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Sina Corporation (NASDAQ:SINA)

Q3 2012 Earnings Call

November 15, 2012 8:00 p.m. EST

Executives

Cathy Peng – IR Manager

Charles Chao – Chairman, President and CEO

Herman Yu – CFO

Analysts

Richard Ji – Morgan Stanley

Eddie Leung Bank – America Merrill Lynch

Ming Zhao – 86Research

Jiong Shao – Macquarie Research

Alicia Yap – Barclays Capital

Ravi Sarathy – Citi

Gina Chen – T.H. Capital

Jialong Shi – CLSA

Operator

Good day, ladies and gentlemen, and welcome to SINA Corporation's third quarter 2012 earnings conference call.

At this time all participants are in a listen-only mode. However, we will be facilitating a question-and-answer session towards the end of the conference.

I'd now like to turn the presentation over to your host for today's conference, Ms. Cathy Peng, Investor Relations Manager. Please go ahead, ma'am.

Cathy Peng

Thank you. Good morning. Welcome to SINA's earnings release for the third quarter 2012. Joining me today are our President and CEO, Charles Chao, and our Chief Financial Officer, Herman Yu. This conference call is also being broadcast on the internet and is available through the Investor Relations section of the SINA website.

Before the management presentation, I would 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. SINA assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Further information regarding these and other risks is included in SINA's Annual Report on Form 20-F for the year ended December 31, 2011 and its other filings with the Securities and Exchange Commission.

Additionally, I'd like to remind you that our discussion today includes non-GAAP measures, which exclude stock-based compensation and certain other items. We use non-GAAP financial measures to gain a better understanding of the SINA comparative operating performance and future prospects. Our non-GAAP measures exclude certain expenses, gains and losses and other items that are not expected to result in future cash payments or that are non-recurring in nature or may not be indicative of our core operating results and business outlook. Please refer to our press release for more information about our non-GAAP measures.

During the call we may discuss costs related to Weibo.com, which is our best estimate of the direct costs incurred by Weibo. These numbers have not been audited and exclude certain items, including those used to derive non-GAAP measures, overhead allocation and inter-company transaction.

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 President and CEO, Charles Chao.

Charles Chao

Thank you, Cathy, and good morning everyone. Welcome to SINA earnings call for the third quarter of 2012.

SINA returned to profitability at the operation level in the third quarter as a result of the healthy growth in advertising business driven by expanded increases on London Olympic Games as well as increased acceptance for our newly-launched Weibo advertising platform. Total advertising revenues grew by 19% year over year, within the range of our guidance. Industries responsible for the increases were mainly in automobile, FMCG, IT and telecommunication.

The advertising revenues from Weibo doubled from the second quarter and accounted approximately 16% of our total advertising revenues in the third quarter. The growth in Weibo advertising revenue was mainly due to the increase in number of customers and, to a less extent, increased spending for Olympic Games. Although we expect advertising revenues from Weibo will contribute to a larger percentage of our total advertising revenues in the future, the sequential quarter-over-quarter growth rate in the coming fourth quarter will come down significantly due to the fact that approximately a quarter of Weibo advertising revenues in the third quarter coming from the special campaigns relating to Olympic Games.

In addition, we have also seen weaker general market conditions starting from the months of September as advertisers in various industries cutting back their marketing activities. As a result, we are going to see a weaker quarter for advertising business overall in the fourth quarter.

During the third quarter, the user base and user activities for Weibo continued to growth strongly. The total number of registered accounts for Weibo reached 424 million at the end of September, up 15.2% from 368 million at the end of June. The average number of daily active users or DAU grew by 16% from the month of June to the month of September and reached 42.3 million. The average number of daily active users as a percentage of total registered accounts remain at 10%. Among the daily active users, 72% access Weibo either through mobile or through both mobile and PC in the months of September as compared to 69% in the month of June.

The time spent per active user per day decreased slightly from the month of June to the month of September, but remained at approximately one hour per user. We believe that the decrease in time spent per user has to do with the competition from Weixin, a popular mobile-based social network offered by Tencent, and some overlapping users have begun to spend time on both platforms. We're monitoring this trend closely. In the meanwhile, our newly-launched version 5 of Weibo has added a function for private sharing among friends and groups. We hope this new function will help to create more social interactions among users and increase the user stickiness on our Weibo platform.

