Sina Corporation's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Sina Corporation (SINA)

Sina Corporation (NASDAQ:SINA)

Q4 2013 Earnings Conference Call

February 24, 2013 8:00 p.m. ET


Cathy Peng – IR Manager

Charles Chao – Chairman and CEO

Herman Yu – CFO


Eddie Leung – Bank of America Merrill Lynch

Jialong Shi – Credit Suisse

Ming Zhao – 86Research

Piyush Mubayi – Goldman Sachs & Co

Alex Yao – JPMorgan

Tian Hou – T.H. Capital

Philip Wan – Morgan Stanley


Good day, ladies and gentlemen. Welcome to the Sina Corporation's fourth quarter 2013 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 would 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 fourth quarter 2013. Joining me today are our Chairman 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 review 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 fact, 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 its forward-looking statements in this conference 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, 2012 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 share-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 today we may discuss non-GAAP financial measures for Weibo which have not been audited and our best estimate of Weibo results applying the same methodologies we use to calculate non-GAAP measures for Sina at the corporate level. These numbers have not been audited and exclude certain items including those used to derive non-GAAP measures, overhead allocations and inter-company transactions.

Following management's prepared remarks, we'll open the lines for a brief Q&A session.

With this, I'd like to turn the call over to our Chairman and CEO, Charles Chao.

Charles Chao

Thank you, Cathy, and good morning everyone. Thank you for joining us in this conference call for the fourth quarter and for the year 2013.

The year 2013 has been a challenging year for Sina with the migration to mobile internet accelerated and the competition in mobile and the social space intensified. And yet it was also a rewarding year as we began to see scale in Weibo monetization and improvement of our overall operating margins.

We are pleased with our operating results for the fourth quarter, with total revenues grew by 43% and total advertising revenues grew by 45% on a year-over-year comparison. The growth of total revenues and advertising revenues in the fourth quarter was mainly due to the strong momentum for Weibo monetization.

With strong revenue growth, we continue to see profit margin expansion, with non-GAAP operating income increased by 344% on a year-over-year basis for the fourth quarter. And for the first time we have achieved an operating profit for over US$3 million from our Weibo business in the fourth quarter. This is an important milestone for Sina-Weibo.

For the year 2013 our total revenues grew by 26.6% compared to the year 2012 and reached $646.4 million, with advertising revenues grew by 27.5% in the same period and reached $526.5 million. The yearly growth in total revenues and advertising revenues was also mainly due to the contribution from Weibo business. The strong growth in Weibo-related revenues has resulted in significant improvement of our profit margin. As a result, the non-GAAP net income attributable to Sina has increased by more than six times from 2012 to 2013 and reached $77.3 million.

The user base for Weibo continued to grow in the fourth quarter, with the average daily active user or DAU for Weibo increased by 4.2%, from 58.9 million for the month of September to 61.4 million for the month of December. On a yearly comparison basis, the average DAU increased by 36.1%, from 45.1 million for December 2012 to 61.4 million for December 2013. Please note, we have adjusted our historical DAU numbers down slightly to conform our methodologies in counting DAU with other publicly traded social media companies which exclude certain paying [ph] users.

The average time spent for our daily active user on Weibo increased by 3.4% from the month of September to the month of December, with a slight increase in time spent on mobile terminal and a slight decrease in time spent on PC. On a yearly comparison basis, the average time spent for our daily active user on Weibo increased by 16.3% from December 2012 to December 2013, again with an increase in the time spent on mobile and a decrease on PC. We expect that this trend of shifting time from PC to mobile terminals will continue.

Now let me talk a little bit more in detail in our advertising business. For the fourth quarter, total advertising revenues grew by 45% year over year and reached $160 million. Advertising revenues from Weibo grew by 163% on a yearly basis and 28% on a sequential basis. Fast-moving consumer products, or FMCG, e-commerce and the financial services are the major sectors contributing to the advertising revenues growth in the fourth quarter.

Our partnership with Alibaba has played an important role in advertising revenues growth in the fourth quarter for Weibo as more and more online merchants started to spend marketing dollars through Alibaba during the quarter. In addition, advertising campaigns relating to the November '11's and December '12's annual sales events for Taobao and TMall also contributed to the revenue growth for Alibaba.

