Weibo Corporation (NASDAQ:WB) Q2 2023 Earnings Call Transcript

Weibo Corporation (NASDAQ:WB) Q2 2023 Earnings Call Transcript August 24, 2023

Weibo Corporation beats earnings expectations. Reported EPS is $0.53, expectations were $0.47.

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

Sandra Zhang: Thank you, operator. Welcome to Weibo’s second 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 Weibo’s 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 statement involve inherent risks and uncertainties. A number of important factors could cause actual result to differ materially from those contained in any forward-looking statement.

Weibo assumes no obligation to update forward-looking statement 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 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 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 expect to result in future cash payments, while are nonrecurring in nature or not indicative of our core operating results and outlook.

Please refer to our press release for more information about our non-GAAP measures. Following management 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 and welcome to Weibo’s second quarter 2023 earnings conference call. On today’s call, I will share with you highlights on Weibo’s user, product and monetization in the second quarter of 2023. On the user front, Weibo’s MAUs reached 599 million and average DAUs reached 258 million in June 2023, adding approximately 17 million and 5 million users year-over-year, respectively. In June, 95% of Weibo’s MAUs came from mobile. Our monetization, leveraging for the pickup of offline consumption and events in the second quarter, we are pleased to see our ad revenues returning to the growth track trajectory, with a broad-based recovery on the advertising side. In the second quarter, our total revenues reached $440.2 million, a decrease of 2% or an increase of 5% year-over-year on constant currency basis.

Our ad revenues reached $385.7 million, flattish year-over-year or an increase of 7% year-over-year on a constant currency basis. 94% of our ad revenues came from mobile. Our non-gap operating income reached $153.8 million, representing a non-gap operating margin of 35%, thanks to the solid execution of our efficiency initiative over the first half of this year. While anticipating the post-pandemic challenges generated from a shift in user interest and differentiated progress in ad demand recovery across various sectors in the first half this year, we adjusted our operational strategy in the first quarter. We shift our operation focus from pandemic-related hot topics over the past three years through the traffic recovery of vertical content, as well as cultivation of users’ mindset.

In the second quarter, we focused on improving operating efficiency of hot trends, as well as entertainment and consumption-related verticals in the second quarter, which further enhanced the user engagement this quarter. Next, let me share with you our progress made in product and monetization in the second quarter. On the channel front, our focus this year is to improve user acquisition capabilities through channels and boost our user scale and engagement, despite the fact that recovery of the handset shipment in the first half of this year is below our expectations. We continued to improve the efficiency of Weibo’s hot trends and social product over the core positions of handset devices in the second quarter, collaborated with manufacturers to improve targeted reach to high-quality users, optimize push mechanism and content consumption experience and improve retention of users acquired through channels.

In the second quarter, the number of average DAUs from handsets which we collaborated with increased 40% from the first quarter. On social attributes, let me share with you the key progress we made in our products. In the first quarter last year, we adjusted the structure of social product and reinforced the content distribution based on the social behaviors of user social networks in a relationship-based feed. On the one hand, we enhanced distribution of super-topic content in relationship-based feed to improve social stickiness of users and help the user build up high-quality and real social relationship for an extended social network. On the other hand, we refined distribution mechanism to boost the traffic for content and accounts from key verticals in the relationship-based feed, giving users increased demand for content consumption on interest-based content verticals.

All these efforts were made to improve Weibo’s competitiveness in the interest-based content verticals post-pandemic. In the second quarter, the scale of content consumption per user in the relationship-based feed grew double-digit in June from last December. Users consumption in interest-based content verticals further grew as well. We will continue to implement these efforts in the second half of this year by leveraging the seasonality during the summer holiday in the third quarter. We will set up a better distribution mechanism to boost traffic for vertical contents and KOLs and speed up the traffic recovery for the interest-based content verticals. On content ecosystem, we increased our investment in vertical content this year for Weibo’s advantages vertical such as entertainment, online gaming and anime, the traffic and user engagement exhibited a significant year-over-year growth in the second quarter, which benefited from the recovery of market environment and our continuous effort in improving operating efficiency.

