Weibo Corporation (NASDAQ:WB)
Q4 2016 Earnings Conference Call
February 22, 2017 08:00 PM ET
Lydia Yu - IR
Charles Chao - Chairman of the Board
Gaofei Wang - CEO
Herman Yu - CFO
Alicia Yap - Citigroup
Evan Zhou - Credit Suisse
Juan Lin - 86Research
Alex Yao - JPMorgan
Ladies and gentlemen, thank you for standing by. And welcome to the Weibo Reports Fourth Quarter and Fiscal Year 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your first speaker today, Ms. Lydia Yu, Investor Relations for Weibo. Thank you. Please go ahead.
Thank you, operator. Welcome to Weibo’s fourth quarter earnings conference call. Joining me today are Chairman of the Board, Charles Chao; our Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Herman Yu. The conference call is also being broadcasted on the Internet and is available through Weibo’s IR website.
Before the management’s 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 statements. Weibo 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 Weibo’s annual report on Form 20-F for the fiscal year ended December 31, 2015 filed with the SEC on April 28, 2016 and other filings with the SEC.
Additionally, I would like to remind you that our discussion today includes certain non-GAAP measures, which excludes stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Weibo’s comparative operating performance and future prospects. Our non-GAAP financial excludes certain expenses, gains or losses, and other items that are not expected to result in future cash payments or that are non-recurring in nature and will not be indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management’s prepared remarks, we will open the lines for a brief Q&A session.
With this, I would like to turn the call over to our Chief Executive Officer, Gaofei Wang.
Thank you, hello everyone and welcome to Weibo’s earnings call.
On today’s call I will share a few key developments in Weibo’s product, user growth and monetization, review the progress that we have made in 2016 and share with you our plan for 2017.
Let me first discuss fourth quarter financial results. We continue to see strong revenue and user growth in the fourth quarter of 2016. Our total revenue reached 212.7 million, up 43% year over year. Advertising and marketing revenue reached 187.9 million, up 45% year over year with 68% of our ad revenue coming from mobile. Non-GAAP net income was 77 million, up 134% year-over-year.
Weibo’s total revenue for fiscal year 2016 reached 655.8 million, up 31% year over year. Advertising and marketing revenue reached 571 million, up 42% year over year. SME and KA advertising revenue reached 513 million, up 98% year over year. Non-GAAP net income reached 183.5 million, up 167% year over year.
Weibo’s robust revenue growth and operational efficiency in 2016 are derived from the following three areas. First, continuous user growth and increase in user engagement has made Weibo an essential element of mobile marketing in China. Second, as our monetization taking shape, we offer a full spectrum of advertising and marketing solutions such as brand ads and performance ads, tailored to a different customer segment from individual, small and medium sized enterprises to key accounts. Lastly, Weibo’s business model as a social platform is starting to take shape in 2016 effectively enhancing through operational efficiency and monetization.
On the user front, Weibo’s monthly active users reached 313 million at December, up 33% year-over-year. Average daily active users in December reached 139 million, up 30% year-on-year. In December, 90% of Weibo’s MAUs were mobile. In 2016, our MAUs included by 77 million and DAUs increased by 33 million representing a much larger user base increase than 2015.
We are becoming one of the most important social platform in China especially to discover information and to engage in large decisions. Hundreds of millions of users use Weibo to discover news and engage in conversations on topics of their interest, while tens of millions of users use our platform to share and express their views and opinions to the world.
In discussing our operational update for the fourth quarter, I will cover Weibo’s progress in the following areas. The ecosystem of Weibo’s platform is developed around three core components; users, content and customers. Our massive user base enable content creators to quickly build social assets and pursue their monetization aspirations. This promotes high quality content to be shared and distributed on Weibo, attracting users, starting conservations and thereby increasing our user base and user engagement. Ultimately, the data that we gather from user engagements in the social networks formed by users asking us distribution channels help us establish more effective connections between our users and customers, increasing Weibo’s marketing effectiveness. As these two components come into play and reinforce one and another, it will continually increase Weibo’s size and value [indiscernible] competitive advantages in the social media industry. My operational update will elaborate in these three areas.
