SINA Corporation (NASDAQ:SINA)
Q2 2014 Earnings Conference Call
August 14, 2014 10:10 PM ET
Cathy Peng – Head of Investor Relations
Charles Chao – Chief Executive Officer and Chairman of the Board
Herman Yu – Chief Financial Officer
Eddie Leung – Merrill Lynch Far East Ltd.
Dick Wei – Credit Suisse
Tian Hou – TH Capital
Wendy Huang – Standard Chartered Bank
Gene Munster – Piper Jaffray
Good morning, ladies and gentlemen. Welcome to SINA Corporation's Second Quarter 2014 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, Head of Investor Relations. Please go ahead. Thank you.
Thank you. Good morning. Welcome to SINA's earnings release for the second quarter of 2014. Joining me today are our Chairman and CEO, Charles Chao; and our Chief Financial Officer, Herman Yu. This conference call is also been 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 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 statements.
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, 2013 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 SINA's 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 non-GAAP financial measures for Weibo which have not been audited and our best estimate of Weibo's 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 will 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.
Thank you, Cathy, and good morning, everyone. Thank you for joining us in the earnings conference call for the second quarter of the year 2014. We're delighted to report a solid second quarter results with advertising revenues continue to grow strongly year-over-year basis driven by Weibo advertising growth and World Cup event.
The non-advertising revenues for year-over-year decline in the second quarter as we continue to scale down our mobile value added service business. In April, we successfully listed Weibo on NASDAQ as a separate entity. Following the Weibo's IPO, SINA remain the majority shareholder of Weibo, holding approximately 58% or 54% 40 basis of Weibo's total outstanding shares and therefore SINA continues to consolidate the financial results of Weibo. The operational results of Weibo for the second quarter has been discussed in a separate conference call and I'm only going to repeat some of the highlights here.
During the second quarter, Weibo continued to execute its strategies and made significant progress in unit expansion and monetization. The monthly active user for month of June, grow by 30% compared to the same period of last year and reached $156.5 million. Total revenues for the second quarter grow by 105% compared to the same period of last year. For the second quarter, Weibo advertising revenues from promoted feeds and for mobile terminals has both increased significantly which is an encouraging trend that we expect to continue.
As we discussed on the conference call for the last quarter that with separate listing Weibo intends to increase its investment in product development and marketing to further build-up the scale of its user base and to increase user engagement. And as a result its operating results for the current year may suffer. This in-turn would negatively impact SINA's consolidated results.
As we also discussed in the previous conference call the separate listing of Weibo provided the opportunity for us to look into the strategies of the remaining SINA business and to make the proper adjustments. At the current stage we're still in a process of finalizing our strategies for portal business going forward in light of the changing market environment. During the second quarter, we have significantly increased our efforts and the investments in areas of mobile and verticals for our portal business.
We expect that such efforts and investment will accelerate in the second-half of 2014. We believe that is imperative that we increase the investment in these areas as internet increasingly moves towards mobile and begins to disrupt more and more in traditional industries.
Our pursuit for business opportunities in vertical areas may be achieved via combination of internal expansions and strategic partners or acquisitions. Internet finance is one of the key areas for our vertical strategies. During the second quarter, we launched (inaudible) or micro-fortune with our investment company Shanghai (inaudible). It is a web-based platform for selling high quality financial assets directly to individual investors supported by SINA Payment. Also in the second quarter, we have announced that we invest our joint venture with E-House, to create China's First Real Estate Financial Services Platform Fang Jin Suo, to tackle the mortgage-based P2P market in China.
These initiatives will help us to build the foundation for our internet finance strategies and we expect to move faster in this particular area in the second-half of this year. Another vertical area worth mentioning is online lottery. SINA's online lottery channel is among the most popular ones in China, and SINA is also the largest shareholder of Aicai, one of the leading online lottery companies in china.
During the World Cup, we saw significant business boost in sports lottery and this could well be the beginning of another significant business for us. While (inaudible) prioritization is an important strategy going forward for SINA, we do recognize difficulties we may encounter during the process given the existing corporate and organizational structure and given the need for maintaining existing business. To push this strategy forward, we need the patience, as well as innovative ideas for creative structure, where we will update investors with detail as we move forward.
With that, I'm now turning to Herman for financial review.
Thank you, Charles, and thank you all for joining our conference call today. Let me walk you through our financial highlights for the second quarter of 2014. We had a solid second quarter with revenue results, both advertising and non-advertising above our guidance.
