Weibo Corporation (NASDAQ:WB) Q1 2023 Earnings Call Transcript

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

Weibo Corporation beats earnings expectations. Reported EPS is $0.47, expectations were $0.43.

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

Sandra Zhang: Thank you, operator. Welcome to Weibo’s first quarter 2023 earnings conference call. Joining me today are our Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Fei Cao. The conference call is also being broadcasted on the Internet and is available through our IR website. Before the management remarks, I would like to read you the safe harbor statement in connection with today’s conference call. During today’s conference call, we may make forward-looking statements, statements that are not historical facts, including statements of our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements.

Weibo assumes no obligation to update forward-looking statements in this conference call and elsewhere. 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 today’s period. 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 self-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, while nonrecurring in nature, were 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’ll open the line for a brief Q&A session. With this, I would like to turn the call over to our CEO, Gaofei Wang.

Gaofei Wang: Thank you. Hello, everyone. Welcome to Weibo’s first quarter 2023 earnings conference call. Today, I’ll share with you highlighting Weibo’s user product and monetization in the first quarter of 2023. On the user front, Weibo’s MAUs reached 593 million and average DAUs reached 255 million, adding approximately 11 million and 3 million users year-over-year, respectively. In the first quarter, 95% of Weibo’s MAUs came from mobile. Our monetization, affected by the over peaked pandemic macro uncertainties and off season during the spring festival, the overall ad demand was still relatively low in the first quarter. Coupled with the high base broad by the 2022 Winter Olympics, our total revenues reached US$413.8 million in the first quarter, a decrease of 15% or 7% year-over-year on a constant currency basis.

Our total ad revenues reached US$355.3 million, of which 95% of our ad revenues came from mobile. Our non-ad revenues reached US$58.5 million, an increase of 2% year-over-year or 10% year-over-year on a constant currency basis. This year, we continue to focus on improving operating efficiency. And our non-GAAP operating income reached US$128.6 million, representing a non-GAAP operating margin of 31%. On a constant currency basis, our non-GAAP operating income has nearly returned to the same level versus last year which decreased to 1% year-over-year. In the past 3 years, due to the pandemic, user paid more attention to news-related hot topics which benefit Weibo’s user and traffic growth, with reopening, the ones that suppress travel and offline consumption demand has been released altogether and users’ consumption demand for content in vertical areas has increased accordingly.

Such changes in the market environment and user demand has brought certain challenges to our product operation strategy. In the first quarter, we quickly adapt to changes in user demand while maintaining investment in key content verticals. We focus more on the development of content verticals that have a strong user consumption needs with labels advantages of hot topic and KOL integration across verticals. We increased the content supply and diversity to make users’ consumption needs and boost user engagement. Next, let me share with you our progress made in product monetization in the first quarter. In 2023, our product strategy is to focus on user scale growth and improve operating efficiency to boost traffic growth and further strengthen platform competitive advantage.

On the China front, in terms of this use collaboration strategy with handset manufacturers, in addition to coverage of Weibo’s hot content in core positions of the handset, we will also further strengthen our position on a system level basis, with focus on driving the user scale and engagement of the mid- to high-end smartphone users. In the first quarter, leveraging manufacturer broad-bid user reach channel, we continue to optimize our product mechanism such as Push to efficiently strengthen our integration and report to Weibo’s topics and social content. As a result, the average DAU from the handset channel grew double digit year-over-year. On social attributes, I’ll introduce the highlights of product adjustments. In the first quarter last year, we adjusted social network product to improve user consumption efficiency and help users build more high-quality and real social relations.

In the first quarter of this year, we further upgraded the product mechanism and algorithms to incorporate user social relations and interest. And as a result, the distribution efficiency was largely increased for quality content. Now in the relationship-based feed, users not only can consume and interact with content generated by follower accounts but can also consume and interact with content based on users’ social network and build more relations. This product strategy has driven further growth in the per user views and engagement year-over-year around the relationship bases. We are also pleased to see stronger user intention to form new social relationships and interact on our platform with the number of new leadership viewed tripled year-over-year.

Also, around 70% of the incremental user interactions around the relationship — was generated through content of on-followed content creators. In particular, users were more willing to interact and follow with mid-tier KOLs. The product adjustment for relationship-based feed also play a positive will in promoting the content generation by KOL and the suitable development of content per system. In the second quarter, we will continue to optimize product and recommendation algorithms based on user engagement level and a focus on accounts in key verticals to help content creators to achieve higher social value and further stabilize Weibo’s core social competitiveness. On the content front, the consumption need for entertainment and lifestyle verticals were growing rapidly.