We were also very pleased to see the advertising revenues from SME, utilizing our promoted feed advertising system on Weibo, continued to pick up during the fourth quarter, with revenues increased by over -- excuse me -- by over 105% and the number of customers increased by 49% compared to the previous quarter.

We have seen continued improvement on effective CPM for our promoted fee advertising and we believe that the revenues from this RTB based advertising system will become increasingly important for Weibo monetization going forward, as the system becomes more efficient in matching advertising demand and targeted users, and with more advertising customers utilizing the program.

Now let me spend some time to talk about our plan for the year 2014. Although we made significant progress in Weibo monetization in the year 2013, we understand that our long-term sustainable growth in top line and the bottom line for Weibo is largely dependent on our ability to continue to grow our user base and user engagement on Weibo, and to continue to build up the scale of our Weibo platform. Therefore, our primary focus for Weibo for the year 2014 will still be accelerating growth in user base and user activities.

Part of this objective will be achieved through our continuing product innovations. In addition, we will take initiatives to increase occasions where Weibo mobile application is more frequently used by our user base. For example, we plan to work more closely with TV programs to make Weibo an indispensable part of our user engagement for TV programs.

Our recent experiment in working with CCTV for the Chinese New Year gala resulted in a 139% increase in user engagement on Weibo during the program this year, as compared to the last year, a strong demonstration that Weibo can be complementary to TV programs if we can proactively work with the programs.

Take another example. As we discussed last quarter that we have expanded our partnership with Alipay by forming a joint force to create a more efficient mobile payment solution for Weibo. We launched this new payment solution called Weibo pay recently. We believe that the mobile payment is essential for connecting online to offline marketing and activities. By teaming up with Alipay, not only we will be able to connect 10s of millions of Alipay users to build up the scale of our Weibo payment much more quickly, but also to increase Weibo usage in online to offline activities.

In our effort to increase our user base and the user activities in an accelerated pace, we believe we will need to increase our spending in product development for the operations and channel marketing in 2014 for Weibo. Although we believe we will continue to see significant top-line growth this year for Weibo, we will not put much emphasis on bottom-line growth, as building scale remains top priority for Weibo in both user platform and monetization.

Also in the year 2014, we plan to increase our effort in renovating our portal business, by investing in mobile, video and the vertical expansion. Although our portal business continued to generate significant cash flow for the company in 2013, it is imperative that we need to increase our market share in mobile and video in order to stay competitive. This also means significant increase in costs and expenses relating to product development, content, marketing and bandwidth.

Vertical expansion will be an important part of Sina's growth strategies, going forward. We intend to leverage Sina brand and the user base from both portal and Weibo to support our business expansion in vertical areas such as internet finance, online sports and et cetera. Our vertical strategy may be achieved through internal expansion or through partnership with vertical players, or in some cases through merger and acquisition. As the penetration and usage continue to grow, internet will disrupt the traditional industry one after another [ph]. Vertical expansion will lead to more business opportunities for Sina's long-term growth.

To summarize, we plan to invest heavily in building the scale and the market share for our existing business and exploring new business opportunities in the year 2014. As a result, we probably will not see much operating margin improvement this year. We believe that these investments and initiatives are necessary, for us to remain competitive in long term in mobile internet era.

With that, I'm now turning to Herman Yu for a more detailed 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 fourth quarter of 2013.

We ended 2013 with a strong quarter. Total non-GAAP revenues in the fourth quarter of 2013 grew 43% year over year to $192.3 million, which is within our guidance between $190 million and $194 million. On the earnings side, non-GAAP net income attributed to Sina grew 267% to $33 million or $0.47 non-GAAP diluted net income per share, which reflects our emphasis to grow our top line profitably and create long-term value for our shareholders.

Turning to online advertising revenues, Sina's online advertising revenues for the fourth quarter of 2013 grew 45% year over year to $160.1 million. Weibo advertising revenues led the way, growing 16% year over year to $56 million in the fourth quarter. The strength of Weibo advertising was led by marketing solutions, tailored to small and medium-sized businesses, which doubled from the prior quarter and mostly consisted of promoter fees.

Just as native ads have become popular for social media in other parts of the world, we are seeing strong demand for Weibo promoted feed which is our native ad solution. A native ad is an ad in feed format that appear alongside of user-generated feeds in the information flow of Weibo, both in PC and mobile versions. During the quarter we also saw Weibo revenues from social display ads and from Alibaba, both growing close to 20% on a sequential basis.

