Weibo Corporation (WB) Q1 2023 Earnings Call Transcript

Weibo Corporation (NASDAQ:WB) Q1 2023 Earnings Call dated May. 25, 2023

Corporate Participants:

Sandra Zhang — Investor Relations

Fei Cao — Chief Financial Officer

Gaofei Wang — Chief Executive Officer

Analysts:

Alicia Yap — Citigroup — Analyst

Thomas Chong — Jefferies — Analyst

Miranda Zhuang — Bank of America Securities — Analyst

Presentation:

Operator

Good day and thank you for standing-by. Welcome to the Weibo Reports First Quarter 2023 Financial Results. [Operator Instructions]. Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Sandra Zhang, Investor Relations. Please go-ahead.

Sandra Zhang — Investor Relations

Thank you, operator. Welcome to live Weibo First-Quarter 2023 Earnings Conference Call. Joining me today are our Chief Executive Officer, Gaofei Wang, and our Chief Financial Officer. Fei Cao. The conference call is also being broadcasted on Internet and is available though our IR website.

Before the management remarks, I would like to read you the Safe-Harbor statement in connection with today’s conference call. During today’s conference call, we may make forward-looking statements — statements that are not historical facts, including statements of 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 and other filings with the SEC. All the information provided in this press release is occurring as of the date hereof. Weibo assumes no obligation to update such information except as required under applicable law.

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 the future prospects. Our non-GAAP financials exclude certain expenses, gains or losses and other items that are now expected to result in future cash payments or nonrecurring in nature or not 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 line for brief Q&A session