During the London Olympic Games, Weibo played a prominent role in news reporting, content distribution, as well as user participation for Olympic-related topics and events. During the Olympic Games, tens of millions of users posted hundreds of millions of messages on Weibo, making Weibo the social media platform for the Olympic Games. As some media reports pointed out, this is a Weibo Olympic. Our success in the Weibo -- in the Olympic Games coverage on Weibo will have a profound impact on future media coverage on media events as the world is increasingly moving towards social and mobile.

In terms of Weibo monetization this year, in addition to the Weibo display advertising system that we launched in the second quarter, we also began to test an advertising system in a news feed. Initially this advertising system only allows any user to place sponsored feed at the top of the news feed for its followers. We're trying to launch a complete promoted feed advertising base -- we plan to launch our complete promoted feed advertising system based on this beta tested version by the end of the fourth quarter. The promoted feed advertising system will be self-supported and mainly targeting small and medium-size enterprises.

As the Weibo usage becomes increasingly moving towards mobile terminals, we believe that a promoted feed advertising will become one of the major forms of advertising going forward. The advertising opportunities will come both from existing online merchant as well as from online and offline collaborations. As social medial advertising is relatively new in China, it would take some time to educate the market, and in the meanwhile we will need time to fine-tune the recommendation engine as user data accumulates. In connection to the launch of this new promoted feed advertising system, we will also launch a mobile payment system for Weibo at the same time.

In addition to advertising, we have also started generating revenues from fee-based services with revenue-sharing with third-party developers. The total fee-based service revenues amounted to $4.3 million in the third quarter, and the majority of this amount relating to game revenues and the remaining was related to membership fees.

Lastly, I would like to talk about MVAS. We're projecting a significant decline in MVAS revenues in the fourth quarter as a result of a further tightening of operating environment of the MVAS business. This business is of very low operating margin. The decline will not have much impact on our bottom line. Given the ever-tightening environment and the shift of user base to smartphones, we may see this business further scale back in the future.

With that, I'm now turning to Herman, our CFO, for financial review.

Herman Yu

Thank you, Charles, and thank you all for joining our conference call today. Allow me to take you through our financial highlights for the third quarter of 2012.

SINA non-GAAP net revenues for the third quarter of 2012 came in at $147.7 million, representing an annual growth of 18%, which is at the high end of our previous guidance. Non-GAAP net income attributed to SINA for the third quarter was $11.7 million or $0.17 non-GAAP diluted net income per share. SINA's third quarter operating results included approximately $40 million in Weibo-related costs which composed of mostly personnel-related costs, infrastructure-related expenses, and marketing expenditure.

Let me now run through the key other -- other key financial statement items, starting with online advertising revenues. Online advertising revenues for the third quarter of 2012 came in at $120.6 million, which was within our guidance and represents a respectable growth of 19% year over year. As we indicated on the last call, the macroeconomic environment in China deteriorated toward the end of the second quarter. Going to the third quarter, we had a strong start from a successful coverage of the London Olympic Games. As we move toward the end of the third quarter, our online advertising business faced slowing macroeconomic conditions as well as lack of comparable media events. During the third quarter we saw advertising strength, particularly from fast-moving consumer goods, IT and telecommunication services sectors.

Weibo advertising was robust in the third quarter, doubling from the previous quarter and accounting for approximately 16% of our online advertising revenues. As Charles mentioned, the strength of Weibo advertising this quarter was due to the increasing Weibo advertisers and, to a lesser degree, increase in spending on the Olympics.

Turning to non-advertising, for the third quarter of 2012 we generated $27.1 million in non-GAAP non-advertising revenue. Although our mobile value-added services business declined 11% year over year to $19.1 million, our other revenues category, which include Weibo fee-based revenues consisting of online games and, to a lesser extent, membership fees, grew 150% from the prior year, allowing us to have a net increase of 10% year over year in the non-advertising segment.

Turning to gross margin, our non-GAAP gross margin for the third quarter of 2012 was 54%, down from 55% for the same period last year. Non-GAAP advertising gross margin for the third quarter was 56%, down from 60% last year, mainly due to increased content spending, particularly related to the Olympics, as well as production-related labor and infrastructure costs. MVAS gross margin for the third quarter of 2012 was 36% compared to 32% for the same period last year, mainly due to a change in product mix.