As a result, Weibo’s overall traffic and engagement grew rapidly. To elaborate, for entertainment vertical, we leveraged offline activities such as entertainment, galas, concerts and film promotion event in the second quarter to speed up vertical traffic recovery. We expand cooperation with celebrity agent and IP producers and generally more content and discussion around celebrities and entertainment-related hot topics. In the first half of this year, both the traffic and user engagement for the entertainment vertical grew over 20% year-over-year. The online gaming e-sports and anime verticals also delivered similar growth rate during this period. In particular, for the e-sports vertical, we focus on e-sport events over the past few years and strengthened cooperation with major e-sport clubs.

In the first half this year, the average daily traffic and the number of engaged users of this vertical grew significantly on a year-over-year basis, with over 50% growth for traffic, 40% growth for the number of engaged users and over 100% growth for the user engagement. For the anime vertical, we grasped market opportunity in the second quarter and doubled it, encouraged many global anime outage to verify their accounts on Weibo, which in turn quickly attracted sense and promoted consumption from ACG users on Weibo. The number of engaged users for the anime office community exhibited a year-over-year growth of 15% in the second quarter, which helped to increase the usage of Weibo among users interest in anime. As offline e-sport events and anime activities resume, we will continue to increase our investment in the ACG vertical of Weibo, help our partners within the ecosystem to enhance their influence and commercial value, cultivate users’ mindset and improve Weibo’s capability in acquiring and engaging young generation users.

Over the past three years, some professional verticals such as automobile, digital product and health care verticals have been strengthened. These verticals are more easily monetized despite having land traffic scale than entertainment and ACG verticals. We have also created a more comprehensive and healthy accounting ecosystem in the past three years. Our customers are willing to further explore, create value and achieve win-win situation with us in terms of content and marketing. With the recovery of industries and consumption, the traffic revenues generated from these verticals booked year-over-year growth in the second quarter. However, for the FMCG verticals, which used to be heavily consumed by our users such as cosmetics and food verticals.

The company ecosystem has been facing challenges over the past three years due to disruption from the pandemic and external competition. We anticipate the resumption of these verticals will take time as we are exploring differentiated, operational strategy to reconstruct our company ecosystem, aiming to offer better support for the end market for these sectors. For our top content creators, in the first quarter, we have completed the transaction to increase shareholding of Emi Show digital technology. We revamped the V-tech platform system together and completed various upgrades of our functions. In the second quarter, the platform selected more top KOLs with higher influence and social value and offer support to them in terms of traffic, operation and monetization aiming to build a healthier ecosystem for that.

As a result, the traffic and the number of engaged users of top KOLs booked double-digit growth in June versus March and the corresponding revenues from V-tech grew over 50% year-over-year in the second quarter. By improving the operating efficiency of top content creators, we have created a more favorable monetization environment for them, further driving the continuous and healthy development of Weibo’s content ecosystem. Next, let me share some color on the monetization front. In the second quarter, we are encouraged to see that most industries have demonstrated solid recovery trend and returning to the growth trajectory, underpinned by a notable pickup in ad demand side, leveraging resumption of off-line activities, as well as pent-up travel and consumption demand during May Day holiday and the June 18th e-commerce event.

We continue to reinforce our advantages in hot trend IP and new product launch, enabling brands to build market hype and earn recognition from users more efficiently. In the process, coupled with our targeted marketing reach, brands have established ongoing communication with consumers; thereby further cultivated consumers’ mindset. This marketing combo has resonated greatly with numerous industries and clients after being introduced to the market. From industry perspective, clients from the automobile and digital product sectors have already been highly recognized Weibo’s strength in hot trends marketing. Therefore, partnership between Weibo and these clients have entered a more advanced stage with both side not only collaborating extensively advertising, but also enacting more resources in talent integration and content cooperation.