Revenues from portal advertising reached $104.1 million during the quarter, growing 16% year over year but show a slight decline of 4% quarter over quarter. For the year, we saw strength in fast-moving consumer goods, financial services and internet services sectors.

Turning to non-advertising, for the fourth quarter of 2013, non-GAAP non-advertising grew 36%, to $32.3 million. Weibo value-added services revenues in the fourth quarter of 2013 grew 114% year over year to $15.4 million. Such revenue growth was fueled by the launch of Weibo data licensing services which accounted for 60% of the Weibo value-added services year-over-year growth.

Weibo gained revenue share, and Weibo VIP membership fees also contributed to the strong growth of Weibo's fee-based revenues.

Unfortunately, such revenue growth did not spread to our mobile value-added services business, which declined 17% year over year. As the mobile industry in China moves to 3G and began rolling out 4G, we expect to see further decline in revenue from our low-margin MVAS business. Though we do not anticipate a turnaround for MVAS in the short term, staying in this business is essential, for us to leverage the ties we have in mobile, to support the development of mobile for Weibo and other strategic areas.

Turning to gross margin, non-GAAP gross margin for the fourth quarter of 2013 was 64%, up 56% for the same period last year. Non-GAAP advertising gross margin for the fourth quarter was 74%, up from 57% for the same period last year, reflecting our emphasis to grow our advertising business profitably.

Non-GAAP non-advertising revenues gross margin for the fourth quarter of 2013 was 61%, up from 54% for the same period last year, primarily due to the shift in revenue contribution from low-margin value-added services, mobile value-added services, to higher margin Weibo value-added services.

Turning to operating expenses, non-GAAP operating expenses for the fourth quarter of 2013 were $94.3 million, compared to $69 million for the same period last year. The increase in non-GAAP operating expenses was primarily due to higher personnel costs and increases in marketing expenditures.

The strength of our top-line growth in the fourth quarter enabled our non-GAAP operating income to growth 344% year over year to $28.6 million, reaching a non-GAAP operating margin of 15%.

Non-operating income for the fourth quarter of 2013 was $24.5 million, compared to a non-operating loss of $2.1 million for the same period last year. Earnings from equity investments, which are accounted for under the equity method accounting and reported on a one quarter lagging basis, for the fourth quarter was $3.5 million or $5.8 million on a non-GAAP basis. This compares to a loss from equity investments in the fourth quarter of 2012 of $4.4 million or $0.4 million on a non-GAAP basis. Non-operating income for the fourth quarter of 2013 also included a $19.5 million gain from the change in fair value of investor option liability in connection with Alibaba's investment in Weibo.

U.S. GAAP requires us to assess the fair-market value of such option liability on a quarterly basis and recognize a change in fair market value in the P&L. The accumulated gain from such change in fair-market value as of December 31, 2013 was $21.1 million. As this is a non-cash item that management does not consider for operational performance evaluation purposes, we have excluded such item from our calculation of non-GAAP financial measures.

Turning to taxes, for the fourth quarter of 2013, provision for income taxes, which is based on Sina's operation results in China, was $6.1 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 fourth quarter of 2013 was -- grew 267% to $33 million, compared with $9 million for the same period last year. Non-GAAP diluted earnings per share for the fourth quarter was $0.47, compared to $0.13 per share for the same period last year.

As Charles mentioned, for the fourth quarter of 2013, Weibo achieved a non-GAAP profit of approximately $3.9 million excluding stock-based compensation and other items.

In accordance with U.S. GAAP, net income attributed to Sina does not include minority interest related to Alibaba's preferred shares, which is 16.7%, on a diluted basis, as those shares have liquidation rights. For the purpose of EPS calculation, however, minority interest from the Ali preferred shares was included -- was excluded.

Turning to balance sheet and cash flow items, as of December 31, 2013 Sina's cash, cash equivalents and short-term investment totaled $1.868 billion, compared to $713.6 million as of December 31, 2012. Apart from earnings, the increase in cash, cash equivalents and short-term investments can be attributed to the cash received from our issuance of an $800 million convertible note which occurred concurrently with a share repurchase of $100 million in November 2013, as well as cash received from Alibaba for its investment in Weibo in April of 2013.

