Weibo Corporation (WB) Q1 2022 Earnings Call Transcript

Weibo Corporation (NASDAQ: WB) Q1 2022 earnings call dated Jun. 01, 2022

Corporate Participants:

Sandra Zhang — Investor Relations

Gaofei Wang — Chief Executive Officer

Fei Cao — Chief Financial Officer

Analysts:

Alicia Yap — Citigroup — Analyst

Thomas Chong — Jefferies — Analyst

Tian Hou — T.H. Capital — Analyst

Presentation:

Operator

Good day and thank you for standing by. Welcome to Weibo First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, that today’s conference is being recorded. [Operator Instructions] And now, I would like to hand the conference over to Ms. Sandra Zhang from Weibo IR team. Thank you. Please go ahead.

Sandra Zhang — Investor Relations

Thank you, operator. Welcome to Weibo’s first quarter 2022 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 the Internet and is also available through Weibo’s 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 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 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 exclude 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 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 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 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, and welcome to Weibo’s first quarter 2022 earnings conference call.

[Foreign Speech] On today’s call, I’ll share with you highlights in Weibo’s users, product, and monetization in the first quarter of 2022.

[Foreign Speech] On the user front, Weibo’s MAUs reached 582 million and average DAUs reached 252 million in March 2022, adding approximately 51 million and 22 million users year-over-year respectively. In March, 95% of Weibo’s MAUs came from mobile.

[Foreign Speech] On monetization, the macro environment, industry policy, and recent domestic COVID-19 resurgence had posed a short and mid-term impact on the production and operation of many companies to different degrees, causing most advertisers to differ while reducing[phonetic] their marketing budget since March. Nevertheless, stems the solid growth of our user scale and traffic, as well as our efforts in key industries such as gaming and apparel. We have further gained recognition among advertisers, while our differentiated market solution that integrated well with our user product and content operation. In the first quarter, our total revenue reached $484.6 million, up 6% year-over-year and our ad revenues reached $427.1 million, up 10% year-over-year. And 94% of our ad revenue came from mobile. This quarter, our non-GAAP operating income reached $141.7 million.

[Foreign Speech] Next, let me share with you our progress made in product monetization in the first quarter.

[Foreign Speech] On product front, we continue to focus on operating efficiency, driving steady user base expansion and engagement improvement, so as to uprate[phonetic] our monetization efficiency. On channel front, considering our user scale and the competitive landscape, we will emphasize on balancing user acquisition cost and monetization and improve ROIs of user acquisition. On competition, we will continue to step up investment in operations of hot trends and social content, deepen strategic cooperation with partners from media, entertainment, gaming and sports verticals to encourage discussion around hot trends and IT and maintain our competitiveness in core user function.

[Foreign Speech] In the first quarter, with the Spring Festival holiday and Winter Olympics, our user base and traffic grew robustly, demonstrating Weibo’s advantages in hot trend and social attributes. During the Spring Festival, content related to the Spring Festival Gala of 25 television stations was distributed on Weibo via topics, videos, live streaming and et cetera. But Spring Festival Gala related topics, the viewership surpassed the 20 billion and the discussion was more than 70 million, up 46% from last year. And moreover, we launched the live topics and upgraded topic features that allows user to discuss live — discuss live while watching the Spring Festival Gala. While the Gala was on air, celebrities, KOLs and users were able to join in the live discussion altogether, igniting the willingness of discussion around the event. As a result, the discussion of the Gala related topics created by users increased by 145% from last year.

[Foreign Speech] Furthermore, our content operation of the Beijing Winter Olympics has attracted massive users to consume conference on Weibo. From the Winter Olympics events to sports campaigns, and the IPs of the [indecipherable] we worked with Winter Sports Administrative Center to encourage athletes to open accounts as they engaged on Weibo and build a content distribution matrix with the state media, [indecipherable]

Among other media to enhance the dissemination and discussion of content around the game. Not only the traffic driven by the Beijing Winter Olympics, the past that of the Tokyo Olympic Games, but the athletes and their followers were also more engaged on Weibo. Based on historical data, as people return to school and work and work after the Spring Festival, the user scale and traffic on Weibo will flow back to a certain extent. However in March, we grew our user and traffic nicely, mainly attributable to more social events occurred and increased contents online due to the disruption from COVID-19 coupled with our optimized channel strategy and improved operating efficiency of hot trends and social content.

