Q2 2019 Earnings Call

At this time all participants are in a listen only mode today's coming through the question and answer session at which time. If you wish you asked the question you would need to press star one on your telephone I must advise you that this conference is being recorded today Monday night diesel focused hotels, and then 19 now like to hand, the conference over to your speaker host today Ms. Sandra John . Thank you. Please go ahead.

Thanks, Operator, and Hello, everyone welcome to Cienas earnings Conference call for second quarter 2009.

I have to say, Oh, CIM and C O social channels and our CFO Bonnie Zhang.

We've also been gone into that and available through <unk> IR website <unk> out of Sina Dot com.

No then you beat you to see published in connection with today's conference call. Our discussion today will contain forward looking statements, which involved and how long they go to <unk>.

Cause actual results could differ materially from our current expectations.

Yes, no obligation to update the forward looking statement, you just <unk> and elsewhere.

The detailed discussion of peak speeds can uncertainties. Please refer to our latest annual report on form 20-F, and other filings with I see.

In addition, I would like to remind you that outage discussion today include non-GAAP measures, which maybe to stock based compensation I'm sitting on all the items, we use non-GAAP measures to gain better understand your feet as compared to operating results and future prospects. Please refer to our earnings release for more information on that the situation of GAAP to non-GAAP measures.

James The poll, we discuss non-GAAP measures, we've applied the same methodology used to calculate non-GAAP measures I've seen a good level.

I've mentioned, maybe Mark you open your life's relief during the session.

Let's start with an overview of the second quarter 29 tumor. So he knows the net revenue for the second quarter were 130.4 million decrease of 1% increase of 5% on a constant currency basis.

Pretty income was 152 point email me a decrease of 4% for an increase of 2% on a constant currency basis net income attributable to Sina was 54 million in the diluted EPS was 76 cents.

Now, let's turn to key financial items Cmos <unk> online advertising revenue for the second quarter were 433.6 million decrease of 5% or increase up 1% on a constant currency basis primary due to a decline in the quarter out ever trading revenue and the negative currency translation.

Let me start from Leibowitz business, we bought the user growth to Reaccelerate, a meaningfully compared with Q1 with I mean, you're adding approximately 21 million user quarter over quarter reached a 486 million in June and be a Richie you, adding approximately 8 million users to 211 million on top of the salty user growth. We're encouraged to see strong performance of the user engagement as well with babies eat refreshment of video views booking double digital growth. Both in you in a sequential basis, leveraging a cluster of breaking news into social events. Initially released now we booked during the quarter. The strong user performance all pointed to the traction of our revamped a user product, which empowers our communities to more easily discover and it consumed relevant transcend tropics and engage in public conversations off their interest.

Our ongoing product improvements will continue to manifest itself delivery organically user growth and the further deepening user engagement physician that positioning us well to better capture won't be sure of digital AD budget when the overall market becomes Alaskan <unk> strained.

Our monetization we bought the online advertising revenue for the second quarter was 370.7 million flat or up 6% on a constant currency basis, We board key account and its grew 12% or 19% on a constant.

[laughter] the FMCG sector continues to drive the growth demonstrating resilience and made it Mexico uncertainties and it's obvious that a <unk> buoying reports giuffre initiated social marketing cloud products to compound the <unk> effect from product launch to Brandloyalty and ultimately sales conversion.

The entertainment sector, all surprised on the upside and get it over these solid performance. Despite the industry. We are leveraging <unk> unique strains in viral distribution and a T.L.I.P. marketing around these blockbuster shoe shows.

We bought a semi sector was down 6% or flat on a constant currency basis in the second quarter things, the m. favorable supply and that Didnt man's dynamic.

Persisted, we execute eroding our initiative to talking under monetized the industries under both with new clients.

Optimized so China and the drive better ROI for existing customers, which exhibited positive trajectory for the SMB sector.

Second factor it in this quarter. However, if the growth of these new initiatives was offset by the AD budget cut back from certain Oh, two old category pedigree and online gaming sector. We expect these efforts won't take a multiple orders to come from two meaningful impact on the topline.

Turning to Porto <unk> revenue for the second quarter were 63 million, a decrease of 25% or 21% on a constant currency basis resulted from the budget cut back from SMB customers.

Turning to non advertising business.