Cash provided by operating activities for the fourth quarter of 2013 was $41.9 million. Capital expenditure totaled $37.1 million, and depreciation and amortization expenses were $9.4 million.

Turning now to our first quarter 2014 guidance, for the first quarter of 2014 we're targeting non-GAAP net revenues between $162 million and $167 million, representing an increase of 34% to 38% year over year. For advertising revenues, we are targeting between $133 million and $136 million, representing an increase of 41% to 45% year over year.

For non-GAAP non-advertising revenues, we're targeting between $29 million and $31 million, representing an increase of 7% to 15%, year over year.

Non-GAAP net revenues and non-GAAP non-advertising revenues exclude the recognition of $4.7 million in deferred license revenues, related to Sina's equity investment in E-House/CRIC.

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

Question-and-Answer Session


Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]

Our first question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please ask your question.

Eddie Leung – Bank of America Merrill Lynch

Hey. Good morning, Charles and Herman. I just have two questions. The first one is about your Weibo revenues, especially the non-advertising side. It seems to be a pretty good quarter for non-advertising revenues. So could you give us a bit more color on the breakdown of your Weibo revenues from VIP services gains as well as the data services? That's my first question.

And then my second question is about your mentioning about your portal strategy. We have seen that verticals are seeing pretty strong growth in terms of their revenues. We have seen very good numbers from the auto website as well as some of the real estate websites. So going forward, could you also elaborate a bit more on your plans to perhaps capture the opportunities in some of these verticals? Thanks.

Charles Chao

Okay, Eddie, sure. Two questions. First, regarding the non-ad revenues for Weibol. Yes, we had made strong progress this quarter in terms of growing our non-advertising revenue from Weibo. And I think the most important area for the growth in this quarter was from our data service. And this is the first time we recorded revenue from data service. And I think this is a good start as we believe that Weibo is an important source for data going forward, for internet, for user behavior and a lot of other data. And the content itself can be very valuable for a lot of partners on our platform.

But we are only in the first stage, to say that we have worked with a very limited handful of partners in this area to try the data service and our fee-based service. And I think that we will grow our data service in 2014. But I don't think that we're going to experiment in a very large scale with a lot of partners until we develop a very solid model for that. So I think you're going to see some increase this year on a quarterly basis, but not very significant. I mean, probably until the end of this year, we're going to see some scale.

And in terms of VIP service, it's a way we actually develop our fee-based users so that in the future we can introduce the fee-based service to this user base I mean who has developed a membership service with us. And so I think at this stage, I mean all these VIP services will be the general membership on a monthly basis. And we are seeing some increase in the fourth quarter and in terms of total numbers of members, but we are not going to see significant increase in that category in 2014 in the general membership.

What we are hoping for is that we can develop other fee-based services in the digital areas to introduce these fee-based services to this membership going forward. And this is part of strategy in terms of developing fee-based services among memberships going forward. And this is to answer your first question.

The second question, on portal strategies, yes, you are right. I think we did see a lot of missed opportunities in the vertical areas. I think traditionally the portal was set up I mean with many interested channels and relying on brand advertising as its key monetization model for the entire portal. But in terms of opportunities in the vertical areas, a lot of industry represents a lot of opportunities in size and also the opportunities for online to offline business opportunities, like what you mentioned, in the real estate business we're seeing the trend that a lot of people -- a lot of companies are setting up e-commerce platforms, I mean, to engage the user with business in a more direct way. And also in the auto businesses, I mean not only the vertical players help these people, the auto manufacturers, to sell cars with brand advertising and other performance-based advertisement, but also try to connect users with data to other manufacturers and to the auto dealers, you know, to facilitate a more efficient way for channeling this kind of sales and marketing activities.

And I think that, as I mentioned in my opening remarks, there's a lot of opportunities in different industries, like internet financing is another hot area, and online education is also the area that a lot of people begin to pay attention.

So these areas represent a lot of business opportunities, but they are going beyond our traditional brand advertising model. And when you expand to these areas, with different kind of structure and business model. And those are areas we're looking to, as I said, we probably will, I mean, take a different approach in different areas depending on how strong we are in certain area or whether we can find very good vertical partners to expand into these areas going forward.

