Weibo executives interpret financial report: Bandwidth outsourcing alleviates cost pressure 2B model increases live broadcast business income

Nov. 22, Weibo today released its third-quarter 2016 results. As of the third quarter, the number of Weibo's monthly active users was 297 million, up 34 per cent from a year earlier. After the earnings release, senior executives such as Sina Chairman Chao Guowei, Weibo CEO Wang Gaofei and Weibo Chief Financial Officer Yu Zhengjun attended the subsequent earnings conference call to interpret the main points of the results and answer analysts' questions.

the original title Weibo executives interpreted the financial report: live broadcast business pays more attention to 2B model

November 22nd news, Weibo today released its third-quarter 2016 results. As of the third quarter, the number of Weibo's monthly active users was 297 million, up 34% from the same period last year, the largest increase this year. In the third quarter, Weibo's total revenue reached 1.18 billion yuan, up 49% from a year earlier, and net profit rose 156% from a year earlier, far exceeding Wall Street analysts' expectations.

after the results were released, senior executives such as Sina Chairman Charles Chao, Weibo CEO Wang Gaofei, and Weibo Chief Financial Officer Yu Zhengjun attended the subsequent earnings conference call to interpret the main points of the results and answer analysts' questions.

strong > the following is the main content of the analyst question and answer session: / strong >

Citigroup analyst: how do users react to your decision to formally lift the limit of 140 characters per Weibo and raise the limit to 2000 characters instead? Have you observed any change in the number or activity of Weibo posts by users after the implementation of the new policy?

second, with regard to the cash realization plan you announced at the recent "V influence" summit, especially some of the payment measures mentioned in it, such as charging users who want to watch some live Weibo content, when will these new features be fully available to users? What are your expectations for these new features? Will you worry that users will be disgusted with this?

strong > Wang Gaofei: / strong > remove the 140-character limit. We started to provide this service for members at the beginning of this year. Now we open this service to all real-name authenticated users. Now we see a significant increase in the number of users posting more than 250 words a day, but it does not have much impact on the overall number of users' blogs.

strong > Yu Zhengjun / strong >: we have started to implement a paid subscription model for some content, which will contribute some additional revenue to the company.

Morgan Stanley analyst: how is your plan to cash out your live broadcast business? When will the company start collecting revenue sharing from third-party live streaming platforms that get traffic from Weibo?

second, the company's gross profit margin continued to improve month-on-quarter in the third quarter. I would like to know what is the main reason behind it? In addition, compared with international social platforms, the company's current profit level is similar to that of Facebook when it was in this revenue level, so I wonder what is the main driver of the company's current gross margin increase? How much room is there for gross profit margin to improve in the future?

finally, can you tell us how much revenue from different forms of advertising contributed in the third quarter? What is the data of CPM (cost per thousand displays) and advertising volume (Ad load) of the information flow advertising business in the third quarter?

strong > Yu Zhengjun: / strong > Let me introduce the live broadcast business from two aspects. First of all, at present, our live broadcast business is carried out through the companies we invest in, that is, the "constant broadcast" of science and technology. There are many influential performers on the continuous broadcasting platform for live broadcasting, and we allow all live content on the live broadcast platform to be shared to Weibo at the same time. Therefore, we keep broadcasting the revenue earned through Weibo traffic. We will soon be ready to take a share of it.

but on the whole, the company's live broadcast business is not limited to the 2C business done by other live broadcast platforms, allowing online celebrities to broadcast and perform. We pay more attention to the 2B side of this business. For example, we work with media companies to broadcast the Olympic Games, or the US election debate. In addition, we also work with many Big V opinion leaders, such as inviting stars to do live broadcasts, many of which are beyond the scope of 2B. For example, many stars also have corporate sponsorship when doing live broadcasts, which is also a model in the American market, such as YouTube. Therefore, our live broadcasting platform is not only the mode of show performance, but also a larger scope, and our model may be closer to the model of western markets.

there are several reasons for the increase in gross profits. the first is that the company's revenue is growing rapidly, and in terms of costs, last quarter we also mentioned that the growth rate of some base facilities, such as bandwidth costs, is slower than revenue growth. one of the reasons is the technical progress the company has made this year, which allows the company to play videos of the same quality with a small amount of data. Secondly, we have also outsourced some of the bandwidth. last year, almost all of this part was used by the company's internal bandwidth. this year, the company has worked with two external suppliers to solve two problems: one is to reduce the cost per unit of increase. Second, as a media platform, whenever there is a surge in traffic, such as the Olympic Games, we will outsource this part of the bandwidth, which also relieves the pressure on the company, which is the reason for the low growth rate of our bandwidth costs.

finally, the company's share of game revenue was relatively high last year and has declined this year, while the game business's gross margin is relatively low, which increases the company's gross margin to some extent.