Leveraging subsidiaries from the content and marketing front, Weibo has become a must-have platform for customers’ new product launches with those virtual cycle works around our organic and monetization ecosystem. In addition, we will also strengthen its capability to capture a wallet entry routine sales phase post the product launch, leveraging enrich the marketing scenarios by building a more influential IP and co-creating hot chat with clients. Driven by such synergies, the automobile and digital product sectors continue to deliver a decent revenue growth rate in the second quarter. For instance, as major handset manufacturers were heavily promoting their photography features in the second quarter, Weibo launched the Weibo Mobile Photography year event, aiming to create high-quality photography IP and uncover these compelling stories from users.

By far, Vivo and others have already signed up for the event. Apple and Huawei have also expressed their intent to collaborate. Through this event, Weibo and handset manufacturers are working together to influence users’ perception of mobile photography and shape consumer mindset, thereby promoting the long-term growth of the handset industry. As for the luxury sector, benefiting from increased marketing budget of clients and a rebound of the entertainment sector, we leverage sustainability and hot effect of off-line entertainment and fashion events in the second quarter, resulting in a rapid year-over-year growth in the revenue from the luxury sector. For sector such as entertainment, apparel, healthcare, as well as tourism as pandemic really exceeded the pent-up consumer demand for off-line consumption was unleashed in the second quarter.

Clients in this sectors aim to drive off-line sales through beefing up online brand promotion in view of such marketing goals, Weibo effectively cultivated and strengthened users’ mindset through content ecosystem of operation and hot trends in these sectors, leading to ongoing improvement in client recognition. Weibo does these opportunities and capabilities to capture higher ad wallet in these sectors. For instance, in terms of the health care sector, we deepened engagement of professional media and doctors on Weibo and thus enhanced our capability in operating on topics related to health care. As a result, the traffic of healthcare vertical grew nearly 30% in the first half of this year, leading to over 30% year-over-year revenue growth for the sector in the second quarter.

Medical service platform such as [indiscernible] medicine delivery APP and JD Health focus on placing at under the health care hot topics which facilitated them to communicate with the target users on health-related concerns, resulting in elevated brand awareness and better recognition from clients. We are encouraged to see ad revenue from medical platform more than doubled in the first half of this year. On the flip side, the cosmetic, personal care and online gaming sector continued to show slower-than-expected recovery pace, dragging the overall growth of our ad revenue during the second quarter. To elaborate some of the top multi-national clients in the cosmetic and personal care sector faced the headwinds from their old business operation and intensified competition in marketing and thus slow down their pace of new product launch.

Due to such headwinds, it might take additional time for revenue from this sector to return to positive growth. As for the online gaming industry, we are encouraged to see higher number of new games released after the resumption of game license approval in the second quarter, with more mid-tier games and new game setting up their marketing cooperation with Weibo. However, due to the strategic adjustment from key gaming online gaming clients and marketing margin reduction amid cost-cutting trends, the overall revenues from online gaming industries continued on the same trend in the second quarter, nevertheless with normalizing gaming license issuance as well as a greater trend towards premium game clients, focusing on content marketing will continue to beef up our competitive edge around Weibo’s gaming ecosystem and facilitate the long-term growth of our clients, leveraging the strength of hot trends and new product marketing offerings.

Hopefully, we would expect to see a more meaningful recovery of ad volume in online gaming sector in the third quarter. With that, let me turn the call over to Fei Cao for a financial review.

Fei Cao: Thank you, Gaofei, and hello, everyone. Welcome to Weibo’s second quarter 2023 earnings conference call, let’s start with business metrics. In June 2023, Weibo’s MAUs and average DAUs reached 599 million and 258 million respectively, representing a net addition of 17 million and 5 million users on a year-over-year basis. We are pleased with the user book trend and lead ongoing execution of a disciplined channel divestment strategy. Turning to financials, as a reminder, my prepared remarks will focus on non-GAAP results. All amounts are in U.S. dollar terms and all comparisons are on a year-on-year basis unless otherwise noted. We experienced headwinds to our financials due to the volatility of foreign exchange rates this quarter, still our business primarily operates in China.