So we will take a different approach in some areas of how we will do that internally. In some areas maybe working with vertical partners or even through acquisitions. So still in discussion and then we will update you when we have more concrete plans.

Eddie Leung – Bank of America Merrill Lynch

Thank you very much.

Herman Yu

Thank you.


The next question comes from the line of Dick Wei from Credit Suisse. Please ask your question.

Jialong Shi – Credit Suisse

Hi. Good morning, management. This is Jialong calling on behalf of Dick Wei. I have a few questions.

First, Charles, a quick follow-up on the previous questions. Can management give more color on the data licensing service? Who are the major customers of this service? This is question number one.

And secondly, maybe I missed it, but can management remind me of the revenue breakdown between Ali and the non-Ali advertisers? And also what is the current utilization for the Weibo brand at inventory. And also, can you provide the exact figure for our promoted feeds revenue and customers in Q4? Thank you.

Charles Chao

Okay. I will ask Herman will take the last two questions. For the first one, data service, I think, as I said, we are still in the experimental stage and so we are not allowed really to disclose our customer name at this point. But once we begin to offer this service in large scale, we will probably talk more detail.

Herman Yu

Okay, so I heard the other two questions with regards to the brand ad inventory and also the number of customers. With regards to brand ad inventory, I don’t know what specific areas you are talking about but because our monetization for Weibo is very -- has very different models, we have click per engagement, we have click per CPM, and we also have a click per day -- CPD, and so it's hard to summarize that based on the models that we have.

With regards to our customers, it is similar too because we have the key accounts of brand advertisers, we also have a small and medium sized enterprises for this area. And so I think in general, if you look at our SME, promoted feeds and so forth, we are close to maybe around 10,000 but this is an area that has been going pretty fast over the last few quarters so this thing changes every quarter.

Cathy Peng

Hello? Hello, Jialong, are you still there?

Jialong Shi – Credit Suisse

Hi, yes. Thank you. Yes, that is my question. Thank you.

Cathy Peng

Okay. Operator, let us move on.


Thank you. The next question comes from the line of Ming Zhao from 86Research. Please ask your question.

Ming Zhao – 86Research

Thank you. Good morning. I have two questions. The first question is on the user base and the user engagement. Charles, as you probably see, there are CNNIC data out there saying that microblogging user coming down, there is also a third party research from out there saying Weibo traffic going down, and yet you guys reported still growth in the user base and engagement. So maybe you could share with us your thoughts about why there is a discrepancy? And so that is my first question.

And the second question is when you said that this year, in 2014, it's the investment year for Sina and Weibo, you are going to do a lot of product development and sales marketing expense and margin, probably, will not improve.

Are you comparing the margin of 2014 with the fourth quarter last year or the full year 2013? Maybe you could give us a margin guidance if we can? Thank you.

Charles Chao

Okay, I will take the second question first. I mean, in terms of margin, on an overall basis, we are probably talking about year-to-year comparison and Herman probably can give you more color on the earnings conference call. And I'm really talking in the more like, in the line of percentage, not in absolute number.

And the first question regarding the user numbers, yes, I think there is some differences between our internal numbers versus some of the third party reports you have seen. In terms of CNNIC number, I think there is a misunderstanding here. I think a lot of people already understood that the CNNIC number is really talking about the entire Weibo industry, not really talking about Sina-Weibo, as you know, in China, many people, many companies offer Weibo service. In our counting, there are probably over 20 different kind of Weibo services.

And we believe that the entire Weibo services the CNNIC is referring to is for the entire industry and for Sina Weibo, internally, with our consistent methodology, we have seen user growth on a year-over-year basis and also on a quarter-over-quarter basis on a sequential basis. Although we did see that rate of growth is slowing down if you look on year to year comparison, our DAU grew by 36% and quarter-to-quarter basis, between the third quarter and fourth quarter, the rate for the growth was 4.2%. This is the lowest growth rate on a year-to-year comparison and quarter to quarter comparison in the history of Weibo.

So there is a slowing down in the growth rate but it is still growing, net our figure, but I cannot explain some of the other third party reports because it really depends on the methodology, we are the only one that have the full accounting of all the numbers on all the terminals for the activities and the user base. And as far as I know, no other research company can accomplish that by having a full coverage of both mobile and PC and also with the full population.

