Ladies and gentlemen, thank you for standing by and welcome to the Weibo Reports Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Now, I would like to hand the conference over to your first speaker for the day, Mr. Kevin Ja. [Ph] Over to you, sir.

Thank you, operator. Welcome to Weibo's 2017 Third Quarter Earnings Conference Call. Joining me today are Chairman of the Board, Charles Chao; our Chief Executive Officer, Gaofei Wang; and our Vice President, Finance, Fei Cao. The conference call is also being broadcasted on the Internet and is also available through Weibo's IR website. Before the management presentation, I'd 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 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 for the fiscal year ended December 31, 2016, filed with the SEC on April 27, 2017, and other filings with the SEC. Additionally, I'd 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 financial excludes certain expenses, gains or losses and other items that are not expected to result in future cash payments or that are non-recurring in nature or will be indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management's prepared remarks, we 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.

Thank you. Hello, everyone, and welcome to Weibo's Third Quarter 2017 Earnings Call. On today's call, I will share with you highlights on Weibo's user growth, products and monetization, as well as an update of our key initiatives in 2017. Let me first discuss our first quarter financial results. We continue to see strong revenue and user growth this quarter. Our revenue in the third quarter reached $320 million, up 81% year-over-year. Advertising and marketing revenue reached $276.8 million, up 77% year-over-year. 78% of ad revenue in Q3 came from mobile. Other revenues reached $43.2 million, up 114% year-over-year. Non-GAAP net income in the third quarter was $115.2 million, up 111% year-over-year. Operating margin in the third quarter has reached 41%. Overall, the company's operating efficiency has continued to improve. On the user front, Weibo's MAUs reached $376 million in September 2017, 20% year-over-year. Average daily users in September reached $165 million, up 25% year-over-year. In September, 96% of Weibo's MAUs came from mobile devices. This quarter, we maintained strong user growth and user engagement, mainly attributable to the continued efforts we made in expanding online marketing channel and carrying out promotional events on campus in over third and fourth-tier cities. Moreover, riding with rapid growth in mobile advertising market in China with the combined efforts of our sales team in marketing innovation and updated new advertising systems business strong, we saw a meaningful increase in the number of our ad customers and robust ad revenue growth of Weibo. Most notably, the number of K customers grew 69% year-over-year. We're reinforcing the business cycle of user growth, user engagement and monetization as Weibo has laid a foundation for Weibo's monetization at a greater scale. As part of the third quarter operational update, I'll cover our progress in the area of…

Thank you, Gaofei. Welcome to Weibo's third quarter 2017 Earnings call. Looking at ad [indiscernible] through mobile, social and video. We delivered another strong quarter with encouraging user base expansion, more diversified revenue stream and improved monetization efficiency. Let me now go to our financial highlights. For the third quarter of 2017, Webio's total revenue reached $320 million, up 81% year-over-year, exceeding the midpoint of the company's previous guidance by 8%. Non-GAAP net income attributable to Webio is $115.2 million, up 111% year-over-year. Non-GAAP diluted EPS was $0.51 compared to $0.24 a year ago. Our adjusted EBITDA reached $135.9 million, up 136% year-over-year and adjusted EBITDA margin reached 42% in the third quarter compared to 33% last year. The 9% leap in EBITDA margin from last year once again demonstrates the strong operating leverage of Weibo's platform and the competitive edge of Weibo's unique ecosystem. Turning to ad revenue. Advertising and marketing revenue for the third quarter was $276.8 million, up 77% year-over-year. Mobile ad revenue was $215.7 million, up 110% year-over-year representing 78% of our total ad revenue with 92% of Weibo's MAUs were mobile. Weibo is benefiting from ad budget shifting to moible. As Gaofei mentioned, our upgraded new ad system Super FenSiTong [indiscernible] which has significantly improved Weibo's ad targeting ability and advertising efficiency with more effective real-time bidding and more comprehensive ad measurement. Total advertisers in third quarter is 909,000, up 21% year-over-year. Weibo is benefiting from higher budget commitments from advertisers as on one hand, they continue to recognize the unique social marketing value that Weibo has created. On the other hand, advertisers also have gained the increase in return that's generated from Webio's good selection of products and services. Moving on to SMEs. In the third quarter, Weibo's SMEs ad business was $143.8 million,…

[Operator Instructions] We have the first question from the line of Alicia Yap from Citigroup.