With this, I would like to turn the call over to our CEO, Gaofei Wang. [Foreign Speech]. Thank you. Hello, everyone, welcome to Weibo’s First-Quarter 2023 earnings conference call. [Foreign Speech]. Today, I’ll share with you highlights of Weibo’s user product and monetization in the first-quarter of 2023. [Foreign Speech]. On the user front, Weibo’s MAUs reached 593 million and average DAUs reached 255 million, adding approximately 11 million and 3 million users Year-over-Year, respectively. In the first-quarter, 95% of user’s MAUs came from mobile. [Foreign Speech]. Our monetization affected by the repeat pandemic, macro uncertainties and off season during the spring festival. the overall ad demand till relatively lukewarm in the first-quarter. Coupled with the high base brought by the 2022 Winter Olympics, our total revenues reached $413.8 million in the first-quarter, a decrease of 15% or 7% Year-over-Year on constant-currency basis. Our total ad revenues reached $355.3 million, of which 95% of our ad revenues came from mobile. Our non-ad revenues reached $58.5 million, an increase of 2% Year-over-Year or 10% Year-over-Year on constant-currency basis. This year. we continue to focus on improving operating efficiency and our non-GAAP operating income reached $138.6 million, representing a non-GAAP operating margin of 31%. On a constant-currency basis, our non-GAAP operating income has nearly returned to the same level versus last year, which decreased 1% Year-over-Year. [Foreign Speech]. In the past three years, due to the pandemic, users paid more attention to news related hot topics, which benefit Weibo’s user and traffic growth. With reopening, the ones that suppress the travel and offline consumption demand has been released altogether and users’ consumption demand for content in vertical areas has increased accordingly. Such changes in the market environment and user demand has brought certain challenges to our product operation strategy. In the first-quarter, we quickly adapted to changes in user demand. While maintaining investment in key content verticals, we focused more on the development of content verticals that have a strong user consumption need. With Weibo’s advantages of hot topic and KOL integration across verticals, we increased the constant supply and diversity to make use of consumption need and boost user engagement. [Foreign Speech]. Next, let me share with you our progress made in product monetization in the first-quarter. In 2023, our product strategy is to focus on user scale growth and improve operating efficiency to build traffic growth and further strengthen platform competitive advantage. [Foreign Speech] On the channel front, in terms of this year’s collaboration strategy with handset manufacturers in addition to coverage of latest content in core positions of the handsets, we will also further strengthen our completion on system level basis. We focus on driving the user scale and engagement of the medium to high-end smartphone users. In the first-quarter, leveraging manufacturer’s [Indecipherable] user-rich channel, we continue to optimize our product mechanism such as push to efficiently serve [Indecipherable] through Weibo’s hot topics and social content. As a result, the average DAU from the handset channels grew double-digit Year-over-Year. [Foreign Speech]. On social attributes, introduce the highlights of the products adjustments. In the first-quarter last year, we adjusted social network products to improve user consumption efficiency and help users build more high-quality and build social relations. In the first-quarter of this year, we further upgraded product mechanism and algorithm to incorporate user social relations and interests. And as a result, the distribution efficiency was largely increased for quality content. Now in the relationship-based feed, users not only can consume and interact with content generated by [Indecipherable] but can also consume and interact with content-based on users’ social network and build more relations. This product strategy has driven further growth in the use of these and engagement Year-over-Year around the relationship-based feed. We are also pleased to see stronger user intention to form new social relationship and interact on our platform with the number of new relationships build tripled Year-over-Year. Also, around 70% of the incremental user interaction around the relationship-based feed was generated through content of [Indecipherable] content creator. In particular, users were more willing to interact and follow with mid-tier KOLs. The product adjustment for relationship-based feed also play a positive role in promoting the content generation by KOLs and a suitable development of pumping for system. In the second-quarter, we continue to optimize product and recommendation algorithm based on user engagement level and a focus on accounts in key verticals to help content creator to achieve higher social value and further stabilize Weibo’s core social competitiveness. [Foreign Speech] On content front, the consumption needs for entertainment and lifestyle verticals were growing rapidly. As users’ attention shifts, the average daily traffic volume and the number of users who interact grew significantly Year-over-Year for key verticals such as entertainment, digital and automobile in the first-quarter. For the entertainment vertical, the movies and TV series scheduled during the spring festival, such as the Knockout, and Three Body, etc., have improved the traffic trend of the entertainment sector with the quarterly average traffic volume and the number of users who interacted grew double-digits compared with the same period last year. And the growth trend continues in the second quarter. For the automobile and digital verticals as the offline users consumption has improved, Weibo was able to capture more ad budget, leveraging our advantages in hot trend and KOL marketing, even when the offline consumption is still to recover. In terms of other content verticals that also have high consumption needs, such as tourism and fashion and cosmetic verticals. We are also accelerating investment in product operations and improving the content ecosystem. On the one hand, for operations, we will leverage our platform’s advantages in cross-vertical KOLs integration and quickly enrich content for system for related verticals. On the other hand, the product will utilize recommendation and of this traffic to distribute vertical hot trend and high-quality