Weibo Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 22, 2024

There are 5 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Weibo Report Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer

Speaker 1

session.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sandra Chang. Please go ahead.

Speaker 2

Thank you, operator. Welcome to Weibo's Q2 2024 Earnings Conference Call. Joining me today are our Chief Executive Officer, Gaofei Wang and our Chief Financial Officer, Fei Cao. This 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.

Speaker 2

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.

Speaker 2

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 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 non recurring in nature or are not indicative of our core operating results and outlook.

Speaker 2

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 and A session. With this, I would like to turn the call over to our CEO, Gaofei Wang. Thank you. Hello, everyone.

Speaker 2

Welcome to Weibo's earnings conference call. Today, I will share with you highlights in Weibo's product monetization in the Q2 of 2024. On the user front, by the end of the second quarter, Weibo's annual reached 583,000,000 and average DAUs reached 256,000,000. In light of an already sizable user community and a mature user mine site, we have proactively adjusted our user strategy this year with more channel budget allocated to the acquisition and engagement of the high quality users. This quarter, our DAU versus MAU ratios increased year over year and quarter over quarter, reflecting further improvement of user engagement.

Speaker 2

On the monetization front, in the past 2 years, we have been focusing on combining Weibo's health chain products with advertising's marketing demand, and thus our health chain marketing has been recognized by a wider range of industries and advertisers. In the Q2, our total revenues reached US437.9 million dollars of which our ad revenues reached US375.3 million dollars On a constant currency basis, our total revenue would have increased 1% year over year and our ad revenues would have decreased 1% year over year. Our non GAAP operating income reached US157.6 million dollars representing a non GAAP operating margin of 36%, a modest pickup year

Speaker 1

over year.

Speaker 2

Next, let me share with you progress made in product and monetization in the Q2. In 2024, we still focus on growing user scale and engagement, strengthening the competitiveness of content ecosystem and improving operating efficiency as our key strategy strategic objective. On the channel front, we maintain close cooperation with handset manufacturers, focusing on the acquisition of high value users and promotion of user engagement. We also invested to further refine accuracy of algorithm and targeting capability of our business model in order to create enriched content offerings for our channel users and increase their user engagement, which laid foundation for monetization. On social attributes, in the Q2, we are leveraging our relationship based feed to further recover vertical content ecosystem.

Speaker 2

We strengthened the interaction between KOLs and fans, increased their user thickness and improve user interaction efficiency of relationship based feed. Meanwhile, this year, we have also been investing in user generated content by improving the growth path of high quality UGC in Weibo to encourage more quality content generation around vertical content and boost user engagement. In terms of user interest sharing, we further strengthened super topic community as a core domain for user to share interest related content. In the first half of this year, user social interaction increased significantly with double digit growth year over year. For example, during the first half of this year, we increased the interaction between celebrity and fans by expanding campaigns of celebrity and their work.

Speaker 2

As a result, in the Q2, the number of average daily users who posted and the number of posts in the entertainment related super topic increased over 50% year over year respectively. In terms of the daily live sharing content by ordinary users, we improved the distribution mechanism for those high quality content to be fairly distributed in core feeds and help users who consistently generate content to accumulate fan base. For instance, in the Q2, we launched a Weibo photography feature to select high quality UGC photography around daily life, aiming to encourage all users to record and share their daily life in multiple dimensions. During the first campaign in May June, nearly 500,000 users shared their photography and contributed over 2,100,000 photographs, attracting over 3,000,000 users to engage and interact. On the content ecosystem front, in the Q2, while maintaining our competitiveness in the IP related content ecosystem of hot trends, entertainment and events, we focus on increasing investment in verticals such as digital product, automotive, game, fashion and beauty and healthcare to enhance Weibo's competitiveness in the content ecosystem and further improve monetization efficiency.