First on the user product front, Weibo’s core product information feed has gone through a two year structural change. From a pure chronologically based timelines to one based on social relationships and the other on topic interest. Weibo’s relationship base information feed i.e. our original homepage timeline is the main place for users to obtain information, engage in conversations expressing their views and opinions. Thus, we emphasize the timeliness of information and user engagement. On the other hand, Weibo’s interest-based information feed, a timeline for users to discover information and find products of interest. Thus we emphasize content sharing and consumption.
In making the structural product shift, we have not only strengthened our differentiation in the social media sphere, we have also strengthened Weibo leadership and content creation and user engagement. Each day hundreds of millions of fees are shared on Weibo, many of which are premium content from key opinion leaders, media outlets and celebrities. At our original relationship base model, users could only view fees from follow-up counts on a chronological basis. This limited relationship based information fee result in users being able to consume only a more portion of content in their timeline.
In Q4 2016 we rolled out the new relationship based information feeds to all our users and began testing the new algorithms for interest based information feed. The new relationship based timeline not only considers feeds in chronological order, it maintains the follow model. It also prioritizes feeds based on ultra user engagement, quality of content, timeliness of the information and user relationship. Preliminary results on a rollout of our new relationship based timeline in 2016 show an increase in user time spent and user engagement.
[indiscernible] Separately in Q4, we saw Weibo’s new interest based information feed also becoming a popular way for our users to consume content. Breaking away from the follow model, interest based timelines leverage Weibo’s social interest graph to recommend content interest to the user. Simplifying content consumption and timeline, and making it easier for users to form social relationships on Weibo. The MAUs of our interest based timeline is quickly approaching the MAUs of our relationship based timelines, [indiscernible] usage frequency. In 2017, we plan to better optimize both our relationship base and interest base information feeds using machine learning and Weibo’s leadership in the area of content creation, content consumption and user engagement.
Turning to content, short video is a top priority for us, in Q4, we enhanced the user experience and video consumption expanding both viewership and video views. Daily video views in December increased 713% year-on-year.
In the second half of 2016, the focus of developing Weibo’s video content ecosystem by working directly with creator and through a multi-channel networks AK and MCMs as well as partnering with media and other organizations with IP rights and online video websites. Top creators have been a focus for us this year and we have built our network alliance with over 200 video MCMs who serve as tele-agencies for creators. Top creators have been a key contributor of premium video content to Weibo and average daily video views of top creators have increased over 200% year over year. In Q4 2016, we increased our efforts to partner with [Technical Difficulty] Weibo’s video offering. Through our cooperation, Weibo serves as a key channel for media firms and others with IP rights to distribute their premium video content to a larger audience hence increasing the market influence.
For example, CCTV in Q4 shared a total of 6,920 short videos, up 22% quarter-over-quarter and broadcasted 379 live stream sessions, up 40% quarter-over-quarter. During the recent years, we partnered with five TV networks to broadcast their New Year’s Eve gala live on Weibo, attracting over 20 million viewers and generating over 40 million engagements. The audience on Weibo [indiscernible] live broadcast represented 10% of the total audience feed for the New Year’s gala. We are seeing Weibo becoming an important name for TV networks to grow their audiences. Simultaneously, we have also strengthened our partnership with online video sites, serving as a traffic source. Videos from Youku can now be shared on Weibo and our users can also watch their short videos directly from Weibo. Through our cooperation video shared to Weibo from Youku in December increased 19% from three months ago.
Lastly, on a UGC front, through enhancements of user experience for mobile video uploads, the number of users who have posted a video and the number of video shared on Weibo has increased 43% and 37% respectively from the prior year. In 2017, we will focus on enhancing the content creation experience for short videos and live streaming especially focusing on new and easier ways to share and consume video content on Weibo at anywhere and anytime.