So I think we probably need to spend more time to look into their number and I suggest that you can also spend more effort to understand that and we are in the process of doing that too. But I think that having said that, there is no question that the user base, the growth is slowing down. That is why in the year 2014, our primary goal and focus will still be working on the user and user activities.

In the first quarter, we took some initiatives already, as you have seen, like working with the TV programs and tried to drive more engagement by users through different kind of activities and so far, it has been working and the growth in the first quarter, I mean, in the last couple of months, has been improved significantly from the last quarter and the fourth quarter, so are seeing a lot of hope that we can continue to grow our user base and user engagement if we do things properly and also, if we can put in more investment in our channel and in our operations.

Ming Zhao – 86Research

Thanks for that. And maybe Herman, just following on what Charles said, should we see the operating margin, the 2014, coming back for the full year from the fourth quarter level?

Herman Yu

I think Charles mentioned we are looking at this because we have seasonal factors. You have to look at it every quarter on a seasonality basis. And I think our profitability will ultimately depend on several factors, including how we decide to make these investments. As Charles mentioned, it could be organic, it could be other arrangements, so it's really hard to tell at this point how it's going to pan out for the rest of the year.

But these are the things that we are looking at right now with regards to actual results, we will have to see as we get further into the year.

Ming Zhao – 86Research

Okay, got it. Thank you very much.


The next question comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question.

Piyush Mubayi – Goldman Sachs

Thank you, Charles, Herman, Cathy.

On the DAU of plus 4% that you talked about in the fourth quarter, could you give us a feel for what the third quarter year-on-year number was firstly? And second, would it be possible for you to give us -- shed some light on what the mobile DAUs are doing and what the time spent is. That is the first question.

Second, we are seeing an acceleration in Weibo revenue in the fourth quarter, which is great, to 163% from 126% a quarter ago, is this mostly promoted tweets or is there any indication of a potential push back to spending on 3Q into 4Q? Thank you.

Charles Chao

I didn’t get - quite get the very last one. The pushback from the 3Q to 4Q and then --

Piyush Mubayi – Goldman Sachs

Was there any advertising spend that was planned for 3Q which then got pushed back into 4Q at the mast minute?

Charles Chao

No, I don’t think so. That was properly recorded, I don’t think there are any push in that regard.

Piyush Mubayi – Goldman Sachs

No, from an advertiser perspective.

Charles Chao

No, I understand, we do not see that. And for your first question regarding DAU, I mentioned in my opening remarks that the DAU for the third quarter, we typically report the DAU for the last month of each quarter and for the September months, the DAU was 58.9 million and the DAU was 61.4 million for December so the increase was about 4.2%.

We typically do not report our mobile DAU on a separate basis but we also told the Street, which was always the case for the last several quarters that our mobile access was over 70% of our total DAU earnings and so that was a majority of our DAU actually.

In terms of time spent, as I also mentioned in my opening remarks, that the time spent for mobile was slightly higher than the time spent for the PC. And that discrepancy [ph] probably was anywhere between 15% to 20% for each quarter on a DAU basis between mobile and PC so mobile DAU in terms of time spent was higher than PC time spent basically.

Piyush Mubayi – Goldman Sachs

Okay, thank you.


The next question is from Alex Yao from JPMorgan.

Alex Yao – JPMorgan

Hi. Good morning everyone. Thank you for taking my question. So obviously Weibo has achieved a great margin improvement in the quarter. We understand 2014 is going to be another year of investment, but can management talk about how do you think about Weibo's normalized profitability even into longer term? That is my first question.

And secondly, can you give us a breakdown in terms of 1Q guidance between the portal and the Weibo, how are you looking at revenue growth, the revenue breakdown? Thank you.

Charles Chao

Herman will take the second question. The first question was, what is the long term -- Weibo.

Herman Yu

The long-term margin.

Charles Chao

For Weibo. Okay. I think really, I mean we are talking about our business model that is -- the advertising world, our primary business model for Weibo and two different types of advertising right now on Weibo. One is displayed advertising which typically, we offer to our brand advertisers and the different between the brand advertising, displayed advertising on Weibo versus portal but Weibo, there is a social element that will result in a cumulative effect of advertising, for brand advertisers on the Weibo platform.

