X

Weibo Corporation  (NASDAQ: WB) Q1 2020 Earnings Call Transcript

Weibo Corporation  (WB) Q1 2020 earnings call dated May 19, 2020

Corporate Participants:

Sandra Zhang — Investor Relations

Gaofei Wang — Chief Executive Officer

Fei Cao — Vice President, Finance

Analysts:

Alicia Yap — Citigroup — Analyst

Binbin Ding — JP Morgan — Analyst

Presentation:

Operator

Thank you for standing by and welcome to the Weibo First Quarter 2020 Financial Results Conference Call. [Operator Instructions].

I would now like to hand the conference over to Sandra Zhang, Weibo Investor Relations. Please go ahead.

Sandra Zhang — Investor Relations

Thank you, operator. Welcome to Weibo’s first quarter 2020 earnings conference call. Joining today, are Chairman of the Board, Charles Chao; our CEO, Gaofei Wang; Senior Group CFO, Bonnie Zhang; and our VP Finance and Interim CFO, Fei Cao. The conference call is also being broadcast on Internet and is available through Weibo’s IR website.

Before the mentioned remarks, I would like to read you the Safe Harbor statement in connection with today’s conference call. During today’s call, we will 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 forward-looking statements in this conference call and elsewhere. Further information regarding this 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 not expected to result in future cash payments or are non-recurring in nature or 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’ll open the lines for a brief Q&A session.

With this, I would like to turn the call over to our CEO, Gaofei Wang.

Gaofei Wang — Chief Executive Officer

[Foreign Speech].

Thank you. Hello everyone. Welcome to Weibo’s first quarter 2020 earnings conference call.

[Foreign Speech].

On today’s call, I’ll share with you highlights on Weibo’s user product and monetization, as well as progress we made on our key initiatives in 2020.

[Foreign Speech].

Let me start with our first quarter financial results. In the first quarter, our total revenue reached $323.4 million, a decrease of 19% year-over-year or 15% on a constant currency basis. Advertising and marketing revenue reached $275.4 million, a decrease of 19% year-over-year or 16% on a constant currency basis. 89% of our ad revenues came from mobile.

[Foreign Speech].

On the user front, Weibo ended the year [Phonetic] from 18% year-over-year to 550 million in March 2020, representing a net addition of approximately 85 million users year-over-year. Average DAUs grew 19% year-over-year to 241 million, representing a net addition of approximately 38 million users year-over-year. This is the highest reported year-over-year user growth to-date, in terms of net addition of MAUs and DAUs. 94% of Weibo’s MAU came from mobile.

[Foreign Speech].

This quarter amid the coronavirus outbreak in China, Weibo demonstrated indispensable value as a social media platform, leveraging unique strength, in setting public conversations between government, media and general public. We are delighted to see strong growth in both views and traffic to our platform, with feed refreshment growing 50% year-over-year. On the monetization front, advertisers in broad range cut back was suspended, as budget in response to the business disruptions resulting from the pandemic. [Indecipherable]. behind this impact, the pandemic has driven the transformation of the [Indecipherable] industry, and their marketing approach, presenting long-term opportunity to both our customers and us, coupled with the ramp up in traffic, Weibo is well positioned to further grow its social ad wallet in the long run.

[Foreign Speech].

In discussing our operating update for the first quarter, I will elaborate a progress made in areas of product monetization.

[Foreign Speech].

The strong growth in user traffic in March, was mainly driven by [Indecipherable] and public conversation related to the COVID-19 pandemic. To be specific first, it is typical season for Weibo to grow users and improve user engagement around Chinese Spring Festival. Second, in response to the pandemic, we will have to marshal operating resources and product development to enable wider dissemination of official information from government and media, bring professional opinion and discussion to the public. And more importantly, help general public receive quick response from government agencies. This initiative allow us to acquire users at a relatively lower, cost and further solidify our competitive edge in the market. [Indecipherable] elaborate.

[Foreign Speech].