Turning to operating expenses, non-GAAP operating expenses for the third quarter of 2012 were $73.7 million, an increase of 22% from the same period last year. The increase in non-GAAP operating expenses was primarily due to higher personnel, fixed asset and facility-related spending, partially offset by lower marketing expenditures.

Non-GAAP income from operations for the third quarter of 2012 was $5.4 million compared to $8.9 million for the same period last year. Non-GAAP non-operating income for the third quarter of 2012 was $8.4 million compared to $9.9 million for the same period last year. Non-GAAP earnings from equity investments for the third quarter 2012 was $4 million compared to $4.1 million for the same period last year. For the fourth quarter, we expect a non-GAAP loss from equity investment as our lag reporting pick-up from E-House third quarter results were approximately $1.9 million in losses.

Turning to taxes, provision for income taxes for the third quarter of 2012 was $1.6 million compared to $1.4 million for the same period last year.

Turning to net income, non-GAAP net income attributed to SINA for the third quarter was $11.7 million compared to $17.5 million for the same period last year. Non-GAAP diluted net income per share attributed to SINA for the third quarter was $0.17 compared to $0.26 last year.

Now let me briefly review our balance sheet and cash flow items. As of September 30, 2012, SINA's cash, cash equivalents and short-term investments totaled $696.2 million compared to $673.5 million as of December 31, 2011. For the third quarter of 2012, cash provided by operating activities was $17.7 million, capital expenditures totaled $18.4 million, and depreciation expenses were $17.1 million.

Turning now to fourth quarter 2012 guidance. For the fourth quarter of 2012 we are targeting non-GAAP net revenues of $132 million to $136 million, representing an increase of 3% to 6% year over year. For advertising revenues, we are targeting between $110 million and $112 million, representing an increase of 6% to 8% year over year.

For non-GAAP non-advertising revenues, we're targeting between $22 million and $24 million, representing a decrease of 4% to 12% year over year. The company estimate of non-GAAP, non-advertising revenues assumes that MVAS revenues may decline between $8 million to $9 million due to new operator policies to curtail customer complaint. Since MVAS is a low-margin business, the company still expects to derivate a non-GAAP net income in the fourth quarter of 2012. Non-GAAP net revenues and non-GAAP net advertising revenues exclude the recognition of $4.7 million in deferred license revenue related to SINA's equity investment/E-House.

This concludes the written portion of our call. We are now ready for questions. Go ahead, operator.

Question-Answer Session

Operator

[Operator Instructions].

Your first question comes from Richard Ji from Morgan Stanley. Please ask your question.

Richard Ji – Morgan Stanley

Hi, Charles, Hermany, Cathy, good morning.

Herman Yu

Good morning, Richard.

Charles Chao

Good morning, Richard.

Richard Ji – Morgan Stanley

Good morning, yeah. I have two questions. And first of all, let's start with the Weibo monetization. Obviously, Weibo's advertising performance appeared to be very encouraging, with advertising revenue double quarter on quarter. Can you elaborate a little more on the pricing channel for Weibo, and obviously for your portal advertising, you typically raise price, say, every six months, and going forward, how should we think about the pricing trend for Weibo?

And also, can you also comment on the cannibalization between Weibo advertising and the portal advertising? Especially we are curious to find out what are some of the new advertising categories you have attracted into Weibo. Thank you.

Charles Chao

Okay, Richard. Regarding the Weibo monetization for the price trend, since this new price advertising system was launched in the second quarter, I think it was due to trying different kind of pricing methods, I mean, among different kind of customers. For big customers we probably tend to use CPM-based pricing strategy and for the smaller ones we probably use different metrics like CPC or we call CPE which is click per -- cost per engagement. And like engagement may be following activity or a comment, so on and so forth. Or another method we use for the pricing is called CPF which is cost per active fan basically.

And so we're just trying different kind of pricing. At this moment we're in the very early stage, we have not really, you know, do any adjustment to the pricing, I mean, for our Weibo advertising at this point. We just want to try different kinds of pricing methods at this moment and come up with some experience. And we'll probably have a much better idea in terms of pricing strategy going forward, starting from probably early next year. And so to answer your question, it's not really something that we can discuss at this point, so let's see what happens after we have tried different kind of pricing methods.

