2Q14 Net Advertising Revenues Up 38.9% YOY
2Q14 Income from Operations Up 14.8% YOY
2Q14 Adjusted Income from Operations Up 16.6% YOY
Live Conference Call to be Held at 9:00 PM U.S. Eastern Time on August 11
BEIJING, August 12, 2014 /PRNewswire/ — Phoenix New Media Limited (NYSE: FENG), a leading new media company in China (“Phoenix New Media”, “PNM”, “ifeng” or the “Company”), today announced its unaudited financial results for the second quarter ended June 30, 2014.
Second Quarter 2014 Highlights
Net advertising revenues increased by 38.9% year-over-year to RMB291.0 million (US$46.9 million).
Income from operations increased by 14.8% year-over-year to RMB81.1 million (US$13.1 million). Adjusted income from operations[1] increased by 16.6% year-over-year to RMB89.5 million (US$14.4 million).
Net income attributable to Phoenix New Media Limited increased by 9.1% year-over-year to RMB84.5 million (US$13.6 million). Adjusted net income attributable to Phoenix New Media Limited increased by 10.4% year-over-year to RMB92.3 million (US$14.9 million).
Net income per diluted ADS[2] increased by 9.0% year-over-year to RMB1.09 (US$0.18). Adjusted net income per diluted ADS increased by 10.3% year-over-year to RMB1.19 (US$0.19).
[1]
An explanation of the Company’s non-GAAP financial measures is included in the section entitled “Use of Non-GAAP Financial Measures” below, and the related reconciliations to GAAP financial measures are presented in the accompanying “Reconciliations of Non-GAAP Results of Operation Measures to the Nearest Comparable GAAP Measures”.
[2]
“ADS” means American Depositary Share of the Company. Each ADS represents eight Class A ordinary shares of the Company.
Mr. Shuang Liu, CEO of Phoenix New Media, stated, “We are very pleased to complete the first half of 2014 with strong financial performance for both total revenues and net income exceeding Bloomberg consensus estimates, providing with us significant momentum into the second half of 2014. The second quarter witnessed an impressive operational growth characterized by the increasing traffic on our mobile platform, strong performance of in-house video content, and further expansion of several of our popular verticals. On the video side, we saw encouraging developments, as we began to air several new original productions that have been well received by both advertisers and the public. Two of these original productions were co-broadcasted with our parent company, Phoenix TV, demonstrating tangible progress on the convergence of the Phoenix Group’s media resources. Leveraging on this success in the second quarter and fueled by the large audience of many breaking news events, we had the opportunity to attract even more first-time users in recent months through providing comprehensive and in-depth coverage across our multiple platforms.”
Mr. Ya Li, President of Phoenix New Media, stated, “In the second quarter, the incremental revenue growth and operating margin improvement were largely supported by the strong 38.9% year-over-year growth in net advertising revenues, which reflected the rapid growth of traffic across our media platforms, as well as the successful integration of advertisement sales teams and emergence of our native advertising and marketing solutions. With the growing demand for lifestyle-oriented content by users, we are confident that ifeng’s converged multi-screen platform will continue to grow and expand its footprint in new media industry.”
Second Quarter 2014 Financial Results
REVENUES
Total revenues for the second quarter of 2014 increased by 12.8% to RMB410.9 million (US$66.2 million) from RMB364.2 million in the second quarter of 2013.
Net advertising revenues (net of advertising agency service fees), for the second quarter of 2014 increased by 38.9% to RMB291.0 million (US$46.9 million) from RMB209.5 million in the second quarter of 2013, primarily due to an increase in average revenue per advertiser (“ARPA”) of 23.8% to RMB0.9 million (US$0.1 million) and an increase in the total number of advertisers of 12.2% to 331.
Paid service revenues for the second quarter of 2014 decreased by 22.5% to RMB119.9 million (US$19.3 million) from RMB154.7 million in the second quarter of 2013. Mobile value-added services (“MVAS”)[3] revenues decreased by 30.7% to RMB91.1 million (US$14.7 million) in the second quarter of 2014 from RMB131.5 million in the second quarter of 2013, primarily due to the decrease in revenues generated from wireless value-added services with telecom operators. Games and others[4] revenues increased by 24.2% to RMB28.8 million (US$4.6 million) in the second quarter of 2014 from RMB23.2 million in the second quarter of 2013, primarily driven by the increase in games revenues.