Speaker 2

On Haochuan IP ecosystem, in the Q2, with the release of plentiful entertainment work, we leverage our advantage of telepathy and fans and entertainment work as well as fans interaction across verticals. We encourage more users to consume and discuss around entertainment content. As a result, the number of user interaction in the entertainment vertical increased double digit year over year. For example, in the Q2, we reached in-depth cooperation with the music variety show, Stinar 2024 of Wunan TV station on cross screen live streaming and real time hot topics to achieve user interactions. The show became a phenomenal hit in the first half of twenty twenty four through launching innovative campaigns on Weibo, such as allowing users to recommend dinner across platform, start candidate posts on Weibo and roll out real time call trends around the show.

Speaker 2

The total views of the show, Tinder 2024 exceeded 60,000,000,000 times and the number of user discussion exceeded 560,000,000 times. This culture and social interaction pattern between TV and social media not only make the show influential, but also provide brand advertiser with more diversified marketing solution and generated sustainable revenue growth for Weibo through hard channel marketing. During college entrance exam season this year, we cooperated with People's Daily to boost discussion on universities' major selection and application after the entrance exam and organized the expert and KOLs of over 10 verticals such as education, healthcare, digital product, automotive and finance to share with examinees on suggestions of professional learning, application and industry employment. The total view of college entrance exam related content reached 38,900,000,000 times in June and the number of user discussion exceeded 110,000,000 times, representing an increase of over 50% compared with the same period last year. On vertical content operations, we continue to focus on 2 aspects in Q2.

Speaker 2

First, we strengthened the construction of vertical content ecosystem, including supporting vertical content and engaging cross field accounts and media outlets in the generation and distribution of vertical hot trends. 2nd, we beef up the support of Golden and Orange Verify account in vertical areas and empower them to earn higher commercial returns on our platform. In the Q2, we continue to reinforce hot trend operation in automotive and digital product verticals with emphasis on industry brand and product. As a result, the number of Golden Verify account in automotive and digital product verticals as well as their traffic, interaction and ad revenue on our platform continue to increase year over year. For example, for the automotive vertical, as competition in the new energy vehicle market intensified, OEMs step up their investment in content operation.

Speaker 2

In the first half of this year, over 13 manufacturers auto manufacturer and around 100 executives of auto industry registered or activated Weibo accounts. Thanks to the content contribution from these executives, KOLs and media accounts in the automotive industry also actively created follow-up of topics. We are pleased to see our clients join us in building the automotive content ecosystem, which not only help clients refine brand operation and product promotion, but also laid the foundation for our long term business cooperation with clients. As for the online game vertical, built upon content construction of online game ecosystem over the past 3 years, we have covered over 80% of the top 100 games in terms of content operation. UGC creation and interaction thickness continue to improve, leading to rapid growth of the Golden Verifier camp in the online game vertical.

Speaker 2

In the Q2, the number of Golden Verifier accounts in this vertical increased by over 80% year over year, with their traffic and interaction grew over 30% on an annual basis. Leveraging Weibo's expanded advantages in the online gaming ecosystem and higher influence of Golden Verify accounts, we have built closer partnership with online game clients on content marketing. In the Q2, nearly 50% of the commercial project for game promotion chose to cooperate with Weibo in hot trends marketing, demonstrating better recognition of Weibo's Golden Verify account among clients in this industry. The ad revenue of Golden Verify accounts from the game industry increased by over 4 times year over year. We are delighted to see that the online game vertical has gradually entered the self reinforcing cycles between content and monetization ecosystem similar to the automotive and digital vertical.

Speaker 2

Moving on to monetization. In 2024, we will continue to beef up our efforts to reinforce our monetization competitiveness, leveraging Weibo's strength in hot chain and IPs as well as swiping vertical content ecosystem. We will sharpen the competitive edge of our content marketing and performance ad product in the hope of enhancing our capabilities to navigate through business risk in key industries. Amid a relative soft end market in the second quarter, our ad revenues decreased 1% year over year on a constant currency basis. By industry, our advantages industries such as handset and automotive industries sustained solid growth strength, benefiting from clients' recognition of Weibo's culture and marketing.