My first question is regarding the fourth quarter guidance. Can you give us -- can you share with us and quantify how much of the revenue do you expect to come from Alibaba this quarter and how many of the bigger brands on Ali platform are currently adopting the social commerce lead from Weibo? Then second question is on the Search business. Can you elaborate a little bit on the prepared remarks, more detail about this search potential revenue? Is this more targeting on the content search within the Weibo platform or for the general search? And how do you plan to monetize these search functions, is it more content creator could potentially bid for advertising slot order [indiscernible].

I am going to take your first question. We don't provide a breakdown for our revenue guidance for the upcoming quarter. It is our practice to disclose one number, but to everyone's knowledge, Alibaba has generally spent a lot more in the fourth quarter given the specific events such as Double 11, Double 12. And with that -- and I think the market understands, we operate our ad system on a bidding -- on a real-time bidding process. So every customer, they had a equal chance to get inventory on our platform. So with their marketing events and their initiatives to meet their marketing demands, we anticipate that during the fourth quarter, they might be much more willing to bid higher price for our inventory. So this is very much consistent with their practice with Weibo for the last couple of years. So hopefully that answers your first question. Right now, our search feature is largely focused on the search for people and the hot news on Weibo. We started the search monetization in the second half of this year. Currently, the feature of the monetization in the search area is quite similar to our in-feed advertising from our main page, and this is particularly true for the hot news search. However, in the vertical area, we do provide a different approach on things.

The next question comes from the line of Fan Liu from Goldman Sachs.

So my first question is about -- would you mind to share with us the breakdown between the promoted fees, display ads and also advertising, including topics? And also would you mind sharing with us what's the revenue contribution from video ads this quarter? And also separately, following [indiscernible], would you mind sharing with us what's with the [indiscernible] for the video ads and also non-video ads for the effective CPM? And also I think Gaofei has mentioned that 30% of the videos right now are actually high definition videos. Would that be -- I mean, improve the effective CPM for the video ads going forward? And also on the other hand, I think the high definition will also have some pressure on bandwidth cost. How should we look at the margin profile for this segment particularly? Thank you.

I am going to take your first and the second question. In terms to your breakdown of your current promoted fees as a percentage of revenues, that number is very similar to last quarter. It's up a bit like a 2 percentage points in this particular quarter representing about 54%. So that's continued to be our largest piece of ad format in our ad revenue. In terms of your question on the revenue percentage -- video revenue percentage of the total revenue, I think it was part of Gaofei's speech that, that number was quite consistent on a quarter-over-quarter basis. And the third question?

Right now, it's about 30% of uploaded video using high definition format. The purpose of shifting more to high definition format, the first part is to really try to improve the experience for users. So on the other hand, that part of the content, we would like the user to be shared into other platforms such as PC, pad or TV. Following the adoption of high definition format, we actually see some customers who used to be running campaign on TV station or online video platform have shifted their -- some ad budget to our platform. They've become much more willing to running their campaign on Weibo, that very effectively help us to enlarge our customer base.

Just a quick follow-up, so what's the CPM for video and non-video right now?

We generally don't disclose that information on a separate term for video or non-video. This is a consistent practice we have done in the past. I think Gaofei has given some indicators in his speech talking about the adoption of the new ad system, which had a positive impact on our ECPM as well as our engagement rate.

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

So, my question is about a competitive landscape of the news feed advertising market in China. So recently, Baidu reported very solid feed advertising revenue, and there was also some of speculation that concerned the change of official account news feed -- news format. So how shall we expect the impact to the users [point share] and advertisers budget spend on Weibo? That's my first question. And my second question is for our -- still about our new advertising system, so can you share some recent progress or help us quantify like how much, I mean, the new advertising system will contribute to our Q4, and how much incremental monetization shall we expect from the new system in next year, I mean, 2018? Thank you.