[3]
MVAS includes wireless value-added services, or WVAS, mobile video, mobile digital reading, mobile games and other paid services through China’s three telecom operators’ platforms.
[4]
Games and others include web-based games, content sales, and other online and mobile paid services through the Company’s own platforms.
COST OF REVENUES AND GROSS PROFIT
Cost of revenues for the second quarter of 2014 increased by 13.9% to RMB197.5 million (US$31.8 million) from RMB173.4 million in the second quarter of 2013, primarily due to an increase in content and operational costs and sales taxes and surcharges. Content and operational costs increased to RMB83.7 million (US$13.5 million) in the second quarter of 2014 from RMB64.2 million in the second quarter of 2013, due to the increase in staff-related costs and cost of content production related to advertisement. Revenue sharing fees to telecom operators and channel partners decreased to RMB59.2 million (US$9.5 million) in the second quarter of 2014 from RMB68.0 million in the second quarter of 2013, primarily due to a decrease in MVAS revenues. Sales taxes and surcharges increased to RMB34.6 million (US$5.6 million) in the second quarter of 2014 from RMB21.1 million in the second quarter of 2013 due to the increase of net advertising revenues and the transition from Business Tax to Value-added Tax which became applicable to the Company starting from June 2014 as the Company is deemed to be in the telecom industry under applicable tax regulations. Bandwidth costs decreased to RMB19.9 million (US$3.2 million) in the second quarter of 2014 from RMB20.2 million in the second quarter of 2013, primarily due to improved bandwidth efficiency obtained through updated bandwidth management technology. Share-based compensation included in cost of revenues was RMB2.4 million (US$0.4 million) in the second quarter of 2014, compared to RMB1.9 million in the second quarter of 2013. The year-over-year increase in share-based compensation was primarily due to newly granted stock options in the last 12 months.
Gross profit for the second quarter of 2014 increased by 11.8% to RMB213.4 million (US$34.4 million) from RMB190.8 million in the second quarter of 2013. Gross margin for the second quarter of 2014 was 51.9%, compared to 52.4% in the second quarter of 2013, mainly due to the increase in content and operational costs and sales taxes and surcharges. Adjusted gross margin, which excludes share-based compensation, for the second quarter of 2014 was 52.5%, compared to 52.9% in the second quarter of 2013.
OPERATING EXPENSES AND INCOME FROM OPERATIONS
Total operating expenses for the second quarter of 2014 increased by 10.1% to RMB132.3 million (US$21.3 million) from RMB120.2 million in the second quarter of 2013. The increase in operating expenses was primarily attributable to the increase in staff-related expenses associated with the Company’s marketing and promotional initiatives. Share-based compensation included in operating expenses was RMB6.0 million (US$1.0 million) in the second quarter of 2014, compared to RMB4.2 million in the second quarter of 2013. The year-over-year increase in share-based compensation was primarily due to newly granted stock options in the last 12 months.
Income from operations for the second quarter of 2014 increased by 14.8% to RMB81.1 million (US$13.1 million) from RMB70.6 million in the second quarter of 2013. Operating margin for the second quarter of 2014 increased to 19.7% from 19.4% in the second quarter of 2013, mainly due to increased revenue contribution from advertising.
Adjusted income from operations, which excludes share-based compensation, for the second quarter of 2014 increased by 16.6% to RMB89.5 million (US$14.4 million) from RMB76.8 million in the second quarter of 2013.Adjusted operating margin for the second quarter of 2014 increased to 21.8% from 21.1% in the second quarter of 2013.
OTHER INCOME
Other income reflects interest income, foreign currency exchange gain or loss, gain on disposition of subsidiaries and acquisition of equity investments, loss from equity investments, and others, net. “Others, net” primarily consists of government subsidies. Interest income for the second quarter of 2014 increased to RMB12.6 million (US$2.0 million) from RMB7.5 million in the second quarter of 2013. Foreign currency exchange gain for the second quarter of 2014 decreased to RMB0.1 million (US$0.02 million) from RMB10.0 million in the second quarter of 2013.