Speaker 2

Therefore, our air quality share of clients' marketing budget in this sector either remained stable or increased. Thanks to the impressive topic views and discussion generated by the blockbuster IPs such as Ciner 2024. Weibo attracted many clients to launch campaigns around this IP related hot trends, which brought forth incremental hot trends marketing dollars to our platform. For example, in the Q2, Weibo and Weibo reached strategic cooperation in content marketing, achieving in-depth co creation of content between Weibo platform and the brand. To elaborate, we expanded marketing initiative on new product launch to daily hot trends throughout the year and thus comprehensively enhance the user reach and nurture user mindset of the brand and its product.

Speaker 2

Take the Vivo X100 series launched in the Q2 as an example. After the new product release in May, Vivo took advantage of the peak period of offline concert in the Q2 and the popularity of a variety show dinner 2024 actively participated in the co creation of hot trends and strengthened user awareness of the differentiated tech of the Vivo X100 Series Concert Go Better to enhance user penetration of Vivo's portrait photography. We successfully helped Vivo achieve the 1st place in a dual track of concerts and telephoto. In the current Internet IP market, clients will gradually concentrate on the top IPs. This trend can also be seen from the traffic structure of Weibo.

Speaker 2

The traffic and monetization opportunities brought forth by the top IPs was significant higher than those from mid tier IPs. On the flip side, in the Q2, the sales of international cosmetic brands were still under pressure, which negatively affected the pace of new product launch and thus their scalable budgets. Therefore, our revenue from the cosmetic and beauty sector continue on a descending trajectory year over year. In order to boost clients' willingness of new product marketing and its effectiveness, we step up our cooperation with e commerce platform and domestic brands this year. To elaborate, we actively explored the synergy of new product launch of the FMCG industry between social and e commerce platforms and provide clients with better marketing support.

Speaker 2

We hope these efforts will translate into more stable growth in the FMCG sector in the coming quarters. In the Q2, we started the cooperation on new product launch marketing with Tmall with focus on the cosmetic and beauty as well as footwear and apparel industries. Leveraging Weibo's strength in hot trend marketing, we offer full funnel value proposition to clients from social influence to e commerce conversion. With this partnership, we hope to enhance client recognition of the value of Weibo's culture and marketing and also cultivate and reinforce users' mindset of discovering new product on Weibo. We will continue to explore this model with Tmall in the Q3 and try to penetrate into more industries and clients.

Speaker 2

With higher client recognition of Weibo's culture marketing and our broadening coverage of domestic beauty brands, we hope to see our ad revenue in the cosmetic and beauty sector stabilize or return to growth year over year in the Q4. Overall speaking, amid the current competitive landscape, based on the current brand plus performance ad offerings, Weibo's marketing service has upgraded to content marketing solutions with emphasis on hot trend and IP, celebrity and KOL plus performance ad. Leveraging adjustment in the sales structure and ad product in the past 2 years, the market competitiveness of these three types of ad offerings has gradually improved and become the key driver of revenue. Ad revenue directly generated by these three type of ad offerings account for over 50% of our total ad revenues. From industry perspective, the hot trend and IP marketing finally serve the FMCG, digital products and automotive industries.

Speaker 2

Clients in these industries seek to amplify their product influence, leveraging organic options or even build market hype around their new products through Weibo's culture and marketing. The celebrity and KOL marketing mainly caters to the luxurious use, cosmetic and beauty, as well as footwear and apparel industries. Clients can better reach fans and influence their consumption decision with higher accuracy by working with celebrities and KOLs in professional areas. Finally, despite the fierce competition in the performance ad market in recent years, we are gradually improving our competitiveness ad through algorithm optimization and social native ad offerings. Although performance ad has not become the main contributor to revenue growth in the past 2 years, performance ad offerings are crucial for us to broaden client coverage and identify high quality clients.