And another component of advertising is really performance based advertising which primarily is offered in our information fee which we will refer to as promoted feed advertising. And this is the area that is going to become increasingly important because people spend the majority of the time in the information feed on Weibo platform. And this is an area we can be doing much better in terms of targeting our users for their interest preference for their LBS, information and for other target information.

So this is an area that we believe that has got a lot of potential going forward as you can see from the figure. We launched this program in the second quarter of 2013 and we see very significant growth every quarter in terms of revenue, in terms of number of customers, and most importantly, in terms of our effective CPM and that effective CPM probably already grow by two to three times since we launched.

And we are going to see continued improvement in this area with efficiency of the matching with more data being accumulated in the system. So going forward, I think we are going to see more and more, these main advertising and the information feed which is as I said, is based on RTB basis, real-time bidding basis and this area, for RTB based advertising, currently, with the sales through channel, though there is a channel fee split between our agencies and us as a platform.

And I think this is the area where we are going to see some improvement in the gross margin going forward if we begin to rely more for sales support -- sales going forward and so this is the plan we are going to hit in the next couple of years and so on an overall basis, I mean, for the gross margin, we are probably -- versus the similar ones we have seen this year, I'm sorry, for the 2013, and this is the similar gross margin we are going to see but on an overall basis, operating margin, we are looking at the long term, probably between 35% to 40% is our long-term target for operating margin for Weibo.

So that is all I can say right now but we probably will see other business models being developed in the course, especially with the very good opportunities for online and offline connections with Weibo as a very good tool for the mobile applications to connect these business opportunities.

With that, we still are in a very early stage to tell, you know, what kind of business model that can be developed and we see this as a good opportunity that there could be a different kind of business models being developed with different margins at which point, we probably will update you with the potential margin will be on an overall basis for Weibo.

Herman Yu

Yes, so to give you color from Q4 to Q1, we historically do not break out the guidance individually between Weibo and brand advertiser but, however, if you look at historically, we have had a good pattern that you have seen, if you look at over the last few years from a portal slide, the brand advertising from Q4 to Q1, you can see there is always a sequential decline and you can look at our you know, historical performance over the last few years.

So we expect the portal brand advertising to probably decline more than Weibo brand advertising separated the other component of Weibo advertising is the Alibaba related so two things on this brand advertising, one is Weibo advertising on Alibaba because in December or in the fourth quarter, we had you know, several promotions such as the double 11 and so forth compared to the first quarter usually, it's from the seasonality perspective, the low season quarter for our e-commerce and so from Weibo advertising, you have the Alibaba which, you know, you have the Q1 impact of less promotion and e-commerce related.

And secondly, of the brand advertising area for Weibo, the e-commerce is our top two sector. So similarly, you probably will see a dampening of revenue from the fourth quarter as a result of that, too.

Alex Yao – JPMorgan

Okay, thank you very much, just a very quick follow up. Do you expect that the portal brand advertising seasonality will be stronger than e-commerce including Ali related revenue seasonality.

And secondly, do you currently, for the Sutong [ph] part of the business, do you currently book net revenue and -- which is after the payment to the agency and channel fees? Thank you.

Charles Chao

Yes, as I mentioned earlier, I think I gave you a lot of granularity in terms of our portal and Weibo advertising, we are not going to give you a specific forecast of those businesses individually. With regards to the SME business, we generally recognize revenue on a net basis which is net of agency rebate.

Alex Yao – JPMorgan

Thank you very much. That is very helpful.


The next is from Tian Hou from T.H. Capital.

Tian Hou – T.H. Capital

Good morning, Charles, Herman, and Cathy. I also have a couple of questions related to Weibo. The first one is related to Alibaba advertising on Sina-Weibo. Since we give Alibaba a fixed inventory like in a rate column, I wonder what is the potential upside from this limited inventory, that is number one.

Number two is regarding the key accounts, brand advertising on the Weibo platform. What is the relationship between this group of key accounts and portal, are they complementary to each other or are they potentially cannibalize each other? That is my question.

Charles Chao

Okay, Tian, regarding your question on Alibaba, I mean, yes, you are right, there is designated inventories for Alibaba in the fixed locations on Weibo, but also they have the right and ability to utilize our -- all our existing advertising system, meaning, you know, the existing displayed advertising spots and inventories and also the information -- the promote feed advertising systems and all other has been available to other advertisers. They just do have some additional extra inventory for those areas for them to make sure they get enough inventory for the advertising delivery.

