Welcome to the Weibo Reports Third Quarter 2015 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vanessa Chen. Please go ahead.

Thank you, operator. Welcome to Weibo's second quarter earnings conference call. Joining me today are our Chairman of the Board, Charles Chao, our Chief Executive Officer, Gaofei Wang and our Chief Financial Officer, Herman Yu. The conference call is also being broadcast on the Internet and is available through Weibo's IR website. Before the management's presentation, I would like to read you the Safe Harbor statement in connection with today's conference call. During the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Weibo assumes no obligation to update forward-looking statements in this conference call and elsewhere. Further information regarding this and other risks is included in Weibo's annual report and Form 20-F for the fiscal year ended December 31, 2014 filed with the SEC on April 28, 2015 and other filings with SEC. 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 future prospects. Our non-GAAP financials exclude certain expenses, gains, losses and other items that are not expected to result in future cash payments or that are non-recurring in nature or will not be indicative of our 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 Chief Executive Officer, Gaofei Wang.

[Interpreted] Thank you and good morning. Welcome to Weibo's third quarter 2015 earnings conference call. During today's conference call, let me share with you updates on Weibo product, traffic and monetization. Let me start with our third quarter performance. In the third quarter of 2015, Weibo continued to achieve strong revenue growth and user growth. Weibo’s total revenues grew 48% year-over-year to $124.7 million, advertising revenue grew 62% year-over-year to $105.9 million with 64% of our ad revenues coming from mobile. Our non-GAAP net income in the third quarter reached $22.1 million. On the user front, in September, Weibo’s monthly active users reached 222 million, up 32% from the same period last year, daily active users reached 100 million, up 30% from the same period last year. 85% of Weibo’s MAU in September were in mobile, those numbers of Weibo users who have activated Weibo Pay reached 48 million in September. Turning to operations, let me elaborate on the key progress we have made. Over the past year, we have discussed the emphasis we placed on improved user experience and content consumption such as reducing the clutter and improving the relevance of Weibo information stream. At the same time, we have focused on building out Weibo Exchange as a public sharing social platform where Weibo's feeds and user engagement are viewable by the public. In other words, we are focused on improving Weibo's strategic differentiation in the areas of content creation and consumption. On previous earning calls, we discussed the steps that we have taken to optimize the information stream of Weibo users. On today's call, we will elaborate on the progress that we have made to improve content sharing on Weibo. Our efforts to improve content sharing consists of two parts. First, is to grow the scale of key…

Thank you, Gaofei, and good morning everyone and good evening to those of you in the west. Let me now take you through Weibo’s financial highlights for the third quarter of 2015, for the third quarter, Weibo's total revenues was $424.7 million, which was above our guidance of between $120 million and $123 million. Total revenue was up 48% year-over-year, or 53% on a constant currency basis. Non-GAAP net income attributed to Weibo’s ordinary shareholders came in at $22.1 million compared to a non-GAAP loss of $1.5 million last year. Non-GAAP EPS was $0.15 compared to negative $0.01 a year ago. As Weibo's revenue ramps, we are seeing meaningful profit margin expansion. During the quarter, revenue was up 48% year-over-year while cost and expenses increased only 17%. Weibo's EBITDA grew to $26.5 million, reaching a 21% EBITDA margin from $1.9 million, below the 2.2 margin last year. I will then give you more colors on revenue. Advertising and marketing revenues for the third quarter of 2015 were $105.9 million, up 62% year-over-year and 67% on a constant currency basis. During the quarter, we saw healthy revenue growth from the advertising segment across the board. Revenue from Alibaba was $32.5 million, up 18% year-over-year, and with 22% on a constant currency basis. Non-Alibaba revenue was $73.3 million, up 94% year-over-year or 100% by a constant currency basis. Let me talk a little bit more about the SME. Revenues from the small and medium sized enterprises was $44.6 million, up 189% year-over-year or 198% on a constant currency basis and represent 42% of total ad revenues. Revenue through the SME channel was up 99% and while revenues from Weibo's self-service ad which we began promoting at the end of last year, have also contributed significantly to the year-over-year high revenue growth. Weibo…

[Operator Instructions] Our first question comes from Dick Wei from Credit Suisse.