Speaker 2

In contrast to other platforms' competitive edge in traffic based monetization, we have viewed our competitiveness on media oriented and brand oriented eye placement as well as content marketing based on hot trend IPs and celebrities. This differentiation are critical for us to obtain marketing budget for product promotion and user mindset. Meanwhile, as we further strengthen the construction of content ecosystem in the entertainment, sports events and industry based verticals and better integrate organic content ecosystem with commercial content ecosystem. Our business model, which is mainly based on brand plus celebrity marketing and content marketing, while supplemented by performance ad, will be more conductive to improving the platform's monetization efficiency. This is also our most important strategy and objective for strengthening our monetization competitiveness in future.

Speaker 2

With that, let me turn the call over to Fei Cao for a financial review.

Speaker 3

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's 2nd quarter 2024 earnings conference call. Let's start with your remarks. In June 2024, Weibo's MAU reached the $583,000,000 and average DAU reached the $256,000,000 As communicated last quarter, in 2024, we have proactively adjusted our user strategy to put more emphasis on the acquisition and engagement of high quality users, as demonstrated by improved DAU versus MAU ratio this quarter. Turning to financials.

Speaker 3

As a reminder, my prepared remarks would focus on non GAAP results. All 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 Q2 of 2024.

Speaker 3

Weibo's Q2 2024 net revenue was $437,900,000 a decrease of 1% or an increase of 1% on a constant currency basis. Operating income was $157,600,000 representing an operating margin of 36%. Net income attributable to Weibo reached $126,300,000 representing a net margin of 29%. Diluted EPS was $0.48 Let me give you more color on the Q2 2024 revenue performance. Weibo's advertising and the marketing revenues for the Q2 2024 was RMB 375,300,000, a decrease of 3% or 1% on a constant currency basis, reflecting muted ad demand amidst rapid macro environment.

Speaker 3

Mobile ad revenues was $352,300,000 contributing approximately 94% of total ad revenue. In terms of growth, 3C products, e commerce and entertainment were the largest contributors to growth. We are delighted to see sustained ad worded increase of handset vector this quarter, leveraging a robust content ecosystem and a dynamic discussion web around 3 seat products. The entertainment sector demonstrated good momentum this quarter, driven by blockbuster TV programs and Weibo's unique value proposition for hot trends. On flip side, the top line recovery will still drag by underperformance of the FMCG sector Despite a modest growth of the food, of beverage and the apparel sector, the cosmetic and the personal care sector still feel behind due to a large ad budget from M and C and the intense competition among ad platform.

Speaker 3

The ad product, promoting feed ad was the largest, followed by social display and topic and search. Ad revenues from Alibaba for the 2nd quarter were $32,400,000 an increase of 21% or 23% on a constant currency basis. We are pleased to see the solid ad growth from Alibaba continue throughout the first half of twenty twenty four as Weibo's brand platform and solution resonated well with Alibaba to fulfill its professional marketing goals. Before turning to web segment, let me share some preliminary color on the trend entering the Q3 of 2024. On the upside, Weibo continues to be the go to platform to discover and discuss around how trends during the Summer Olympics, which boosted user engagement and attracted intensive ad placement.

Speaker 3

That said, with a chunk of advertising budget allocated to the Olympic Games, we expect relatively lukewarm ad demand post the Olympic season, tracking in sluggish consumption data. We will beef up our sales execution and enrich Weibo's content ecosystem in the second half of the year in the hope of mitigating macro and industry headwinds. Turning to VAS. VAS revenues were $62,600,000 in the 2nd quarter, an increase of 15% or 18% on a constant currency basis, primarily driven by revenue growth of membership services. We have benefited from improved ARPU for membership services since they rolled out premium SVIP features to cater to the need of BT users.

Speaker 3

Turning to costs and expenses. Total costs and expenses for the Q2 were $218,300,000 a decrease of 2%. Operating income in the Q2 was $157,600,000 representing an operating margin of 36% compared to 35% in the same period last year. Turning to income tax. Under GAAP measure, income tax expense for the 2nd quarter was $33,300,000 compared to $25,500,000 last year.

