Weibo Corporation (WB) Q2 2025 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to Weibo reports second quarter 2025 financial results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sandra of Investor Relations. Please go ahead. We have a technical difficulty on the line. Please remain on the line. Your conference will resume shortly. Thank you. We are now back. Our conference call resume. I would now like to hand the conference over to your first speaker today, Sandra of Investor Relations. Please go ahead.

Thank you, operator. Welcome to Weibo's Second Quarter of 2025 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 broadcasted 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's 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 statement 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 the date hereof. Weibo assumes no obligation to update such information, except as required under the applicable law. Additionally, I'd like to remind you that our discussion today includes 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 non-recurring in nature or 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'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.

[Interpreted] Thank you. Hello, everyone. Welcome to Weibo's second quarter of 2025 earnings conference call. On today's call, I'll share with you highlights on Weibo's product and monetization in the second quarter of 2025. On the user front, in June 2025, Weibo's MAUs reached 588 million and average DAUs reached 261 million. In the second quarter, Weibo's total revenues reached $444.8 million, up 2% year-over-year. Our total ad revenues reached $383.4 million, up 2% year-over- year. Our non-GAAP operating income reached $161.8 million, representing a non-GAAP operating margin of 36%. In 2025, the company's overall strategy focuses on the value of users, sustaining the leading position in trending topics and entertainment sector and solidifying the competitive edge of the social products. On top of that, we prioritized on enhancing the recommendation and search functions by integrating large language models to drive user scale and engagement. Next, let me share with you our progress made in the second quarter of 2025 from 3 dimension: User growth, the competitiveness of content ecosystem, and monetization. On user growth and engagement, we focused on the integration of social product and upgrade of our recommendation system this year, aiming to drive user engagement and user growth. Over Weibo's 15 years development, the homepage information feed have continuously evolved to achieve 2 core objectives: To enhance the efficiency of content consumption and social interaction by users. And accordingly, the content recommendation mechanism of information feeds has evolved from a time-line-based distribution to a recommendation-based distribution. To be specific, the information feed were originally distribute -- distributed in reverse chronological order based on the posting time. As content creation became more convenient for users, the explosive amount of content produced largely exceeded the amount of content consumed. And therefore, to improve content consumption efficiency, we upgraded the algorithm of information feeds from purely time line-based to focusing on distributing unread post from individual accounts being followed by users in 2016. Later in 2018, we introduced a new feed product structure composing of a relationship-based feed and an interest-based feed, aiming to broaden users' content discovery and increase their content consumption scale. In recent years, users' content consumption behaviors have been altered by the recommended content. To adapt to this trend, we initiated a strategic revamp of our homepage information feed in the first half of this year, which makes the interest-based feed as a primary interface when user access Weibo. We also made significant adjustment on the distribution mechanism of the interest-based feed. On the one hand, we integrated the recommendation mechanism for both relationship-based feed and interest-based feed. On the other hand, we enhanced the user feedback mechanism based on users' interaction and consumption behaviors in the interest-based feed, aiming to meet their in-depth consumption demands. Overall speaking, while preserving users' fundamental need for social content consumption, the upgraded interest-based feed delivered improved efficiency of discovering interest-based content and deepened user engagement. Additionally, by leveraging large language models, we have enhanced the quality of recommended content, improving users' overall consumption experience. We hope the upgrade of the homepage information feed will further unlock Weibo's value in delivering quality content. We aim to enhance users' consumption depth and engagement through algorithm capability, which will strengthen the competitiveness of our vertical content ecosystem. In early July, we completed the upgrade of product and technical framework, which has rolled out to nearly all users. Currently, with the average content views of homepage information feed per user remaining stable, the proportion of the recommended content consumed by users has increased to 43%, representing