In order to distribute timely update of the pandemic, Weibo has facilitated official information dissemination from over 70,000 media outlets and government agencies in the form of and live streaming and responding quickly to launch the COVID0-19 feed within recommended feed and discovery zone. In the first quarter, the pandemic relief held by media and the government reached nearly 6 million, with total views over 400 billion. On a daily basis, over 200 million users consume pandemic related content, among which 70 million users consume COVID-19 feed, and the daily views of pandemic related content exceeded 12 billion. Meanwhile, we along with TV news, verify nearly 1,500 new Weibo accounts of medical experts, medical care staff, patients and their family members, and help them accumulate approximately 150 million followers through content distribution on Weibo.

[Foreign Speech].

Second on local content, in the early stage of the pandemic, we brought proactive and encouraging platform to content creators to participate in the distribution and discussion around the pandemic related content, as the pandemic evolved, we will have diversified content also in [Indecipherable] users to initiating online events, with stay-at-home theme across eight verticals such as entertainment, food and humor, aiming to alleviate anxiety over the pandemic and encourage users to return to normal life. As a result, the number of daily posts by content creators in the first quarter grew over 50% year-over-year, and traffic for top non-pandemic verticals resumed to the pre-pandemic level.

[Foreign Speech].

Let’s talk about video and live streaming business. For video, we are ramping up our investment around those PTC and UTC video content this year. In March, our daily video views and the number of users who consume videos on Weibo grew over 30% year-over-year, driven by the over traffic growth of ongoing product improvement.

On the UTC video front, we further optimized user consumption [Indecipherable], enhance distribution efficiency and reinforce traffic support for UTC video content and thus enhance our monetization efficiency around the video content. The daily video views of UGC videos grew 50% quarter-over-quarter, leading to an over 50% sequential growth in ad revenues from UGC videos.

On PTC video front, we further optimized social interaction feeds to ramp up on the layout of PTC video main page, resulting in robust growth in the user time spent and interaction on the main page compared to the previous one. Meanwhile, we have restructured the video community to every day video consumption with three feeds; one, with recommended [Technical Issues] video; one, which is we popular wise; and third one is, vertical UGC videos. With the rollout of the new version early April, we are glad to see positive trends in terms of user retention and video consumption, which in turn encourage professional video content creator to other content on Weibo, and moreover, benefiting from user search demand for video consumption during the pandemic, along with our further optimized content offering mechanism. Our video community has seen recognition from users and content creators. In March, PTC content creator who uploaded content on Weibo, reached nearly 1 million, with their daily video posts growing over 20% quarter-over-quarter.

[Foreign Speech].

Moving onto live streaming, driven by the pandemic, Weibo’s live streaming products saw wider adoption in an increasing number of vertical scenarios, as enterprise celebrities appear on our platform quickly embrace live streaming too as a desirable viable communication channel. With this understanding, we did practical investment around live streaming from those product and operational fronts. Underpinned by the showroom and the e-commerce [Indecipherable] facility we already had last year. In addition to facilitating over 30,000 government and media life events around the pandemic, we encourage our partners and clients to go live on Weibo, such as in the case of online concert and product launch events. We also leverage short video clips and KOLs to distribute and spread awareness about the live events, leading to better promotion better promotion results for our content partners and customers. For instance, we’ve worked together with Tencent Music, hosted the first virtual live concert for the [Indecipherable] — the live concert itself to over 10 million total views, with nearly 300 celebrity and KOLs creating publicity for the event. We also added highlights of the concert into short video clips, as a way to achieve viral distribution for the event.

We are pleased to deliver over 100 million views on video plays and over 700 million views on related topics. This distinct advantage we have around the live streaming video event promotion will enrich Weibo’s content offerings. In the first quarter, the total number of the live video exceeded 1 million, double from the same period last year and going forward we will continue to optimize our product and improve content distribution efficiencies, through more traffic support and further enhance marketing efficiency for our clients to a more diversified offering.

[Foreign Speech]

Lastly then, talk about the progress we made on Oasis. The pandemic made the impacts of users willingness to post and and limited content generation by certain degree. However, as people’s lives in domestic areas gradually returned to normal, we saw the active user and content generation on Oasis in April resume to the pre-pandemic level and continued its growth trajectory, even without large field channel marketing activities. We will further optimize user products, primarily video content generation and distribution on top of the video community and further drive user growth and engagement with proper channel investment.

[Foreign Speech]

Weibo’s advertising revenues decreased by 19% on a year-over-year basis or 16% on a constant currency basis, due to the adverse impact from the coronavirus pandemic.