Speaker 3

The increase was mainly due to the withholding tax accrued related to earnings to be remitted from our Wuxi to our Hong Kong subsidiary, which is to fund our demand for U. S. Dollars in business operations and the payments of dividends and debt, etcetera, in future. Net income attributable to Weibo's shareholders in the Q2 was 126,300,000 dollars flattish year over year. Net margin was 29%, flattish versus the same period last year.

Speaker 3

Turning to our balance sheet and cash flow item. As of June 30, 2024, Weibo's cash, cash equivalents and short term investments totaled $2,840,000,000 We have made a special cash dividend payment of approximately US199.4 million dollars In the Q2, cash provided by operating activities was US132.1 million dollars Capital expenditures totaled US10 $300,000 and depreciation and amortization expenses amounted to $14,500,000 With that, let me now turn the call over to the operator for the Q and A session.

Operator

Thank you. We will now take the first question from the line of Alicia Yap from Citigroup. Please go ahead.

Speaker 4

Hello, thank you. Thanks management for taking my questions. Can management comment a little bit how you view the overall macro outlook and how will that translate to your advertising outlook for the second half of this year? And then can you share with us whether you have observed any meaningful change of the advertiser sentiment in the different industry vertical? Any particular shift of the sentiment from any advertiser that you might have observed?

Speaker 4

And also, does management believe the current macro environment could actually last into next year? Thank you.

Speaker 1

Thank you very much for the question. So first of all, in terms of advertisement revenue in Q2, from a renminbi standpoint, this was flat versus the last quarter and also year on year wise. And also you can see that although we've been experiencing some of the decline and also the decrease over the overall consumption, but still the willingness of placing the ads with us from the advertisers was pretty much stable. So in terms of the overall revenue in Q2, we can see that there was a particularly negative impacted by the verticals like the cosmetics and beauty products by about 5%. But for the rest of the other industries, we're experiencing pretty much growth.

Speaker 1

Okay. And also in terms of the Q3 outlook and also the second half performance, there are still some of the uncertainties in terms of the macroeconomic development, especially about the consumption. So we remain very much a precocious over the outlook for the rest of the 2024. So still we will be experiencing some of the challenges in terms of the resumption of the consumption and the macro economy in the 1st tier cities, for instance. And this is, of course, going to impact some of the willingness of placing the ads by the advertisers.

Speaker 1

But still, you can see that against the other players in this advertising industry, Weibo's advertising business is relatively not that big. So still we are seeing some of the precocious behaviors of the placing ads by the advertisers, but still in terms of the new products launch and some of the other relevant advertisements related to the new products, the customers are tending to choose those top notch IP and also top notch platforms to do their advertisement and also promotion. So this is going to help us to acquire additional budget from this standpoint. Okay. And also furthermore, we can see that we are able to divide the customers into 3 categories or 3 kinds.

Speaker 1

The first category is in the FMCG industry, including the food and beverages, the apparels and shoes as well as the entertainment and also the weatherman industries. So still the scale of the consumption or the volume in total is pretty large. So even if the customers are pretty much are precautious in allocating their budgets for development, but still they are quite contentious in searching for new IP and also concentrate on those top notch platforms. So for instance, in Q3, we had the bigger activities like the Olympic Games. And you can see that in terms of the selling rate and also the other parameters, we have seen a very good improvement and also the boost.

Speaker 1

So meaning that the customers are willing to spend budget on acquiring those top notch IPs and also collaborating with the top notch platform. So from this standpoint, Weibo still stands in terms of our advantages. Okay. And also for the other industries and verticals, for instance, the headsets and automotive and gaming, as well as films and movies and those entertainment industries, for instance, we were experiencing pretty much pressure and stress over the consumption improvement and resumption. But still, most of the competitions are pretty much around the new products and some of the new movie marketing, for instance, and also promotion.