While we report our financials in U.S. dollars, our dynamic performance was affected by adverse currency movement. Now let’s go through our financial highlights for the second quarter 2023. Weibo’s second quarter 2023 net revenues were $440.2 million, a decrease of 2% or an increase of 5% on a constant currency basis. Operating income was $153.8 million, representing operating margin of 35%. Net income attributable to Weibo reached $126.4 million, up 15% or 23% on constant currency basis, represents a net margin of 29%. Diluted EPS was $0.53 compared to $0.46 last year. Let me give you more color on the second quarter 2023 revenue performance. Weibo’s advertising and marketing revenues for the second quarter 2023 was $385.7 million, flattish or up 7% on a constant currency basis, with advertising business improving month-over-month.

Mobile ad revenue was [$363 million], contributing approximately 94% of total ad revenue to industry. In terms of growth, we are glad to see a solid growth trajectory of automobile, handset and e-commerce sector as the top largest contributor to ad orders increase. For automobile and handset sector, Weibo has targeted customers with strong demand of building market cap and brand premium certain end customers from new electronic vehicle sector and handset manufacturers with high-end product launch. Weibo’s brand plus performance social ad offerings resonated greatly with these customers and help them target high-value users with respect to e-commerce and again their competitive landscape. Our sales team executed well in capturing higher advantage from comprehensive e-commerce platform such as Alibaba, as well as having incubated from other key market players to ask for that, promoting feedback was the largest, followed by social display and target and search.

Ad revenues from Alibaba for the second quarter was $26.8 million, an increase of 13% or 21% on a constant currency basis. At Alibaba, we accelerated its advantage to capture opportunities, growth — with growth coming from traffic ad growth post reopening, as well as solidify its competitive moat. Before turning to that segment, let me share some preliminary — on the chat and during the second half of 2023. On asset, advertising market has been bottoming off month-by-month during second quarter, with manufacturers already returning to growth trajectory. We view our tailwind from policy stimulus [indiscernible] and gradual consumption recovery. Our team will leap up sales execution and work relentlessly to capture and advantage relating to the market in the second half.

With momentum of new product launch picking up, we have stopped exploring market opportunities and flip buying our — efficiently, leveraging our differentiated social ad network, given that over half of advertising revenue is generated from consumption sector, a full recovery of consumption sentiment exactly in certain discretionary headwinds [indiscernible] of macro economy recovery which may be more than enough as expected before policy [indiscernible] translating into consumption and failure. Value-added service, value-added service revenue was $54.6 million in the second quarter, a decrease of 16% or 10% on a constant currency basis. The decrease was mainly due to the recognition of one-time technical service fee in the same period last year and less revenue contribution from membership service.

Turning to costs and expenses, total costs and expenses for the second quarter was $286.4 million, a decrease of 6%. Operating income in the second quarter increased 6% to $153.8 million, representing operating margin of 35% compared to 32% in the same period last year. Turning to income tax, under GAAP measures, income tax expense for the second quarter were $25.5 million, compared to $17.5 million last year. Net income attributable to Weibo in the second quarter increased 15% to 23% on a constant currency basis to $126.4 million, representing a net margin of 29% compared to 24% in the same period last year. That’s from our focusing and a leaner cost structure, Weibo again delivered earnings growth outpacing the top line, demonstrating our ongoing execution of our efficiency initiatives.

Turning to our balance sheet and cash flow items as of June 30th, 2023, Weibo’s cash, cash equivalents and short-term investments totaled [$2.83 billion] in the second quarter. Cash provided by operating activities was $142.5 million, capital expenditures totaled $3.3 million and depreciation and amortization expenses amounted to $14.5 million. Before turning to the Q&A session, we are pleased to announce that we have completed the distribution of special dividend of $0.85 per ordinary share or ADS to our shareholders with aggregate amount of $200 million. Looking ahead, we will continue to embrace long-term growth opportunities, while focusing on financial discipline with commitment to returning value to our shareholders. With that, let me now turn the call over to the operator for Q&A session.

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Q&A Session

Operator: Thank you, dear participants. [Operator Instructions] Now we’re going to take our first question and the question comes from the line of Timothy Zhao from Goldman Sachs.