and the growth of the company's net profit margin is also very good. Last year, the company's Non-GAAP profit margin was 14%. It was about the same level in the first quarter of this year, and it exceeded 24% in the second quarter. Now the Non-GAAP profit margin in the third quarter has exceeded 30%, and I think the company still has a long way to go. If you look at the company's business model, basically users produce content, so you can control costs, and this content is very effective from the perspective of getting new users, you can refer to the situation of Facebook or other large Internet companies, when we also reach their revenue scale, we can also continue to expand like these companies.

with regard to the revenue contributed by different forms of advertising, Weibo basically has three forms of advertising. The first is information flow promotion advertising, which accounted for 52% of the revenue contribution in the third quarter, compared with about 51% in the same period last year. Information flow promotion advertising revenue itself in the case of rapid growth, the contribution to the company's revenue has also increased.

the second form of advertising is brand advertising, and we have many innovative forms in this area. For example, when the app opens, the Weibo mobile app has more than 100 million daily active users, so it has a very great influence in China. And since the second quarter, brand advertisers will also be able to place video ads when the app is opened, which we have got a very high demand from the market.

in addition, we also have some campaign ads that allow advertisers to launch through keywords or "# ". There is also a great market demand in this area, especially in the case of our cooperation with some TV stations. Overall, we have many different forms of advertising to support the company's revenue growth, not just the flow of information to promote advertising.

the situation in which the advertising volume of promotional ads in information flow exceeds 4% of focus CPM is similar to that in the previous quarter.

Credit Suisse analyst: for video and live streaming business, you mentioned that more video production tools will be provided to users. At present, Weibo videos and live streaming are produced by users through other applications. So you mean that in the future, users will not have to rely on second shots or keep broadcasting such applications to carry out live streaming on Weibo. Will live streaming tools be provided in the Weibo app? In addition, does the company plan to introduce more third-party video platforms or live streaming platforms to share content on Weibo in the future?

second, in terms of short videos, how much do you think they can contribute to the company's revenue and the duration of its users?

strong > Wang Gaofei: / strong > consumption of video and live streaming on Weibo platform has grown rapidly in the past six months, and the company's main efforts are also on how to improve users' consumer experience for video and live streaming. But now we also see that when watching a live broadcast on Weibo, most users have to jump to second shooting or broadcast all the time, and users also need to jump to second shooting if they need the video beautification feature when uploading videos. This really reduces the demand of some users who want to create videos or live broadcasts.

therefore, we are talking about cooperation with second shot to transplant some of the live streaming features and video beautification features of second shot to the Weibo client. It is hoped that in this way, users can increase the number of videos uploaded and live broadcasts posted on Weibo. We see that the proportion of Weibo users, especially head users, who post videos and live broadcasts every day is quite low. We hope to provide this native experience to make it more convenient for them to post videos and live streaming.

the cooperation between the two companies and Meishi is still a strategic union. For example, videos posted by users in Weibo can be seen in second shots, while videos uploaded by users in second shots can also be consumed on Weibo. So the increase in the total amount of video content production of the two companies actually helps the two companies increase their share of the short video market.

strong > Yu Zhengjun: / strong > We see that the consumption of video content increases the usage time of Weibo users. I think this is an overall trend on the Internet in China. You can see that people are consuming more and more videos, especially on mobile devices, and we are just grabbing this trend. We launched video ads in the second quarter of this year, and this year's goal is mainly to promote social video ads, especially those displayed on mobile.

JPMorgan analyst: you mentioned that video advertising accounted for about 10% of revenue in the third quarter. I would like to know from the data point of view of the user market created by short video content, whether 10% of the revenue contribution is slightly commercialized or over-commercialized? Given that advertisers' budgets are skewed towards video advertising, how much can the company contribute to video advertising revenue in the long run?

second, is your investment in technology essentially tantamount to outsourcing the creation and playback of short videos as well as live streaming business and function development to them? Or have you outsourced the selection and operation of content to technology? If the content from the two platforms starts to cash in in the future, what percentage will you share with technology?

strong > Yu Zhengjun: / strong > as we have just mentioned, the company's video advertising form was only launched in the second quarter. Although we see that more and more customers are accepting this kind of advertising, on the whole, the form of social video advertising is still in the early stage of development in China. I think on the whole, no matter from the feedback from major customers or small and medium-sized customers. The contribution of video advertising revenue to the company will also increase.

strong > Wang Gaofei: / strong > the company's investment in technology considers the entire short video market and live streaming market. At present, we think it is very difficult to rely on Weibo alone to gain a monopoly position in the market, and it may take a long time.

although both sides of our cooperation with science and technology will contribute in technology, in principle, the revenue generated on Weibo platform, including video advertising revenue, is basically 100% recorded under Weibo. In terms of live streaming, because we use some live broadcasts that have been broadcast all the time, we will incur certain traffic fees and marketing fees on Weibo.

Edit: yvette