[Foreign Speech]

Our KOL revenue decreased 24% year-over-year or 18% excluding negative impact from currency translation and barter transaction, as several industries which were directly hit by the domestic coronavirus outbreak, cutbacks or suspended their overall ad budget in the first quarter. That’s the case with the movie industry, where the withdrawal of new movie release left nothing to be promoted. And meanwhile, with the epidemic evolving into a global pandemic, there were other industries, such as in the case of cosmetics and luxury brands, who deferred their expense, following the delay in new product launch, caused by the global supply chain disruption.

On the flip side, the pandemic has further driven the ad budget shift from offline to online. Industries that were traditionally opted for offline product release have begun piloting to the online model, bringing forth new opportunities as well as in the top line growth for us in the long run.

Taking Oppo as an example, we piloted quickly and rolled out an online product launch solution to address Oppo’s need to release its new model, Find X2. We successfully built hype for Oppo Find X2 to the HD livestream event. Leveraging improved the watching and interaction experience, rich traffic exposure, compounding influence of over 3,000 KOLs. The ad solution resonated greatly with our customers, delivering over 1.8 billion total views on related topics. The successful campaign with Oppo, showcase the potential of the online product launch during the pandemic and thus, entice other customers from the handsets and auto sector to habituate.

We believe that advertisers will continue to migrate their budget from offline to online and furthermore, we expect a notable trend of integrating marketing featuring elements of live streaming, short video, e-commerce and KOLs. In light of this trend, we have focused on our ad product upgrades in order to further enhance our social ad wallet share.

[Foreign Speech]

Moving on to the SME, our SME ad revenue decreased 23% year-over-year or 19% on a constant currency basis. On the one hand, the pandemic has put pressure on the move to offline merchants, who slashed marketing spend in response to the pandemic, due to disruption in work and logistics from the quarantine. On the other hand, the pandemic has structurally benefited a few industries, which delivered much better results than we had expected. For example, ad revenues from the online education and gaming sector grew by triple-digit on year-over-year basis in the first quarter. We took the opportunity to tap into a broader customer base, notably in the education, cloud and gaming sectors, with the pandemic accelerating internet penetration in our daily life.

Our differentiated value proposition resonated well among those customers with an integrated branding plus user acquisition objectives. For instance, traditionally, customers from the online education vertical came to us mainly for conventional purpose and spend on these ads [Phonetic]. During the pandemic, market leaders such as Yuanfudao and TAL also reached with brand awareness on top of this acquisition. With this understanding, our sales team adapt quickly by rolling out an integrated branding cross performance ad solution and leverage the synergy with the vertical content operational team to deliver on both the branding and plus acquisition expense, but this entry with ad solution earned great recognition from SME customers. On top of that, we also made strides in improving our service capability to top customers, while continued enhancing our feed ad offerings. As such, we see potential headroom in growing our SME ad revenues, built upon such integrating blending such performance needs.

[Foreign Speech]

Finally, let me share some color or progress around ad products. On the programmatic buying front, mainly OCPS, we focus on delivering higher ROI for customers for introducing deep learning to improve the automatic bidding process. As a result, ad spend through OCPS grew over 50% on a sequential basis. For gaming and education industry, which we put more efforts on optimizing algorithms, OCPS spend accounted for over 60% of the total ad spend. On the video front, over the years, we have gradually enhanced our monetization efficiency around video, underpinned by the healthy growth in the user, who consumes video content, as well as the overall video view. We are encouraged to see substantially higher revenue contribution from ads in video format this quarter. That said, a chunk part of the incremental ad inventory released to video consumption, which may unpacked or under monetized. To address this opportunity, we have been continuously innovating our video ad offerings.

For instance, in the second quarter, we are upgrading our watch plus [Phonetic] series of video ad products by introducing more direct response features to the video playing page, such as Watch Plus download, Watch Plus purchase, Watch Plus flowing and Watch Plus H5 serving, etc. Such direct response features will give you a shortcut to the conversion end, leading to optimized ad performance around short video and photos. Consequently, we believe these initiatives can further help marketing efficiency among SME customers on Weibo.

[Foreign Speech]

With that, let me hand it over to Fei Cao for a financial review.

