Earnings Labs

Weibo Corporation (WB)

Q3 2019 Earnings Call· Thu, Nov 14, 2019

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Transcript

Operator

Operator

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 listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sandra Zhang. Thank you. Please go ahead ma'am.

Sandra Zhang

Analyst

Thank you, operator. Welcome to Weibo's third quarter 2019 earnings conference call. Joining me today are Chairman of the Board, Charles Chao; our CEO, Gaofei Wang; our Sina Group CFO, Bonnie Zhang and our VP, Finance and Interim CFO, 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 call, we will make forward-looking statements, statements that are not historical facts, including statements of our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Weibo assume no obligation to update the forward-looking statement in this call and elsewhere. Further information regarding these and other risks is included in Weibo's Annual Report on Form 20-F and other filings with the SEC. All the information provided in this press release is occurring as of the date hereof. Weibo assumes no obligation to update such information, except as required under applicable law. Additionally, I'd like to remind you that our discussion today includes certain non-GAAP measures, which exclude stock-based compensation and certain other items. We use non-GAAP financial measures to gain a better understanding on Weibo's comparative operating performance and the future prospects. Our non-GAAP financial 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 will not be indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management's prepared remarks, we'll open the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gaofei Wang.

Gaofei Wang

Analyst

Thank you. Hello everyone, and welcome to Weibo's third quarter 2019 earnings conference call. On today's call, I'll share with you highlighting Weibo's users, product and monetization as well as progress we made on our key initiatives in 2019. Let me start with our third quarter financial results. In the third quarter, our total revenue reached $467.8 million, up 2% year-over-year or 6% on a constant currency basis. Advertising and marketing revenue reached $412.5 million, up 1% year-over-year or 5% on a constant currency basis. 87% of our ad revenues came from mobile. Non-GAAP net income during the third quarter was $176.1 million, representing a non-GAAP net margin of 38%. On the user front, in September Weibo's MAUs reached 497 million, up 12% year-over-year, representing a net addition of approximately 51 million users year-over-year. Average DAUs reached 216 million, up 11% year-over-year, representing a net addition of approximately 21 million users year-over-year. In September, 94% of Weibo's MAU came from mobile. This quarter, leverage reinforced the social interactive features, optimized with other reasons and traffic-allocation mechanisms, we capped the ramping up our efficiency in traffic distribution. Correspondingly, these refreshment, impressions and user interactions continue to grow double-digit year-over-year. Meanwhile, we continue to improve trend and topic products which help us empower user to more efficiently discover trends and hot topics and participate in discussions. These initiatives continue to drive solid user scale extension and engagement growth in the third quarter. On the monetization front, KA business continue to deliver solid growth, benefiting from Weibo's unique value propositions skewed upon KOL's influence in branding and driving performance coupled with the increasing adoption of social marketing solution within clients at budget. SME business has achieved a generally stabilized status year-over-year and grew double-digit quarter-over-quarter, leveraging the continued increase of platform traffic, improved…

Fei Cao

Analyst

Thank you, Gaofei and hello everyone. Welcome to Weibo's third quarter 2019 earnings conference call. Let's start with user metrics. Weibo's MAUs reached 497 million in September 2019, representing a net addition of 51 million users on year-over-year basis. Weibo's average DAUs reached 216 million, representing a net addition of 21 million users on year-over-year basis. Mobile MAUs represented approximately 94% of total MAUs. Turning to financials. As a reminder, my prepared remarks will focus on non-GAAP results and all the comparisons on a year-over-year basis unless otherwise noted. Weibo's third quarter 2019 net revenues were $467.8 million, up 2% or up 6% on constant currency basis. Operating income reached $119.2 million, representing an operating margin of 41%. Net income attributable to Weibo was $176.1 million and the diluted EPS was $0.77. Let me give you more color on revenue. Advertising and marketing revenues for the third quarter 2019 reached $412.5 million, up 1% or 12% on a constant currency basis. Mobile ad revenue was $316.3 million, up 5%, contributing approximately 87% of total ad revenue, up from 83% last year. Moving on to KA. In the third quarter, KA ad revenues reached $197.2 million, up 6% or 10% on a constant currency basis. From industry perspective, FMCG continued its resilience and bolstered the KA revenue growth. We are also impressed with the solid performance of [indiscernible] industry beside macro headwinds as Weibo has further demonstrated its indispensable value to a growing trend base with an integrated social marketing solutions from awareness to purchase. On flip-side, IT related sector and entertainment industry has faced slowdown of growth, primarily due to industry specific cyclical issues and the regulation sector respectively. Turning to SMEs. In the third quarter, Weibo's SME ad revenues reached $196.1 million, up 1% or 12% on a constant…

Operator

Operator

Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Alicia Yap from Citigroup. Please go ahead.

Alice Yap

Analyst

Hi, good evening, management. Thanks for taking my questions. Can you give us some update regarding the new app, Oasis. How are you positioning the app versus super app Weibo, what are the reasons the company decided to develop the app and then what are your product strategy and how are you going to balance the operation and user acquisition between Oasis and Weibo app? So any qualitative feedback from user during this testing period that you could share with us? And then lastly, I think on your prepared remark, you mentioned that you are going to launch the app officially once you get the regulatory approval. So what is the go-to-market strategy for Oasis and how do you plan to acquire user when it is launched?