Non-GAAP net revenues in the second quarter grew 21% year-over-year to $184.4 million, exceeding our guidance between $177 million and $182 million. On the earnings side, non-GAAP net income attributed to SINA was $12.1 million or earnings per share of $0.17 on a non-GAAP diluted basis, compared to $0.21 for the same period last year.
Let me now discuss the key financial items in more detail. SINA's online advertising revenues for the second quarter of 2014, grew 29% year-over-year to $155.8 million, exceeding our guidance between $152 million and $155 million.
Portal advertising revenues in the second quarter increased 6% year-over-year to $96.3 million, which can be attributed to the growth of the Internet services sector, as well as revenues generated from (inaudible), our recently launched performance-based ads network for SINA portal.
For the second quarter of 2014, Weibo advertising and marketing revenues grew 99% year-over-year to $59.6 million. The strong growth momentum of Weibo advertising led by native ads, particularly for small and medium sized enterprises, as well as Alibaba and ecommerce merchant revenues.
Turning to non-advertising. For the second quarter of 2014, non-GAAP, non-advertising revenues were $28.6 million, exceeding our guidance between $25 million and $27 million. Portal non-advertising revenues for the second quarter of 2014 declined 56% to $10.8 million. The year-over-year decline in portal non-advertising revenues was largely due to our strategy to deemphasize our mobile value-added services business and shift the resources to higher margin, more sustainable growth opportunities. MVAS declined 68% year-over-year to $6.3 million in the second quarter. Weibo VAS revenues in the second quarter of 2014 grew 131% year-over-year to $17.7 million. Weibo VAS, our growth in all areas, particularly from data licensing and game services.
Turning to gross margin. Non-GAAP gross margin for the second quarter of 2014 was 60%, up from 55% for the same period last year. Non-GAAP advertising gross margin for the second quarter of 2014 increased to 60% from 57% for the same period last year, as the proportion of advertising from higher margin Weibo advertising increased to 38% of total advertising revenues compared to 25% for the same period last year.
Excluding Weibo results, non-GAAP advertising gross margin for the second quarter of 2014 was 52% compared to 56% for the same period last year and 54% last quarter, as the cost of advertising in the portal business in the second quarter of 2014 included World Cup related content.
Non-GAAP, non-advertising gross margin for the second quarter of 2014 was 64% compared to 49% for the same period last year, due to the shift in revenue mix from low margin MVAS to higher margin Weibo VAS.
Turning to operating expenses. Non-GAAP operating expenses for the second quarter of 2014 increased 55% year-over-year to $116.9 million, which was primarily due to higher labor-related costs, marketing expenditures, and infrastructure spending during the quarter.
Excluding Weibo-related costs, non-GAAP operating expenses for the second quarter of 2014 was $52.3 million, which increased 24% from the same period last year. The year-over-year increase in portal operating expenses was mainly due to higher marketing expenditures and labor-related costs, particularly in head count and wage increases in product development, as well as an increase in infrastructure costs.
Non-GAAP loss from operations for the second quarter of 2014 was $5.4 million compared to a non-GAAP income from operation of $8.8 million for the same period last year. Non-operating income for the second quarter of 2014 was $31.2 million compared to $8.2 million for the same period last year.
Non-operating income for the current quarter includes the items below; a gain of $29.1 million from $0.10 acquisition of a 15% equity interest in Leju on a fully diluted basis from E-House, one of our equity-method investments, two, a $6.8 million loss from the change in fair value of investor option liability in connection with Alibaba’s investment in Weibo, and three, $2.9 million or $5.2 million on a non-GAAP basis and earnings from equity-method investments, which are accounted for under the equity-method and reported one quarter in arrears. Item 1 and 2 are excluded for our non-GAAP results.
Turning to taxes. Income tax benefit for the second quarter was $1.5 million compared to an income tax expense of $3 million for the same period last year. Income tax benefit for the second quarter included one-off tax credit of $1.1 million that was approved by the change in government authorities in the second quarter.
Turning to net income. Non-GAAP net income attributable to SINA for the second quarter was $12.1 million compared to $14.2 million for the same period last year. Non-GAAP diluted earnings per share for the second quarter was $0.17 compared to $0.21 for the same period last year. Excluding Weibo losses, non-GAAP net income attributable to SINA in the second quarter was $17 million, which implies a non-GAAP net margin of 16% for the portal business during the quarter.