Fei Cao — Vice President, Finance

Thank you, Gaofei and hello everyone. Welcome to Weibo’s first quarter 2020 earnings conference call. Let’s start with user metrics. In March 2020, Weibo’s MAU reached $550 million, representing a net addition of approximately 85 million users on year-over-year basis. Weibo’s average DAUs reached 241 million representing a net addition of approximately 38 million users on year-over-year basis. This is the highest reported year-over-year user growth to date in terms of net additions of MAU and the DAU, demonstrating Weibo’s indispensable value as a leading programming platform in China, and further solidifying our strategic mode in the China internet space. Most MAUs represented approximately 94% of total MAUs.

Turning to financials. As a reminder, my prepared remarks will focus on non-GAAP results and all comparisons are on a year-over-year basis, unless otherwise noted. Now let me walk you through our financial highlights for the first quarter of 2020. The unprecedented COVID-19 had a broad impact on our business operations, revenues and expenses in the first quarter of 2020. Weibo’s first quarter 2020 net revenues were $323.4 million, a decrease of 19% or 15% on a constant currency basis.

Operating income was $74.1 million, representing operating margin of 23%. Net income attributable to Weibo was $67.4 million, and diluted EPS was $0.30. Now, let me give you more color on revenues. Weibo’s advertising and marketing revenues for the first quarter 2020 reached $275.4 million, a decrease of 19% or 16% on a constant currency basis. Mobile ad revenues were $246.4 million accountability approximately 89% of total ad revenues up from 85% last year.

Moving on to KOL. In the first quarter, Weibo’s KA ad revenue reached $127.6 million, a decrease of 24% from 21% on a constant currency basis. Excluding the product transaction revenue impact KA ad revenues would have decreased 18% on a constant currency basis. The performance of KA ad business in the first quarter is generally in line with our expectations as pandemic has an overall adverse impact on our business since late January, On the postage side [Phonetic] with gradual stabilization of the spread of virus domestically since March, we saw general recovery trends from the trough in February. From industry perspective, consumer staples such as food and beverage, fared well [Indecipherable] during the challenging period.

Moreover, the pandemic has also altered people’s way of life with more time spent online which accelerated trend of ad [Indecipherable] shift from offline to online, leveraged on this with a solid performance of ad spend from handset and other mobile sectors on our platform, especially in March, as well as growing demands from these advertisers to promote products and service online. Social media platform is better positioned and a better shift, as it builds direct connections between brands and potential customers, and to a large extent, take the vital role in brand marketing funnel through engaging platform influencers in the marketing process.

On the flipside, the global situation of the pandemic in global areas still pose uncertainties to the macro-economies and the impact on advertising budgets of those with higher exposure to global business operations and supply chains, [Indecipherable] industry.

Ad revenues from Alibaba for the first quarter were $27.6 million, an increase of 66% or 73%, on a constant currency basis. The strong momentum of Alibaba advertising business, displays the resilience of the e-commerce giant against the challenging environment, as well as our strength in the cooperation in driving value for brands and merchants to achieve fair brand recognition and fast sales conversions through integrated branding campaigns on both platforms.

Turning to SMEs; in the first quarter, Weibo’s SME ad revenue reached $120.2 million, a decrease of 23% or 19% on constant currency basis. In the first quarter, [Indecipherable] industries amid the pandemic. The hardest hit sectors are offline categories, which lost marketing sales in the first quarter, as their businesses nearly slowed in the COVID-19 outbreak. E-commerce sector had experienced drop in February and under the recovery trends in March, is what the assumption and logistics compacting input helping mitigate the decline has been significant impact in marketing spend by gaming and online education sectors, led to the advantage of the rising internet usage during the pandemic quarantine.

We also made progress in delivering integrated service and driving adoption of optimize the business on the [Indecipherable] especially, the aforementioned online sectors, which lead to a relatively stable life as pricing trends on a sequential basis, despite the constraint in ad demand.

Value-Added service net revenues were $48 million in the first quarter, a decrease of 17% or 14% on a constant currency basis, primarily due to the decrease of livestream business and were partially offset by increase in membership revenue.