a 17% improvement over the previous level. This established a solid foundation for efficiency improvement and the development of the platform's content ecosystem. With the upgrade of the homepage information feed product, our platform's content distribution strategy will expand from relationship-based distribution to interest-based distribution, aiming to enhance content competitiveness. For social products, leveraging the platform's long accumulated social assets and the interest-based communities, we reinforced the platform's social attributes and boost the users' willingness to share and interact. In the second quarter, we further strengthened users' social interaction experience in the core product scenarios, achieving notable progress. For example, to address the prevalent issue of low-quality content in commerce recession, particularly comments under post by celebrities and top KOLs, we enhanced the identification and monitoring of low-quality content. This effectively improved discussion quality and increased users' willingness to visit and engage in a commentary session. For the celebrity-related super topics, we prioritize users' genuine communication, content sharing, and consumption needs and focus on improving the diversity of content and real-time attributes of the community. These efforts helped improve social connection in the celebrity-related super topics, driving notable year-over-year growth of users who posted, engaged, and consumed content in the second quarter. To enhance the competitiveness of the content ecosystem, our interest-based feed will become the primary feed for content distribution. In the second quarter, on the vertical content ecosystem, we completed the transition of content operation from an influencer-based model to a vertical content-based model, which attracted content creators from cross verticals to generate content on specific vertical area. Currently, over 50% of the interest-based content from key verticals are generated from cross vertical KOLs, which benefit from our years of deep cultivation in vertical areas and advantages of our vertical content operation. In the second quarter, vertical content consumption accounted for 60% of the interest-based feed consumption. And meanwhile, the new interest-based feed optimized content quality by allocating more traffic to high-quality authentic content. This has increased the traffic share for KOLs and selected accounts, while also providing more growth opportunities for mid-tier and long-tail KOLs. In the second half of this year, with the goal of enhancing user engagement through the interest-based feed, we will increase the supply of quality content to users through product offerings and recommend more precise and engaging content to users through recommendation. This will improve the efficiency for users to access effective content and their satisfaction of content consumption and thereby further drive-up content consumption and more frequent usage. While solidifying Weibo's advantages in entertainment verticals and training topics, we'll support this long-term development of vertical content ecosystem to achieve a win-win situation where users enjoy quality content, creators develop, and the platform thrive. Next, let me share with you the updates of Weibo intelligent search products. In the second quarter, we beefed up our efforts to transform the AI-powered search experience through optimization in model strategies, enrichment of database, and integration of multimodal content. Additionally, we incentivized the content creators to produce more high-quality content and perspectives, which further refined the quality of search results. As a result, Weibo's intelligent search saw robust growth during this quarter with MAUs surpassing 50 million in June. Notably, Weibo's intelligent search has significantly enhanced the user experience for trending topics as well as better fulfilled user queries in on-demand search scenarios. Daily active users of intelligent search also increased notably quarter-over-quarter, driving solid growth in average daily search queries. In the longer run, powered by the large language model summarization capabilities, we believe that the high-quality content and diverse viewpoints accumulated on Weibo over a decade will be presented in a more thorough way. This will not only improve results relevancy and content consumption efficiency, but also enable Weibo intelligent search to go beyond trending and real-time topics to better address long-tail search needs. We are encouraged to see an AI-driven road map to strengthen our competitive edge in the search market. Moving on to monetization. In 2025, our ad product and sales strategy focused on expanding and solidifying customers' mindset of choosing Weibo as a go-to platform for content marketing across industries as well as enhancing ad product conversion capability. From demand side, backed by consumption stimulus policies, e-commerce platforms, and related sectors increased their ad spend during the quarter. We focused on 2 aspects in our sales execution this quarter. First, we continue to leverage Weibo's unique strength in trending topics, celebrity resources, and top KOL content to broaden our industry