Timothy Zhao : My question is regarding the outlook into the second half of this year. Could management share any color on spending trend in July and August to date? And how should we think about the ad revenue growth in the third quarter and fourth quarter this year? And we’ve seen the verticals that Weibo has, is there any specific verticals that we are going to see very strong recovery into the second half?

Gaofei Wang : So first of all, in terms of Q2, we had actually maintained a positive growth year-on-year basis. So we had a 13% growth quarter-by-quarter and 7% growth year-on-year. So this was much better than before. And also, first, there are several reasons. First of all is that the May Day holiday came and also you can see that we had more revenues from the verticals like the consumption and also the people’s travel as well. And also the 6/18th as the — one of the biggest e-commerce events taken place after the COVID, we have seen more placement and also the budget from the e-commerce sector as well. So these are all given us the boost. And also turning to the July and also August, we have already finished our performance in July.

So the growth rate has been a little bit down compared with that of the June because that was still associated with the macro economy and also the consumption-related performance because 2/3 of our verticals are pretty much related to consumption. And also in August, we’re going to have a better recovery pace than that of July. So overall speaking, we have the confidence of the recovery pace of the whole second half of the year, but still we have to keep an eye on the macroeconomic developments of China. And also further I’ve seen for the overall second half of this year in terms of the verticals. So first of all, I would like to talk to you about supply, which is all about traffic. So in July and also August, we have seen a very, very good recovery in terms of the entertainment culture as well.

And of course, talking about the overall kind of a track recovery, this is already better than the period during the COVID. And still, we’re having a very good recovery on — but still we have to focus on the vertical traffic and hot topics and how trends, as well as the whole vertical of culture and entertainment. So still, we have our strategies that are going to be laser focused on certain verticals, for instance, we would like to increase the budget spending by the verticals like automobiles and handsets as well as the gaming as well. And also still, we have experienced some of the headwinds from the verticals like the food and the travel as well due to the COVID situation and also the severe competition in the past, we have seen a decline of the percentage of the traffic contribution from these verticals.

However, still in the second half of the year, we have to further give more traffic support to the verticals like the food and travel in order for them to develop. And also — so as for the travel, for instance, we have been regaining the activity of travel with Weibo, which has been stopped for about 3 year during the past COVID period. So this year, so when we are regaining this particular campaign or travel with Weibo as an event, we’ve been seeing the total number of participants exceeding 9 million and also the total number of hot topics exceeding billions or tens of billions. So these are all going to help us to have a very good recovery. And also, I’d like to share with you some of the colors of those different verticals as our customers.

So we have many different verticals. So I would just like to give you some of the representative points. So first 2 are the handsets, as well as the automotives. So in the second quarter, we’ve been having a year-on-year growth of 20% for handsets industry and also 40% for the automotive verticals. So that was pretty much related still to the sales trend of these 2 verticals. But still, there are some of the updates and still the sales of these 2 verticals are fluctuated, but still we do see some of the new highlights and some of the events happening for these 2 verticals. For instance, there is a switch between the — from the ICE vehicles to the electric vehicles and now the electric vehicles are accounting for about 50% of our sources of the advertisement revenue.

And also in the first half of the year, we have been seeing a kind of a launch or a promotion of a lot of new products of the handset industries. But still, in the second half of the year, we have to be aware that there might be more new products or new headphones or smart phones that are going to be launched by those plants, especially from Huawei or Apple, it’s the same trend. So we are going to experience a pretty much good trend and good growth for the handset industry in the second half of the year. And also still we have to be aware that for the automotive industry in the first half of the year, we had difficulties, you’ve seen the budget especially from the ICE vehicles because of their poor sales. They’ve been having a slowdown trend of the placement of new products of ICE vehicles because of the sales.

So you can see that we have to have a strategy to focus on development of the automotive and also the handset industries to actually change our strategies accordingly. And also, we have other kind of verticals as our customers that are growing pretty much beautifully. For instance, in Q2, we had over 20% of the growth witnessed for the vertical like culture and entertainment, luxurious products and health care, as well as the tourism and travel. So in the second half, we’re confident that without any accidents of happening, we’re going to having confidence of seeing the continuous momentum. And also next to the gaming and also the cosmetics and personal care for instance, we’ve been seeing a very — partly the case of the new product launch in the first half of the year and also most of those brands in these 2 verticals are involved or engaged in the price war.