[Foreign Speech] On channel front, we further optimized our channel investment strategy. We focused on efficiency. The content operation of Spring Festival and the Winter Olympic Games help grow our user and increased user engagement. We cut the budget investment in low ROI channels and try to shift more budget through channels with potential of raising user visits rapidly. And meanwhile, we improved our capabilities of serving products to clients and increased the long-term retention of the monetizable traffic and the users to continue to optimize channel ROI. Hence, in the first quarter, we optimized our product from several aspects, thriving to precisely targeting users with the recommended content. We also focused on optimizing the push and pull strategy and improving the product experience to increase the frequency of user consumption in March. The per capita consumption of channel user increased by 40% from the fourth quarter last year.

[Foreign Speech] On social attributes, we continue to strengthen the social features of our user-product by focusing on promoting scale and engagement of Weibo’s core users. On the relationship-based feeds, the number of feeds refreshment continues to improve from December, benefiting from the optimization in content distribution of the relationship-based feed. We’ve effectively retained and intake users to our platform by hot trends. Additionally, we continue to invest in social content enrichment, personalize the content distribution, and front-end product spirits to improve experience of user consumption and the social stickiness of the relationship-based feed.

On community products, we focused on improving the product mechanism to better serve user consumption and to enable users to discover content, build relation, and interact with each other with communities. At the same time, we strengthened the integration of products and operations to further expand community through more verticals, enrich vertical content, so as to better fulfill users’ needs for social relation based on interest and location within the communities. In March, the number of users who use community products continued to increase up by double-digits from last December. The number of posters and posts in the community surged and users in gaming, sport, animations, and campus continued to be engaged. We have seen that communities had effectively increased user engagement and promote user intention in a long run, which boost our confidence in Weibo’s new positioning and growth potential in the market of social attributes.

[Foreign Speech] On videos, we continue to focus on the scale and engagement of video accounts, especially on verticals that can drive more traffic and engagement and also high-quality content creators. In 2022, we will provide more support on product and operations through this video content creators to encourage video generation and interaction with them. And ensure the quantity and the quality of video content, which in turn drives user engagement. As of the end of March, the number of video accounts exceeded 30 million. In the first quarter, we provided video content creator with more editing tools and features to promote social interaction around video content, to increase video generation and engagement. At the same time, we encouraged user consumption in core information-based feed to continuously optimize the recommendation mechanism for high-quality video content creators and their company. For example, for the relationship-based feed, we optimized the recommendation of video accounts based on user’s social relations, which significantly improved the distribution of video account and efficiency of user consumption. We also launched the hot video list in the discovery page which not only stimulated video consumption but also further strengthened the positioning of discovery page in a consumption of hot trend and the popular content.

[Foreign Speech] Finally, let me share some color on our work in the recent data [phonetic] against domestic COVID resurgence. Since March, new cases has been reported across the country. During this outbreak, we fully leverage Weibo’s platform advantages in Weibo’s application and information distribution. On one hand, we work with Shanghai Release, people’s daily CCTV news, and other official accounts of government, say media and organized more than 2,200 topics on the COVID situation in Shanghai, which generated nearly 200 million views and over 22 million discussion in total. We have also established an efficient rumor-refuting mechanism in cooperation with government department to promptly address rumors and needs information, while optimize our product mechanism to amplify information reach to more users. On the other hand, we continue to enhance Weibo’s efficiency and the capability in a public rescue system.