As user attention shift, the average daily traffic volume and the number of users who interact grew significantly year-over-year for key verticals, such as entertainment, digital and automobile in the first quarter. For the scheduled during the Spring Festival, such as the knockout and free body , etcetera, has improved the traffic trend of the entertainment sector, with the quarterly average traffic volume and the number of users were interrupted grew double digits compared with the same period last year. And the growth trend continues in the second quarter. For the automobile and digital verticals, as the off-line users consumption has improved, Weibo’s able to capture more ad budget leveraging our advantages in Hanshen and KOL marketing, even when the off-line consumption is still to recover.

In terms of other content verticals that also have high consumption needs, such as tourism and fashion and cosmetic verticals, we are also accelerating investment in product operations and improving the content ecosystem. On the one hand, for operations, we will leverage our platform’s advantages in cross-vertical KOLs integration and quickly enrich content for system for related verticals. On the other hand, the product will utilize recommendation and — traffic to distribute vertical hot trend and high-quality content to target users which strengthened the recovery of users’ mindset in key content verticals and encourage KOL’s willingness to generate content. For example, since March, there has been a significant increase in activities in entertainment and fashion verticals.

For example, the Beijing International Steam Festival and Luxury Brand Shows during the period. We have organized celebrities, makeup artists, stylists and KOLs in faster verticals and KOLs in humanities and art and popular science verticals to create content around fashion-related topics. As a result, in March, the effective views in fashion vertical and a number of users who interacted with related content increased double digits compared with December last year, with an ongoing growth trend in April and May. We believe with the strategy adjustment and our implementation during the first and second quarters, the traffic will increase significantly and the user consumption mindset will recover as well. On the top content creators in the first quarter, we completed the transaction to increase shareholding of Emi Show digital technology.

We upgraded the V-tech platform system and went online in April with a new evaluation mechanism for the top KOLs. The platform now shifts its evaluation mechanism for top content creators from traffic value-only to traffic plus social value, putting more emphasis on KOL’s capability to interact with spend and monetize on social assets. Upon the upgrade, we have screened top KOLs that have sound influence and high social value and will further reinforce our traffic operations and monetization mechanism in the next 1 and 2 quarters to promote a healthy KOL ecosystem. According to the data in May, the traffic and interruptions of top KOLs increased double digits compared to that in March. And the ad revenue from VTAC also resumed double-digit year-over-year growth since March.

Lastly, let me introduce the key application areas for AIPC technology on Weibo. Since last year, we have been exploring suitable scenarios for AITC and Weibo and have made solid progress on improving our product and operational efficiency recently. As we continue to collaborate with AITC partners, we plan to launch some tools in the second quarter to better assist the common creators in the content generation and to improve efficiency of creative ad solution. Some large model companies are also using Weibo’s open platform to provide users with relevant service. Going forward, we will keep a close eye on the development of AITC and explore new application area to create greater value for users and content creators. Next, let me share some color on the monetization front.

In 2023, leverages the gradual economic recovery post the pandemic. We are pleased to see some many verticals start to destock investment for future in the first half of the year, with accelerated paces in brand building, especially new product release versus last year. As such, our overall monetization strategy will continue to focus on enhancing the marketing combo which extended around media and celebrities, supported by KOL distribution across verticals, while entertained by traffic contact featuring strong exposure and mindset cultivation. In particular, we will beef up Weibo’s unique culture in IP and the new price launch offerings, aiming to earn recognition from more industries and customers and that further strengthen Weibo’s core competitiveness in the ad market.

Based on Weibo’s performance in the first quarter, our overall ad business exhibited gradual recovery trend month by month. To elaborate, due to pandemic and the high base of last year’s Winter Olympics, advertising revenues in January and February decreased year-over-year. However, since March, our revenues have already returned to a positive growth transitory on an annual basis. In terms of industry trends, we saw diversion trends among different sectors in the first quarter. For certain sectors such as automobile, handset and luxury products, we are encouraged to see that clients demonstrate strong confidence in 2023 and have picked up their investment in new product and branding. For example, in the automobile industry, the number of new car release at the Guangzhou and Shanghai International Auto Show in the first half of the year increased by 40% compared to the same period last year, leveraging Weibo’s differentiate the automotive new product launch model nearly 100% of the OEMs which add budget from new model launch in the first quarter, chose to cooperate deeply with Weibo for promotions.