reach, while focusing on new product launch marketing to further reinforce Weibo's position as the go-to platform for clients. Second, we maintained our investment in performance-based ad products, which enhanced our capability to capture incremental ad budget and continue to deliver positive revenue outcomes. By industry, e-commerce platform posted solid year-over-year revenue growth in the second quarter, benefiting from close partnership with major platforms during the June Beijing shopping festival. As a pivotal arena for boosting domestic consumption, e-commerce and related categories such as local services are expected to further ramp up marketing efforts with Weibo this year. As for the automobile vertical, Weibo continue to be the key discussion hub for new energy vehicles, sustaining its ecosystem advantages. Major OEMs have increased their budget allocation to Weibo with marketing coverage for new EV model launches exceeding 60% in the first half of this year. In the FMCG category, including food and beverage, footwear and apparel and personal care and beauty sectors, we're seeing shifts in clients' marketing strategies. After years of heavy investment in the e-commerce performance and KOC seeding, more and more advertisers now face diminishing return, which prompt a reconsideration of building. For instance, certain advertisers who had previously shifted most of their budget to performance-based marketing or influencer seeding are now reallocating budget towards selected endorsement, content IP creation, and sponsorship. While this transition is gradual and measured, we believe this trend is likely to continue. In the first half of 2025, advertisers from the FMCG category became increasingly interested in Weibo's product launch, celebrity and IP marketing offerings. As a result, both the number of campaign and the revenue generated from product launch and celebrity official announcement campaign booked a double-digit year-over-year growth. We are encouraged to see customer stickiness to our product launch marketing further enhance with the value of celebrity assets gradually revived. And meanwhile, we focused on tailoring our ad products to fulfill the more granular marketing needs of different segments within the FMCG sector. We seek to amplify the synergy between commercial content and organic post and trending topics generated by celebrities for KOL, leveraging our ad product like content boosting and aggregation. With these efforts, we aim to facilitate more effective distribution of commercial content so as to cultivate consumer mindset and drive conversion. From ad product perspective, ad revenue from our promoted feed offerings and the real-time bidding system sustained solid year-over- year growth in the second quarter with decent enhancement of ad performance for those performance-driven e-commerce advertisers. In the third quarter, we plan to further expand advertiser coverage and see opportunity to extend this growth trend to the second half of this year. And meanwhile, we are stepping up our exploration and integration of AI on the monetization front, with focus on streamlining ad creation and accelerating review process as well as improving ad targeting, I'm pleased with. This initiative successfully drove higher eCPM for real-time business feed ads in the second quarter versus the same period last year. Entering the third quarter, we do face a tough comparison due to the high base from last year's Olympics, which would negatively impact on the year-over-year growth. That said, we'll beef up sales efforts to capture visible opportunities from sectors such as e- commerce, automobile, and healthcare sectors, et cetera, with focus on driving the penetration of our brand plus content marketing among these sectors. Furthermore, we strive to secure incremental budget, leveraging the progress we made in real-time bidding feed ad products. In the longer run, we remain committed to amplifying the synergy between content and monetization operations. With the revamp of information feeds on homepage, we have a clear road map to further strengthen our vertical content ecosystem and boost the interest- based content consumption, enabling commercial content to effectively reach desirable audience. At that time, our value proposition of content and new product marketing will become even more pronounced and therefore, reinforce Weibo's competitive edge in the ad market. 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 second quarter 2025 earnings conference call. Let's start with user metrics. In June 2025, Weibo's MAUs and average DAUs reached 588 million and 261 million, respectively, representing a net addition of 5 million and 5 million users on a year-over-year basis. The DAU versus MAU ratio further enhanced our -- as our strategic focus on high-quality users are paying off. Leveraging the transformative power of AI, we're revamping our recommendation engine as well as speed and search experience to make Weibo more relevant and engaging. Turning to financials. As a reminder, my prepared remarks will focus on non-GAAP results. All monetary amounts are in U.S. dollar terms and all comparisons are on a year-over-year basis, unless otherwise noted. Now let me