We quickly upgraded our rescue channel based on the existing super topic product to better converge the request for help. Up to now, we have reported more than 5,000 valid requests from government departments, resulting in more than 2,600 rescue cases. In addition, this year we also attempt to coordinate with NGOs, business, media, volunteers, [indecipherable], spectrum to build a state-wide rescue system against COVID, providing assistance and support for people seeking medical treatment supplies, psychological consulting, so as to further amplify our value in the society wide emergency relief and assistance.

[Foreign Speech] On monetization, in 2022, we continue to focus on enhancing our potential and efficiency of traffic monetization, and thus beefing up our overall monetization skill, underpinned by the resilience of Weibo’s brand plus performance ad offerings in key verticals. We are dedicated to expanding the marketing combo of brand plus performance ad with content operation to more industries and clients, aiming to strengthen our industry-based marketing capability as well as our marketing competitiveness — market competitiveness.

[Foreign Speech] From an industry perspective, our ad revenue increased by 10% year-over-year in the first quarter, mainly benefiting from the Spring Festival and the Winter Olympics, as well as our improved capabilities to fulfill customers’ brand plus performance marketing needs in key industries. For example, during the Winter Olympics, we helped some Olympic sponsors to build hype in the market, featuring a combo of our ad offerings such as topic, hot trends, launch screen ad, et cetera, to uplift their brand recognition, leveraging hot trends of Olympic sports events and ads[phonetic] like endorsements. Our unique solution of hot trend marketing has earned wider recognition amongst most of the advertisers, especially the Chinese footwear and apparel brands during the two Olympic games seasons. As a result, we are pleased to see higher ad demand for the apparel vertical with ad revenue from this vertical growing very nicely year-over-year.

Next, let me share our progress in the gaming vertical as well. Ad revenues from the gaming vertical sustained strong growth momentum with over 50% year-over-year growth in the first quarter. We primarily attribute the growth momentum through differentiated ad playbook we developed for the gaming industry in the past two years. To elaborate, we have trends and the synergies between sales, product and operation to amplify the distribution and discussion of new games as well as facilitate the accumulation and activity of social assets.

Coupled with our ongoing optimization in performance ad offerings, we managed to capture incremental brand ad budget for new game release from client, who traditionally only value conversion results. Considering the approval policy of [indecipherable] the game license, we launched event-based ad offering and service with top gaming clients in the first quarter to better align with client’s event pipeline and fulfill their marketing needs in connection with major — major version upgrades, updates and new character promotion. A good example is the Genshin. We worked closely with game advertisers and aggregated all marketing events on Weibo, including version update, brand ambassador official announcements, and branding — and branding event, et cetera. When the public has to know the official account of Genshin has accumulated over 4 million followers. The number of views and discussion around the major Genshin topic exceeded 12 billion and 6 million respectively with over 4 million long-term active trends of Genshin super topic.

[Foreign Speech] [Technical issue] in the first two months, we had very good start both in terms of user traffic and financial performance. However, we have seen an inflection[phonetic] since March, amidst to political issues and the COVID-19 resurgence, multinational customers and offline customers start to cut that marketing spend. Some of our channel marketing campaigns were also negatively impacted. As a result, our ad revenue was also negative impact in March, entering the second quarter with more regions starting up lockdown and the prevention measures. Various aspect of economic activities has been significantly disrupted including production, logistics, and other offline activities, which directly weigh on the growth of the overall advertising market.

[Foreign Speech] For the second quarter, despite many market headwinds, we are dedicated to join together with our customers to navigate through the difficult times and reinforcing our own competitive edge in the hope of capturing market opportunities post the normalization. But one thing, we offer targeted favorable policies and resources to support several customers and industries hit hard by the COVID-19, inviting customers to explore — exploit our brand plus performance ad offering, so as to boost their confidence in the social media marketing, while raising the utilization rate of Weibo’s core ad inventories at the same time. For another, we proactively take the window to further refine our product offering and reinforce our core competitiveness. Our major initiatives improved optimizing our brand plus performance ad offerings to improve efficiency, beefing[phonetic] up our content marketing service and expanding customer scenario, just to name a few. We are making solid progress against all these initiatives as critical [phonetic] moved to further strengthen our competitiveness in the ad market.

