, these customers were pretty much conservative back then in December of last year. We've been seeing some recoveries in the mobile phone industry and also entertainment industry as well. But still, the budget on the FMCG and also from the e-commerce industries or verticals had -- have been postponed until the two sessions of NPC and CPPCC of this year or after April. So that we believe that we are going to wait until the late March or the early April for us to have an overall and also appropriate evaluation of the recovery speed of the whole industry. Okay. Got it. And also, in terms of the detailed verticals. So, two-thirds of our total revenue from the -- were from the verticals that were related to consumption in Q1 of this year, and primarily speaking, FMCG, 3C products and e-commerce, et cetera, et cetera. So, it is pretty much subject to the macroeconomic recovery and also the recovery of the consumption power as a whole for the society. And also, in Q1 of this year, we've been seeing a very good thing about the launch of the new products by the 3C products industry or the luxury vertical. But still, we were not positive over the total shipments of the mobile phone, smartphones. But still, what's good is that the manufacturers or those OEMs were pretty much focusing on the medium to high-end smartphones, so this is something that is beneficial to us. And also in 2022, we had witnessed a 15% decrease in terms of the total sales volume, but still in terms of our Weibo's revenue, we had a very good stabilizing trend and also a little bit of increase on the revenue, so that we are very much positive in this new year, especially with an increasing sales volume of the smartphones and also some of the other consumption-related products, okay. Got it. And the next vertical is on the automotive. So last year, we had a very good development in terms of the advertisement revenue on the automotive industry, and also in 2023, with a further electrification of the whole industry and also with a more and more intense competition from this whole industry, Weibo will leverage further our ability of promoting the new products marketing and also do the advertisement on that. So, you can see that after Q1 of this year, we've been already seeing a very positive trend of the growth from Weibo side, okay. Got it. And also, the next one is on the strategy of our advertisement and also this advertising products in 2023. So, as I was already stated in the prepared remarks that in most of the time last year, we had been promoting the advertisements of brand plus performance. But actually in 2022, for some of the verticals, for instance, the automotive one and also the smartphones, we had -- trying apart from having the brand and performance advertisements, also some of the new ways of doing marketing via content and also hot trend. For instance, we had a integrated manner of combining the media and KOL and some of the exposures and altogether to obtain a fairly well more budget from our customers in terms of the marketing and advertisement. So, in 2023, this particular integrated way of doing advertisement is also going to be continued. And also, for -- especially for some of the new product launch from the industries like luxury products and also the smartphones and also furnituring and decorations, et cetera, okay. So, on the overall basis, in 2023 first-half, we still experienced a lot of uncertainties. But the core thing here is that we have to further enhance our marketing efficiency and also operational efficiency and also really try to laser focus on those advantageous areas has continued.

Thank you. Our next question comes from the line of Felix Liu from UBS. Please ask your questions, Felix.

[Foreign Language] Let me translate myself. Thank you, management for taking my question. My question is on the efficient improvement and cost control that we have done very well in 2022. So, looking ahead into 2023, what are our plans on efficient improvement and cost control? Is there any pace or trends that we can expect on the investment side? Thank you.

[Foreign Language] [Interpreted] Got it. So, for this particular question, first of all, in 2022, we had already had the impact from COVID starting from the end of Q1 and also continued when time passes by from Q2. So, we started to actually reduce the cost and improve our efficiency starting from then. So, in 2022, the overall cost has been actually reduced by more than 10% versus 2021. And also, of course, this year, the major way for us to further improve the efficiency and also reduce the cost is by further reducing the marketing-related expenses by as many as 20%. And also, in Q4, at the end of Q4, we started to actually do the reorganization structure of the company, and this is going to generate impact since 2023. So that is to say that from this year onwards, we're going to really continue focusing on the core businesses and also really have a very flexible financial and also accounting performance and also really have a very sustainable competitive edge of being built continuously, okay. Got it. And also in 2023, our key focus will still be on the further recovery of revenue and also the traffic, as well and also further increase our operational efficiency. So, as I have already said that we've been starting doing the reorganization or restructuring of our organization since the end of Q4. And this had a little bit of impact and especially positive ones on our profit and profit margin, but it is going to generate a higher impact in 2023 with regards to the profit and margin. And also, before 2021, we had the total operational cost, which was around like 60% of our total revenue. And this particular figure has been increasing to around 65% up in 2021, due to the impact of COVID. And also, in 2022 because of some other issues today with COVID, we had this particular operational cost as high as 70% in some occasions over some of the months and quarters. But in 2023, our focus is that we want to regain our operational efficiency and also would like to have the operational efficiency recovered to the approximate level and appropriate level, which was about the level of 2019 or 2020. This has continued going to be our goal and objective. And also, of course, that we really wanted to realize the enhancement of the operational efficiency on top of the recovery of our traffic and also the revenue as well. This is going to be the objective for our company in 2023 and onwards, okay.

Thank you. In the interest of time, I would like to take our last question from Xueqing Zhang from CICC. Please go ahead, Xueqing.

[Foreign Language] So my question is related to VAS business. Can management share with us the strategy of VAS business in 2023, also to the progress and outlook of social e-commerce business?

[Foreign Language] [Interpreted] So, thank you for this question. If you're talking about the non-ad businesses, we are talking about the social e-commerce and also the membership services. So of course, for the social e-commerce, definitely speaking, now we are primarily speaking, we're trying the advertisement model, for instance, on the alliance together with the Alibaba or JD and also to realize the traffic monetization. So of course, last year, we've been trying some of the closed-loop e-commerce as well and especially focusing on a scenario of O2O for those high ARPU customers. And we found that the efficiency of the traffic monetization was way higher than of the advertisement model only. So, in 2023, we are able to further increase the total scale and also enlarge scale and size and also enlarge our market share by leveraging the method of, for example, KOL e-commerce live streaming or some of the key -- like the celebrities live streaming. And also, we are trying our best to really obtain as many customers with a high ARPU value as possible, okay. And also, last but not least, let's talk about some of the membership service. So that you can see that now the primary part of the membership revenue was contributed from the Weibo membership itself, which was a contributor as many as $500 million to $600 million a year. This was actually very fraction part of our total revenue, but still that was very much enjoying a high gross margin for the Weibo membership business. And in 2022, especially in the second half, we had the ratification and also the -- some kind of adjustment of the entertainment industry. So, this particular business witnessed or experienced the very first drop or decrease of the contribution to the revenue for the first time in the history. However, in 2023, while we are seeing a recovery of the entertainment and cultural industry and also with regards to the expectation of increasing revenue, we really hope that we could really develop this Weibo membership business further, because nowadays, the DAU penetration is very low or relatively lower-than-expected. So that is to say that there is still a large room for the further improvement, and we really hope that Weibo membership business is going to contribute more to our total revenue and also to the profit in the specific occasions. Thank you.

Great. Thank you very much for your questions. I'd now like to turn the conference back to Ms. Sandra Zhang for closing remarks.

Thanks, operator, and thanks -- thank you all for joining us. We'll see you next quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.