And in terms of the cannibalization between Weibo and our portal business, this is really difficult to say because you cannot really quantify the effect or the cannibalization, but as I said before, there is, there must be a degree of cannibalization between these two, because I mean we are attracting some of the new customers in different industries on Weibo, particularly in areas for example like the luxury goods category and some of the FMCG customers who may have not really placed advertising on portal but want to try a new advertising kind of format on Weibo. And these are two categories probably attracting more customers, new customers in the other categories. But in terms of the majority of our advertising customer base for Weibo, are still coming from our existing customers spending more money and allocating more budget to us on both portal and Weibo. And so this is really difficult to calculate or quantify.

But on the other hand, as you know, the China's advertising market, especially for branding advertising, I mean a lot of times it's a matter for the customer to allocate budget between -- among different platforms and among different categories of advertising format. So in that sense, I mean because both portal and Weibo belong to SINA, and they allocate the budget, there will be a consideration in terms of total budget allocated to SINA and also the allocation between SINA's portal and SINA's Weibo. So there is a degree of cannibalization, but I really cannot quantify that effect at this moment.

But our strategy is not to bundle these two together, so we have very different kind of pricing strategy on portal and on Weibo, meaning that they're not really bundled in one contract for any customers. We really set very different kind of pricing strategy. I mean, for example, on the Weibo side, we really do not give any so-called free inventories based on pure pricing and we give discount to customers with large spendings, but we do not really give them any free inventories like we do, like you buy one, get one free. This kind of strategy we typically use on portal but we do not actually give that on Weibo. And so we will see. I mean over the longer period we probably will see a better picture, but at this point I cannot quantify that.

Richard Ji – Morgan Stanley

Yeah, understood. That's insightful. And then my second question is regarding your mobile internet initiative. Given that a majority of your users access Weibo service via mobile device, can you help us to understand a little more about how you plan to improve or increase the mobile user activity level as well as your plan for potential monetization going forward on the mobile platform?

Charles Chao

Okay. I think that everybody knows that this internet usage is increasingly moving towards mobile terminal, and actually you can see I mean from our own data and from the data from different companies within industry, and I think overall China's PC, probably the usage has somehow picked at this moment, and going forward, majority of the increase will come in from the mobile terminals. And we also see a strong shift from our PC terminals to mobile terminals on our product lines. Not only on Weibo. I mean, as I just discussed in my opening remarks, for the Weibo usage, I mean in the month of June, about 69% of the users accessed Weibo either through mobile or a combination of mobile and PC. And that's just in one quarter increased to 72%, a 3% increase.

So you are seeing this migration very strongly. And also on the portal side, I mean on our new site, we see much stronger growth on the mobile terminals both on the application base on the mobile applications as well as our WAP site. And giving the example like during the Olympic Games, the usage on the mobile for our portal has increased very dramatically. And it was like probably four years ago during the Olympic Games, it was like PC usage is about 4-to-1 versus mobile usage, but During the London Olympic Games it's about equal.

And so you see a very strong migration from PC to mobile terminals and probably most of traffic will come in from the mobile increase in the future. And so for our company, I think we are adopting a strategy that mobile will become the first priority for any product development and for our future product initiatives. And so we want to set a mindset mobile first for all our product lines.

And therefore on product offerings at this point, obviously Weibo is the platform for mobile usage, and we see it is just the base for our multi-internet initiatives going forward and our much effort will be devoted mobile Weibo development at this point and going forward. And as you can also see that our advertising initiatives on the Weibo will be more focused on the news feed such as discussed, which will be very, very important for the mobile terminals. And the payment system we're going to launch will also be focused on the mobile payment and not really too much on the PC side. So, all these initiatives and effort will be leaning towards mobile.

But as you know that like any most of our companies in the industry, everybody knows that mobile is the future and everybody is spending a lot of time and effort on the mobile initiatives, but mobile monetization is a challenge for all of us, and we hope that our experiment in this area, especially on the mobile Weibo, will be successful and explore some of the new method for monetization on the mobile terminals. And I think the numbers I mean we have seen is somehow encouraging, and among Weibo advertising, we have reported so far probably 15% to 20% is from mobile terminals. And we will hope that this percentage will increase over the period. And once we reach that scale, that probably will be a very good point for us to say that the mobile will be able to -- will be an area we can monetize in the future. I hope that answers your question, Richard.