We have also made great strides in securing partnerships for content verticalization in 2016. We’re partnering with vertical MCMs, talent agencies who manage vertical KOLs. We really diversify Weibo’s content offerings beyond our historically popular areas such as entertainment and news. In December, monthly views of our top vertical KOLs taken together increased 74% year-over-year and 20 verticals now have monthly views exceeded 10 billion compared to a 11 verticals a year ago including food, relationships, sports and variety shows. The bottoming of Weibo’s content for us has helped us grow our user base and increase our impact to society. Also after two years of hardware we have significantly improved the monetization opportunities for vertical KOLs to align to the fashion, entertainment and finance verticals. As examples, in 2016, a top fashion e-commerce KOL generated hundreds of millions of GMV in RMB from our through the sale of women’s apparel. A top KOL of the finance industry [indiscernible] generated RMB3.4 million and paid to subscription of Weibo. And a celebrity broadcaster asked to receive close to RMB7.7 million and virtual gift items from live streaming on Weibo.
Through Weibo task [indiscernible] tools. We enabled self-media to monetize on Weibo. This strengthens our core competencies as it incentivizes KOLs from different verticals through carry premium content on Weibo which further increases the monetization potential. Such incentives ultimately create a reinforcing loop. In 2017, we plan to work with more vertical KOLs to help them unlock their monetization potential on Weibo through multiple means such as advertising, subscription and e-commerce to further strengthen Weibo’s ecosystem.
In 2017, our operational focus will be on continuing to improve Weibo’s content ecosystem specifically by further enhancing the user experience and content consumption and increasing our investment and user products allowing users to better benefit from the massive content available on Weibo. We will also focus on improving multimedia content allowing users to better and more easily express itself due for example, live streaming and short videos on Weibo. In addition, we plan to make further investment in content verticalization to help more content creators for their own brand and commercial value. These strategies will strengthen the competiveness of our content ecosystem helping us obtain more users in O2O and building influence in many industry segments.
Lastly, turning to monetization, we achieved strong ad revenue growth in the fourth quarter. Key account revenue continued to grow rapidly increasing 133% year-over-year, SME revenue increased 85% year-over-year. There are three main revenue drivers. First, top key customers experienced impressive results from their Weibo social marketing which led to an increase in ad customers as well as advertising agencies spending more add dollars on Weibo.
In Q4, [indiscernible] third-party marketing research firms Nielsen and AdMaster to measure the effectiveness of Weibo social marketing using the industry methodology. For example, Wrigley ran a short video advertising campaign on Weibo and AP test results showed that brand satisfaction towards the brand rose 23% and willingness to purchase Wrigley’s products rose 34% after the ad campaign. Using OPPO as another example, after OPPO ran a product launch campaign for their R9s smartphone on Weibo, over 90% of the participant surveys are positive and/or neutral views towards their brand and the R9s smartphone.
Secondly, we have been focusing on developing an effective and integrating customer relationship management process for ad customers. To help them increase their sales lease conversion. Using a well known wedding photography studio in China, our T6 [ph] studio as an example. By leveraging Weibo’s social interest graph, our Studio was able to move to more precisely target the potential customers on Weibo. In addition, after the ad campaign, using Weibo’s [indiscernible] Studio was able to contact with interested customers and continued the conversation to establish trust and brand reputation and potential customer mind. By using Weibo, advertising targeting and the messaging function, our T6 studio’s ad engagement on Weibo reached 13% and sales conversion rose five times.