Turning to balance sheet and cash flow items. As of June 30, 2014, SINA’s cash, cash equivalents, and short-term investments totaled $2.3 billion compared to $1.9 billion as of December 31, 2013. The increase in cash, cash equivalents, and short-term investments was mainly due to cash received from Alibaba in connection with the option exercise of approximately $347 million and from Weibo's IPO of approximately $301 million in net proceeds in the second quarter of 2014, partially offset by investments and repurchases made during the first-half of 2014.
Excluding cash in Weibo, SINA's cash as of June 30, 2014, was approximately $1.8 billion. Net cash used in operating activities for the second quarter of 2014 was $9 million. Cash expenditures totaled $17.5 million, and depreciation and amortization expenses were $11 million.
Let me give you a quick update on our previously announced share repurchase program. Another $500 million of share repurchase program approved by our Board of Directors as of August 13, 2014, we have purchased approximately 1.8 million shares in the open market for a total consideration of approximately $58 million. We expect to continue to execute the repurchase program as appropriate.
Turning now to third quarter guidance. For the third quarter of 2014, we are targeting non-GAAP net revenues between $193 million and $199 million, representing an increase of 7% to 11% year-over-year. Our revenue guidance excluded expected recognition of $2.6 million in deferred revenues related to SINA's equity investment in E-House.
This concludes the written portion of our call. We're now ready for questions. Go ahead, operator?
Ladies and gentlemen, welcome to the question-and-answer session. (Operator Instructions) Thank you. Your first question comes from the line of Eddie Leung from Merrill Lynch. Go ahead, please?
Eddie Leung – Merrill Lynch Far East Ltd.
Hi, good morning. Thank you for taking my questions. I have two questions on your portal advertising pieces. The first one is about the current mix of advertiser industry. So could you give us, let's say, the top three of top five advertiser industries and what's the outlook for that in the upcoming couple of quarters, a lot of different macro trends?
And then secondly, perhaps a bigger question on the portal strategy, we have seen that, it seems like some of the smaller portals where some of them could be run by state-owned media, some of them offline media or TV media, seems to be picking up quite some rapidly within the past year or so. So just wondering what's your thought on, being one of the traditional factors online portals versus some of these so-called like newcomers in getting the revenue share among advertisers? Thanks.
Okay. Eddie, this is Charles. Regarding the revenue mix from different industry sectors, I mean for product advertising, I think, historically, I mean, these categories like automotives, like FMCG, like Internet services, I mean, Internet service including mostly probably e-commerce players, I think have been the major revenue contributors for our product advertising. And these are the industry biggest categories, I mean, for product advertising for now and for the foreseeable future probably that will always be the case.
And for auto, I think, is a big factor and, historically, SINA has a big market share in particular areas, and we still see some growth mixed area. But as portal industry begin to migrate into new area, new era in terms of, I mean, you're going to see more and more, I would say, secondhand autos in the market and also there will be more diversification in terms of business models going forward.
Our focus right now is still in the – our state of new auto, band advertising category, which the growth has been limited, and we're looking into the possibilities to expand into other further lines in terms of auto industries for advertising businesses going forward. And for now, it is still the largest sector for us accounting for probably one-third of our total [Technical Difficulty] revenues.
And the two biggest areas, I mean for us, I mean to other biggest area in FMCG and Internet service. I think Internet service is very natural and has been always important portal business. And as e-commerce become increasingly more important in the market and we're going to see continued growth in this particular sector. And FMCG probably is more natural in terms of migration from traditional media to online media, especially from TV media to online medias, I mean, in the last few years, and we see this trend is going to continue.
But all these particular areas, I mean, like Internet and FMCG, probably has some seasonality with anyone particular year. For example, in the second quarter and the first quarter, we will probably see stronger, I mean, performance for Internet service especially for e-commerce, because e-commerce company usually have this kind of major campaign in these two quarters, especially in the first quarter.
And so, what you see in the first quarter – in the first-half of the year, we see some strong growth in Internet service in the first-half, I mean, we're still going to see strong growth in the second-half especially in the fourth quarter. And for FMCG, I mean, it also has seasonality literally, is the biggest quarter, is in the third quarter where I mean, people spend more time on TV, where a lot of, like FMCG company tend to spend more marketing dollar during the quarter because of some applications, so on and so forth. And so, I would say it has seasonality but on overall basis, these two sectors will continue to grow. And, basically, these three sectors, auto, Internet service, and FMCG are going to be the major sectors for now and for foreseeable future.
And for the second question about the portal strategies, you are talking about the newcomers in this particular space, you're right, I think there are lot of – I wont to say these are newcomers. These have been – the website has always been in existence for the last four years and a lot of these portals have to do with the state-owned media companies.