Hi, good morning. Thanks for taking my questions, and congrats on the good quarter. Maybe just two quick questions. First one is maybe in terms of the end-user targeting. Anything you can update us in terms of the progress? Maybe over the past year or so, I understand we have different categories of [inaudible] groups, I wonder with more of the additional data from other platform, I wonder how -- any kind of sense you can share with us in terms of the user targeting, what kind of improvement. And maybe secondly, if you can share with us what kind of current loads right now and what kind of the expansion plans down the road. Thank you.

The first question has -- regarding the user targeting, are you talking about user targeting for advertising purpose?

That's right, yes.

CLS:

Yes. So let me translate. We have several types of ad inventory. Inventories such as FSG [ph], within that information field [ph], this is -- we -- advertisers can buy this by targeting specific type of user profile. On the other hand, we have more display advertising such as app opening and also the brand display ads in mobile and also in PC, and those are -- we still sell it in the form of GPL [ph].

[Interpreted] Going into 2016, we plan to have the majority of our products [inaudible] promoted information field [ph] would allow the ad customers to buy [ph] by targeting our user base, our profile, and also user interest, social [inaudible]. And all this would be using real-time updating [ph]. Most of our users now already have a real ID registered -- they have registered through real ID, so we have a [inaudible] pretty complete profile information of our users. And I wanted to highlight what we just talked about in our prepared remarks. We talked about focusing on vertical such as finance and auto. By verticalizing our users and providing content to them, we would be able to allow advertisers to have a better way of reaching users, where interested, in these vertical domains. The second question was on ad load. Our ad load today is 2.3%, and we expect this to rise -- continue to rise in the future.

Great. Thank you.

Okay.

Thank you.

Your next question is from Juan Lin at 86Research. JUL: Hi, good morning, Gaofei and Herman. Thank you for taking my questions. My question is related to the video autoplay. You mentioned that you're testing this new format of advertising. Could you please share the timeline of your video autoplay app? And how should we look at the potential influence on the gross margin from ramping up this new format?

[Interpreted] So we're already testing autoplay. We expect this autoplay to be gradually rolled out over the next two quarters. And with regards to the timeline of advertising, video advertising, we will see, depending on the current viewership of short videos [inaudible]. And with regards to the pricing for brand advertisers, short video ads, we will use a CPM model. And then with targeting SME customers, especially e-commerce, we believe there's a demand there, and we will try to [inaudible] close to -- for the brand advertisers and should be priced higher -- ultimately should be priced higher than the current FSG [ph] advertising. We don't think introducing video ads will cannibalize too much of our existing advertising, and we think that ultimately it will increase our CPM for the overall advertising. Yes.

Okay.

Thank you, Gaofei. And also the potential impact on gross margin from the ramp-up of autoplay video ads.

Yes. So, because we -- the model for video advertising is we're going to first install automatic play, short video clips, so, initially it's going to hit our margins as we roll out in the market [ph]. But I think if you start looking at, you know, depending on when the revenue kicks off, I think it will take some time for the Chinese market to accept this new video advertising format. But as this revenue comes in, I think over the long term our margin should be pretty good. But I think in the short term it's hard to say. It really depends on how fast we can actually push autoplay and then how fast the market can expect video advertising.

I just want to add one thing, is that actually the impact on the margin not from the advertising revenues but really on the consumption of video on our platform. And so the cost of revenues increased current quarter and if you look back in the last couple of quarters. And going forward will be largely to do with more consumption on the video on our platform, without the advertising revenues. So [inaudible] cost right now and so if we can generate more revenues in the future, that will help our overall gross margin going forward.

Thank you very much.

Your next question is from Tian Hou at T.H. Capital.

Yes. Gaofei and Herman. A question related to Alibaba. So in last quarter, you did mention about revisit the deals with Alibaba. I wonder, what's the update on that? I will have a follow-up after this.

Hi, Tian. Good morning. With regards to Alibaba, I think last time we gave you guys -- I think we're still in negotiation with them. Bear in mind that Ali yearend is at the end of March. So when we're talking about 2013 [inaudible] they really haven't set their 2016 budget because their 2015 really ends three months afterwards. So we're still in negotiation. The way we look at this problem, basically our relationship with Ali, strategic alliance, comes in three parts. We have brand advertising, we have the vertical piece, and we also have the Alibaba piece. And we think that for brand advertising and also for the vertical, you know, for the brand advertising, we think that we can at least keep it consistent with what we have this year and potentially there could be more. With the verticals we're currently in discussion, we think that we could probably keep it similar to what we have at this year. And then with Alibaba, as we talked about earlier, that anything within the information flow we're hoping to build a real-time bidding across all these channels, you know, including when the SMEs and the KAs and so forth. So from that perspective, because real-time bidding, we want the optimal price, we don't necessarily need to have that piece of revenue come from Alibaba. It's whoever can actually pay more. So that's how we're looking at the Ali deal.