Turning to costs and expenses, total costs and expenses for the first quarter decreased 5% to $249.4 million. Operating income in the first quarter was $74.1 million representing operating margins of 23% compared to 34% last year. As the disciplined funding in response to pandemic, will largely offset this impact on revenue set in worse impacted quarters.

Turning to income tax under GAAP measure. Income tax expense for the first quarter was $15.9 million compared to $21.1 million last year. The decrease was partially resulted from the reduced earnings and was partially offset by the increase of the effective tax rate, primarily due to the expiration of the preferential tax treatment on one of the company’s [Indecipherable] in 2020. Net income attributable to Weibo in the first quarter was $67.4 million representing a net margin of 21% compared to 32% last year.

Turning to our balance sheet and cash flow items as of March 31, 2020. Weibo’s cash, cash equivalents and short-term investments totaled $235 billion, compared to $2.4 billion as of December 31, 2019. In the first quarter of 2020, tax provided by operating activities was $63.6 million. Capital expenditures totaled $700 million and depreciation and amortization expenses amounted to $6.8 million.

Now let me turn to financial outlook. In light of the uncertainties from the pandemic and the drastically changing market conditions, we anticipate our second quarter 2020 net income, net revenues to decrease by 7% to 12% year-over-year on a constant currency basis. This forecast reflects Weibo’s current and preliminary view and is subject to change.

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

Questions and Answers:

Operator

The first question today comes from Alicia Yap of Citigroup. Please go ahead. Hi, thank you. Hi. Thank you. Good evening management. Thanks for taking my questions. Congrats on the solid results. Can management elaborate on the recovery status and also the budget readiness for the KA account versus the SME? And any specific trend you’re seeing from multinational KA accounts showing more cautious in spending and if you could give some colors on major industry, but because how are some of the impacted factors seeing the recovering trend and their willingness to spend? Thank you.

Gaofei Wang — Chief Executive Officer

[Foreign Speech].

First let me share some color on Weibo’s first quarter performance and recovery that we have seen so far.

[Foreign Speech]

For KA business we actually saw healthy year-over-year growth trends. In January prior to the coronavirus outbreak, prior to actual coronavirus outbreak since late January [Indecipherable] involving revenue cutback, [Indecipherable] to the pandemic. Entering into April, things are getting normalized with domestic epidemic being effectively contained and business resumption underway. Accordingly, we are seeing a sequential recovery of ad spend from those advertisers with either flattish or modest growth trend on an annual basis. However, multinational brands probably would take a more cautious feel in their global ad spend, given the significant headwind from pandemic in the home market, which might have a ripple effect on the China ad budget.

[Foreign Speech]

For FMCG industry, consumer staple, such as food and beverage remains resilient and exhibit a generally stabilized trend in the first quarter. While discretionary categories such as cosmetics and personal care subsector was largely impacted the first quarter, as several customers reduced or postponed their ad spend in the action to the delay in the new product launch. For the second quarter, ad budgets from the top customers in FMCG verticals are picking up sequentially.

[Foreign Speech]

As for the [Indecipherable] revenues from these two sectors actually increased year-over-year in the first quarter, despite disruption in the introduction of offline promotion in the first quarter. During the pandemic, we introduced online product launch solution to further tap into the partnership from offline to online sectors. And looking ahead, I think mobile handset production really concentrated in the domestic area and this accelerated trends of the budget partnership from offline to online. So we will further emphasize and optimize the products in this sector and capture the ad dollars from the handset factory. And we actually saw nice growth of the handset factory on reports so far.

And for the auto sector, this is [Indecipherable] to the global supply chain. The global pandemic disrupted auto production and may cause uncertainties to the ad budget for the sector in the second quarter.

[Foreign Speech]

For the e-commerce sector, in late March, the sector [Indecipherable] of slowing the logistics and work resumption, and we believe e-commerce will see further uptake as the Q2 is industry’s traditional peak season.

[Foreign Speech]

Lastly on the food brands and entertainment sector, these two sectors were significantly impacted by the pandemic in the first quarter and we also anticipated — and we put an attitude towards such allocation from the luxury industry, as of operational pressure and demands are softening caused by the pandemic in the sector growth. And for the entertainment, which we also anticipate similar kind of strength, due to impacts on the pandemic and also the regulation impact.