And I think, the difference probably now is that, these website become more focused on monetization, I mean, and try to generate the revenues from brand advertisings and other means of advertisings now versus, I mean, a few years ago, they're probably more focused on the content. And so inevitably there will be more competitors in the sector, and this is probably brand advertising business is probably very competitive in China, because there are a lot of players in the space, and we have been very competitive in this space.
And we believe that we're still going to be very competitive vis-à-vis the market except I think inevitable we're going to face much competitors in this market, because new people come in become more focused on monetization is probably inevitable. And I think that the trend probably is towards more revenue will be shifted, but it will be shifted in the mobile. And this is going to be our focus for the next half of the year and for the years going forward basically.
Eddie Leung – Merrill Lynch Far East Ltd.
Thank you. That’s all. It’s very helpful.
Thank you. Your next question comes from the line of Dick Wei from Credit Suisse. Please ask your question.
Dick Wei – Credit Suisse
Hi, Charles and Herman, thank you for taking my questions. I have two questions. First one is, maybe if you can share like on the portal front how much usage, as well as revenue are coming through from your mobile side, bigger on the mobile apps?
And second question is about, remember we were doing the ad networks for some of this more – some of the excess inventory, if you would, with – for like real-time bidding, I wondered, how that progress coming along? Thank you.
Okay. In terms of the revenue contribution from mobile, I think, this year first of all, we begin to see more and more budgets have been allocated to mobile from brand advertisers and from all sectors basically. And so we are seeing a pretty big change and start picking up of spending mobile terminals for different customers.
And – but having said that, we're going to – you're going to see, I mean, probably in terms of absolute number amount, I mean, mobile is still going to be a small portion of our business at current stage, although, on a year-over-year basis, the revenue growth has been tremendous. And I think we'll begin to see more pickup in the second quarter, I mean, where people begin to spend lot more money, our I mean, then the mobile portal as well on the news ATP.
And so for that particular areas, we are going to increase our effort in terms of developing first the more relevant advertising solutions on mobile, meaning that, we are going to increase our efforts in developing the mobile related especially in native advertisers system going forward. And also, we also increased our efforts in terms of our marketing and product development in terms of mobile app.
So that we can, I mean, keep increasing our user base in this particular sector to provide more inventories going forward to satisfy the need for mobile advertising going forward. And what is the second question? I'm sorry, Dick.
Dick Wei – Credit Suisse
Yes, as soon as the advertising network for your – for the entry, right…?
Yes, I think, as Herman mentioned in his opening remarks, internally, we have developed a network product for SMEs and for taking advantage of our – I mean, advertising – I'm sorry, inventories for the content page. This particular system called (inaudible) and we started this product probably, the end of last year, began some experiment, and this year with the pretty strong growth quarter-after-quarter for that particular revenue growth for this advertising network.
And currently, this advertising network is only used by SINA, but we do have a plan to expand this network to other websites once we get more I mean data and the experience in terms of our system, so that we can deploy this particular system to – on network. And in the future probably we're going to be more focused on the mobile areas for network. And so the system we're going to develop, not only going to be used by SINA, but in the foreseeable future we also plan to deploy this to the entire network of the market. So that we can take advantage of our own user base as well, data we accumulated through different terminals to deploy that to entire system, to take advantage of that opportunity.
Dick Wei – Credit Suisse
Great, thank you very much, Charles.
Thank you, Dick.
Thank you. Your next question comes from the line of Tian Hou from TH Capital. Go ahead, please.
Tian Hou – TH Capital
Good morning, Charles, Herman, Cathy. I have a couple of questions and last quarter earning call, Charles, you mentioned that SINA was going to invest some money in the verticals, such as financials and the sport and videos. So I wonder, what's the progress of that front? Also and look at the guidance for Q3, if I strike out Weibo's guidance and it seems like portal itself advertising-wise year-on-year basis, no growth. I wonder, how much is that come from the impact of video lessons revocation, so what's the progress on that front? So what kind of efforts are we putting in place to get the lessons back? Or if we don't get it back, what's alternative for us to develop video part of the business? Thank you.
Hi, Tian, this is Charles. On the first question, on the investment of verticals, I mentioned briefly in my opening remarks that we have emerged a couple of projects in the financial areas. I mean, one in the – we increased our investment in the payment area and for the financial asset platform (inaudible). And so this is one of the areas we have invested. I mean, and we believe this is an important foundation for our getting into the Internet finance area, because we need our own payment. We need our own platform to build almost like shocking more for financial assets going forward and this is a very important first step for us. And then secondly, we invest in a joint-venture with E-House to create Fang Jin Suo, which is real estate, I mean, financial asset platform.