Operator

Thank you. Your next question comes from Eddie Leung from Merrill Lynch. Please ask your question.

Eddie Leung Bank – America Merrill Lynch

Good morning, Charles and Herman. I have a couple of questions. The first one is more about your target advertising. Could you share your thoughts with us on the lessons you learned from the recommendation engine revision? As well as could you also give us some updates on the SME advertising system that you said in the press release that should be launched next year? Thanks.

Charles Chao

Well, I think, Eddie, this is a very long question. I mean it's quite complicated to discuss on this call, but I will try to see what I can discuss at this point. Regarding the recommendation engine, I think as you understand that Weibo is a platform with a lot of users and user data, and some of these interest graphs, some of these personal social graphs, some of this could be located-based information, so on and so forth. And so these kind of data, I mean we accumulate over a period, we want to use those data for our targeting purpose for our advertising system. And that actually will take some time to fine-tune, as I said, in my opening remarks.

On the other hand, we have a lot of brand advertisers eager to using our Weibo platform for their advertising campaign. And the trade-off is that if you want to target more SMEs, I mean the engine will become more accurate and -- but on the other hand, it takes some time for SMEs to accumulate the spending on the advertising platforms we launched. But on the other brand advertisers may not require very accurate targeting but their budget is much bigger. And so this is a dynamic for us and so we try to balance in between. On the one hand, I think a lot of inventories are being used by brand advertisers, which tend to spend more money and has much larger budget. On the other hand, we'll want to devote also substantial amount of inventory to SMEs to try this new engine to make it more accurate.

And so this is kind of the situation we're in right now. And so as I said, the news feed, I mean this particular advertising system we have launched and we are testing right now is really for SMEs going forward, and that's why we are testing it, but not really generate much revenues at this point. And we probably will see more effect from this advertising system when we launch a complete promote feed and the payment system by the end of the fourth quarter. And that system probably will be used more frequently by SMEs. It's self-supported and anyone can use that, not only SMEs but also the users and the enterprises and online merchants already established accounts on Weibo, probably our primary target for the demand for this kind of system, but I think this also requires some time probably to accumulate the scale of that particular revenue source.

And so I hope that answers your question, but this is a quite complicated question, and if you're interested, we can discuss offline.

Operator

Thank you. Your next question comes from Ming Zhao from 86Research. Please ask your question.

Ming Zhao – 86Research

Thank you for taking my question. I have a question on the guidance on the advertising revenue for the fourth quarter. So it's down quarter over quarter by $8 million, $9 million. Are you looking at the weakness mainly from portal or are you looking at the weakness coming from both portal and Weibo? So that's first question. Second question is vertical wise, is that due to certain vertical such as Japan auto or is it due to a cutting budget across all verticals? Thank you.

Charles Chao

In terms of the weaker guidance for advertising in the fourth quarter, I think that comes from multiple sources. I mean in general I think it's because of the weaker macroeconomic conditions in China. I think overall we feel that at the beginning of the third quarter, it was a pretty good market. I mean I think it probably has to do with Olympic Games. But as I said, starting from September, we began to see the market cool down quite significantly, especially for all industry we have served. I think that affects auto, affects telecommunication, affects IT and electronic appliances and probably less so in FMCG category, but FMCG is not strong either. And that effect will probably prolong in the fourth quarter. And we can see that probably the budget from all the major categories not as big as we have expected at the beginning of the quarter.

So that's probably more across the line, not particularly related to one particular industry. But you mentioned the Japanese auto, that, I mean I think it does have an effect on our advertising performance in the third quarter as well as in the fourth quarter. I mean we did see cancellations from customers relating to Japanese automobiles in month of September and also that effect also impacted fourth quarter, and that also probably include some of the Japanese in the electronic appliances companies like camera and TV set, I mean this kind of Japanese customers. Overall effect probably impact from Japanese customers, the negative impact in the month of September plus the fourth quarter probably is in the range about $3 million for us. And that does have impact, but I think that more so probably has to do with the macroeconomic conditions.