[Foreign Speech]

For the SME business, the pandemic has actually structurally benefit the online sector. Among which, the gaming and education vertical delivered a very strong growth, double from the same period since last year, and that should see more adaptation. Leveraging the synergy between our product and operational team, we piloted swiftly to fulfill our customers’ integrated branding, plus the user acquisition, helping us to capture additional ad dollars from the online sector.

[Foreign Speech]

As we enter into April and May, which were presumption underway. Users online time spend had gradually normalized and we did see [Indecipherable] for the gaming and education category on a sequential basis. While, on any basis growth trends still are encouraging. And on the flipside, the offline industry such as the wedding service and the medical service took a hard hit during the pandemic period, which offset Weibo’s growth of the online sector and we might also take a while to publish in these offline sectors.

[Foreign Speech]

Moving on to Alibaba we are delighted to see nice growth from Alibaba in the first quarter. The one thing that e-commerce sector demonstrated resilience and solid recovery during the period. Weibo took the opportunity to capture additional ad budgets from Alibaba ecosystem, such as from [Indecipherable] the cloud service, building and [Indecipherable]. For another, we have built in our strategic collaboration with Alibaba in areas of performance ad and e-commerce live streaming. These initiatives amplify with Alibaba’s advantage in social e-commerce and big data have thus provided better conversation for [Indecipherable] within Alibaba’s ecosystem. With public development, with ad offerings and better explanation by Alibaba leading to growth in the Alibaba ad spend.

[Foreign Speech]

From a full-year perspective, we have enhanced our company’s edge, brand advertising and e-commerce data [Indecipherable] and traffic optimization [Indecipherable] system such as live streaming amidst the pandemic offering. And we expect solid ad growth from ad in Alibaba sector in the second half upon normalization after the outbreak. However, in the SME sector, despite nice growth in our inventory and strong performance in the gaming and education sector to our product optimization, we still see some pressure on the supply side, especially for the offline sectors, and we also are seeing the pressure on the supply side with oversupply of inventory especially from the [Indecipherable] platform. So we expect further SME performance for the full year, some industries are having also intense market competition.

Alicia Yap — Citigroup — Analyst

Thank you.

Gaofei Wang — Chief Executive Officer

Thank you.

Operator

Thank you. The next question comes from Binbin Ding of JP Morgan. Please go ahead.

Binbin Ding — JP Morgan — Analyst

Good evening management. Thanks for taking my questions. My first question is regarding the competition in the ad market. I think in last year, one of the major concerns among investors is the oversupply of ad inventory and many of them just to mention that again, how does management view the supply-demand situation in this year especially post the COVID-19? Will there be any changes to the competitive landscape because of the pandemic? And I have a follow-up question on the potential opportunity from the COVID-19. So have you identified new behavior changes during the pandemic, and I think you mentioned a number of new initiatives, such as live concert, online product launch, can you elaborate on the topic? And how is Weibo positioned to capture these opportunities? Thank you.

Gaofei Wang — Chief Executive Officer

[Foreign Speech]

Worldwide is the answer for — I already mentioned an over advertized market with some softness in the demand side, especially for the SME sector and oversupply of inventory in the market. And we are very well positioned for capturing the opportunity brought by the advantages from offline to online as the leading social media platform. We have influence on media, celebrity and the KOL [Indecipherable] and we also have a very strong growth in our overall user base and also the — you know we can also tap into new opportunities with the online product launch, which we’re hoping to capitalize on that partnership and we do see ample room to improve our product monetization rate, considering the increased traffic feed and the growth of our platform.

[Foreign Speech]

And the pressure we see from the stronger platform is the feed — is a few challenging [Indecipherable] platform and we will focus on three areas to improve our overall ad impact in the market to upside more [Indecipherable].

[Foreign Speech]

There is another trend we see the integrated branding class performance out of [Indecipherable] it is very influential in the market and it also adds — we keep focus on for our products and operations.

[Foreign Speech]

Amid an overall ad budget cuts led by the pandemic, we expect the key customer to spend more on the commercial front on top of their spending needs. Based on new product launch and various e-commerce related promotion by brands is becoming kind of must have scenario in their budget allocation. For new product launch, as I mentioned earlier, our product — our online product release resonating well with our handset customers and we are also penetrating to the FMCG vertical as well. And for e-commerce really the promotion by brands. We will have to reinforce our social ad offerings and social e-commerce ecosystems, and beefing up our corporations [Indecipherable] helping leading users purchasing intention, KOL marketing, as well as sales conversion, which enables us to attract incremental ad wallet from KOL customers.