NET INCOME ATTRIBUTABLE TO PHOENIX NEW MEDIA LIMITED
Net income attributable to Phoenix New Media Limited for the second quarter of 2014 increased by 9.1% to RMB84.5 million (US$13.6 million) from RMB77.4 million in the second quarter of 2013. Net margin for the second quarter of 2014 was 20.6%, compared to 21.3% in second quarter of 2013.Net income per diluted ADS in the second quarter of 2014 increased by 9.0% to RMB1.09 (US$0.18) from RMB1.0 in the second quarter of 2013.
Adjusted net income attributable to Phoenix New Media Limited, which excludes share-based compensation, gain on disposition of subsidiaries and acquisition of equity investments, and loss from equity investments, for the second quarter of 2014 increased by 10.4% to RMB92.3 million (US$14.9 million) from RMB83.6 million in the second quarter of 2013. Adjusted net margin for the second quarter of 2014 was 22.5%, compared to 23.0% in the second quarter of 2013. Adjusted net income per diluted ADS in the second quarter of 2014 increased by 10.3% to RMB1.19 (US$0.19) from RMB1.08 in the second quarter of 2013.
As of June 30, 2014, the Company’s cash and cash equivalents and term deposits and short term investments was RMB1.4 billion (US$224.8 million).
For the second quarter of 2014, the Company’s weighted average number of ADSs used in the computation of diluted net income per ADS was 77,756,324. As of June 30, 2014, the Company had a total of 604,375,981 ordinary shares outstanding, or the equivalent of 75,546,998 ADSs.
Business Outlook
For the third quarter of 2014, the Company expects its total revenues to be between RMB402 million and RMB422 million. Net advertising revenues are expected to be between RMB307 million and RMB317 million. Paid service revenues are expected to be between RMB95 million and RMB105 million. These forecasts reflect the Company’s current and preliminary view on the market and operational conditions, which are subject to change.
Share Repurchase Program
As of June 30, 2014, the Company had repurchased an aggregate of 109,563 American Depositary Shares (“ADSs”) at an aggregate cost of approximately US$1.2 million on the open market pursuant to the share repurchase program approved by the board in May 2014. Under the share repurchase program, the Company has been authorized to repurchase up to US$50 million of its outstanding ADSs for a period not exceeding twelve (12) months since May 14, 2014, the effective date of the program. The Company expects to continue to implement its share repurchase program in a manner consistent with market conditions and the interest of its shareholders, subject to the restrictions relating to volume, price and timing under applicable law.
Share Options
In July 2014, the Company granted options to purchase up to 17,646,000 Class A ordinary shares to its employees under its 2008 Share Option Scheme.
Other Events
In the second quarter of 2014, the classification of certain highly liquid principal-guaranteed investment products (“Products”) reported as cash and cash equivalents in previous periods were re-assessed and it was determined that these Products should have been classified as term deposits and short term investments to properly reflect the nature of these assets. These Products were issued by reputable commercial banks in China. The maturity periods of these Products were within three months and the principal amounts were guaranteed by the issuing banks. All of these Products were converted into known amounts of cash upon their maturity subsequent to the quarter end. The Company concluded the impact of the resulting classification adjustments (the “Classification Adjustments”), all of which are set forth in Annex A hereto, is not material to the previously issued financial statements taken as a whole based on assessment under the relevant guidance.
The Classification Adjustments had no impact on the Company’s consolidated statements of comprehensive income or the line items of the Company’s consolidated balance sheets other than cash and cash equivalents and term deposits and short term investments. In the consolidated statement of cash flows, the Company’s cash flows from investing activities, net changes in cash and cash equivalents and ending balances of cash and cash equivalents were amended, but no other line items in the consolidated statement of cash flows were impacted. The impact of the Classification Adjustments on the Company’s consolidated balance sheet as of December 31, 2013 and the consolidated statement of cash flows for the year ended December 31, 2013 will be reflected in the Company’s 2014 Annual Report on Form 20-F.