Lastly, fourth quarter is a peak e-commerce sales in China and this year, we further strengthened our partnership with Alibaba. Ad revenue from Alibaba reached 24.7 million in Q4, up 157% from last quarter. On close strategic corporation, the effectiveness of Alibaba’s marketing campaign on Weibo has significantly increased. For example, Tmall has got a new e-commerce marketing approach on Weibo in preparation for double whammy this year which leveraged social content to increase ad engagement and GMV. In the past, e-commerce ads on Weibo would be a feed advertising end product and text link to one of Alibaba’s e-commerce platforms. The new social content model campaign for example linked product mention and Weibo feeds of influencer to product page on Tmall, as novel innovation became a highlight [indiscernible] posted by almost 200 e-commerce influencers and celebrities on Tmall. Purchase recommendations reached over 10 billion views and live broadcast streamed by e-commerce influencers to subsequent hot items on Tmall had more than 6 million views. The topic [indiscernible] rose to Guinness world record as the most discussed event within 24 hours. According to AdMaster, Weibo has become a top commercial channel for Double Eleven helping to increase brand affection and purchase and technical products promoted during the [Technical Difficulty].
Promoter ads and information fees is something we have been continuously enhancing. At the same time, as the volume of information fees grow, we are also seeing an increase in ad effectiveness in Q4. CTR also known as click-through rates improved by double digits from the prior year and this has mainly due to the following reasons. First, the number of key customers have grown rapidly increasing 65% year-over-year.
Second, we have upgraded our user interest in system allowing us to build more accurate and complete user social interest graph and improve the position of Weibo’s ad targeting. By leveraging user behavior data on how they have historically viewed and engaged with a various types of ads. Weibo’s targeted ads not only can generate higher user satisfaction but also more precise ad targeting which ultimately translates to improving ad effectiveness and brand precision for ad customers. Third, we have been continually innovating our ad products and finding methods to better tailor them to specific customer industries. We have been able to increase customers ad budgets for ad products through launching new products like video and ad download apps. Also, through product like our combined brand and performance marketing solution and effective lead ads, we have been receiving positive market reputation.
In 2017, we plan to increase the competitiveness of Weibo’s ad products through the following strategy. First, we will continue to focus on growing our user base. In 2016, Weibo has started to demonstrate [indiscernible] network effect of our content ecosystem. In addition, we have entered a huge online video marketing with the launch of Weibo’s short live videos which has contributed to increasing user engagement on Weibo. In 2017, we will further increase our investment in user products to continually expand our ecosystem. Second, we plan to make additional enhancements to our algorithms especially in leveraging interest and location data. In 2016 as our ad revenue increased rapidly, our ad inventory also grew at a fast pace through algorithm mix enhancements. We have been making steady improvements to Weibo’s advertising establishments. In 2017, our priorities will be to further improve ad effectiveness.
Third, we plan to further expand the customer base. By offering a wide array of ad solutions from event marketing to KOL marketing to performance based ads and to brand awareness ads, combined with China’s ad market and shifting towards mobile and video. The total number of ad customers on Weibo grew significantly in 2016. In 2017, our sales and marketing team will continue to improve our ad products and develop a combined brand and performance marketing strategy, aimed at creating a more comprehensive ad solution to bring increased value to our customers and thus increasing our competitiveness and expanding our customer base.
Lastly, we plan to further increase and increase the business opportunities for self-media whom are an important component in Weibo’s content ecosystem. In 2016, after several years of developing our monetization model, we noticed that vertical KOLs are able to well monetize on Weibo through a paid subscription, e-commerce, et cetera. And as significant is, as Weibo continues to lead as one of the most important social platforms in China. We do comment on several investments that our content partners must make in order to grow their organizations. With that said, this will bring us large number of new customers. In 2017, as our customers better integrate into our ecosystem, thereby increasing their marketing effectiveness. We will also increase our support towards our content partners, especially in the areas of monetization. It helps with their needs for organic ads that are in our platform, we will continue to increase.
With that, let me turn the call over to Herman for our financial statement.