content to target users, which strengthens the recovery of users’ mindset in key content verticals and encourage KOL’s willingness to generate content. For example, since March, there has been a significant increase in activities in entertainment and fashion verticals. For example, the Beijing International Film Festival and Luxury Brand Shows during the period. We have organized celebrities, makeup artists, stylists and KOLs in fashion verticals and KOLs in humanities and arts and popular science verticals to create content around fashion-related hot topics. As a result, in March, the effective views in fashion vertical and a number of users who interacted with related content increased double digits compared with December last year, with an ongoing growth trend in April and May. We believe with the strategy adjustment and our implementation during the first and second quarters, the traffic will increase significantly, and the user consumption mindset will recover as well. [Foreign Speech] On the top content creators in the first quarter, we completed the transaction to increase shareholding of Inmyshow Digital Technology. We upgraded the V-tech platform system and went online in April with a new evaluation mechanism for the top KOLs. The platform now shifts its evaluation mechanism for top content creators from traffic value-only to traffic plus social value, putting more emphasis on KOL’s capability to interact with spend and monetize on social assets. Upon the upgrade, we have screened top KOLs that have sound influence and high social value and will further reinforce our traffic operations and monetization mechanism in the next one and two quarters to promote a healthy KOL ecosystem. According to the data in May, the traffic and interruptions of top KOLs increased double digits compared to that in March. And the ad revenue from Vtac also resumed double-digit year-over-year growth since March. [Foreign Speech] Lastly, let me introduce the key application areas for AIGC technology on Weibo. Since last year, we have been exploring suitable scenarios for AIGC on Weibo and have made solid progress on improving our product and operational efficiency recently. As we continue to collaborate with AIGC partners, we plan to launch some tools in the second quarter to better assist the common creators in the content generation and to improve efficiency of creative ad solution. Some large model companies are also using Weibo’s open platform to provide users with relevant service. Going forward, we will keep a close eye on the development of AIGC and explore new application area to create greater value for users and content creators. [Foreign Speech]. Next, let me share some color on the monetization front. In 2023, leveraging the gradual economic recovery post the pandemic, we are pleased to see many verticals start to destock investment for future in the first half of the year, with accelerated paces in brand building, especially new product release versus last year. As such, our overall monetization strategy will continue to focus on enhancing the marketing combo, which extended around media and celebrities, supported by KOL distribution across verticals, while entertained by traffic contact, featuring strong exposure and mindset cultivation. In particular, we will beef up Weibo’s unique culture in IP and the new product launch offerings, aiming to earn recognition from more industries and customers, and that further strengthens Weibo’s core competitiveness in the ad market. [Foreign Speech] Based on Weibo’s performance in the first quarter, our overall ad business exhibited gradual recovery trend month-by-month. To elaborate, due to pandemic and the high base of last year’s Winter Olympics, advertising revenues in January and February decreased year-over-year. However, since March, ad revenues have already returned to a positive growth trajectory on an annual basis. In terms of industry trends, we saw diversion trends among different sectors in the first quarter. For certain sectors such as automobile, handset and luxury products, we are encouraged to see that clients demonstrate strong confidence in 2023 and have picked up their investment in new product and branding. For example, in the automobile industry, the number of new car release at the Guangzhou and Shanghai International Auto Show in the first half of the year increased by 40% compared to the same period last year, leveraging Weibo’s differentiate the automotive new product launch model nearly 100% of the OEMs, which add budget from new model launch in the first quarter, chose to cooperate deeply with Weibo for promotions. And meanwhile, the first quarter was also a period of intensive release for luxury goods shows. With the number of luxury goods shows in a single quarter reaching almost half of last year, leveraging the hot trend effect around these shows, we achieved nearly 90% coverage of business cooperation, [Indecipherable] show in the first quarter. On the flip side, certain industries were still in the course of gradual recovery such as beauty and personal care sector, mainly due to two reasons. First, sometimes in the beauty and personal care industry has a relatively weak pipeline for new products due to industry competition strategy and their own business headwinds. Secondly, intensified competition landscape of the advertising market across media platform also track its recovery pace. As such, our first priority is still to quickly restore our competitiveness in the receptive content ecosystem post the pandemic. Moreover, we will continue to amplify our monetization model, featuring hot trends and the new product marketing while empowering clients to achieve better long-term growth in the market. [Foreign Speech] Entering into the second quarter, with further pickup in offline consumption, we expect to see a more meaningful recovery in the demand side of the advertising market, driven by ongoing recovery of various consumer market. Also, there will — there still be a diversion trends among different industries. In light of such trend, we will actively embrace the market opportunities brought by the June 18’s Mega Shopping Festival. Leveraging our positioning as a lean social media platform, we will amplify Weibo’s differentiated competitive edge in the hot trend and in content marketing in the hope of capturing incremental ad wallet gradually released into the market. [Foreign Speech]. With that, let me turn the call over to Fei Cao for a financial review.