Cmos and non <unk> revenue for the second quarter were 96 point email each of 20 or 20% on a constant currency basis. The increase was mainly derived from the incremental revenue from Sina He's had been underway blood for live or live streaming platform.

Total non-GAAP revenue for the second quarter were 41.1, nearly a 47% or 56% on a constant currency basis.

The increase of a portal non advertising revenue was driven by the strong performance. All those are my co Lo facilitation done is underpinned by robust growth in the loan origination volume delivered to ask team continue to optimize product mix diversified funding sources and enhance operating efficiency.

Turning to gross margin gross margin for the second quarter with 77% compared to 81% last year I never tried in gross margin was 81% compared to 83% last year now advertising gross margin for the second quarter was 60% down from 60% last year due to the relatively lower gross marching oki acquired to live streaming goodness waibel.

Now moving on to operating expenses in the second quarter operating expenses totaled $256 million down 6%.

Sales and marketing expenses decreased 20% a year over year and approximately 27% of see nothing that revenue, which was down six percentage points from last year, largely attributable to disappoint, a channel marketing programs and a cost efficiency achieved in marketing campaign.

Operating income decreased 4% to 152.8 million, representing an operating margin of 29% compared to 30% last year.

Under GAAP measure non operating income for the second quarter was 19.7 million compared to an income of 1.2 million Asher no operating income for the second quarter million, including <unk> 15.7 million net interest and other income and a 4.3 million net earnings from equity method investments, which used to report on quarterly year over year.

We used to refer to our earnings release for a more detailed information about non operating items for the same period last year, turning to tuck under GAAP measure income tax expenses were 26.

We had some Emily in the second quarter compared to 27.9 million last year, a result from their deferred tax charges rough and night from the fair value changes on our investment.

Net income attributable to Sina in the second quarter was 54 million or 76 diluted net income per share.

Now, let me turn to the balance sheet and the cash flow item as of June 30, 2019 seen us cash cash equivalents and short term investments totaled a true building compared to 2.3 billion as of December 31st 2018, mainly resulted from continued investment activity for the second quarter net cash provided by operating activities was 128.6 million capital expenditures totaled 5 million and a depreciation and amortization expenses amounted to 11.6 million with that operator, Please open up the call for questions.

[noise]. Thank you ladies and gentlemen, thank you well now begin the question and answer session.

If you wish you asked the question now please press star one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press the pound the hash key.

Your first question comes from the line of Alicia Yapp from Citigroup. Please go ahead.

Hi, Good evening, Charles Thanks for taking my questions I have a question related to Caf business. It looks like she not seen top business continues to hold up relatively well, especially the last two quarters could management share. These those.

How how do you fight she's positioning in the business and what type of medium and longer term I'm talking at U shaped keys that she now hopes to achieve a into over what often happens. Thank you.

Uh-huh shares Charles Uh Huh.

[laughter] regarding nothing type business, and we have talked about that for many quarters and we always believed that devoted to areas or the areas in which to expand openness swap core though.

Oh, the existing business and so phenotype is the area that that we see a lot of 10 shows where I was always pretty vicious area was up about the potential to grow and would continue to believe that accompanies, especially big internet problem, which that data with the user traffic has the advantage in developing this been there. So we have been doing this for a few years now and I think it would continue to be investing in this area and the numbers you have seen in the last couple of quarters before the shelf that that we have been in the produce every pretty nicely and Oh of course, we have to be very cautious in trying to sell followed their regulatory policies elsewhere I smashed as a requirement for this particular area also being very cautious in terms so well.

Yes that we do not actually Grand credit.

I mean to the users that to a less qualified basically said well have very stringent lose intends to making that a that the borrowers as well as to I treat content. Our you know the bad their rate to a pretty low percentage. So going forward probably will fall in the second strategies intend itself our.

Okay with that business and on the one hand, we'll continue to grow and this business and to make sure that till we can enhance our ability to have that data mining and ER.

To actually have a better quality customers going forward as well on the other hand that the weekend also I mean make sure that they will actually or whatever whatever we do we'll follow the regulatory policies and the that today I wish it were very much a concentrate and that would be that a as I said. This is a business has a lot of potential and as you can see all the big Internet players have invested heavily in this area.

And so I think we'll have that.

Very good potential here, but it will be very cautious and intend to or are they spun execution to put it. This way so that we can control risk.