Thank you, Gaofei. Welcome to Weibo’s fourth quarter 2016 earnings call. Let me go through our financial highlights for the fourth quarter and full year 2016. For the fourth quarter, Weibo’s total revenue reached $212.7 million, up 43% year-over-year or 53% on a constant currency basis, exceeding the company’s guidance between $205 million and $210 million. Non-GAAP net income attributed to Weibo reached $77 million, up 134% year-over-year. Non-GAAP diluted EPS was $0.34 compared to $0.15 a year ago. With revenue peaking in our seasonally high fourth quarter, our adjusted EBITDA reached $78.2 million, up 111% year-over-year and adjusted EBITDA margin reached 37% compared to 25% last year.
For fiscal 2016, Weibo’s total revenue reached $655.8 million, up 37% year-over-year or 45% on a constant currency basis. Our SME and KA businesses together make up 90% of Weibo’s advertising revenues. Each grew robustly in 2016 and 98% year-over-year or 110% on a constant currency basis. Non-GAAP net income attributed to Weibo in 2016 reached $183.5 million, up 167% year-over-year. Non-GAAP diluted EPS was $0.82 compared to $0.32 a year ago. Adjusted EBITDA reached $193.7 million, up 126% year-over-year and adjusted EBITDA margin reached 30% compared to 18% in 2015.
Since turning profitable in 2015, we have seen continuous margin expansion illustrating a strong operating leverage of Weibo as a social media platform that connects content to audience. We believe there is significant opportunity for operating margin to grow, especially over the long-term as we further scale our users, content creators and customers.
Let me give you more color on our fourth quarter revenues. Advertising and marketing revenue for the fourth quarter reached $187.9 million, up 45% year over year or 55% on a constant currency basis. Mobile ad revenue made up 68% of total ad revenues and was up 53% or 54% on a constant currency basis. Total advertisers reached 689,000, up 4% year-over-year. On our last call, we discussed that as our customer base runs, we have put in place a system to increase and continuously improve the user experience of Weibo ads through algorithmic adjustments in big data analysis. We now only want to grow our customers, while also taking into consideration the quality of the advertisers.
First, when we look at SMEs through the channels, KAs and self-service customers, who have higher potential to have sustainable relationship with us. We are seeing healthy customer growth. ARPA or average revenue per advertiser for SMEs and KAs are also seeing healthy trends.
Turning to SMEs, the strength of Weibo’s advertising was led by our SME business, which reached $101.4 million, up 85% year-over-year or 98% on a constant currency basis in the fourth quarter. Key customer sectors contributing to this strong revenue growth include app developers, e-commerce and O2O companies. SME advertisers usually purchase performance based ads. As Gaofei mentioned, revenue drivers for performance ads include improving CTR and ad targeting capabilities. In addition, opening up brand ads to SMEs including video ads is also helping SME grow rapidly.
Moving on to KAs, our key account business mostly made up of large brand advertisers is becoming another pillar for Weibo’s growth engine. In the fourth quarter, our KA ads revenue reached $61.8 million, up 149% year-over-year compared to 130% in the third quarter, 84% in the second quarter and so on a constant currency basis. As Gaofei mentioned, Weibo’s strong brand in the marketplace has been an important driver for our revenue growth.
Our revenue drivers also include Weibo’s wide array of ad offerings as well as the livelihood of celebrities and influencers whose presence on Weibo have amplified the impact of social ads.
Moving on to value added services, Weibo’s value added services reached $24.9 million in the fourth quarter, up 28% year-over-year and 37% on a constant currency basis. Membership fees was up 89% year-over-year and data licensing was up 79% year-over-year on a constant currency basis. The two together make up more than 50% of Weibo’s DAS revenue.
Turning to cost and expenses, total non-GAAP costs and expenses were $139.2 million, up 20% year-over-year. Cost of sales was $48.7 million, up 16% year-over-year, while operating expenses totaled $90.6 million, up 22% year-over-year. The increase in non-GAAP cost and expenses was primarily due to an increase in marketing expenses, value added taxes and commission based salaries with the latter two impacted by higher revenues.