Fei Cao — Chief Financial Officer

Thank you, Gaofei, and hello everyone. Welcome to Weibo’s first quarter 2023 earnings conference call. Let’s start with the metrics.

In March 2023, Weibo’s MAUs and average daily use reached 593 million and 255 million, respectively, representing a net addition of 11 million users and 30 million user on a year-on-year basis, with ongoing execution of a disciplined [Technical Issues] investment strategy.

Turning to financials. As the remainder, [Technical Issues] with focus on non-GAAP results. [Technical Issues] in U.S. dollar terms, and both comparisons are on a year-over-year basis, unless otherwise noted. Now let me move you through our financial highlights for the first quarter 2023.

Weibo’s first quarter 2023 net revenue were $413.8 million, a decrease of 15% or 7% on constant currency basis. Operating income was $128.6 million, representing an operating margin of 31%. Net income attributable to Weibo reached $111.2 million, representing a net margin of 27%. Diluted EPS was $0.47 compared to $0.56 last year.

Let me give you more highlight on the first quarter 2023 revenue performance. Weibo’s advertising and marketing revenues for the first quarter 2023 were $355.3 million, a decrease of 17% or 9% on a constant currency basis, reflecting conservative ad budget immediately opening, as well as [Technical Issues] factor compared with first quarter last year with Winter Olympics-related ad revenues.

Mobile ad revenues were $336.4 million, contributing approximately 95% of total ad revenues to industry. Our largest three verticals through FMCG, beauty products and e-commerce in terms of [Technical Issues] likely to see solid growth in currency and all the mobile sector underpinned by tailwind of an event for product launches [Technical Issues], as well as strong sales execution in this vertical industry.

Customers in this sector increased our full spectrum of social ad combo to build marketing hack and reap high-value users of strong transaction power. [Technical Issues] Our [Technical Issues] on vertical FMCG continued on descending trend, again half off of these and [Technical Issues] last year, coupled with relatively conservative ad budget that offset in the early stage of the opening, the ad product. [Technical Issues] was the largest, followed by social display ad and [Technical Issues] ad search. We continue to diversify our ad inventory and beef up our integrated social marketing offering to jump for further ad goals in the hope of better monetizing our traffic rigor.

Ad revenues from Alibaba for the first quarter were $18.3 million, a decrease of 30% or 23% on a constant currency basis, primarily attributable to its own conservative marketing strategy amid reopening and subdued shopping festivals in like e-commerce business.

Before turning to [Technical Issues], let me share some preliminary color on the [Technical Issues] entering the second quarter. On the upside, advertising market has been opening up month-on-month with many sectors rebased since the second quarter last year. Leveraging normalization in offline activities and gradual [Technical Issues], our team will beef up sale execution and work relentlessly to capture [Technical Issues] during e-commerce shopping festivals in the second quarter. That said, a full recovery of content assessment in certain discretionary categories, making it more [Technical Issues] upon the aftermath of pandemic winning on consumer confidence.

In light of a volatile macro landscape, we are closely monitoring opportunities in those relative [Technical Issues] with benefit from secular growth tailwind and strong new product type pipeline, just like mobile and handset factors, while tailoring our company marketing offering to fulfill customer and brand/performance campaign goals.

Leveraging our full spectrum of social ad offerings, we remain confident in our monetization opportunities. That’s our unique [Technical Issues] and a diversified omni ecosystem we will unlock. Value-added service, VAS, revenues were $58.7 million in the first quarter, an increase of 2% or 10% on constant currency basis use. The increase of VAS revenue was mainly attributable to repayment for revenue from e-commerce business.

Turning to cost and expenses. Total cost and expenses for first quarter was $285.2 million, a decrease of 17%, demonstrating ongoing execution of our efficiency initiatives. The decrease was mainly attributable to lower personnel-related costs and the [Technical Issues] in the channel investment. Entering into 2023, we have a work with a more focused team and a linear cost structure, positioning us a [Technical Issues] path to operating earnings growth.

Operating income in the first quarter was $128.6 million, representing operating margin of 31% compared to 29% in the same period last year.