Conference Call Information
The Company will hold a conference call at 9:00 p.m. U.S. Eastern Time on August 11, 2014 (August 12, 2014 at 9:00 a.m. Beijing / Hong Kong time) to discuss its second quarter 2014 unaudited financial results and operating performance.
To participate in the call, please dial the following numbers:
International:
+6567239385
Mainland China:
4001200654
Hong Kong:
+85230512745
United States:
+18456750438
Conference ID:
78450764
A replay of the call will be available through August 18, 2014 by dialing the following numbers:
International:
+61290034211
Mainland China:
4006322162
Hong Kong:
+85230512780
United States:
+16462543697
Conference ID:
78450764
A live and archived webcast of the conference call will also be available at the Company’s investor relations website at http://ir.ifeng.com
Use of Non-GAAP Financial Measures
To supplement the consolidated financial statements presented in accordance with the United States Generally Accepted Accounting Principles (“GAAP”), Phoenix New Media Limited uses adjusted gross profit, adjusted gross margin, adjusted income from operations, adjusted operating margin, adjusted net income attributable to Phoenix New Media Limited, adjusted net margin and adjusted net income per diluted ADS, each of which is a non-GAAP financial measure. Adjusted gross profit is gross profit excluding share-based compensation. Adjusted gross margin is adjusted gross profit divided by total revenues. Adjusted income from operations is income from operations excluding share-based compensation. Adjusted operating margin is adjusted income from operations divided by total revenues. Adjusted net income attributable to Phoenix New Media Limited is net income attributable to Phoenix New Media Limited excluding share-based compensation, gain on disposition of subsidiaries and acquisition of equity investments, and loss from equity investments. Adjusted net margin is adjusted net income attributable to Phoenix New Media Limited divided by total revenues. Adjusted net income per diluted ADS is adjusted net income attributable to Phoenix New Media Limited divided by weighted average number of diluted ADSs. The Company believes that separate analysis and exclusion of the non-cash impact of share-based compensation, gain on disposition of subsidiaries and acquisition of equity investments, and loss from equity investments add clarity to the constituent parts of its performance. The Company reviews adjusted net income together with net income to obtain a better understanding of its operating performance. It uses these non-GAAP financial measures for planning, forecasting and measuring results against the forecast. The Company believes that using multiple measures to evaluate its business allows both management and investors to assess the Company’s performance against its competitors and ultimately monitor its capacity to generate returns for its investors. The Company also believes that non-GAAP financial measures are useful supplemental information for investors and analysts to assess its operating performance without the effect of non-cash share-based compensation, gain on disposition of subsidiaries and acquisition of equity investments, and loss from equity investments. Share-based compensation and loss from equity investments have been and will continue to be significant and recurring in its business. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.
Exchange Rate
This announcement contains translations of certain RMB amounts into U.S. dollars (“USD”) at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to USD were made at the rate of RMB6.2036 to US$1.00, the noon buying rate in effect on June 30, 2014 in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or USD amounts referred could be converted into USD or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release.
About Phoenix New Media Limited
Phoenix New Media Limited (NYSE: FENG) is a leading new media company providing premium content on an integrated platform across Internet, mobile and TV channels in China. Having originated from a leading global Chinese language TV network based in Hong Kong, Phoenix TV, the Company enables consumers to access professional news and other quality information and share user-generated content on the Internet and through their mobile devices. Phoenix New Media’s platform includes its ifeng.com channel, consisting of its ifeng.com website and web-based game platform, its video channel, comprised of its dedicated video vertical and mobile video services, and its mobile channel, including its mobile Internet website, mobile applications and mobile value-added services.