And in terms of the impact, whether that has to do with portal or Weibo and it's really hard to say because on overall basis most of our customers spend money on both portal and Weibo. So I think the overall impact is the same in terms of the total budget cut from those customers. But on the other hand, as I said in the opening remarks, we're still going to see growth quarter over quarter, I will say meaningful growth quarter over quarter on Weibo advertising from third quarter to fourth quarter. Just from a number probably impact will be more so on the portal side.

Operator

Thank you. Your next question comes from Jiong Shao from Macquarie. Please ask your question.

Jiong Shao – Macquarie Research

Good morning. Thank you very much for taking my questions. I have two. First is some housekeeping items. I think I heard you say you got $4.3 million from revenue sharing from some app developers in Q3. If that's indeed the case, could you tell us which revenue line item that's included and also could you remind us how many enterprise accounts you now have? That's my first question.

Herman Yu

Yeah, hi, Jiong. Good morning. So the app development revenue share would be in non-advertising line item. So, under non-advertising, if you look at our earnings release, we break it up between MVAS and other. It will be in that other line item.

Jiong Shao – Macquarie Research

Okay. Thanks, Herman. And the enterprise account?

Charles Chao

You're talking about enterprise account on Weibo?

Jiong Shao – Macquarie Research

Yes, sorry, on Weibo, yes.

Charles Chao

I think at the end of September we had about 230,000 enterprise accounts.

Jiong Shao – Macquarie Research

Okay. And I think you said, you mentioned a target on previous calls, to have a target for the end of year. Could you remind us that target?

Charles Chao

I think we never really talked about a target. There was report saying about $1 million; that was never our internal target. And I think that we are on the target for internal plan at this point. And I think the key is that we are revising our product for enterprises account at this point and that will actually come together in the future with our version 5 Weibo product. Once this new version is launched, we're going to start to target the quantity of the enterprise account. But at this point we not put too much effort in this area.

Operator

Thank you. Your next question comes from Alicia Yap from Barclays. Please ask your question.

Alicia Yap – Barclays Capital

Hi. Good morning, Charles and Herman. Thanks for taking my questions. My first question is regarding the MVAS business. So, can you give us some background on the operator policy? What had triggered the complaint of the customer that lead to the new policy?

Herman Yu

Yeah, hi. So for the MVAS, during the quarter what we experienced was operators trying to reduce our customer complaints. So as a result, certain promotions and certain channels that we have were off-limited. So I think this is something that we have seen in the past, and as Charles mentioned, as the whole mobile world shifts to smartphones, this is an area probably we'll be de-emphasizing going forward as the margin contribution from this business is very low.

Alicia Yap – Barclays Capital

I see. And another question is just to clarify on the Weibo revenue, you say 15% of the brand apps that is just on the advertising side, that's excluding that $4.3 million that you spoke on the non-advertising line, right? So if we add up, so let's say the total revenue coming from Weibo is actually close to like $22 million, $23 million?

Herman Yu

That's correct.

Alicia Yap – Barclays Capital

Okay, thanks. And then second question is regarding the comment that you have on the impact from Weixin on your Weibo. So, is there anything that we are doing right now or prepared to do to prevent the impact from Weixin going forward?

Charles Chao

Yeah. I think as everybody knows, that Weixin and Weibo probably are the two most popular applications on the mobile terminals right now. Weibo probably is more like a public network, people sharing information publicly. I mean, whatever they say, whatever they publish can be seen by anybody. And for the Weixin, it's more like private network, people are sharing information and content among friends and people know each other. So these fundamentals are two different kind of social platforms in our opinion. But the effect is that once Weixin becomes more popular, I mean that people -- a lot of people using both products in China market and that actually what consumes the time spent on either platform basically, meaning that if I have to spend more time on that platform, I will spend less time on this platform, because the time spent on this property will be limited for any person, any user. And so that effect we are seeing in this market.

And in terms of our strategy and our initiative here, I mean, as I mentioned briefly in my opening remarks, we are adding private-sharing functions within the Weibo and so the people who want to have private sharing on Weibo, they can do that. They can spend more time on Weibo to share information and content among friends if they wish. So that will increase social interactions among user base and increase the user stickiness on platform. But fundamentally, I think as I said, these two are very different kind of network and our focus will still be more on the public network side, so meaning that we're going to expand the function in this area so that people can share information more freely and the communication and content distribution will be much more efficient and faster on the Weibo side. And that's the focus and that's the strength of Weibo, we're going to stick to that. But that does not affect our judgment that we want to also offer the option to our users, if they want to do the private sharing, they can do so on Weibo also. Thank you.