And meanwhile, the first quarter was also a period of intensive release for luxury goods shows. With the number of luxury goods shows in a single quarter, reaching almost half of last year. Leveraging the hot trend effect around these shows, we achieved nearly 90% coverage of business cooperation which plants show in the first quarter. On the fleet side, certain industries were still in the course of gradual recovery, such as beauty and personal care sector, mainly due to 2 reasons. First, sometimes in the beauty and personal care industry has a relatively weak pipeline for new products due to industry competition strategy and their own business or headwinds. Secondly, intensified competition landscape of the advertising market across media platform also traffic recovery pace.

As such, our first priority is still too quickly restore our competitiveness in the receptive content ecosystem post the pandemic. Moreover, we will continue to amplify our monetization model, featuring hot trends and the new product marketing while empowering clients to achieve better long-term growth in the market. Entering into the second quarter, with further pickup in offline consumption, we expect to see a more meaningful recovery in the demand side of the advertising market, driven by ongoing recovery of various consumer market. Also, there will — there still be a diversion trends among different industries. In light of such trend, we will actively embrace the market opportunities brought by the June 18’s Mega Shopping Festival. Leveraging our positioning as a lean social media platform, we will amplify Weibo’s differentiated competitive edge in the hotter and in content marketing in the host of capturing incremental ad wallet gradually released into the market.

With that, let me turn the call over to Fei Cao for a financial review.

Fei Cao: Thank you, Gaofei and hello. Welcome to Weibo’s first quarter 2023 earnings conference call. Let’s start within the metrics. In March 2023, Weibo’s MAUs and average daily use reached 193 million and 255 million, respectively, representing a net addition of 11 million users and 30 million user on a year-on-year basis, with ongoing execution of a disciplined China investment strategy. Turning to financials; as the remainder, with focus on non-GAAP results, are in U.S. dollar terms and both comparisons are on a year-over-year basis, unless otherwise noted. Now let me move you through our financial highlights for the first quarter 2023. Weibo’s first quarter 2023 net revenue were $413.8 million, a decrease of 15% or 7% on a currency basis.

Operating income was $128.6 million, representing an operating margin of 31%. Net income attributable to Weibo reached $511.2 million , representing a net margin of 27%. Diluted EPS was $0.47 compared to $0.56 last year. Let me give you more highlight on the first quarter 2023 revenue performance. Weibo’s advertising and marketing revenues for the first quarter 2023 were , a decrease of 17% or 9% on a constant currency basis, reflecting conservative average immediately opening as well as factor compared with first quarter last year with Winter Olympics-related ad revenues. Mobile ad revenues were $336.4 million , contributing approximately 95% of total ad revenues to industry. Our for 3 verticals through FMCG, products and e-commerce in terms of likely to be solid growth in currency and all the mobile sector underpinned by tailwind of an event for product launched as well as strong sales execution in this rental industry.

Customers in this sector increased our total spectrum of social as combo to build marketing hack and reap high-value users of strong transaction power, our lines on vertical FMCG continued on descending trend, again half off of these and other things last year, coupled with relatively conservative ad that offset in the early stage of the opening the ad product; was the largest, followed by social ad and — search. We continue to diversify our ad inventory and pick up our inter-social marketing offering to jump for further in the hope of better monetizing our traffic rigor. Ad revenues from Alibaba for the first quarter were $18.3 million, a decrease of 30% or 23% on a constant currency basis, primarily attributable to its own conservative marketing strategy amid reopening and subdued shopping factuals in event e-commerce business.

Before , let me share some preliminary color on the trend and during the second quarter. On the upside, citing market has been working up with many sectors rebased since the second quarter last year. Leveraging normalization in offline activities and gradient gradual consent on pick up, our team will beef up sale execution and work relentlessly to capture inhabit during e-commerce strong excess in the second quarter. That said, a full recovery of content and assessment in certain discretionary categories, making it more drawn off; upon the aftermath of pandemic winning on consumer confidence. In light of a volatile macro landscape, we are closely monitoring opportunities in those relative based on these factors, we benefit from secular growth tailwind and strong new product type land, just like mobile and handset factors, while tailoring our company marketing offering to fulfill customer and brand/performance campaign goals.

Leveraging our full spectrum of social ad offerings, we remain confident in our monetization opportunities. That’s our unique optimization and a diversified omni ecosystem will unlock. Value-added service, VAS revenues were $58.7 million in the first quarter, an increase of 2% or 10% on basis use. The increase of VAS revenue was mainly attributable to repayment for revenue from e-commerce business. Turning to cost and expenses; total cost and expenses for gross volume was $285.2 million, a decrease of 17%, demonstrating ongoing execution of our efficiency initiatives. The decrease was mainly attributable to lower personnel-related costs and the business in the channel investment. As well into 2023, we have a work with a more focused team and a linear cost structure, positioning us a rise path to operating earnings growth.