[Foreign Speech] With that, let me turn the call over to Fei Cao for our financial review.

Fei Cao — Chief Financial Officer

Thank you, Gaofei, and hello, everyone. Welcome to Weibo’s first quarter 2022 earnings conference call. Let’s start with user metrics. In March 2022, Weibo’s MAU and average DAU reached 582 million and 252 million respectively, representing a net addition of 51 million and 22 million users respectively on a year-over-year basis. We’re delighted to achieve solid user growth momentum with disciplined marketing spend.

Turning to financials. As a reminder, my prepared remarks would focus on non-GAAP results. All monetary amounts are in US dollar terms and all the 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 2022. Weibo’s first quarter 2022 net revenues were $484.6 million, an increase of 6%. Operating income was $141.7 million, representing an operating margin of 29%. Net income attributable to Weibo reached $132.9 million, representing a net margin of 37%. Diluted EPS was $0.56 compared to $0.57 last year.

Now, let me give you more color on revenues. Weibo’s advertising and marketing revenue for the first quarter 2022 reached $427.1 million, an increase of 10%. Mobile ad revenues were $401.9 million, contributing approximately 94% of total ad revenues. We had a solid start to 2022. Weibo delivered relatively resilient ad growth in the first quarter, even though the overall advertising market was tapping off amid macro uncertainties, resurgence of COVID-19, and lockdown disruptions. For the first quarter of 2022, our leading verticals in terms of ad revenue contribution were FMCG, 3C product, and gaming.

In terms of growth, the fastest growing verticals were gaming and luxury among major ones. Despite regulatory and the macro challenges waiting on demand side, the relatively resilient performance of FMCG and 3C product sectors demonstrated that Weibo’s brand plus performance ad offerings resonated greatly with customers in these sectors, and enabled them to build half[phonetic] around the major events such as the Winter Olympic Games. For gaming sector, our cultivation in the content vertical as well as improvement of ad performance for the sector boded well to tap into higher ad wallet share of gaming sector.

On the flip side, e-commerce, entertainment and education categories booked descending trend due to sluggish consumption data and regulatory impact. From ad product perspective, promoting fees continued to be the largest part followed by social display ad and search and topic ad offerings. That said, as we entered mid-March and second quarter, the lingering national wide Omicron outbreak and subsequently restrictions and lockdown measures has significantly disrupted the advertising market on demands that [phonetic] industries with high offline exposures such offline merchant and also industry cut ad budget due to suspension of offline activities and disruption of production.

The restriction and lockdown in major areas in China, especially Shanghai, has also negatively impacted consumption sectors such as FMCG and e-commerce, which suspended ad campaigns originally scheduled for the quarter and cut ad budget accordingly. Additionally, we also faced the major sales and ad campaign execution challenges due to lockdown in Shanghai. As COVID-19 resurgence rapidly invoked national wide and the restriction and lockdown disrupt economy activities, including production, consumption, logistics and offline activities. Based on our current observation and our best estimate, we expect the potential impact on advertising business in the second quarter is material and even more severe than the COVID-19 impact on our business in 2020.

Given the major areas impacted, duration of restriction and lockdown as well as the current macro-economic condition, we are closely monitoring the evolving situation and we will make relentless efforts to mitigate such headwinds, leveraging our diverse industry mix and broader sale network coverage national wide, while doing our at most to protect our employees, partners and the communities. Despite the near-term challenges ahead, we are encouraged to see our user and engagement metrics remain the solid momentum laying foundation for us to further tap into a wider demographic and increase monetization scale as business recovers. We remain confident in our long-term monetization opportunities that our unique value proposition and diversified content ecosystem will unlock.