So we have still some of the pressures in gaining the budgeting from these 2 verticals. We have been seeing a slight recovery of the beauty and personal care and cosmetics industry in the 18th of June of events. But still this particular recovery trend or recovery pace was still lower than our expectation. So in the second half of the year, still there are some of the headwinds of committing, so we still have to be pre cautious over the recovery pace of these 2 industries. And also as a whole, standing on this particular time point, I think that there are varied and heterogeneous recovery pace of different verticals. So apart from still focusing on the revenue and also the budgeting gain from those verticals, we have another 2 additional focuses of this year — for the rest of this year.

First is that, still we have to pay attention to the recovery of the overall traffic. And also second is that laser focusing on those traffic supported to each and different verticals, so that it’s all about the traffic for the verticals. So you can see that, so in the first half of the year, we have been seeing some of the nature of Weibo, for example, the — it is a great and popular place for people to discuss upon topics. And so we do see actually more users and also the influential power of Weibo as a social platform was also enhancing. However, still this brought to some of the pressure or some of the suppression on the lifestyle and also local service-related revenues. For instance, like used to be, we had a lot of traffic related to topics like the food and travel and photography, et cetera, et cetera.

But we’ve been experiencing some difficulties there. So our focus for the rest of the year is, first of all, still overall pay attention to the recovery of the whole traffic for all kinds of different sectors and also topics. And second is that we are going to give a laser-focus support to give the traffic laser-focus support to those verticals so that they are going to have a very good recovery and also we can gain the momentum from the recovery of those — all kinds of different verticals that we are working with.

Operator: Excuse me, Timothy, do you have any further questions?

Timothy Zhao : That’s it.

Operator: And the question comes from the line of Miranda Zhuang from Bank of America Securities.

Miranda Zhuang : I want to pull up management’s comment on this year’s strategy, which is to increase the overall traffic and also to be perhaps support for the verticals traffic. So my question is, can you share your outlook for the user growth in the second half and also your operational strategies to boost the user traffic and then the vertical content areas?

Gaofei Wang : So first, let’s talk about the scale of user. So first of all, everybody is aware that the shipment of the handset in the first half of year experienced a decline of about 10% year-on-year. And also as a result, the marketing expenses relevant to that was also decreasing. So our focus for this will be, first of all, increase the efficiency of the traffic. And second of all, focus on those high ARPU value clients, especially the traffic supporting those iPhone users and Huawei smart phone users as well. And also in Q2, you can see more activities of the — and also still we are going to focus on the recovery of the traffic, especially from 2 areas, 1 is culture and entertainment. The other is the news and hot trends.

So in Q2, especially talking about the activities of the culture and entertainment industry, we’ve been seeing more activities organized, for instance, the movies and theaters and also variety shows, as well as the concerts et cetera. So we had a very clear trend of the recovery and increase of the traffic in July and also August as well. This was mainly due to for instance more activity in the entertainment industry in the summer holiday season and also in the first half of this year as a whole we’ve been seeing over 20% of the growth for the interactive users number in the entertainment industry and also 50% growth versus the pre-COVID period, so that we are going to have a very good trend getting from that particular industry. And also in the second half of the year, we’re going to focus first on the overall recovery of the traffic efficiency.

And also second is that give more support to those different vertical content and verticals as well. So I’ve been already sharing with you some of the colors related to handsets industry and also the vertical of automotives, which we had a great investment of traffic for the past 1 and 2 years. And so in 2023, we have been seeing that the overall percentage over the traffic contribution to our total traffic from the handset and also the automotive industry has already been doubled versus the pre-COVID period, so that because of this very good trend and also a better kind of a revenue, commercial revenue and also influential power increased, we are going to see more and more significance of the handset and also automotive vertical, so that we can give more vertical support, traffic support to these two verticals.