Operating income in the first quarter was $128.6 million, representing operating margin of 31% compared to 27% in the same period last year. Turning to income tax and the tax liability. Income tax result for the first quarter was $21.9 million compared to $11.7 million last year. The increase was primarily resulting from changes in deferred tax liabilities related to variable change on certain investments. Net income attributable to labor in the first quarter was $111.2 million , representing a net margin of 27%, flat compared to last year. Turning to our balance sheet and as of March 31, 2023. We will increases and short-term investments from the $278 million in the first quarter. Tax provided $180.6 million. Capital expenditures totaled $18.2 million amounted to $15.4 million.

Before turning to the — I would like to bear on color on our newly announced time for dividend — our healthy profitability and a strong balance sheet, we are pleased to announce that our Board of Directors has approved a total cash dividend of US$85 flat ordinary share of VDX for our shareholders. The averaging amount of the dividend will be approximately US$200 million, with an expected to be made on late July. Looking ahead, we will continue to embrace long-term growth opportunities while focusing our financial business, with commitment to returning value to shareholders and offering market confidence besides. I would also like to provide an update on our ESG initiatives. In April, we released our second ESG report, outlining the company’s progress and performance in ESG areas for fiscal year 2022.

These initiatives described in the report speak to our long-standing commitment to sustainable divestments, target impact users, content creators and belief. Business partners and other stakeholders were dedicated as to the region of making the world a better place with the power of Weibo. As part of that reason, the company’s 2022 ESG Report showcases our efforts in various areas set as and private taxes company policy operation, just to name a few. Looking ahead, we will continue to optimize our ESG development and broader integrate the ESG nations across our daily operations in the hope of creating value for shareholders and work for a sustainable future better with Weibo’s community. You may visit our IR website to obtain more information of our ESG disclosure.

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

Q&A Session

Operator: First question is from the line of Miranda Zhuang from Bank of America Securities.

Unidentified Analyst: My question is about AITC. Can you elaborate more on your plan for the AITC area? What would be the main applications? And what are your product clients?

Gaofei Wang: Yes, thank you for your question. So first of all, as a social media platform, we are looking at our competitors, especially among our users and also in terms of commercialization, two kind. One is actually a sort of platform like Weixin. And also another one is like those and also has those kind of recommended base in social media platforms. So of course, in Weibo, we confronted actually 2 kinds of a crisis. One is, of course, the content creator of media or by the media. Another one is the media that are having a very strong personality. Got it. So First of all, in terms of application of AIGC, we have 2 areas. And one is that our platform, we have a lot of top-notch with media. And also, we are going to help them to enhance their efficiency of creating more personalized and also individualized content.

So by having a fine-tuning our big models, we are able to help them to leverage this capability to enhance the efficiency of the content creation and generation. And also, second of all, it is going to help us to optimize and also help those long-tail accounts to have a better creation of content. So now on our platform and on Weibo, we have actually those top-notch accounts that are having a very strong capability in doing so. But actually, it is relatively weaker for those medium level and also the long-tail accounts. So by applying AIGC very effectively, this is going to be enhanced. So that — let me talk to you about the application. So nowadays, given the strength of the total AIGC capabilities, it is not easy for us to say that it is going to actually replace the top notch We media.

So let me talk to you about some of the trials and also applications. So before the mid of 2022, last year, we were primarily adopting the GPT-3 model. So it was not as capable as to mitigate and also mitigate or simulate the interactions with the users. So we use the GPT-3 model back then for the purpose of learn and also trying to keep up with the surge in solutions in terms of the anti-internet devices, etcetera, so that we’re going to enhance operation of the Internet-based business. And also, second of all, starting from the second half of last year and also the beginning of this year, we are using more across the model of GPT and also the other AIGC relative models. So it is now able for us to actually stimulate the personnel-based interactions but actually, it is not able to generate the user content by its own.

So the AIGC is primarily used as assistance for those top-notch creators. And also we are starting already this particular campaign since Q2 of this year. And also, in the next 1 or 2 years of time, with the advancements of these AIGC models and also the models as a whole, we believe that it is able for us to use to generate the content replacing those original content generated by the mid-level content creators. But actually, for those top-notch kind of increases which have a very strong personality, I still believe that it’s challenging for us to use the model to place the content creation process. So overall speaking, I believe that AIGC and also the rates of technologies are very good to be used to really enrich the concern created on our ecosystem and platform and also enhance our competitive edge as a whole.