Safe Harbor Statement
This announcement contains forwarda？？looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forwarda？？looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Phoenix New Media’s strategic and operational plans, contain forwarda？？looking statements. Phoenix New Media may also make written or oral forwarda？？looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“SEC”) on Forms 20a？？F and 6a？？K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Phoenix New Media’s beliefs and expectations, are forwarda？？looking statements. Forwarda？？looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forwarda？？looking statement, including but not limited to the following: the Company’s goals and strategies; the Company’s future business development, financial condition and results of operations; the expected growth of the online and mobile advertising, online video and mobile paid service markets in China; the Company’s reliance on online advertising and MVAS for the majority of its total revenues; the Company’s expectations regarding demand for and market acceptance of its services; the Company’s expectations regarding the retention and strengthening of its relationships with advertisers, partners and customers; fluctuations in the Company’s quarterly operating results; the Company’s plans to enhance its user experience, infrastructure and service offerings; the Company’s reliance on mobile operators in China to provide most of its MVAS; changes by mobile operators in China to their policies for MVAS; competition in its industry in China; and relevant government policies and regulations relating to the Company. Further information regarding these and other risks is included in the Company’s filings with the SEC, including its registration statement on Form Fa？？1, as amended, and its annual reports on Form 20a？？F. All information provided in this press release and in the attachments is as of the date of this press release, and Phoenix New Media does not undertake any obligation to update any forwarda？？looking statement, except as required under applicable law.
For investor and media inquiries please contact:
Phoenix New Media Limited
Matthew Zhao
Email: investorrelations@ifeng.com
ICR, Inc.
Jeremy Peruski
Tel: +1 (646) 405-4883
Email: investorrelations@ifeng.com
Phoenix New Media Limited
Condensed Consolidated Balance Sheets
(Amounts in thousands)
December 31,
June 30,
June 30,
2013
2014
2014
RMB
RMB
US$
Revised
Unaudited
Unaudited
ASSETS
Current assets:
Cash and cash equivalents
845,138
493,174
79,498
Restricted cash
10,000
-
-
Term deposits and short term investments
556,672
901,139
145,261
Accounts receivable, net
353,379
440,161
70,953
Amounts due from related parties
125,158
187,213
30,178
Prepayment and other current assets
27,911
86,285
13,909
Deferred tax assets
22,779
22,968
3,702
Total current assets
1,941,037
2,130,940
343,501
Non-current assets:
Property and equipment, net
95,126
91,780
14,795
Intangible assets, net
7,919
7,755
1,250
Equity investments
-
18,785
3,028
Other non-current assets
12,678
14,500
2,337
Total non-current assets
115,723
132,820
21,410
Total assets
2,056,760
2,263,760
364,911
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
218,604
231,673
37,345
Amounts due to related parties
21,034
23,447
3,780
Advances from customers
10,732
18,041
2,908
Taxes payable
58,140
63,338
10,210
Salary and welfare payable
98,831
85,346
13,757
Accrued expenses and other current liabilities
62,153
80,092
12,911
Total current liabilities
469,494
501,937
80,911
Long-term liabilities
12,231
15,123
2,438
Total liabilities
481,725
517,060
83,349
Shareholders’ equity
Phoenix New Media Limited shareholders’ equity
Class A ordinary shares
18,530
18,804
3,031
Class B ordinary shares
22,053
22,053
3,555
Additional paid-in capital
1,734,993
1,760,576
283,799
Treasury stock
-
(7,209)
(1,162)
Statutory reserves
50,330
50,330
8,113
Accumulated deficit
(194,601)
(47,978)
(7,734)
Accumulated other comprehensive loss
(60,127)
(53,760)
(8,666)
Total Phoenix New Media Limited shareholders’ equity
1,571,178
1,742,816
280,936
Noncontrolling interests
3,857
3,884
626
Total shareholders’ equity
1,575,035
1,746,700
281,562
Total liabilities and shareholders’ equity
2,056,760
2,263,760
364,911
Phoenix New Media Limited
Condensed Consolidated Statements of Comprehensive Income
(Amounts in thousands, except for number of shares and per share (or ADS) data)
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
June 30,
June 30,
2013
2014
2014
2014
2013
2014
2014
RMB
RMB
RMB
US$
RMB
RMB
US$
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Revenues:
Net advertising revenues
209,520
234,925
290,968
46,903
375,966
525,893
84,772
Paid service revenues
154,728
122,224
119,905
19,328
269,659
242,129
39,030
Total revenues
364,248
357,149
410,873
66,231
645,625
768,022
123,802
Cost of revenues
(173,422)
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