Alicia Yap – Barclays Capital

Thank you, very helpful.

Operator

Thank you. Your next question comes from Ravi Sarathy from Citi. Please ask your question.

Ravi Sarathy – Citi

Good morning, Charles, Herman and Cathy, and thank you very much for taking my questions. I would like to follow up with the great color that you've given around mobile if possible. If we adjusted for the Olympic phenomenon, which drove the traffic to being 50/50 on the portal, mobile and PC, if you were to adjust for that and say what a run rate will be today, what kind of percentage of traffic do you think mobile would represent for the portal as well as for Weibo? You gave us an idea around the number of users who use Weibo via mobile, but I want to get a feel for percentage of traffic.

You mentioned that Weibo, that mobile represents 15% to 20% of advertising -- mobile Weibo represents 15% to 20% of Weibo advertising. Just want to check that by revenue, and was also wondering what percent of your portal advertising is mobile today.

And finally just around mobile, globally we're seeing advertising rates for mobile, display advertising rates, of between 60% and 80% discounts to the equivalent PC, if there is an equivalent PC display advertising rate. I was wondering what your experience is in China today and where you see that going.

Final question, just a bit of houskeeping, the $4 million of third-party apps revenue, just wanted to check that, whether that's gross revenue or net revenue you paid away, revenue share to the apps developments, and what kind of revenue share you're paying away these days? Thank you very much.

Charles Chao

That's a lot of questions. I didn't quite get the first one. Can you repeat the first question in terms of the traffic?

Ravi Sarathy – Citi

Yeah, the percentage of Weibo and portal traffic that is mobile if you strip out the Olympic effect.

Charles Chao

That will be very difficult to strip out Olympic effect. All I can say with Olympic, I mean what kind of traffic we are seeing here. And in normal days in terms of portal, I think that the PC traffic is still higher than mobile. That ratio probably is 2-to-1. Probably it's not getting high than that, probably is not 2-to-1, probably 6-to-4 in terms of traffic, I mean percentage between PC and mobile for our portal. But on the Weibo side, probably it's the other way around. Mobile is higher than PC's traffic basically. So that probably is on the traffic side.

And in terms of monetization on the advertising area, I did mention that in the Weibo advertising revenues, mobile probably accounts between 15% to 20%. That on normal days probably is more like 15%, but during Olympic Games there were some special campaigns launched by some big sponsors. I mean they used more mobile inventories during the Olympic Games. That ratio probably was a little bit high during Olympic Games. It was around 20%. But our estimate at this point on the Weibo side of mobile advertising probably accounts for about 15% of the total revenues. And in terms of portal, that ratio is much lower and it's probably between 5% to 8% of our total revenues coming from the mobile terminals for our portal side.

In the future, I think overall, I mean with our effort more devoted to mobile, that ratio will increase, but that we probably are looking at around 10% next year for portal and probably around 20-something percent for Weibo next year. Of course, that really depends on how successful we are in terms of introducing our mobile advertising product on both Weibo and portal side.

But I think with more acceptance of mobile internet going forward, that ratio must go up. I mean, because part of the limitation of the mobile advertising is because most of the customers do not have their mobile website on mobile terminals. But with more users moving towards mobile, I would say that a lot of customers, especially SMEs, and also a lot of companies working for these SMEs for their online advertising initiatives, will develop much more effort in these areas so that infrastructure for mobile advertising will improve significantly going forward. In that sense, that mobile internet advertising will take off. But the limitation obviously is that, everybody knows that, that the mobile screen is much smaller and the advertising, it still needs to be I think developed by various kind of effort by both service providers and also the marketing companies devoting in these areas as to make them more efficient going forward. So, a lot of these need experiments, but I think overall the trend will be that mobile will account for more percentage of total advertising going forward. I hope that answers your question.

The last one regarding the revenue share for third-party developers, most of these, as I said, will be in areas of gaming. So that includes both social game and the web games on Weibo platform. And at this point, majority of this revenue share will be based on 7-to-3, meaning the developers get 70% and we get about 30%.