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

Operator: I will now take our next question. This is from the line of Alicia Yap from Citigroup.

Alicia Yap: Management, can you hear me okay?

Gaofei Wang: Yes.

Fei Cao: Yes.

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

Gaofei Wang: Thank you for this question. So as we have stated in the script that we have already seen that in Q1, the kind of recovery and also the growth trend of the advertisement industry and our company is actually pretty much weak due to the post COVID and in the release of the restricted policies as well as the weak season or low season in the spring festival season. And also in Q2, as we have already stated, after March, we have been seeing that the growth of the advertisement business has been on the positive track but still the growth rate wise, is still smaller than the same period of our last financial results of the same period. So second of all, in terms of the industrial verticals, now we have seen, for example, 3 Cs and headsets as well as the automotive industries.

So after March, it would be seen actually a recovery trend in terms of our investment into the consumption market. So for some of these industries, although we’ve been seeing some of the decline on their sales — still there is a trend of the consumption upgrade or the competitive edge or competitive market upgrade as well. So for the industry of handsets and 3C digital products as well as automotive, we’ve been seeing a double-digit growth in Q1 for this diverse and business. And also after March, we’ve been seeing that — especially in March, we’ve been seeing over 40% of the growth in this area. And also in terms of the handsets, we do see the kind of a lot of product launch and new product launch were happening in Q1. Previously, we already said that it is becoming longer and longer in terms of the mobile phone or smartphone switch cycle.

However, still for most of those handset manufacturers, they’re still thinking about launching those new products with a lot of technologies inside in Q1 in order to enhance the ARPU value of their users. So Weibo is actually must choose platform for them to collaborate with. And also, next one is that for the automotive market. So now we’ve been seeing a further ramping of the electrification and also as a new energy vehicle to selected advertisement platform. Weibo had years of experience in terms of the content creation and also the content ecosystem for the automotive market. So actually, we are also a necessary choice among the automakers. So in Q2, on an overall basis, we believe that it is going to enjoy a much quicker growth which is out of our expectation, I mean, as especially surpass the budget that we made in the beginning of the year.

And in March for some of the other industries, we’ve been seeing some of them actually are back on a positive trend or some of the other verticals are going to recover their growth since Q2. But actually, for some of the other industries that I’m going to talk to you about later, there has been actually a weaker growth rate than the same period previously. So for instance, for the e-commerce vertical, so for some of the key accounts that they have been adjusting their managing strategies and especially their competitive strategies as well as their customer structures. So for this, as always, again, we wanted to actually seize the big opportunities, for instance, the June 18th Shopping Festival or the e-commerce are a big opportunity. So we do actually have seen a lot of order and also placement of the ad budget in this June the 18th of this year, way higher than that of last year.

But still, it is still weaker than the previous quarters for the e-commerce business. And also, turning to the vertical of FMCG and then in same specific, we are talking about the cosmetics and also personal care products. So you can see that in Q1, they had actually a very weak performance due to 2 reasons. The first one was that in — since the December of last year, during COVID, still we were not releasing the restrictive policies in China. So last year, in December, those advertisers in this big industry were making the budget for the new year. So they were actually on tending to be very conservative for the new year of 2023. And also second reason was that for the past 3 years, we had a COVID impact and pretty much. And also, you can see that the FMCG industry or the cosmetic and also personal care industry is still in the cycle of consuming their existing inventory.

So still take time for them to actually not fully recover the new user purchase of the products. And also, next I would like to say is that, especially for all the customers in this area, they’re having a very conservative fashion in making their budget. And specifically, we’re talking about the new product launch plans. So actually, this FMCG industry is actually much weaker than the other industries in terms of the planning of the new product launch. And also, of course, we’ve been seeing certain recovery during June 18th festival. But still, the recovery speed is actually way lower than the expectation in the beginning of the year. So the reason for us to have an overall kind of a slower growth for our total business of advertisement is because that we have a very high percentage of the FMCG advertisement business accounted for the whole advertisement business.