walk you through our financial highlights for the second quarter 2025. Weibo's second quarter 2025 net revenues were $444.8 million, an increase of 2%. Operating income was $161.8 million, representing operating margin of 36%. Net income attributable to Weibo reached $143.2 million, an increase of 13% and diluted EPS was $0.54. Let me give you more color on the second quarter 2025 revenue performance. Weibo's advertising and marketing revenues for the second quarter 2025 were $383.4 million, up 2%, while value-added service revenues were $61.4 million, down 2%. Weibo's advertising business continued to deliver a slight uptick, which resulted from mixed performance of major ad verticals by industry. Our top 3 verticals were FMCG, e-commerce, and 3P products. In terms of growth, e-commerce, Internet services, and automobile were the key contributors, benefiting from changing policies and intensifying competition among platforms. E-commerce advertisers increased their ad spending on Weibo to boost the brand visibility during the June 18 shopping festival. The automobile sector sustained healthy growth as Weibo play increasingly important role in building market hub for EV launches, underpinned by strong discussion there of the auto vertical. The FMCG sector continued to see a year-over-year decline. However, we are seeing early signs of gradual recovery despite near-term pressure. We are encouraged to see a gradual comeback with those Manga festival brands, the FMCG brands reallocate their budget to Weibo's celebrity product launch, ad offerings to engage our young and high-value users. Other underperforming industries that dragged the overall top line recovery included online games, luxury, and entertainment. In particular, the online game sector remained soft due to tough comps and lack of blockbuster release this quarter. The ad product category promoted feed ads remained the largest contributor, followed by social display ad and topic and search placement. We have been integrating AI to facilitate smarter ad targeting and placement, led to the double-digit growth of our feed ad offerings. Specifically, our real-time bidding feed products saw strong improvement in both performance and conversion metrics. Ad revenues from Alibaba sustained a healthy growth of 10%, reaching $35.7 million in the second quarter. We gained a larger share of Alibaba's ad wallet in Q2, driven by increased marketing demand during the June 18 festival and heightened competition in the local service segment. Looking ahead to the second half of the year, we expect to face a tough year-over-year comparison in third quarter due to the Summer Olympics in the prior year. Also advertisers from consumption-related industries remain conservative in their ad budget allocation in light of geopolitical outlook and macro uncertainty. That said, we will step up our sales execution to capture engagement opportunities, particularly in on-demand e-commerce services and new EV launches. In the longer term, we aim to further integrate AI capabilities to drive meaningful improvement in ad inventory availability and eCPM update. Value-added services revenue grew 2% to $61.4 million in the second quarter, mainly due to a modest decrease in membership services. Turning to cost and expenses. Total cost and expenses for the second quarter were $283 million, an increase of 1%, with increase in cost of revenue and product development expenses offset by decrease in general and administrative expenses. Operating income in the second quarter was $161.8 million, an increase of 3%, with an operating margin of 36%, flat versus the same period last year. Turning to income tax. Under GAAP, income tax expenses for the second quarter was $31.7 million compared to $33.3 million last year. Net income attributable to Weibo in the second quarter was $143.2 million, an increase of 13%, representing a net margin of 32% compared to 29% last year, primarily attributable to higher net interest and other income. Turning to our balance sheet and cash flow items. As of June 30, 2025, Weibo's cash, cash equivalents, and short-term investments totaled $2.11 billion, compared to $2.35 billion as of December 31, 2024. The decrease of Weibo's cash, cash equivalents, and short- term investments was mainly resulted from the purchase of long-term wealth, wealth management products, and the payment of the annual dividend to our shareholders in the first half of 2025 and partially offset by operating cash flow. In the second quarter, cash provided by operating activities was $24.8 million. Capital expenditures totaled $17.6 million, and depreciation and amortization expenses amounted to $14.8 million. With that, let me now turn the call over to the operator for the Q&A session.

[Operator Instructions] Our first question comes from the line of Felix Liu from UBS.

[Foreign Language] Congratulations on the strong second quarter results. Management earlier mentioned about your progress on Weibo Smart Search. Could management elaborate a bit more on your product strategy and the future plan for commercialization? And furthermore, on AI, could management share more progress on how AI is helping the overall monetization and commercialization for the Weibo platform?