And also, next thing I would like to talk about are — for the verticals of the cosmetics and personal care and fashion industry, as well as the vertical of travel. So I know before the COVID period or during the COVID period, people or users actually demand over these different products of these verticals actually declined. And also, we had experienced a severe competition during the COVID period. So when the COVID control policy was just alleviated sorry, was just alleviated — was just alleviated, we can see that the kind of performance and also the traffic contribution percentage from these kind of industries are accounting for only half of the total traffic contribution percentage before the COVID period. So in the first half of the year, we had already — we have already done something to actually support the operation from these — to these different verticals and also now a very good trend is that the fashion vertical have already recover their traffic percentage contribution to our overall traffic to the period before the COVID.

And also, in terms of the luxurious industry, the revenue from this luxurious industry actually was increasing and to a positive trend. And also for the cosmetics and also the travel, still we have been seeing a gap if we’re comparing with the situation before the COVID. So as a result, you can see that the overall kind of revenue from the verticals of the cosmetics had a year-on-year decline. So these will be still the verticals that we are going to laser focus on our operational support in the second half of the year. And also because when we had a very good recovery from those less-than-expected growth verticals, it is going to give us more influence and also we are going to optimize the total structure in terms of the traffic contribution to our overall traffic, so that’s how we can regain to a positive momentum of growth.

Operator: And the next question comes from the line of Daisy Chen from Haitong International.

Daisy Chen : My question is about the AIGC, can management share more color about the deployment application scenarios into the product planning in AIGC and what are your current state of the movement, project?

Gaofei Wang : So I think that during the last quarter earnings conference call, we had already answered part of this question. So AIGC of Weibo has 2 functions versus that we are going to enhance the production speed and productivity of those individualized content by those key accounts on our platform or the big accounts on our platform and also help them to enhance the stickiness and customer relationships. And also second is that it could help us to really supplement and also regain some of those medium to long-tail accounts on Weibo. So you can see that for Weibo in terms of the content creation, we have a characteristic which is that the ecosystem for the top accounts or top ranking accounts is pretty much optimized and also — but still pretty much weaker for those medium to long-tail accounts.

So AIGC is going to be very much a supplementary in helping with those medium and long tail accounts in terms of the content generation. And also in Q2, we’ve been seeing a very good trend of some of those big accounts like hundreds of those important accounts of already trying the AIGC capability in helping them to actually cater the needs of their customers in writing some of the articles or creating some of the contents that will have the similar style that their customers want. But still, this is not fully rolled out to the rest of the community. So I think that in the second half of this year, we’re going to see more and more of those top accounts of using AIGC capability. And also, second thing is that we really believe that it is going to be very important for giving us a further supplementation of the vertical traffic and also vertical content, especially in terms of the travel and also the food, et cetera.

So because the top accounts, of course, are creating very good content in these 2 areas. But still, we are lack of the good quality content for those medium level accounts and also medium level users. So I think that the AIGC is going to be of great help and support in this particular area, so that the efficiency of operation of those medium-level accounts could be pretty much enhanced. And another 2 areas. First of all, in Q2, we have been seeing a more and more high efficient interactions created and generated because of AIGC. For those kind of quite professional and also specific topic-oriented accounts like for the relations and finance and zodiacs et cetera, et cetera, so because it does require a lot of very professional and also very much style-oriented answers.

So we are using AIGC to offer those very professional answers and also the capability of AI chat can also help these accounts of increasing their stickiness with their users and followers as well. And also thus generating certain revenue and income for those accounts. And second part is that some of the medium level leverages are actually using and utilizing the capability of AIGC in generating images through images and also the function of AI chat as well. So most of those medium-level celebrities are already using this capability to enhance their daily operation. So starting from September of this year, we are going to see more and more top level celebrities of trying and using this capability.

Operator: Dear speakers, there are no further questions and I would like now to hand the conference over to Sandra Zhang for any closing remarks.

Sandra Zhang : Thanks, operator. This concludes our conference call today. We will see you next quarter. Thank you.

Operator: Thank you very much for participating. You may now all disconnect.