Ad revenues from Alibaba for the fourth quarter decreased 22% to $25.9 million, primarily attributable to its own conservative marketing strategies [indecipherable] consumption and lockdown as mentioned earlier. Value-added service, VAS revenues were $57.5 million in the first quarter, a decrease of 17%. The decrease of VAS revenues was mainly due to less revenue from — less revenue contribution from membership service and a decrease of live streaming revenues. Turning to costs and expenses, total cost and expenses for the first quarter was $342.9 million, an increase of 7%. The increase was primarily due to, first, higher personnel related cost; second, step up in content costs, mainly associated with Winter Olympic Games; third, recognition of the cultural business construction fee with lapse[phonetic] of the exemption policy in this year. The increase was primarily offset by a decrease of sales and the marketing expenses, with disciplined channel investments and reduced offline events.

Operating income in the first quarter was $141.7 million, an increase of 3%, representing operating margin of 29%, exceeding our expectation as we continue to effectively balance growth and the margin performance amid uncertainties. Turning to income tax and the GAAP measure, income tax expense for the first quarter was $11.7 million compared to $14.9 million last year. Net income attributable to Weibo in the first quarter was $132.9 million, representing a net margin of 27% compared to 28% last year.

Turning to our balance sheet and cash flow items. As of March 31, 2022, Weibo’s cash, cash equivalents and short-term totaled $3.3 billion compared to $3.1 billion as of December 31, 2021. In the first quarter of 2022, cash provided by operating activities was $248.6 million. Capital expenditures totaled $8.5 million and depreciation and amortization expenses amounted to $15 million. With that, let me now turn the call over to the operator for Q&A session. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Alicia Yap from Citi. Please ask your question.

Alicia Yap — Citigroup — Analyst

Hi. Thank you. [Foreign Speech]

Thanks for taking my question. My questions is related to the COVID impact in the second quarter. So if management can give a little bit more detail or the color in terms of the direction that we see in April and May? What kind of the magnitude of the decline that we are seeing for on our ad budget and what is our expectations for June? And also into the second half of this year, which industry vertical is actually seeing biggest scale back in terms of their spending, the past few months and then which industry verticals that you think will actually see a bigger rebound, once this reopening is actually happening? Thank you.

Gaofei Wang — Chief Executive Officer

[Foreign Speech]

Okay. So thank you for those questions. So first of all, I would like to talk to you about the situation since Q2 because of COVID. So you can see that if we’re talking about mid-March, as well as the Q2 in China, due to the COVID, we have been seeing the escalation of the control policies due to COVID here in China and this is impacting a lot of marketing campaigns offline of our customers as well as those ad budget as well.

[Foreign Speech]

And also, talking about the different ad, for example, the performance ads, we can see that especially the information on slow ad has kept quite stable in terms of the volume and however, the pricing wise, this has been little bit reduced. And second of all, I’m talking about those brand advertisement, so you can see that because majority of the agencies are located in East China. So, I think that in terms of the budget, this has been impacted due to the COVID.

[Foreign Speech]

And also, talking about the situation here, since the late March, we have been seeing a driving down trend in terms of the booking and also talking about the April because of the impact to the logistics, as well as the execution of a lot of the projects in East China, we have been seeing a driven down trend of the brand advertisement. And also talking about May, we used to believe that it will recover very soon. And actually, it was recovered very well to the level of the March. However, still also in — after June, originally when we saw that it will be fully recovered, however, because of another COVID broke out in Beijing area, we’ve been seeing some kind of a fluctuation of our performance there.

And also because Shanghai just resumed work and also all the kind of lifestyles since 1st June, so there was a lot of uncertainty here in terms of Shanghai and also the performance in the second half. So, we are not going to be as optimistic as we used to be in May. And also talking about the effectiveness or the performance ad, the impact to that particular category will be the minimized. And also, however, talking about the brand customers because they have the whole process, which is going to be followed, if they want to resume the kind of a budget and also resume the advertisements in terms of the budget allocation and in the marketing plans as well as the execution, etc. So, we expect that the brand customers are going to recover slower than the performance. Right?

[Foreign Speech]

And also talking about industrial verticals, first of all, we believe that the gaming industry has been least impacted. And also in Q2, there is a kind of a upward trend going upwards. And also in May, of course, we had a little bit impact because of the unavailability of the gaming license, but still that particular impact could be controlled.