Turning to income tax and the tax liability. Income tax result for the first quarter was $21.9 million compared to $11.7 million last year. The increase was primarily resulting from changes in deferred tax liabilities related to variable change on certain investments. Net income attributable to labor in the first quarter was $111.2 million, representing a net margin of 27%, flat compared to last year.

Turning to our balance sheet and cash flow items as of March 31, 2023. We will [Technical Issues] increases and short-term investments from the $278 million in the first quarter. Tax provided [Technical Issues] $180.6 million. Capital expenditures totaled $18.2 million [Technical Issues] amounted to $15.4 million.

Before turning to the [Technical Issues], I would like to share some color on our newly-announced time for dividend. This [Technical Issues] our healthy profitability and strong balance sheet. We are pleased to announce that our Board of Directors has approved a special cash dividend of $85 [Technical Issues] ordinary share of [Technical Issues] for our shareholders. The averaging amount of the dividend will be approximately $200 million, with payment [Technical Issues] expected to be made in late July.

Looking ahead, we will continue to embrace long-term growth opportunities while focusing our financial business, with commitment to returning value to shareholders and offering market confidence besides. I would also like to provide an update on our ESG initiatives.

In April, we released our second ESG report, outlining the company’s progress and performance in ESG areas for fiscal year 2022. These ESG initiatives described in the report speak to our long-standing commitment to sustainable divestments, target impact users, content creators and [Technical Issues]. Business partners and other stakeholders were dedicated as to the reason of making the world a better place with the power of Weibo.

As part of that reason, the company’s 2022 ESG Report showcases our efforts in various areas such as [Technical Issues] and private taxes company policy [Technical Issues] operation [Technical Issues] operation, just to name a few. Looking ahead, we will continue to optimize our ESG development and further integrate the ESG [Technical Issues] across our daily operations in the hope of creating value for shareholders and work for a sustainable future better with Weibo’s community. You may visit our IR website to obtain more information of our ESG disclosure.

With that, let me now turn the call over to the operator for the Q&A session. Thank you.

Questions and Answers:

Operator

[Operator Instructions] First question is from the line of Miranda Zhuang from Bank of America Securities.

Miranda Zhuang — Bank of America Securities — Analyst

[Foreign Speech]. My question is about AIGC. Can you elaborate more on your plan for the AIGC area? What would be the main applications? And what are your product clients? Thank you.

Gaofei Wang — Chief Executive Officer

[Foreign Speech]. Yes, thank you for your question. So first of all, as a social media platform, we are looking at our competitors, especially among our users and also in terms of commercialization, two kind. One is actually a sort of platform like Weixin. And also another one is like those [Technical Issues] and also show those kind of recommended base in our social media platforms. So of course, in Weibo, we confronted actually two kinds of creators. One is, of course, the content creator of media or by the media. Another one is the We Media that are having a very strong personality.

[Foreign Speech]. Got it. So First of all, in terms of application of AIGC, we have two areas. And one is that our platform, we have a lot of top-notch We Media. And also, we are going to help them to enhance their efficiency of creating more personalized and also individualized content. So by having a fine-tuning our big models, we are able to help them to leverage this capability to enhance the efficiency of the content creation and generation.

[Foreign Speech]. And also, second of all, it is going to help us to optimize and also help those long-tail accounts to have a better creation of content. So now on our platform and on Weibo, we have actually those top-notch accounts that are having a very strong capability in doing so. But actually, it is relatively weaker for those medium level and also the long-tail accounts. So by applying AIGC very effectively, this is going to be enhanced.

[Foreign Speech] So that — let me talk to you about the application. So nowadays, given the strength of the total AIGC [Technical Issues], it is not easy for us to say that it is going to actually replace the top notch We Media. So let me talk to you about some of the trials and also applications. So before the mid of 2022, last year, we were primarily adopting the GPT-3 model. So it was not as capable as to mitigate and also mimigate or simulate the interactions with the users. So we used the GPT-3 model back then for the purpose of learn and also trying to keep up with the surge in solutions in terms of the anti — Internet devices, etc., so that we’re going to enhance operation of the Internet-based business.