Okay. So finally, I would like to say that Weibo is a platform that is actually having everything ready or everything in place and covering almost all the areas, including the text and images, that sort of videos. So actually, we are a quite diverse and also widely covered platform. So in terms of the total nature of this ability, we are having actually a much better positioning than the other platforms. So in terms of the development of our budget, so it is pretty much subject to the new product launch of our external customers as well as their investment strength and also mindset into the branding activities. So for instance, if for some of the verticals, they have actually a much diverse plan on their new product launch and also pretty much intensive investment on the branding activities, we are going to enhance our competitiveness in those verticals.

However — and also, for instance, in the handset and also e-commerce and also automotive verticals, Weibo has years of experience in accumulating the content and created a very good content ecosystem. So that is to say, we gain a bigger advantage than the other platforms in this area in terms of the diversity of the content. However, in terms of the off-line consumption-related areas like the cosmetics or the beauty product, the sort of personal care or fashion, we’ve been actually performing like pretty much weak in this area. And also this market is something that we have to further strengthen in the future. So previously, in the past, most of our traffic or majority of our traffic were driven from the entertainment and also cultural industry, etcetera but not that much from the off-line consumption.

So this year, our strategy is that further, we have to strengthen our ability in capturing those opportunities in the off-line consumption market, for example, travel, food and cosmetics and beauty products, etcetera, to further gain momentum. And also, second of all, our strategy is focusing on the application of integrated marketing strategies so that we are going to further enhance our competitive edge by doing that. Thank you.

Operator: We’ll now take our next question. This is from the line of Thomas Chong from Jefferies.

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

Gaofei Wang: So I will answer the first question and the second question will be addressed by Fei Cao. So, first of all — and as we have already said in the prepared remarks that in Q1, on the overall cost and expenses, we have been having a reduction of 17%. And also in Q1 of this year, we already said that since Q4 of last year, we’ve been having the strategies and making the reorganization — or restructuring of our organization structure. So that all uncertain kind of a business. So in terms of the kind of the impact to the overall margin and also profitability, we are going to see the value by doing that things this year. And also, second is that we have already mentioned that we have a strategy of a general user acquisition focusing on that and also further having the ROI related to channel user acquisition as an appraisal indicator.

So of course, in Q1, we’d be experiencing certain tiredness in terms of the smartphone, for instance, the reduction of the sales of the assets. So in terms of the marketing cost, originally, actually, we plan that we might have actually an increase in terms of this particular area. But still, I think that this is due to the decreased sales of the headset. In this marketing-related cost, we’re going to keep a flat performance versus last year. And also, overall speaking, in terms of the margin, we expect to have a very stable development and also with a little bit increase in terms of the margin of this year. And also since Q2, because we have now fully reopened market after COVID, so we expect to have more organizations of the offline activities.

So, this kind of expenses related to the organization of off-line activities are expected to having a growth. So for the rest of the quarters, we expect to have the increase on the overall profit and margin.

Fei Cao: Okay. Thank you for the question. This is Fei. Let me add some color on the margin. So most of our marketing spending, including channel investment ; so it’s all flexible. We could always monitor store dynamic adjustments. As Gaofei mentioned, we have successfully implemented a series of cost reduction and efficiency enhancement initiatives last year and resulting in a more focused team and the leaner cost structure. We will continue initiatives this year, we lower our primarily challenged is to retire our topline growth in the second half. Let’s assure our focus on margins remain area you can see that our margin has consistently maintained at a higher level within the industry. So, regarding your second question; the type of allocation and the usage of cash.

Generally, they follow several basic principles in use of cash. For us, the most important of all is to support the organic growth of our business as well as the new business model, such as our social e-commerce and the new product. The second revenue cash is to invest through M&A within the industry. And third, in addition to investing in our own business divestments and applications, we will consider to return excess cash to shareholders, either by share buyback or cash dividend. Regarding the announced special tax business program, this program demonstrates our commitment to delivering share value and our confidence for long-term development. This commitment is supported by our consistent track record and relatively ability to generate operating cash flow.

We would like to share our floor admiration behind with our advertised long-term competitiveness and financial liability, driving to enhance shareholder returns within this framework. As mentioned, we will have achieved a sustainable profitability and possess a robust ability of generating operating tax flows. We ensure that we maintain distribution and continue to generate sufficient free cash flow to support operating of care. Our commitment can help the financial condition enables us to navigate market as service and pursue active opportunities while regarding our shareholder interest. Looking ahead, we will continue to explore various ways to reward our investors, including dividend payout and in stock repurchases; these labor will be carefully considered and land with our progressive and subject to our product call.

Lately , we indicated the delivery of general value to our shareholders and maximizing the return. Hope I have answered your questions. Thank you.

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

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

Operator: Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.