[Foreign Speech]

And also because 50% of our businesses are focusing on FMCG, luxury products as well as the automotive industry. So, you can see that these three verticals, they’ve been impacted heavily in April because of COVID. However, when there was a little bit recovery of the control and also containment of the COVID in May, we’ve seen a very quick and also robust rebound of these three verticals. So that is to say that, in the future, if the COVID could be better contained, we’re going to see, for example, more marketing campaigns organized by the customers in those categories or those verticals.

We’re going to see a very good recovery and rebound of their budget to us. And of course, that in Beijing, we’ve got cancellation of the auto show, and this does or did impact the budget allocation. However, this broadly witnessed more opportunities to the future because most of the OEMs are now moving their publish and also the launch events of their new models from offline to online. And this is exactly the same that we experienced in 2020 in terms of the mobile and also the smartphone industry, right? So a lot of people moved up their campaign from offline to online. So, this is going to give us more confidence for us to see a very good increase of the budget, especially for the automotive industry.

[Foreign Speech]

Okay. And then next, I would like to say that, talking about the other verticals, especially those offline activity-oriented industries, for example, the aesthetic medicine and also O2O customers, they have been — they will also receive impact after Q3 event. And even if now we have got a reopening of Shanghai, still there will be a little bit impact. And also talking about the mobile or smartphone industry, we also have experienced a driven down of the sales of this particular industry vertical. And of course in Q2, there wasn’t a big impact to the smartphone industry.

However, we really believe that in the future that this is going to be impacted negatively. And of course, in turn, if we’re talking about the smartphone, this is not only the customer that we have, but also this should be regarded as the channel for us to do the marketing and also ad. So in terms of the expenses saving and the pre-saving, this actually has brought with us a positive impact. So if we are talking about the offsetting of these two parts, we are not seeing a big impact to our profit margin.

[Foreign Speech]

And also, lastly, I would like to say that in Q1 of this year, we had about one and half of the month of the impact. And also in Q2, the impact would have been lasting for about one and half month to two months. And also, I think that this particular impact is larger than our expectation because Shanghai just reopened itself in 1st of June and also in Beijing, there are still such areas that are having people working from home still. And also because talking about the brand customers, they are having a longer process to follow, to restart and also reboot their business and also this require collaboration closely between publishers and also agents. So, we really think that we are going to have a slower recovery of our business than our expectation in June and also the second half.

[Foreign Speech]

Alicia Yap — Citigroup — Analyst

Thank you. [Foreign Speech]

Operator

Thank you. Our next question comes from Thomas Chong from Jefferies. Please go ahead.

Thomas Chong — Jefferies — Analyst

[Foreign Speech]

Thanks, management, for taking my questions. I have a question regarding our cost control and the trend in operating expenses in 2022. And on that front, what should we think about our margin outlook in the remainder of the year? Thank you.

Gaofei Wang — Chief Executive Officer

[Foreign Speech]

Okay. So first of all, talking about the cost control, so first of all, we are having a stricter control and also a stricter policy in terms of the ROI and also keeping a quite preservative in terms of the placements among different channels and also the purchasing of the feeds, for example. And also talking about Q1, however, still we had stricter rules on the appraisal of ROI.

And also, if the channel, for example, cannot provide with us the returns as required within three months or six months, we are going to cancel collaboration with that channel. And also as a result, we have been seeing a quite good performance in terms of margin in Q1. And second of all, especially in Q1, we are talking about the cancellation of already the — or decreasing of the tax related to the culture establishment by 1.5%. And also second point is about the activity-related expenses. And due to the COVID, we cannot organize a lot of activities as planned. So, this has saved some of the costs relating to the activities and also campaigns. However, those kind of activities are also profit making. So, this did impact our revenue at the same time. Okay.