Thank you.

Thank you. Thank you.

Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question.

Hi, Charles.

My questions I have some questions.

Oh.

Oh, Hi sends you man.

He had degrees.

Oh you did.

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He had to agree.

And my second question.

That's the odd pets.

In the second.

Hi.

Well.

The trend.

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Our strategies given the reason people want.

Thank you.

HM.

[laughter] I can I mean, Jay Cohen.

[laughter] one by one okay and regarding the advertising area and if you look at the port of business.

I'm sure that they have already elaborate Ah that's a lovely key areas for the weight pool. So Paul do I think if you look at our business is also a BTK and SMB and the key is doing that you'll be okay, but in that SMB not doing very well and I think that she area for the T.A. will have seen some of the challenges in the automobile industry. Okay. Many because of this entire industry I treat is not doing very well as you have seen probably in some of the.

The beta in a market that that Oh come on B cells in the second quarter actually it was down.

At least 20% year over year and is quite significant and then that actually has a positive impact our portal advertising business in that particular area. We have seen similar trend in this area. Although I will wait for auto business is doing okay, but intense our portal because we do not have enough to put that to support.

You know this budget allocations, so we're seeing pretty significant downtime in automobile.

[laughter] advertising for this particular sector on portal and that's what I just said to actually we have seen some of the bright spot is actually you know financial service and know what had been in a pretty much folks often issue vertical areas I mean for a war news and afford to a financial ATP and this so we also did not have a separate sales force for furniture service for the part of the business and as that sector actually is doing much better I mean compared to last year and we see that momentum also going very well, but the intense out the size of the business is just smaller much smaller than automobile business. So that it has potential but then.

And less important but you know on overall basis.

I've seen some of the downtrend for the portal a key areas for <unk> are the sectors.

And and the for the S. and me and this area would have particularly fishing challenge in a part of that because overall inventory is not significant if you look they look at a traffic our mobile news app versus our mobile portal and you see some of like increase although model.

Mobile APTP news.

And intensive traffic by the intense of.

Mobile photo we see a slight decrease so net net we're not we're increasing our inventory too much for our mobile news [laughter] and.

But if you look at the entire market demand and supply and you have another supplier in a mobile news app business.

Intense idle time inventory, so SMB into the scale and everything else is not really that a competitive in the market. So actually we see quite significant downtime in S. M E business sort of portal. So that actually is a overall I'm a summary, and tests at a business for portal and the intense oh products and I think that trend definitely I mean, nine this kind of market situation and our advertising.

Revenue trend, we obviously tried to control our costs much more tightly. So we have implemented a stringent cost control measures fall total and we'll continue to do so.

In that remaining of you maybe go into next year.

And so overall basis I think Oh, we're still going to have a scale dollar cost base for portal, but that was an exception that we might expand our investment in the furniture area and it's both areas. So these are two areas with the quite strong momentum intense I used the gross and then revenue gross.

These areas you are probably aware most <unk> Paul in terms of the overall gross but with the remaining of the problem areas will scale down a bit into so cost.

And with M&A strategies, and I think we'll be very cautious I mean on a seamless I wasn't quite cautious in terms of Oh M&A because this market is quite hard.

Quite unstable right now and so with a lot of you know ATP and Internet companies going out ways that is this like a go to market I mean do you.

Yeah, well, that's something that's very big or I mean, your investment just going to zero. So we'll be very cautious in this kind of market condition in terms of weibo will be most books.

The area that they'll have the ability to establish or enhance our ecosystem for the entire way, but in terms of content into the user base and intense advertising intense sina areas will probably will be more focused upon so that's the area. So we see the potential I could finish show and sports and also that there will be looking to some of the new areas that will potentially have some big kids like.

We have seen.

<unk> increased investment you know automobile autonomous driving company called two simple this quarter I in the second quarter by almost 90 million U.S. dollar, but believe this area. This company is a leading position in the world and that we see about the potential there. There's areas. We believe that that would get us more but oh, what other areas it will be more cautious.

Thank you Charles.

Thank you.

Thank you.

[noise].

Thank you.

I would now like to hand, the conference back to Mr., Andrew Jones for closing remarks.

Oh, okay.

The June quarter.

[laughter].

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you for participating you may all disconnect.