Ravi Sarathy – Citi

Thank you very much. And the $4 million is your 70%, isn't that right?

Charles Chao

It's the 30% I think.

Herman Yu

No, actually its gross. For those that we do have revenue share, it would be on the gross basis.

Ravi Sarathy – Citi

Got it. Thank you very much.

Operator

Thank you. Your next question comes from Gina Chen from T.H. Capital. Please ask the question.

Gina Chen – T.H. Capital

Hi, this is Gina calling in for Tian. Good morning. Thanks for taking my questions.

Charles, Weibo ad revenue did well during the last two quarters and you had said that it will, you know, there was kind of an effect from of the Olympic Games in 3Q. But what would the trend be for Weibo in 4Q?

And then secondly, you also mentioned that SINA will be launching a new advertising system on Weibo for SMEs. What kind of preparation have you -- has SINA been doing to get the SMEs to use the system?

Charles Chao

I think I pretty much covered both questions in early questions. Let me just try to repeat some of these remarks. Regarding the growth trend for Weibo advertising in the fourth quarter, we still continue to see healthy growth in this area quarter over quarter, but nothing compared to the kind of growth rate we have seen in the third quarter, because in terms of third quarter growth rate there is a portion coming from Olympic Games. If you scrap out that potion, that growth rate will be lower. And so the base for comparison compare third quarter to fourth quarter in terms of Weibo advertising will not be that accurate because of the effect of the Olympic Games. But even you include Olympic games number for third quarter, we're still going to see a growth in the fourth quarter, but nothing compared to growth rate in the third quarter as I said.

In terms of the new advertising system for SMEs, I mean this is more like advertising, it's more like promote feed advertising system within the news feed, and so anybody can use that on a self-support basis. Brand advertisers can use that with our help and our smaller SMEs and also our merchants and any users and media companies who have account with us can use that to promote anything they want to promote. I mean, it could be a promotion of a product, it could be a promotion for their own Weibo account, and it could be a promotion for event, so on so forth going forward. So really this is something that we try to launch. We believe that will be much, you know, it will be a much efficient advertising system compared to display advertising system we have seen on Weibo platform, but this is more like database. I mean we'll use a lot of data, personal profile, interest graph on Weibo, so it would need some time to fine-tune the accuracy of the engine for recommendation.

But of course there had been issue between the big brand advertisers who want to utilize this system versus smaller customers, I mean smaller customers which intend to have much accurate targeting, but the brand advertisers probably more focused on the social effect. So those needs will be very different and we will try to balance the need of between these two different kind of customer categories going forward. But over the longer term, we'll make sure that this advertiser system is more targeted for any kind of customers.

Operator

Thank you. Your next question comes from Jialong Shi from CLSA. Please ask your question.

Jialong Shi – CLSA

Hi, good mornings. Thanks for taking my question, and I have two questions. The first question is about SME. Just want to know how many SME users did you have for 3Q, and what's your target by the end of the year? My second question is about Weibo advertiser. How many exclusive Weibo advertisers in 3Q?

Charles Chao

What do you mean by exclusive advertisers?

Jialong Shi – CLSA

Weibo advertisers who spend only on Weibo.

Charles Chao

Only on Weibo?

Jialong Shi – CLSA

Right.

Charles Chao

I think, as I said, majority of our customers are spending money both on Weibo and on portal, but for brand advertisers, probably, I mean, in terms of people actually, I mean among all the customers who spend money on Weibo, probably 20% are Weibo only, they are now like customers for our portal. These are new customers attracted by our Weibo platform. That's probably the range we are looking at.

And in terms of SMEs, I mean two different categories. One is SME customers who have account with us on Weibo, that number is about -- over 200,000, 230,000. In terms of SMEs who have tried our new advertising system, that number is much, much smaller, because as I said, we're in the experimental period for testing our advertising system. We have not really opened system for all the customers at this point. And we'll probably see this figure once we launch this new promote feed advertising system by the end of this quarter, we're going to open this to all customers. At that point, we'll probably see a much better picture, at that point.

Operator

Thank you. If there are no further questions at this time, I'd now like to hand the conference back to your presenters. Please continue.

Cathy Peng

That concludes our call for today. Thank you for joining us. We will see you next quarter. Thank you.

Charles Chao

Thank you.

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