So to answer your question, they can have access to old inventories we have in a more competing basis, so we will use all our inventory to satisfy their advertising need if necessary. And so there is enough inventory for that purpose.

And for the key accounts, we talked about big brand advertisers, I mean, I think there, they can utilized both our advertising platform on portal and on Weibo to satisfy the advertising need and our sales team, currently is wanting to sell both inventories and so I think we can do that more constructively so we can minimize any cannibalization between these two.

To be frank, there is -- inevitable there will be some cannibalization because certainly, you have two platforms that advertisers can utilize and people will compare different industries with different results. And the effectiveness of advertising in our different platforms.

But we -- so far, we have been trying to sell in a way that we can coordinate, the sales is keeping our package which is utilizing both platform for portal is more for coverage with exposure and for Weibo is more for the engagement and for the social effect of advertising.

And so you can say there is some degree of cannibalization but also there are significant synergies in between to leveraging these two and I think the real challenge probably is between PC and mobile because obviously, for portal, we have a lot more inventory on PC, we generate a majority of our revenues from PC portal, but for the Weibo, actually, the majority of traffic is on mobile and which I think is not generating enough revenue in terms of percentage of traffic in proportion to revenues. And so that area that is probably, I think each company will have more challenge and our strategy is probably to sell mobile and PC in bundled package so we can maximize our benefit from our key accounts.

So this is an area that we will continue to figure out a way to maximize our overall return from advertisers and that will change from quarter to quarter depending on the need of the advertiser. But we do intend to make these two systems a little bit more separate and independent going forward so that each can develop their way and that will be more efficient on its own as an advertising system.

Tian Hou – T.H. Capital

That is very helpful. So, Charles, another question. China now, everyone is talking about internet finance is such a hot buzzword, and Sina, you know, is in a leading position in online portal finance and a lot of traffic and a lot of usage of your mobile apps so I wonder what's your guys consideration in that front?

Charles Chao

This is an area, as I discussed in the last quarter's conference call, we will begin to pay a lot of attention. In fact, that is probably one of the most important areas we will get into in the vertical areas for 2014.

So we have formed a team for the internet finance internally and we have been working with different partners in this area. We have already invested in a couple of areas like, for example, online payment, which we believe is the base -- the essential base for the internet finance going forward. We do have our payment license and have independent payment companies for doing that and also, we have invested in companies which produce innovative financing and trading products which also result in a lot of trading volumes on our platform.

And so these areas, we have been doing but more importantly, we will form independent units probably for internet finance going forward, to capitalize, these opportunities through both investment acquisitions and also from forming our internal platform for internet finance. So this is an area that we are going to invest heavily and we will probably see some good results going forward.

Tian Hou – T.H. Capital

Thank you. That is all my questions.


The next question is from Philip Wan from Morgan Stanley. Please ask your question.

Philip Wan – Morgan Stanley

Hi. Good morning. Thank you for taking my question. I have two questions. Number one, I may have missed it earlier. Could you share with us how much sales was from Alibaba in Q4. And then my second question is about your Weibo DAU, would you be able to share with us how DAUs have been training if we look at top tier cities versus lower tier cities separately? Thank you.

Herman Yu

Yes, with regards to the Alibaba Weibo revenues, or Weibo revenues coming from Alibaba. In the fourth quarter, we have, as I mentioned, was less than 20% growth from Q3 which was about $23.8 million.

Charles Chao

With respect to the trending of the DAU, I think we have already discussed enough information in the opening remarks and also in the following questions, and we actually do not, tracking -- we probably don’t have that information in terms of DAU trending in different layout cities, I mean depending on your criteria, I understand, for what is the first tier, second tier, third tier. And on an overall basis, we are tracking DAU trend but not in that specific area, by locations basically.

Philip Wan – Morgan Stanley

Okay. Thank you. That is all my questions.

Charles Chao

Thank you.

Cathy Peng



Due to the time limit, that is the last question we can answer. I would now like to hand the conference back to your presenters.

Cathy Peng

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

Charles Chao

Thank you.

Herman Yu

Thank you.


Ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation and goodbye.

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