Okay. So the second question is related to your fans economy. So as we see in US, in Facebook, so, each fan was some kind of money. So I wonder, what's the progress for Weibo on that front, in terms of making money out of selling fans to whoever [inaudible]. That's one. The other question is also, related to that, regarding your key opinion leader. I wonder how many key opinion leaders you will have now? And how do we measure their engagement level and activity level? That's all my questions, Herman.

Yes. Let me try to answer that. With regards to fans marketing, as I mentioned, Tian, on my prepared remarks, the majority of our revenue coming from self-service ads is our fans market. And this is really a big driver of our SME revenues. With regards to KOLs, KOL, you know, it's a pretty generic term. If you look at our total KOLs on Weibo, the way I see it, really see it in kind of three parts. Number one, those verify individuals, people who are celebrities and personalities and so forth. We have about a million of those on Weibo. And then you have the verified [inaudible] businesses and so forth. Those we have over a million. And then we have about 8 million what we call the socialites or online influencers. So when you add those three segments up, we're talking about 10 million roughly verified accounts. Yes. And then with regard to engagement, we look at whether -- how much feeds they post regularly and the type of engagement they have with fans, whether their fan base is growing and so forth. So there's many different metrics that we look at, just look at [inaudible].

CLS:

Yes. So what Mr. Wang just said was that the way we look at our KOLs, we look at from three areas. Number one is we measure them based on the number of posts that they provide on a regular basis. We look at the amount of input, meaning, for example, when they post something, the amount of viewership and engagement with the fans. And number three is the type of value that they can actually bring to the Weibo platform. And we measure this by, for example, how much revenue they generate with Wei Test [ph] also how much chirping [ph] they receive from their fans.

Okay, that's very helpful. Thank you.

The next question is from Piyush Mubayi at Goldman Sachs.

Thank you very much, and congratulations on the super number. Can I just go through a few points on the Company -- on the numbers that are reported, pretty much housekeeping questions? First, a quarter ago you talked about Weibo Pay being about 46.5 million. Could you give us an update on where we stand on that? The second is with regards to mobile revenues, could you just spell out what that number was for the quarter? Third, looking at the incorporation of mainstream videos, could you give us a sense of what sort of difference in time spent you started to see on your platform, what is the average video viewership and how you're measuring that metric? I know you talked about CPMs being potentially higher. On the cost side, are you adequately prepared for potentially bandwidth pressure that will emerge on the back of that? Thank you.

So, Piyush, good morning. Let me answer the first two questions for you. With regards to mobile, with mobile revenue, as we mentioned at the prepared remarks, 64% of our advertising revenue is coming from mobile right now. And with regards to number of Weibo paying users, we have, at the end of September, the number of registered Weibo pay users reach 48 million. And then Gaofei will answer the third question with regards to video.

[Interpreted] So with regards to video autoplay, we're going to -- we started our beta testing in the fourth quarter, so I think if you give us a few more months, we would be able to better answer the user metrics on this thing. We have to recognize that in China, most of the people, they have very limited mobile 3G, 4G services and so forth. So for autoplay, what we'll do is initially we'll just allow autoplay to occur for WiFi users. And that, WiFi users, should be about half of our DAU. With regards to videos today, most of our videos on Weibo is less than three minutes. So we don't expect the bandwidth cost on Weibo to be at the kind of level that we see, for example, for online video sites in China. And then, additionally, with regards to our advertising model, what we'll do is we'll probably just include, at least initially, include advertising within the regular feeds and not put it in front before or after existing video content, because each content is -- most of the contents we have is like a three-minute play.

Thank you. And Herman, may I ask a question about the cost? Your margins have been improving extremely nicely every quarter. And if I look at it on an incremental basis, it's running at between 90% and 70%, i.e. that's the delta in operating profit over the growth in revenues. To what point can we expect this to continue?

You're talking about net margins?