As a technology driven company, Weibo is not only focused on developing innovative user products and ad products, but we also leveraged technology to give our users better video experience while keeping infrastructure costs down. Our disciplined approach to cost management blends to the development department and despite video views increasing 7-fold year-over-year in December, the year-over-year increase in bandwidth costs under cost of sales was manageable.
Non-GAAP net income attributed to Weibo in the fourth quarter was $77 million, up 134% year-over-year. Adjusted EBITDA reached $78.2 million and adjusted EBITDA margin was 37% compared to 25% a year ago. We continue to see platform like margin improvements.
Turning to balance sheet and cash flow guidance. As of December 31, 2016, Weibo’s cash, equivalents and short term investments totaled $396 million. Cash provided by operating activities for the fourth quarter was $82.3 million. Capital expenditure totaled $6.5 million and depreciation and amortization expenses were $3.5 million. Our shares in the market, per our ADR depositary firm, approximately 23% of Weibo’s shares outstanding were represented by American depository shares as of the end of December.
Turning to Weibo’s first quarter 2017 guidance. We estimate our first quarter revenue to be between $185 million and $190 million, which does not take into consideration of foreign exchange rate fluctuations. Before I turn the call over to operator, let me quickly recap our achievements in 2016.
We have made tremendous progress this year, building strong momentum in both user growth and advertising growth. We are focused on improving the user experience by utilizing machine learning in our information fields to improve content relevancy. We’ve also made the consumption of information feeds easier by offering interest based information feed in addition to the original follow model. In the area of content diversification, our verticalization effort is taking shape as more and more key opinion leaders from different verticals begin to publish on Weibo. Our content ecosystem is becoming a reinforcing loop as KOLs learn to quickly and efficiency acquire audience on Weibo and monetize their social assets via e-commerce, content subscription, virtual gifting, brand ambassadorship and other means.
In the area of video, we have focused on improving the user experience for short video consumption and launching live video. We’ve built a large network of premium video publishers in organizations with IP rights, including TV networks, celebrities, video MTNs and online video sites to share premium video content on to Weibo. Our video traffic was up 7-fold in December. If user is shifting to mobile content and fee format, even for videos, we’ll become more popular especially when social engagement is added.
As a leading social media platform in China with an MAU of over 300 million, Weibo is in a unique position to make content more interesting and engaging, by enabling the participation and involvement of celebrities, media, industry KOLs influencers and large audiences. Moving into 2017, mobile, social and video will become even more important for the social media industry and we are well positioned to take advantage of these trends.
With that, let me turn the call to the operator for questions. Thank you.
[Operator Instructions] Our first question today comes from the line of Alicia Yap from Citigroup. Please ask your question.
Hi. Good morning, Gaofei and Herman. Thanks for taking the questions and congrats on the good quarter. My question is related to overall ad budget allocations. So among your KA customer, can you share with us how much of their total ad budget for Weibo platform currently is allocated to video format versus the performance based? And in addition within your video ads revenue, what is percentage currently coming from SME customers or is that mainly still coming from KA? Thank you.
Okay. Good morning, Alicia. First question you asked was what percentage of our advertising was from video versus performance based. The way we sell our advertising is usually in a packaged form. So we don’t sell video by ourselves. For example, when we tuck our SMEs by a video, SME typically buy performance based and they’ll probably buy video as a blender of their overall campaign, so that their performance based advertising could be more expected. So with that kind of understanding, our total advertising revenue in the fourth quarter from video is over 10%, but I don’t think it’s very meaningful to follow that percentage, specifically because really it’s kind of the driver for our overall larger budgets from the customer and also increasing the number of customers by having this unique kind of advertising.
Can you repeat your second question with regards to percentage of SME revenues?
Yeah. I guess it’s just roughly the same that you answered, but I think it’s just more from KA specifically, just wanted to get a sense like whether they have an intention increasingly to allocate more towards the video ads versus previously that we will have more display and then their choices on performance, but is video increasingly attracted to them?