Speaker 1

So people and also different companies are competing with each other to get more market share around the marketing for new products and new launches. So Weibo still holds our advantage in this particular area in terms of hot cut social topics as well as the very good relationship with some of the customers. So in that sense, for instance, in this summer holiday, the box office of most of the new movies may not slow down or decrease a lot year on year wise, comparing with the same period last year, almost half in terms of the total value of the box office. But still, because of a very good relationship and our customers are choosing Weibo to promote their new products and also increasing their budget on us. So from this standpoint, we are still increasing our revenue and we do have our advantage in this area.

Speaker 1

And also for the 3rd category, we're talking about those stressful industries, for instance, the cosmetics and beauty products and also some of the luxurious brands. We've been seeing a very stressful situation over the resumption and increase of the consumption as a whole. So in this particular industries, the customers are not choosing to launch any new products and in order to get a better results. So as a result, we've been seeing most of the ads were pretty much performance based ads or some of the discount and promotional activities or campaigns. So Weibo is less competitive in this front.

Speaker 1

So of course, we can still gain our revenue by getting the budget of the performance based ads from our customers or organizing some of the campaigns for our customers, but still Weibo is less competitive versus the previous two categories and also the marketing methods in this arena. Okay. Thank you.

Operator

Thank you. We will now take the next question from the line of Xueqing Zhang from CICC. Please go ahead.

Speaker 2

Thanks management for taking my question. My question regards on AIGC. We noticed that the company's self developed the 2 way large language model successfully passed the registration in July. What's our latest development in AI to say? How does it help our content production and commercialization efficiency?

Speaker 2

Thank you.

Speaker 1

Thank you for this question. And also, first of all, previously, we have been sharing with everybody about the application of AIGC by Weibo and the standpoint of generating content for the platform and also enhancing the interaction between the users and among users. In the second half or later stage of the July, we were hearing about the approval of the LLM that developed by Weibo and by the government. And also we use this technology to further boost and also enhance the AI product that we application we are applying now. For instance, the comment robots and also some of the AI assistance in getting the response to the users.

Speaker 1

So we hope that the interaction based on the contents by Weibo and on a Weibo platform is going to be more intelligent and also timely fashion. Okay. Okay. And also the second thing that I would like to say is that in Q2, we've been or in the first half of this year, also we had a better interpretation and understanding capability by this AI model, especially the multi model understanding and also interpretation of the contents on Weibo, because we know that there are millions of billions of contents generated by the random users. And also because these contents were randomly generated by the users, it was not standardized and it was not structured.

Speaker 1

And also it was not that common, I mean, following a certain pattern in terms of the total user. So also those contents were having the image form, the video and also text. So at the current stage, the recommendation of those contents to the relevant target users is still based on the correct and precise interpretation and understanding of those contents. So at the current stage, the large language models that we have got approval is primarily used in this front to better understand and also more precisely understand the message and content in order to have a more precise recommendation to the users. And now we have a coverage of almost 90% of the users.

Speaker 1

But of course, still there are some of the works that we need to further working on in order to improve the position of the understanding. And also we need to do some of the further efforts to increase the computational power in this area as well. So still, we are observing the future potential of this particular feature. And second point I would like to say is that, now in terms of the search results, there are some of the results there from the media or We media or from the random users. So this particular AI is able to help the users within 1 minute to conclude and summarize the search contents so that the user experience is going to be much better in using the search feature of Weibo.

Speaker 1

And because of this, in Q2, we had already MAU of this particular feature exceeding 10,000,000 already. But this is only one of the examples that we are trying the capability of AI. And also in the near future, we are going to have a better trial of this in helping us to better interpret and understanding the contents and also to trigger and based on the information based flow that we have and also based on the other capabilities that we have, we are going to have a better use and application of the AI feature and also this technology. Okay.

Operator

Thank you. There are no further questions at this time. I would like to hand over to Sandra Zhang for closing remarks.

Speaker 2

Thanks, operator, and thank you all for joining our conference call today. We will see you next quarter.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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