[Foreign Speech] And also, second of all, starting from the second half of last year and also the beginning of this year, we are using more advanced model of GPT and also the other AIGC relative models. So it is now able for us to actually stimulate the personnel-based interactions, but actually, it is not able to generate the users content by its own. So the AIGC is primarily used as assistance for those top-notch creators. And also we are starting already this particular campaign since Q2 of this year.

[Foreign Speech] And also, in the next one or two years of time, with the advancements of these AIGC models and also the AI models as a whole, we believe that it is able for us to use to generate the content replacing those original content generated by the mid-level content creators. But actually, for those top-notch content creators, which have a very strong personality, I still believe that it’s challenging for us to use the model to place the content creation process. So overall speaking, I believe that AIGC and also derivative technologies are actually very good to be used to really enrich the content creator on our ecosystem and platform and also enhance our competitive edge as a whole.

[Foreign Speech] So as a conclusion, talking about this particular technology, now the collaborative model is pretty much based on the collaboration with those open source and also open source models. So primarily speaking, we are just having the adoption and also fine-tuning our model, not necessarily proprietary innovate and also invest into the development of the L&M module. So as a result, it is not going to enhance a lot of internal R&D investment and its funds. And also, it is going to help us to improve our commercial efficiency, at the same time, reduce the cost related to content creation. Thank you.

Operator

I will now take our next question. This is from the line of Alicia Yap from Citigroup. Please go ahead.

Alicia Yap — Citigroup — Analyst

Hi, good evening, management. Thanks for taking my questions, can you hear me okay?

Gaofei Wang — Chief Executive Officer

Yeah.

Alicia Yap — Citigroup — Analyst

Okay. All right. [Foreign Speech]. So my question is related to advertising. So can management share the view on the latest advertising market recovery so far, especially in April and May? And then what is your expectation for the ad revenue growth in the second half of this year? And then if you can elaborate the performance by the industry category as well. And then also, as we look forward, what is the company ad product and marketing strategy that you can think about to be able to improve the competitiveness in the market. Thank you.

Gaofei Wang — Chief Executive Officer

[Foreign Speech] Thank you for this question. So as we have stated in the script that we have already seen that in Q1, the kind of recovery and also the growth trend of the advertisement industry and our company is actually pretty much weak due to the post COVID and in the release of the restricted policies, as well as the weak season or low season in the spring festival season. And also in Q2, as we have already stated, after March, we have been seeing that the growth of the advertisement business has been on the positive track, but still the growth rate wise, is still smaller than the same period of our last financial results of the same period.

[Foreign Speech]. So second of all, in terms of the industrial verticals, now we have seen, for example, 3Cs and headsets, as well as the automotive industries. So after March, it would be seen actually a recovery trend in terms of our investment into the consumption market. So for some of these industries, although we’ve been seeing some of the decline on their sales, still, there is a trend of the consumption upgrade or the competitive edge or competitive market upgrade as well.

So for the industry of handsets and 3C digital products, as well as automotive, we’ve been seeing a double-digit growth in Q1 for this advertisement business. And also after March, we’ve been seeing that — especially in March, we’ve been seeing over 40% of the growth in this area.

And also in terms of the handsets, we do see the kind of a lot of product launch and new product launch were happening in Q1. Previously, we already said that it is becoming longer and longer in terms of the mobile phone or smartphone switch cycle. However, still for most of those handset manufacturers, they’re still thinking about launching those new products with a lot of technologies inside in Q1 in order to enhance the ARPU value of their users. So Weibo is actually must choose platform for them to collaborate with.