Hi, Alicia. This is Charles. Let me answer this question. On the video customers, we have actually the revenues from video advertising majority from KA right now and very small portion from SMEs. And in terms of interest of the video advertising going forward, I think there will be more and more KA customers who will be interested in the video advertising, partly because our video advertising is getting a lot of attraction in the market and secondly, because there is a strong demand for video advertising, but on the market itself, overall market itself, traditional TV rating is going down year by year and also there is a lot of video sites shifting towards more like membership fee based service.
So, there is a whole lot decrease or lack of inventory for video to tie in the market, which give us a lot of opportunity to get more customers in this area for online advertising. So I think there will be a good demand for that. It’s a matter of how we’re going to set aside that demand in the market, but in the SMEs, I think that demand will be there, but I think that will be more from native ads, content related native ads, being video that could be more popular among SMEs and that is another area we probably will focus upon in the coming year, but in terms of dollar amount, we think the majority will still be coming from KA customers.
Our next question today comes from the line of Evan Zhou from Credit Suisse. Please ask your question.
Hi. Good morning, Charles, Gaofei and Herman for taking the question. Congrats. Question mainly regarding our own products, just wondering how you look at the overall like in feed or information fee based product competition for this year. I think everyone including like the leaders like Total, Tencent and us and Baidu is looking at as well. So just wondering like from the product perspective, you also mentioned there are like information feed, interest rate feed on your prepared remarks, how do you see the dynamics both on the user side who is gaining share losing shares or on the budget side. I guess I think everyone’s kind of budget target this year that’s pretty high? And also I think a couple of days ago, you actually announced the cooperation with EDN, and also along with [indiscernible] as well. So how do you see kind of the dynamic going forward on that front and what are kinds of edge on the product side? Thank you.
[Foreign Language] So from our product roadmap, we’re moving what -- we’ve already established relationship base and we’re now also focused on building our interest base.
[Foreign Language] So there is two benefits from growing our interest base audience. One is by building our interest base information fee, it lowers the barrier for new users to come on to easily be of the consumed content and secondly, for our current medium level and high level heavy users, it can increase their time spent.
[Foreign Language] So we’re seeing that in the market people who have entered the interest base fee format, product include companies like Baidu, like UCA, like Total and we believe that ultimately what it -- in order to have that competitive strength is all about user retention rate and without strong social engagement aspect of the product, very hard to actually increase our retention rate of the users.
[Foreign Language] So we can see in China that it’s typical for mobile phone owner to actually switch to a new handset every 12 months. So if you don’t have that social relationship, then every time when you try to get a new user, the cost will be very expensive, whereas if you have built a social relationship with other people in the network, then we will have a less cost pressure to maintain the users.
[Foreign Language] So for Weibo, we’re really a new entrant into this interest base product and we believe that the size of this market is just as big as our current size of microblog and we believe that we can actually get a reasonable market share as we enter this space if that should meet our strong social aspect of our product.
Our next question today comes from the line of Juan Lin from 86Research.
Hi. Good morning, Charles, Gaofei and Herman. Thank you for taking the questions. My question is related to monetization particularly ad load. I am wondering what is the current level for total load and what is the ad load for video other than feed and discovery channel, whether we expect ad load to increase this year and to which level we think ad load will normalize?
And then secondly, the question is on brand advertising versus SME. Brand advertising has been outgrowing SME for two quarters. So whether the trend will continue and what kind of products and the sales strategy we have put on enhancing the brand ad growth? Thank you.