[Interpreted] Okay. So actually, in the last quarter, we've already shared that in Q1, we promoted the intelligent search product. In Q1, we actually connected to the DeepSeek-R1 model, and we promoted the product -- launched the product. And in Q2, actually, was a first full season for the intelligent search to be present in Weibo. And then in June, we also connected to the Ali Q1 because for the DeepSeek-R1 model, in terms of the output speed, actually it's a bit low. So actually, a lot of users couldn't wait for the result to be produced. So in general, we should say that actually in Q2, the product is still being perfected and it's still in the process. So basically, at the end of Q2, the product form was finally stable. Then actually, in terms of June, just now we introduced that actually for the MAU, it's already over 50 million. So for the query, it also improved by 60%. And as for the DAU and for the user query, actually, the growth was even faster. So actually, the growth rate was already over 100%. And in terms of the traffic, it grew by around 150% compared to the previous quarter. So in general, we can see from that data, actually, the user scale is growing and the frequency of usage is obviously increasing. So actually, we have pretty high expectation on the intelligent search product in the latter half of the year. And I think if you have been following Weibo, you would know that actually we have always had the advantage of news search. But in terms of the long-tail searches, actually, Weibo isn't that advantageous in that aspect. But right now, with this product, we can see that in the current usage by the users, of course, the search on the news is still accounting for a big percentage, but more and more users are using it, and now they're using it for the experience search, product search, maybe some other long-tail searches. And also now with the connection of the models and other content, it also helps us in terms of displaying some of the out-of-site search results that can be displayed in the intelligent search on Weibo. And that is very vital for Weibo to really change the user behavior of the users and also to improve the percentage of the long-tail searches. So actually, in the industry, people have this general awareness that AI search is clearly overtaking and replacing the traditional search, and that is a clear trend. And now in the social media platforms, we can see that, for us, we're not only making the search function better. Actually, in terms of the usage on Weibo, you can see that for users, when they use this product, it's not just about the search, it's also about social interactions. For example, in the comment sections, they can do fact checking and also for some of the blogs, they can also use this kind of tool to fact check or maybe do some extensive reading for the relevant material. Actually, there are a lot of use cases and scenarios. And they are some of the key words, key directions for our latter half of the year, and we do have some pilots going on. And in terms of commercialization, we should say that actually a lot of clients are interested in this product. But we are not overly anxious in terms of commercialization, and we tend to try to expand the user base right now. And in the future, for the commercialization, maybe it's about the bundled cooperation with the brands or maybe it's just like in the traditional search where we include ads in the search results. But actually, in the latter half of the year, in Q3, we may not consider that. Maybe in Q4, we would do some tests. But overall speaking, we should say for this product, it's really important for us to increase the user base for the search and also to help us increase the user stickiness and the traffic. And we have a really high expectation in terms of the future commercialization of the product. So just now, your second question was about AI ads. In terms of ads, I think most of the platforms are alike. That means they are mostly concentrating on the performance-based ads. And for us, on one side, it's about the auto placement of the AI assets. So in Q2, we launched our AI ad creative platform called [ Linchong ]. And right now, for the assets that is consumed, actually more than 10% is already from AI. And from the results, just now we already talked about it, for Q2 in the information feed ads, the eCPM grew by single digit, less than 10%. And then when it comes to CTR, I think for different clients, for different client types, things would be different. For the leads type, the CPR would be higher, maybe around 20%. But for the apps, maybe more than 10%. But comprehensively, the eCPM maybe grew by less than 10%. So that's for information feed or maybe for the performance-based ads. So in terms of the brand ads, for a lot of the brand customers, they are placing quite high-quality ad assets on Weibo. So actually, in Q2, we have done some tests with some specific customers. For them, they have some high-quality PPC ads. And then we use AI to conduct some coordination or for different user bases according to their interest, we conducted some reediting with their existing assets. Actually, in terms of the result, it's better than the results for the small and medium-sized customers. And then they saw some of our testing results. Basically, for the click rate, it increased just like the performance-based ads. But for the interaction, it basically doubled. So the overall result was pretty good. But for the brand clients, the biggest challenge is still in the restraints of the process of ad placement. So basically, for our brand customers, when they place the information feed ads, they require all the assets to be approved on their side. So that kind of work process for AI ads, which is quite customized for different people, it's not really adaptive. So that really limits our customers, especially the brand customers when they want to use our AI ads at scale. So generally speaking, for the brand ads, I think if we can use AI ads on a large scale, the performance and the results would be even more obvious in terms of this improvement. But it may take some time for our customers to gradually accept it. So we expect that at the end of the year, maybe more than 10% of our brand customers can start to use the AI ad system.