And also, next one is the fully automotive market. So now we’ve been seeing a further ramping of the electrification and also as a new energy vehicle in our selected advertisement platform. Weibo had years of experience in terms of the content creation and also the content ecosystem for the automotive market. So actually, we are also a necessary choice among the automakers.

So in Q2, on an overall basis, we believe that it is going to enjoy a much quicker growth, which is out of our expectation, I mean, as especially surpass the budget that we made in the beginning of the year.

[Foreign Speech]. And in March for some of the other industries, we’ve been seeing some of them actually are back on a positive trend or some of the other verticals are going to recover their growth since Q2. But actually, for some of the other industries that I’m going to talk to you about later, there has been actually a weaker growth rate than the same period previously.

So for instance, for the e-commerce vertical, so for some of the key accounts that they have been adjusting their managing strategies and especially their competitive strategies, as well as their customer structures. So for this, as always, again, we wanted to actually seize the big opportunities, for instance, the June 18th Shopping Festival or the e-commerce are a big opportunity. So we do actually have seen a lot of order and also placement of the ad budget in this June the 18th of this year, way higher than that of last year. But still, it is still weaker than the previous quarter’s e-commerce business.

[Foreign Speech] And also, turning to the vertical of FMCG, and then in same specific, we are talking about the cosmetics and also personal care products. So you can see that in Q1, they had actually a very weak performance due to two reasons. The first one was that in — since the December of last year, during COVID, still we were not releasing the restrictive policies in China. So last year, in December, those advertisers in this big industry were making the budget for the new year. So they were actually on tending to be very conservative for the new year of 2023.

And also second reason was that for the past three years, we had a COVID impact and pretty much. And also, you can see that the FMCG industry or the cosmetic and also personal care industry is still in the cycle of consuming their existing inventory. So still take time for them to actually not fully recover the new user purchase of the products.

And also, next I would like to say is that, especially for all the customers in this area, they’re having a very conservative fashion in making their budget. And specifically, we’re talking about the new product launch plans. So actually, this FMCG industry is actually much weaker than the other industries in terms of the planning of the new product launch.

And also, of course, we’ve been seeing certain recovery during June 18th festival. But still, the recovery speed is actually way lower than the expectation in the beginning of the year. So the reason for us to have an overall kind of a slower growth for our total business of advertisement is because that we have a very high percentage of the FMCG advertisement business accounted for the whole advertisement business. Okay.

[Foreign Speech]. So finally, I would like to say that Weibo is a platform that is actually having everything ready or everything in place and covering almost all the areas, including the text and images, that sort of videos. So actually, we are a quite diverse and also widely covered platform.

So in terms of the total nature of this ability, we are having actually a much better positioning than the other platforms. So in terms of the development of our budget, so it is pretty much subject to the new product launch of our external customers, as well as their investment strength and also mindset into the branding activities.

So for instance, if for some of the verticals, they have actually a much diverse plan on their new product launch and also pretty much intensive investment on the branding activities, we are going to enhance our competitiveness in those verticals. However — and also, for instance, in the handset and also e-commerce and also automotive verticals, Weibo has years of experience in accumulating the content and created a very good content ecosystem. So that is to say, we gain a bigger advantage than the other platforms in this area in terms of the diversity of the content.

However, in terms of the off-line consumption-related areas like the cosmetics or the beauty product, the sort of personal care or fashion, we’ve been actually performing like pretty much weak in this area. And also this market is something that we have to further strengthen in the future.

So previously, in the past, most of our traffic or majority of our traffic were driven from the entertainment and also cultural industry, etc., but not that much from the off-line consumption. So this year, our strategy is that further, we have to strengthen our ability in capturing those opportunities in the off-line consumption market, for example, travel, food and cosmetics and beauty products, etc, to further gain momentum. And also, second of all, our strategy is focusing on the application of integrated marketing strategies so that we are going to further enhance our competitive edge by doing that. Thank you.

Operator

Thank you. We’ll now take our next question. This is from the line of Thomas Chong from Jefferies. Please go ahead.