We have noted the increased competition within the news feed such as the few names you have mentioned, like Baidu or Tencent, but in my, I think, previous note, we indicated we are much more focusing on the social elements or social budget in China. Right now, that piece of the budget as as the percentage of a digital marketing compared to our U.S. peers continued to be at a low level. I would believe there's another 50% or double the opportunities for this company. Okay. With that our focus has been on the -- expanding our customer base, and our sales team has been focused to track more user to using Weibo as system in a tri-social marketing solution. And our historical experience has indicated any retained customer, they will increase their [ARPA] or per customer spending with us once after they had a trial run with us. On the SME front, we do recognize that they are much more focusing on the performance ad and giving the unique aspect of Weibo, which owns social ID, we can provide a much more targeted performance ad results to our customers. In particular, with the incorporation of Ali, we will be able to targeting our customer with particular attributes through data exchange from Alibaba, and our CTR rate and engagement rate currently in the marketplace has warrant our market position in terms of SME spending. Well, the biggest difference between the old and new system -- ordering new ad systems resides with the traffic. Prior to the new system, we have separated traffic allocated for key accounts, small and medium enterprises and the self-service clients. Now we have converged all this traffic altogether. So with the new model, everyone's based on the same platform to bid on a real time basis, which significantly enhanced the bidding efficiency, and also we provide more choices to our customers to have more focused or targeted bidding process. Yes, with the adoption of the new ad system in late August, we see above 20% of increase in our ECPM price as well as our engagement rate in terms of our ad performance. With your question on the fourth quarter, which elements attribute the most be the increase in our revenue for that particular quarter? There's many more variables. One quarter, we will see increased budgets from our customer in results of the events, such as Double 11, and at the same time, we will increase our [indiscernible] to meet their demand so that everyone has opportunity to use our inventory, our traffic to run their campaign. So it will be very hard for us to quantify which elements specifically attribute the increase in the fourth quarter revenue forecast.

The next question comes from the line of Juan Lin from 86 Research.

My question is related to your channel strategy for next year. I'm wondering whether the inventory piece related to [indiscernible] with mobile phone manufacturers will hold for next year and whether more expenses is required as competition intensifies. And also in terms of rating those channel strategies, could you please elaborate a little bit on on how the [indiscernible] improve efficiency and whether we will continue to see a significant improvement going forward? My second question is on sales and marketing expenses. I noticed that sales and marketing expenses increased significantly on a sequential basis this quarter. I'm wondering whether this is the one-time scheduled marketing promotion or whether this is recurrent expenses related to user acquisition and channel strategy. Thank you.

In my script, I already touched upon our channel strategy. We will continue our cooperation with handset manufacturers in order for us to penetrate into lower-tier city in the third and fourth-tier cities. At the same time, I touched upon the local operations that we are currently running that helps our user retention and engagement once we penetrate into these cities. Well, we have to admit that in the channel area, we see more intensified competition among companies. Because the unique aspect of Weibo products, what we have seen the retention rate of the user -- the new users we acquired is higher than other products. As a result, per customer acquisition costs in comparison to other platforms, we have a significant advantage. Right now what we see is we continue to increase per MAU -- revenue per MAU and in comparison to per cost -- the acquisition cost per user, we still see quite significant delta. As a result, we think this is quite a sustained model we can run for a period of time.

On the second question, I think, John, you had in terms of selling and marketing expenses. In the third quarter, the significant bulk of that expense is coming through -- came through from channel marketing, and also we did notice there was a bit of one-time expenses, such as Weibo Story launch-related expenses that you can consider -- you probably can consider one time. I think for -- to build your model going forward, you should anticipate in terms of the absolute dollar for sales and marketing will continue to go up in the years to come. However, we should expect selling and marketing as a percentage of total revenue will stay relatively flat or with very modest increase in next year.

We have no further questions at this time. I'd like to hand the call back to the speakers. Please go ahead. Ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. Thank you.