Gaofei Wang

Analyst

As I indicated in my prepared script, our positioning for Oasis is to develop a platform for people to sharing their status of their life. This would be supplemental to Weibo ecosystem and particularly from a content perspective, we believe there is quite clear distinguishment between these two platforms. As of you are aware of, one of the key features of the Weibo platform is its viral distribution capability. As Weibo grow bigger and bigger, we see that capability further being strengthened. That has been the key reason and we are the primary open social media platform. With that our platform with strong feature in media in nature and also on the distribution capability will be the key advantages. Because of the viral distribution nature of the Weibo, it's by default our key or major content creators and the media accounts attract the most traffic on the platform. In the last few quarters, as I indicated in the prepared remarks, we are trying very hard to direct more traffic to vertical areas, but unfortunately our non-media content on the platform throughout these years is showing a descending trend because of the distribution mechanism we have. For each vertical area, their top content generators, what we found is they are ready to share their lifestyle related content on Weibo. As a result, we are providing Oasis as an alternative for them to provide more lifestyle related content. With that we are hoping these content generators can cross platform to provide different content, one for Weibo and one for Oasis, but with Oasis with more focus on lifestyle and the vertical areas content in nature. If you had used Oasis, you would find there is distinguished content generation on the two platforms. For example, for celebrities, they have been using Weibo to…

Alice Yap

Analyst

Thank you.

Operator

Operator

Thank you. We have the next question from the line of Thomas Chong from Jefferies. Please go ahead.

Thomas Chong

Analyst

Hi. Thanks management for taking my questions. I have three questions. The first question is about the macro and the advertising market updates. Can management comment about how we think about the macro and the advertising outlook? And my second question is about our key accounts. Can management comment about by interest fee categories in particular, our major industry categories in terms of their performance as well as the sentiment as we go into next year? And my final question is about our strategies on how we can ramp-up the growth in our KA ad revenue?

Gaofei Wang

Analyst

With the recent guidance reported by peer group companies as well as Weibo, I think in general in the digital marketing area companies being very conservative toward fourth quarter end market. With the uncertainties continue existed for the micro situation, we see advertisers are getting more and more cautious on the ad marketing dollars. In terms for 2020 at this moment, it's very hard for us to give a very give the clear expectation in terms of how we will be performing for the year to come given the current micro situation and the market competition. Okay. In terms of the industry performance, FMCG continue to be the key industry to drive the growth on Weibo. What we have seen in the FMCG industry, this is one area continue to outperform than the others and has been mitigated through a lot of uncertainties existing in the micro situation. In particular within the FMCG personal care and cosmetic as well as apparel, we see pretty strong performance in the last few quarters and continue to be the largest industry segment for Weibo and we foresee that it will continue to be the largest industry segment for Weibo in the quarters to come. As more and more FMCG companies moving their marketing dollar from offline to the online, our UV program running between Weibo and Alibaba will help us to further taking marketing shares or the marketing dollars for key accounts, not only on the brand side, partiality will be coming from the increase in number of customers who will be participating in the UV programs, but more importantly we are going to tap into the app budget for the integrated marketing for brands and performance. Another potential upside exists for our local FMCG brands that comes along with in general consumption…

Thomas Chong

Analyst

Okay, thank you.

Operator

Operator

Thank you. We will take the next question. The next question comes from the line of Gregory Zhao from Barclays. Please go ahead.

Gregory Zhao

Analyst

Hi management, thanks for taking my question. Quick one on your SME advertising. So just wanted to understand more about overall market trend and the competitive landscape of the SME advertising and also Weibo's market current position and it will be very helpful if you can share your SME advertising revenue growth outlook and also your strategy to drive the growth.

Gaofei Wang

Analyst

As I indicated in my prepared remarks, the SME ad performance for the third quarter was relatively stable. It delivered 5% year-over-year growth, 16% Q-to-Q growth. Most of the growth were driven by the increase in ad inventory while our sell-through rate of our inventory has had some level of increase. I think the core issue for the SMEs coming from the price pressure we have experienced for a period of time. As we talked about in the last few quarters, the ad price for SME has been in the descending trend. Even though in the third quarter that descend percentage has been narrowed to about 10% on a year-over-year basis, but still it remains quite challenge for us.That primarily comes from the supply end of the inventory in the marketplace. The other part of the SME issue comes with the measurement challenge we're facing. In the past couple of years, the way we price our Weibo's SME ad was very similar to Facebook. It's called also a cost per engagement. So the measurement was focused on the interaction between the ads and the users, so that includes a direct or indirect downloads of the -- indirect of the ads related products. But with the emerging of the short video platforms, we see quite big changes in the measurement methodology where they are much more focused on the CPC model. So they only account for the first-time click with a much less concern about the subsequent conversions and the ARPU can be generated. So with that we see a bit of a reluctance in the demand side from different customers. So we have to actually provide a more service and provide a more education related training to our distributors to address these issues. On the strategy part, we are pushing very aggressively on the automatic ad running system, so called OCPX model. We see a very rapid ramp-up on this particular program with 30% of increase on a sequential basis. We believe the automatic OCPX model will substantially the decrease or lower the barrier for a new customer to running their app on Weibo. The another area to address the SME growth issues to pushing for more IP or KOL integrated marketing solutions to our SME customers. What we found, if a campaign or marketing can be associated with particular IP products or IP items or the KOL, the costs associated such campaigns can be reduced more than 50%. I think that's one area in the next few quarters where we will be much more focusing on.

Gregory Zhao

Analyst

Thank you.

Operator

Operator

Thank you. I would now like to hand the conference back to our presenters for any closing remarks.

Sandra Zhang

Analyst

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

Operator

Operator

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