Next we have Timothy Zhao from Goldman Sachs.

[Foreign Language] My question is regarding the advertising revenue growth outlook. Can management share what is your expectation for the ad revenue growth into the third quarter and second half of this year? And specifically, which industries may show a stronger revenue growth? And from a format perspective, just wondering what is the difference in terms of growth rate between search ads, displayed ads, recommendation feeds ads, et cetera? And specifically, as management already mentioned the applications of AI in information ads, just wondering, given the very rapid usage of the AI search functions on Weibo, what is the implications for the search ad growth?

[Interpreted] So in the latter half of the year, especially when we look at the industries with some national subsidies, those industries still have some uncertainties, especially the national subsidy-related industries like the cell phone or the automotive industry. Then when it comes to Q3, I think -- firstly, I think we already covered about that in Q2, which was e-commerce and also automotive industry. We think those industries can still maintain very good growth. And in the last 2 years, with the change of the age of our users, especially for the white collars, people generally paid more attention to healthcare. So healthcare had pretty good growth in the last 2 years, but the base number was not as large as e-commerce and automotive industry. So those are the growing sectors. So actually, in Q3, we still face a lot of pressure in terms of FMCG because there was the Olympics last year. So for dairy products and other FMCG had some spending cuts in -- especially in Q3. And the other thing is for the cosmetics and luxury goods. Cosmetics have already quite stabilized, but we still face some pressure in Q3. And also the same thing goes for luxury goods. And then for cell phone and gaming industry, there is huge uncertainty. For cell phone in this year, we do see that compared to the first half of the year, their budget basically stabilized, but their overall sales went down a lot. So if there is no additional national subsidy policies coming out, we still expect some pressure in terms of the cell phone industry in the latter half of the year. And then in terms of the ad strategy, I think the biggest percentage still goes to the information feed ads and then the displayed ads and then the other ads. And then for the information feed ads, it's growing in itself. And in terms of the growth rate, I think for information feed ads, the growth rate is the highest. And actually, for the displayed ads in Q1 and Q2, there was a small dip because I think that's related to the overall budget of the customers. So for the information feed ads and the performance-based ads and for the maybe content-based ads and then for the purely displayed ads, for our -- from our perspective, I don't think the pure displayed ads is our future focus. So that means more and more customers will purely go to performance-based ads, and also they may invest more in terms of star collaboration or maybe KOL investment and maybe customers, they have their own accounts, the social media account that can produce some content-based marketing type of ads. That is the mainstream in the future. And for the search ads, I just introduced that, of course, there are certain customers. They have some expectation on the monetization or commercialization. But for us or even in the industry, there's no clear business model for this type of ads. So right now, we still focus more on building a bigger customer base and introducing more traffic. And of course, maybe we can introduce a bit of the displayed ads, but that's too small a piece. So I think we still will focus more on increasing the user base. And also we need to focus on the user experience of the intelligent search and also the feedback of the industry had been good. So we would increase a bit in terms of the budget, maybe in computing power and also the investment for the external cooperation and marketing. And we hope that that will help us grow in terms of the user base because that's the highest expectation we have now for this product. In terms of the revenue and commercialization, we're in no hurry.

Thank you for the questions. I will now turn the conference back to Sandra.

Thank you, operator. This wrap up our conference call today. Thank you all for joining us. We'll see you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]