Good day, and thank you for standing by. Welcome to Weibo Reports Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the company. Thank you. Please go ahead.

Thank you, operator. Welcome to Weibo's Third Quarter 2022 Earnings Conference Call. Joining us 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 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 payments and are nonrecurring in nature, 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 up the lines for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gaofei Wang.

Thank you. Hello, everyone, and welcome to Weibo's Third Quarter 2022 Earnings Conference Call. On today's call, I will share with you highlights of Weibo's user, product and monetization in the third quarter of 2022. On the user front, Weibo's MAUs reached 584 million, and average DAUs reached 253 million in September 2022, adding approximately 11 million and 5 million users year-over-year, respectively. In September, 95% of Weibo's MAUs came from mobile. Monetization with macro-economy and consumption weighing on the overall advertising market, our clients remain cautious towards their advertising budget spend. In the third quarter, our total revenues reached $453.6 million, a decrease of 25% year-over-year and an increase of 1% quarter-over-quarter. Excluding the foreign exchange impact, our total revenues decreased 20% year-over-year and increased 5% quarter-over-quarter as revenues reached $393.4 million this quarter and 95% of our ad revenues came from mobile. This year, we have focused on improving our operating efficiency. In the third quarter, our non-GAAP operating income reached $162.1 million, representing a non-GAAP operating margin of 36%, up from 32% last quarter. Next let me share with you our progress made in product and monetization in the third quarter. Our target on product operations still focused on strengthening the platform's competitiveness through improving operating efficiency, maintaining large user scale and enhancing user engagement. In this quarter, with the summer holiday season and hot trends effect, our overall traffic reached its peak level in August this year. Based on our experience, the opening of the fall semester in September usually negatively impact our traffic, especially when Campus promotion suspended this year due to COVID-19 related control measures. In response, on the product and operational front, we have stepped up our efforts in the areas of channel investments, community product optimization and cultivation of entertainment and eSports…

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's Third Quarter 2022 Earnings Conference Call. Let's start with user metrics. In September 2022, Weibo's MAUs and average DAUs reached 584 million and 253 million, respectively, representing a net addition of 11 million and a 5 million users, respectively, on a year-over-year basis. We are pleased to see healthy engagement trends and video consumption despite the back-to-school seasonality and ongoing disciplined channel marketing strategy, demonstrating Weibo's scored by the proposition to users. Turning to financials. As a reminder, my prepared remarks would focus on non-GAAP results or 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 third quarter of 2022. Weibo's third quarter 2022 net revenue was $453.6 million, a decrease of 25% or 30% on a constant currency basis. Operating income was $15.1 million, representing an operating margin of 36%. Net income attributable to Weibo reached around $519 million, representing a net margin of 36%. Diluted EPS was $0.50% compared to $0.90 last year. Now let me give you more color on revenues. Weibo's advertising and marketing revenues for the third quarter 2022 reached $383.4 million, a decrease of 27% or 21% on a constant currency basis, reflecting a caveat of marketing advertising market as we expected. Mobile ad revenues were $372 million, contributing approximately 95% of total ad revenues. With COVID resurgence and [indiscernible] mainly on the overall demand side, our advertising business continued on descending trajectory year-over-year, while booking a moderate sequential growth during the quarter. Our leading verticals in terms of ad revenue contributions in the third quarter for FMCG 3C products and online games. In terms of growth, the luxury and automobile sector exhibited a…

[Operator Instructions] First question comes from the line of Alicia Yap from Citi.

I have a question related to the advertising outlook and sentiment in the fourth quarter as well as into the 2023, given the strict of COVID policy and also the weakness in the macro. How should we think about the growth rate as comparison to the third quarter in terms of the declining magnitude, will the 4-Q year-over-year decline be bigger steeper than what we saw for the third quarter? And then as we go into 2023, can management also kind of split in terms of preliminary review for the first half versus the second half growth? How should we think about whether the first half should be more conservative and then second, how we should see some resumption of the growth?