Basically, it is a mortgage based P2P market platform to advantage of the opportunities in the real estate area, as well as, the opportunity, I mean, for the – create a more efficient financing kind of platform for customers and for consumers basically, in this China market. And we believe these – this particular area has enormous market share, market size and which has yet to be very efficiently in the market.
And so these are the two areas we have been in the vertical areas for finance and asset sale that we're going to accelerate pace in the second-half of the year, in internet finance area and to build a more robust platform for us to take advantage of internet financing opportunities going forward.
And in terms of other areas, we're still in the progress in terms of video and in terms of sports and these areas we have been in discussion with different parties but I think there no conclusion has been made in this particular vertical areas, of these vertical areas, probably take some time in terms of coming up with the right strategy and with the right partners. And as I say, we just need to be a bit more patient in those areas, and of course, this applies to other vertical areas like auto, like education, and so on and so forth.
For your second question, in terms of guidance for Q3, yes, if you're taking out our guidance for Weibo, our portal advertising guidance is not very strong and part of it has to do with the fact that you mentioned about the video license issue and this is an issue that is having a very subtle impact on our advertising revenues, I mean, with brand advertisers and we really cannot quantify the effect of such impact but there is a real impact here.
And we hopefully, given the time we can resolve these uncertainties and have a more, I would say there, to block uncertainties and try to grow the revenues on these brand advertisers again, hopefully in the first quarter. I don't know exact when. This video license issue is still pending there, and there's nothing concrete in terms of outcome. And we don't know the timing of the result of that and currently we're still offering video services in certain areas like sport, like entertainment.
We believe that we can offer these services, I mean, and our other license, but it's not clear. Still in terms of what exactly we can for sure, we can offer – what we exactly we cannot operate. And so we're still working on that. I mean, I'm sorry, really that I still cannot give you a very certain, I mean, answer at this point and hopefully given the time, we can resolve the issue more quickly, and so that this uncertainty can be gone for the future. Thank you.
Tian Hou – TH Capital
That's very helpful. So, Charles, I have just one more question. It's related to the Weibo TV Interaction Program. So I realized you had some very successful interaction program in 2Q what (inaudible) and some video TV programs. I wonder, what's the plan going forward in Q3 and Q4 for such interaction program?
Well, I think this is a topic has been discussed in the Weibo's conference as it is important part of our user growth and also advertising growth, I mean for this year, and I'm not going to repeat a lot of the details. But overall, I think this has been working very effective for us. As you mentioned, in the second quarter we have World Cup with other programs that increased a lot of interactions among user base and also create some revenue stream.
And what I can tell you is that, this we're making even big progress in the third quarter. We're going to see a lot more programs, I mean, joining this particular interaction program we have developed, I mean, in the second quarter. And we're seeing a lot more advertising customers coming to this program. So I will say in the Q3 lot of growth account will come from TV interaction programs. But if you know China's TV programs market and there's also seasonality.
In Q3, you see lot of these kinds of entertainment programs, like this thing, like this special thing in entertainment programs, so called (inaudible) had been the most popular ones, being played in the third quarter. That is going to be high season for us in terms of TV Weibo Interaction Program. And for first quarter, probably we'll – I think we'll cool down little bit because lot of programs will be ending by the end of third quarter. But overall, I think this is going to be a very effective I will say model, not only for user growth, but also for the particular monetization and we believe this is going to be very important for Weibo's advertising growth, next year and going forward.
Tian Hou – TH Capital
That's very helpful. Thank you so much. That's all my questions.
Thank you. Your next question comes from the line of Wendy Huang from Standard Chartered Bank. Please ask your question.
Wendy Huang – Standard Chartered Bank
Thank you. I notice there is impairment on the goodwill US$15 million exactly in your operating line, can you clarify on that? And also you currently sit on the $2.3 billion cash, can you give us update on the usage of cash?
Lastly on the lottery services, you mentioned that there was lot of potential up there. So can you maybe disclose the revenue size of the lottery in the second quarter, and what was the lottery – as far as lottery revenue implied in your future guidance? Thank you.