I'm looking at operating margins, operating profit.

Yes. Yes. I think, Piyush, it's hard to say that on a short-term basis. If you look at a long-term basis, I think what we have with Weibo is a social platform that's powered by user-generated content. Because we don't have to pay for content, I think that our model is pretty scalable on a long-term basis. So I think that you'll see that, we believe that over the next few years, that you're going to see our margins continue to increase. What you're really seeing, for example, in the last few quarters, is our revenue -- as our revenue growth is increasing, things are more direct to our revenues, such as business tax and revenue share and so forth, in addition things related to our traffic, such as bandwidth. The other type of ad component such as sales and marketing product development, G&A and so forth, those are growing in absolute dollars but not as a percentage of revenue.

Thank you very much.

Next question is from Chi Tsang at HSBC.

Hi, great. Thank you very much for taking my question. Congratulations on some nice results. I had two questions. Firstly, just in terms of margins, again a very nice set of margin numbers. I'm wondering, just in terms of housekeeping your G&A was down materially both Q-on-Q and year-on-year. I was wondering if there's anything in there that needs to be called out. And secondly, in relation to your guidance, it's 40% to 40% year on year, what are the implications for [3P] advertising revenue growth in the fourth quarter? Thank you.

Hi, Chi, good morning. Let me answer the first question. With regards to G&A in the third quarter, what you see here is that -- is G&A on a non-GAAP basis is $3.1 million. What you need to do is to normalize that and be able to be comparable to last year and in prior quarters, that you need to add back about $2 million for bad debt. What happened is during the quarter is we have a situation where we have a very long-aged due bad debt that we originally had accrued for but we're able to collect. So therefore you have this positive $2 million. With regards to your second question on [3P], can you explain on that a little bit more?

Yes. I'm just wondering, your guidance is 40% to 40% year on year, so I'm wondering within that, what should we be expecting for growth coming from third-party advertising, i.e. non-Alibaba advertising for the fourth quarter?

Okay. Yes. I think when you look at our guidance in the fourth quarter, I think if you look at our third quarter, it's pretty representative. We still expect growth from Alibaba, although it's been pretty consistent over the last two quarters. I think the majority of the growth is going to come from our SME and also our [KA] advertising. Yes. Okay?

The next question is from Wendy Huang at Macquarie.

Thank you. Can you give us update on Alibaba's holding in Weibo right now? And also given that Alibaba already fully acquired one of the companies that used to hold a minority stake [inaudible] do you think there is a possibility or is there talk between Baba and Weibo about a similar progression? And secondly, on the competition front, I think today Weibo is not only competing against social network platform like WeChat but also the emerging like news app in the market, like Today's Headlines [inaudible] or the Tencent news app, etc. Can you comment on that? Thank you.

Okay. Yes, I'll -- hi, good morning, Wendy. I'll talk about the first -- I'll answer your first question and then I'll have Gaofei answer the second question. With regards to the first question on Alibaba holdings, Alibaba's ownership of Weibo should be around 30% right now. You asked a question that Alibaba decided to take over YouTube. For us, we don't have anything that's concrete and tangible to discuss at this point. I mean, until something that's concrete and tangible has happened, it's hard for us to comment on rumors. With regards to the second question.

[Interpreted] So, Weibo [inaudible]. So, our advertising comes from two areas. Number one is based on the social networks. So it will be similar to something like Weixin's friends circles. And secondly, in addition to social advertising, we also have the piece on brand display. And in this instance, very similar to the news apps that you talked about, and this really depends on the amount of inventory that we have. Right now our ad load in relative terms if quite low, and this is an area that we will be able to focus on next year. At the same time, when you're talking about news apps in China, if you look at Weibo's DAU compared to the next five in China, Weibo's DAU is bigger than the sum of the next five apps -- news apps in China. So I think with regards to that, this is an area of advantage that we have and we'll leverage this as we foray into brand advertising on mobile. And in talking about competition for user time, there's no question that news apps will also allow our users consume compared to our social platforms. On the other hand, when you look at social apps around the world compared to our news app, you can see that news apps have not been very successful against social apps because of the user engagement and so forth, that you're able to add the commentaries and so forth, you're able to add, in addition to the professional media content.

Okay.

This concludes our question-and-answer session. I would like to turn the conference back over to Vanessa Chen for closing remarks.

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