All right. Thank you for the question. So with regards to the Q4 and also the 2023 performance. So you can see, first of all, I’d like to talk to you about the structure of our basement. So 2/3 of the industries are actually related to consumption, for example, FMCG or 3C products as well as the e-commerce. So you can see that the recoveries is highly related to the macro. So next of all, I would like to talk to you about the focus. So you can see that we’re going to narrow in the kind of a trend in Q4 and also going to realize a quarter-over-quarter improvement. – in the future. And also now I would like to talk to you about the situation. So as you can see that talking about some of the offline scenarios and also more offline activities. So in October, we had a lot of activities and most events organized for national institutions so that we’ve got some suspension of the offline activities organized by our customers. So we had a big impact in October. However, you can see that talking about the e-commerce, they had actually great improvements because of the Double 11 shopping festival and also the Double 12 shopping festival as well, so that especially talking about the FMCGs. So they’re going to educate more budget actually in these 2 events time frames. And also, the overall trend will be upward. Also, last year, we had a very special category, which is the live stream e-commerce. And due to certain reasons, they had actually a big decline in terms of this particularly this year’s performance. And also the next one is that talking about the Q4. On the overall basis, the overall category of e-commerce will be experiencing a…

Next question comes from the line of Thomas Chong of Jefferies.

We have been seeing the cost optimization strategies and emphasis on ROI, this has been building quite well. In particular, we are seeing that reflects in our operating margin. May I get some more color about our strategies in 2023, our strategies in cost optimization? And how should we think about Q4 margin trend as well as next year margin outlook as well as the measures that we will be undertaken next year?

All right. So thanks for this question. Actually, I have been stated quite briefly in the script. That is to say that in Q3, we’ve been keeping optimizing some of the expenses, for example, marketing and related to R&D and also operation as well. We’ve had a lot of optimization. And also in Q2 and Q3 due to the COVID management and control policy, a lot of our offline events actually did not have or did not successfully hold. So we are going to move and delay them into Q4. And also the ROI of this offline events will be around 1% to 2% or so. So that is the reason why we’re having a slight higher margin in Q3 than it was Q2. So also, if you’re talking about the next year and also Q4 as well. So there are a lot of uncertainties in terms of the control policy of COVID as well as the economic policies as well. So especially in the first half of next year so that, of course, we’re going to further reduce the cost and also optimize the cost as well as improve the operational efficiency and also do a lot of work in terms of the optimization of our cost structure. For example, we’re going to further concentrate and also doing more optimization works related to the expenses of marketing and also labor and human resources as well, so that we’re going to improve our core competence by doing that. And also, if you’re a very senior investors and following Weibo for a very long time, you should be nearing the story about 5 years before. So from 2017 to 2020, we had about the operational cost which was about 60% against our revenue and also in 2020, because of launch of…

In the interest of time, the last question comes from Timothy Zhao from Goldman Sachs.

Could management share your thoughts on the strategy to further diversify the revenue stream beyond advertising? And what are the key initiatives the company is investing to? And what is the management outlook for VAS revenue potential going forward?

Thank you for the question. So I have to say that even if you can see that now in the advertisement module here Weibo, we do have actually a VAS. But if you’re talking about the first of all, the positioning and also the market influence also Weibo as a big social media platform. And also because of the importance and also the product of advertisement itself as a kind of a necessity or necessary product for the customers to actually launch the new products, we can see that the efficiency of the monetization by using the advertisement is actually the highest. And also, of course, that still, if you’re talking about a fluctuated market, still, we do see a lot of pressure on the pricing of this particular advertisement. And also, that is the reason why we have to diversify the monetization method. And even if currently speaking, we have our VAS accounting for the total revenue, which is about only 13%, not very high. But actually, I think that is significantly important for us to maintain the fundamental line for our monetization itself and especially based on the traffic. So second thing, in terms of our e-commerce and also the mini shop of Weibo, so actually, we are having a model of combining the platform with the product. And also, as you all know, that we always keep a very good relationship with JD and also Taobao and also the other alliances as well. So in terms of this one, we are always keeping a very good collaboration with those very good e-commerce with a very high ARPU. And also, this is very efficient for us to generate enough cash flow and especially for those scenarios of online plus offline as well. And also, we can see that…

With that, ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.