Fei Cao — Chief Financial Officer

Okay. Maybe I can add some color on the margin. So in terms of margin, as a result of better monetization, larger business scale and higher operating leverage, we achieved good profit margin in the first quarter and last year. And historically, Weibo always maintained healthy margin level. And heading into the second half of 2022, as Gaofei mentioned earlier, we expect the negative impact on advertising business is material. So amid the difficult market environment and the combined effect of numbers of other factors such as the expiration of the certain tax in sensitive — the cultural business construction fee will be levied [Phonetic] and we have two investment in some sports IPs such as Beijing Winter Olympics and NBA.

So, Weibo expect a decline in operating margin compared to last year. But the management has reached a consensus that the highest priority in this year is to optimize our cost structure with more disciplined channel investment and other spending strategy. Weibo — as you know, Weibo, has always maintained a conservative status [Phonetic]. Our goal is improving operating efficiency with stricter ROI assessment to control our overall spending and striving for higher operating leverage to mitigate the margin decline as small as possible and ultimately keep our healthy financial metrics. Thank you, Thomas.

Thomas Chong — Jefferies — Analyst

Thank you.

Gaofei Wang — Chief Executive Officer

Thank you.

Operator

All right. Thank you. Next question comes from Tian Hou from T.H. Capital. Please ask the question.

Tian Hou — T.H. Capital — Analyst

[Foreign Speech]

It’s about the user. So what is the eventual goal for the company to accomplish regarding the total number of the MAUs, DAUs and also what’s the company’s plan in 2022 to acquire new users in China? And also how to use content operation to improve user retentions and user activity level on the platform? Thank you. [Foreign Speech]

Gaofei Wang — Chief Executive Officer

[Foreign Speech]

So, I think that this question has been answered previously while we were listing our company and also did the secondary road show in Hong Kong last year. So, we were saying that, if we were not operating any video-related content and also strategies, and then the social media or the upper limit of the social media will be only 60% of that of the social network. So that was about 2013. However, time is different, right. So, we are now emphasizing a lot on the differentiation points between Weibo and also Twitter and also the other pure social media. We have been doing more complicated works and also more works as well in terms of our business operation or business development, especially we’re talking about a video.

So in terms of the video, the impact is actually going to be bigger than the social media. And also the business driving quarters are going to be more as well than the social media only. So, that’s why that even if we’ve had a lot of headwinds, as well as the market competition in the video content area, we’re still trying to invest as many as possible. And so we believe that when we have a very key positioning and also important positioning in the video area and then we are going to further uplift the upper limit of the number of users and also the others. And now in terms of the total traffic and data, the video part accounted for about one-third of the total traffic now we have. So, this is extremely very important for us to uplift — further the upper limit. Okay.

[Foreign Speech]

And also, lastly, I would like to say that, talking about the business value of a company, this does not only related to the DAU and also MAU number, but I think it’s more relevant to the activity of the users. So especially in Q1, we’ve been saying that our total traffic has been reaching the kind of upper limit or the kind of a peak level before any reconciliation and also some ratification conducted to the entertainment industry, right, because activity was all about the stickiness of the users.

And also, we really believe that with a business model of Weibo and combining social media together with the media hot trends, for example, this is going to be our key strategy to be sustainable in the future. And also in Q1 because of the ratification conducted to the entertainment industry, we already said that the entertainment industry will not be recovered until the second half and this is still the case right now. And also that’s why we’ve been doing a lot of other works, for example, the launch of hot trends and super topics as well as the community, etc.

So those businesses are now offsetting the declined activity that we experienced because of that change happened to the entertainment industry. And also as a result, we are saying that MAUs and also DAUs are important, but this is not the only thing that we’re focusing. But we are focusing more on the provision of better quality services to users and also enhance the stickiness of users and enhance the activity of users and interactivity of the users as well. So, these strategies are going to be the long-term strategy and also making us sustainable in the future.

Operator

All right. Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I’ll now hand the call back to Ms. Sandra Zhang for closing remarks.

Sandra Zhang — Investor Relations

Well, thanks, operator. And thank you all for joining us. This concludes our conference call. We’ll see you next quarter.

Operator

[Operator Closing Remarks]