Hi, Juan. Good morning. On our last call, we actually explained the fact that because our product is diversifying from relationship to interest base also with video and so forth, you’re actually seeing a lot of different information feeds that we have introduced. When you look at ad load, for example this quarter, our ad loads actually were slightly lower than last quarter, still above 4%. But I think ad load percentage is just one of the many metrics, we talked about impact to the overall revenue growth, including for example CTR. If you look at a lot of the new products that we have including leads and so forth, all of these play into this. So we talked about last quarter that going forward, we’re not going to specifically disclose ad loads, especially on a product basis because it’s not as meaningful. You need to look at all the metrics as a whole. But to answer your question that our ad loads went up by over 4% and it’s lower than last quarter.
[Foreign Language] So this year, we will see a trend that our KA is growing faster than our SME. A major reason for this is the product that’s available to these different customer segments, whereas the SMEs, they can only buy promoted fee as for the KAs in addition to promoted fees, we can also buy many other different type of advertising such as topics, such as event base, such as brand advertising, such as app opening and so forth. So because of that broad array of products that we offer to the KAs, we’re able to actually have a more stronger growth this year.
[Foreign Language] So going forward, the way we look at this is from a brand advertising offering aspect, we see ourselves having a stronger offering, so we’re very competitive in this space, but with regards to performance based advertising, there is quite a few competitors in this market such as Baidu, such as [indiscernible] and so forth. So with respect to the offering, we’re stronger at the brand advertising versus performance based.
[Foreign Language] On the other hand, we’re seeing that the demand from SME is becoming very strong. So I think over the next one or two years, it’s hard to gauge which one will be growing faster. I think it really, at the end of the day, is our ability to actually offer very competitive products in this base. So we’ll have to see.
And our last question today comes from the line of Alex Yao from JPMorgan. Please ask your question.
Hi. Good morning, everyone. Thank you for taking my question. I have two questions regarding the KOL monetization. So you guys discussed three major categories that you’re monetizing in the prepared remarks, such as fashion, apparel and the financial services. So across the 50 content categories that you guys have on Weibo, to what extent have you monetized those categories from KOL perspective? And then around available monetization model for the KOL themselves such as e-commerce, ad placement, et cetera, what are the key monetization vehicles for them? So what I wanted to establish is, as we think about the KOL monetization, sustainability and scalability in the next two years?
And then second question is regarding the user growth outlook for this year. You guys have gone a good job in terms of building the user and driving the engagement over the past few years. How do you think about the user growth outlook and user acquisition strategy for this year, given that the population dividend of mobile Internet has come in to an end? Thank you.
[Foreign Language] So for self-media or this big vertical KOLs, our monetization model for them will not change in the short term. It will be basically advertising, it will be e-commerce, it will be subscription of their content.
[Foreign Language] So in the last two years, we’ve first focused on maybe the one-third of the industry’s where we think it’s easier to help them monetize. Over the next year or two, we’re going to start expanding into KOLs of other industries and help them find a way to be able to monetize the social assets on Weibo.
So Alex, the question you were asking is monetization, when we think about allowing the self-media to big KOLs on Weibo’s monetization, Weibo is really not about growing revenues in this space. It’s really about allowing these KOLs to be able to share premium content on to Weibo at the same time be able to get a return from all the efforts that they’ve put in. So it’s, when we’re talking about monetization, it’s really helping them find a way to get the return for the content that they’ve created.
And this is a very important part of Weibo’s ecosystem, which means that we actually try to generate organic demand for advertising for the [indiscernible] in the process becoming more infringed and Weibo platform, there is a need or demand for advertising for increase in content coverage to I mean increase their financial asset in the process and once they become more infringed on the platform, when they start to monetize, they would have demand for advertising again for the monetization. So this is actually a very important part when we say organic demand from Weibo advertising. This is what we’re talking about and this is very important part of the ecosystem for Weibo and the foundation for a lot of future demand.
That concludes the question-and-answer session for today’s call. I’ll now like to hand the conference back to Ms. Yu for closing remarks.
Thanks, everyone. That concludes today’s conference call.
Ladies and gentlemen, that concludes our call for today. We thank you all for your participation. You may now disconnect.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!