Okay. I'll take the first two, Wendy. With regards to the impairment at the goodwill, as we mentioned on our last call that, our license with regards to publishing was revoked, as a result when we bought the business back in the beginning of first quarter, we had to do a impairment assessment and as a result of that, we decided that the business goodwill that we initially capitalized was impaired. So it will be related to our publishing, reading business.
The second, with regards to the use of cash, Wendy, historically, we've used our cash mainly for two purposes. One is to invest in areas that we feel is very significant, strategic to SINA's business, that we feel that it would be more effective to actually grow that outside of our business versus organically. And secondly, we've also used the cash for stock buyback. As I made comments earlier, mid-section, I think going forward we intend to continue to have (inaudible) usage for our cash mainly.
Okay, Wendy, regarding your third question, the lottery side, I mean, actually, I mean, we said in my – as I said in my opening remarks, we are the largest shareholder of one of the leading lottery – online lottery company called Aicai in China. But we are not the controlling share at this stage. I mean, so we are only doing equity accounting for that particular sector, for that particular investment, so they have no revenue being consolidated, and so we have no point to disclose that.
And – but going forward, I mean, we don't have the right to control this entity and if we do then there will be revenue impact and at that point, we'll probably give you some color in terms of the revenue potentially what we generate on a particular business.
But I do want to say that, this particular business has been growing very fast in China in the last few years. And I think, this particular World Cup event really helped to boost awareness and the popularity of the online lottery business in China and a lot of users have joined the program and become the buyers of online lottery ticket, I mean, especially in the sports lottery. And so this served as education, kind of opportunity for entire market.
And so, on an overall basis, you're going to see probably very strong growth in the entire sector for online lottery and going forward. And so we probably will be able to benefit that in the future.
Wendy Huang – Standard Chartered Bank
Thank you. Your next question comes from the line of Gene Munster from Piper Capital. Please ask your question.
Gene Munster – Piper Jaffray
Good morning. Just a follow-up with the lottery question and, Charles, I think you talked about it earlier too. But in terms of the portfolio approach to your platform, the lottery being one of them, can you just remind me what some of the potential (inaudible) I think you said, fourth might be one or some of the other areas that may be of interest in the portfolio approach. And maybe do you have some of those just roughly outline for the future?
And then my second question is, Herman, can you remind me the contribution, is there any way to break-out the contribution from the World Cup, and how did the ad business look close to World Cup, out of the growth rates trend after the World Cup? Thank you.
Gene, regarding the vertical areas and, obviously, we have talked about the potential areas like finance, like sports, like automobile, like – I think, lottery in this particular, I would say, framework is really related to sports, because we have online lottery channel, which within our sports channel. And most of the online lottery ticket sale has to do with sports lottery, and we have a lot of sports content, especially we have a lot of video broadcasting, I mean, content really in relation to some of the most popular kind of sports event like NBA, like the English Premier League, lot of soccer events, and broadcasting content.
And, so these contents will be really helpful in terms of accumulating the population for the sports lottery tickets. And so these are related and so sports verticals, of course, there's a lot of other opportunities, one, the major one is lottery and the other probably is the sports gaming. And these are areas we are actually become more focused in terms of our vertical development in the sports area.
Financing where we talked about and also automobile and there's opportunities in this area for secondhand car sales, and for the other kind of innovative kind of marketing sales activities in automobile areas, which is also – is area we're paying a lot of attention to.
And so, other areas, probably, interesting is in the Cayman area. And these particular areas that we have seen a lot of strong growth in China especially for more industry for other entertainment programs, these are areas that all experiencing some very significant growth in China. And we want to take advantage of these growths in terms of come up with our innovative products and service market.
And the next thing is probably the education and – but having said that we (inaudible) these lot of areas, we just have to be more focused on some of the areas and we believe that have big market opportunities. And currently, I mean, the key areas we are being focusing upon is the finance area and maybe next thing is automobile area. And so these – I really cannot give you too much detail, because this is really case-by-case and step-by-step. And, probably, we just have to update you more progress every quarter going forward.
And the second question maybe is for Herman.
Yes, Gene, with regards to the World Cup, we don’t disclose that separately. I think it's hard to quantify World Cup specifically, but you can probably guess that the majority of the increase form first quarter to second quarter relates to the World Cup.
Gene Munster – Piper Jaffray
Okay. Thank you.
Unfortunately, ladies and gentlemen, that's all the time we had for questions. We'd now like to hand the conference back over to our host, Cathy Peng for closing. Thank you.
Hi, this concludes our call for today. Thank you, everyone, for joining us. We'll see you in next quarter.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your attendance. You may all now disconnect.
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