Thomas Chong — Jefferies — Analyst

[Foreign Speech] May I ask about the margin outlook for this year? Any initiative on operating efficiency improvement? Separately, may I also ask about our capital allocation plan and also our post on dividends?

Gaofei Wang — Chief Executive Officer

[Foreign Speech]. So I will answer the first question, and the second question will be addressed by Fei Cao. So first of all, and as we have already said in the prepared remarks that in Q1, on the overall cost and expenses, we have been having a reduction of 17%. And also in Q1 of this year, we already said that since Q4 of last year, we’ve been having the strategies and making the reorganization — or restructuring of our organization structure. So that all uncertain kind of a business.

So in terms of the kind of the impact to the overall margin and also profitability, we are going to see the value by doing that things this year. And also, second is that we have already mentioned that we have a strategy of a general user acquisition focusing on that and also further having the ROI related to channel user acquisition as an appraisal indicator. So of course, in Q1, we’d be experiencing certain tiredness in terms of the smartphones [Technical Issues], for instance, the reduction of the sales of the assets.

So in terms of the marketing cost, originally, actually, we plan that we might have actually an increase in terms of this particular area. But still, I think that this is due to the decreased sales of the headset. In this marketing-related cost, we’re going to keep a flat performance versus last year.

And also, overall speaking, in terms of the margin, we expect to have a very stable development and also with a little bit increase in terms of the margin of this year.

[Foreign Speech] And also since Q2, because we have now fully reopened market after COVID, so we expect to have more organizations of the offline activities. So this kind of expenses related to the organization of off-line activities are expected to having a growth. So for the rest of the quarters, we expect to have the increase on the overall profit and margin.

Fei Cao — Chief Financial Officer

Okay, and thank you for the question. This is Fei. Let me add some color on the margin. So most of our marketing spending, including channel investment, is

[Technical Issues]. So it’s all flexible. We could always monitor store dynamic adjustments. As Gaofei mentioned, we have successfully implemented a series of cost reduction and efficiency enhancement initiatives last year and resulting in a more focused team and the leaner cost structure.

We will continue these initiatives this year. We lower our primarily challenged is to retire our topline growth in the second half. Rest assured our focus on margins remain area you can see that our margin is consistently maintained at a higher level within the industry.

So regarding your second question, the type of allocation and the usage of cash. Generally, they follow several basic principles in use of cash. For us, the most important of all is to support the organic growth of our business as well, as the new business model, such as our social e-commerce and the new product.

The second [Technical Issues] revenue cash is to invest through M&A within the industry. And third, in addition to investing in our own business investments and acquisitions, we will consider to return excess cash to shareholders, either by share buyback or cash dividend.

Regarding the announced special tax business program, this program demonstrates our commitment to delivering share value and our confidence for long-term development. This commitment is supported by our consistent [Technical Issues] track record and relatively ability to generate operating cash flow.

We would like to share our floor admiration behind [Technical Issues]with our advertised long-term competitiveness and financial lability, driving to enhance shareholder returns within this framework. As mentioned, we will have achieved a sustainable profitability and profess a robust ability of generating operating cash flows. We ensure that we will maintain a nice tax rebate [Technical Issues] distribution and continue to generate sufficient free cash flow to support operating of the compnay.

Our commitment can help the financial condition enables us to navigate market as service and pursue active opportunities while safeguarding our shareholder interest. Looking ahead, we will continue to explore various ways to reward our investors, including dividend payout and stock repurchases. These [Technical Issues] labor will be carefully considered and aligned with our core objectives and subject to our product call. Likewise, we again [Technical Issues] delivery of general value to our shareholders. and maximizing the return. Hope I have answered your questions. Thank you.

Operator

Thank you. At this time, I will now hand back to the speakers for any closing remarks.

Sandra Zhang — Investor Relations

Thanks, operator, and thank you all for joining our conference call. We’ll see you next quarter.

Operator

[Operator Closing Remarks]