[Foreign Speech]

On the other hand, our top SME customer also have incremental branding needs on top of their traditional performance driven objectives. In fact, this incremental branding budget was one of the main drivers for the growth of the gaming and education customers in the first quarter and we also cooperated with our activity and KOL resources and also integrated branding customer budget ad solution to our customer leading to significant uplift in our competitive edge among these two industries, especially the online education sector with the consumption upgrades and the rollout to more integrated branding plus performance ad solutions to our top SME customers.

[Foreign Speech]

Besides the branded class performance trends, KOL marketing is a very important channel as well and labels [Phonetic] key differentiation in the market.

[Foreign Speech]

Though we may have some disadvantage for the advertising campaign for the short video platform, but we have plenty of celebrities and KOL resources on our platform and it is a very important social asset in facilitating a brand recognition for sales conversion and plays a very crucial role in enhancing the conversion performance of the brand ad. And we’ve worked a public social feature enabled KOL marketing content to achieve a viral reach and also help them to accumulate social assets and help to differentiate our ad product in the market.

[Foreign Speech]

In the second and third quarter, we upgrade our KOL marketing system performance ad offerings, and to advance our facility and capability between customer and KOLs, as a step further to differentiate us in the performance market. We’ll also drive up adoption of the KOL marketing, provided that customers from various industries find the optimal match for the ad campaign.

[Foreign Speech]

For the ad technology, we are focused on driving the OPDS improving ad technology through OPDS adoption and also enhancing the conversion performance, which largely helps to increase trajectory [Phonetic] ad product in the first quarter and on the other side for our Watch Plus kind of product, which is the updated version of the social based products, it also helped us to improve the conversion kind of effects for the product platform with the upgrade of this kind of Watch Plus product.

[Foreign Speech]

In terms of the pandemic, as offers changed per user behavior, we see a very meaningful increase of the traffic and also the user content generation kind of activities. But what we found from the summer vacations is actually that we are seeing much live content being promoted on the platform and also using — seeing more time spent on the platform.

[Foreign Speech]

On the content generation side, we see a lot more live broadcasting coverage on the vertical area, other than the typical segment where in the past, with strong ad, the live broadcasting show on the media and e-commerce, we see significant expansion of the vertical segment in using live broadcasting tools.

[Foreign Speech]

We look at the number of live broadcasting we hold on our platform. This number is over 1 billion, which is more than double over the same period of last year, 80% higher than the quarter-over-quarter basis and those were the live broadcasting events were focused on the e-commerce, the media and the enterprise level.

[Foreign Speech]

Yes, from a short-term perspective, we see quite limited revenue growth can be directly derived from the live broadcasting growth. Even for the showroom live broadcasting, we anticipated, there will be a short-term reduction in revenue in the foreseeable future. However, we believe with the more adoption of live broadcasting e-commerce and such as live concert, there will be increased demand from brands to participate in events like this.

[Foreign Speech]

So we look at the enterprise and e-commerce live broadcasting, where converting demand into standard products and to push to the care enterprise for them to using live broadcasting as a self channel to facilitate their brand.

[Foreign Speech]

In terms of media, celebrity and live concert broadcasting, so far, they have been providing quality content and potential commercial inventory to us. A brand — our typical buyer of these commercial inventories, even though at this moment, we have very limited exposure on the brand revenue for the second quarter. However we believe, in the second half of this year more brands will — likely to looking to these types of inventory to have an opportunity to present themselves.

[Foreign Speech]

At this moment, most of live broadcasting was more focused on the content generation and from a user consumption perspective has brought quality content to the platform, where we’re promoted to commercialize or monetize deep content to try using different trial products.

Operator

This concludes our question-and-answer session. I’d now like to hand the call to Ms. Sandy Zhang for any closing remarks.

Sandra Zhang — Investor Relations

Yes, thank you, operator. This concludes our call. Thank you for joining us. We will see you next quarter.

Operator

[Operator Closing Remarks]

Related Post