Interest headlines executives interpret earnings: game industry regulation has limited impact.

Interest headlines executives interpret earnings: game industry regulation has limited impact.

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In the evening news of Nov. 12, Beijing time, Sina Technologies News released its third quarter financial report for fiscal year 2018 as of Sept. 30, with an interesting headline (Nasdaq: QTT). According to the report, the net revenue of the third quarter was 977.3 billion yuan ($142.3 million), up 52.3% from 157.6 billion yuan in the same period last year and 103.0% from 481.4 billion yuan in the second quarter of this year. The net loss in the third quarter was RMB 1,033.4 billion yuan ($150.5 billion), compared with RMB 11.5 million yuan in the same period last year. Based on non-US GAAP, the net loss was 298.4 billion yuan (about 43.5 million US dollars), compared with 10.7 million yuan in the same period last year.

After the announcement of the financial report, senior executives such as Tan Siliang, co-founder and chairman of Interesting Headlines, CFO Wang Jingbo and Chief Strategic Officer Chen Yucheng attended the subsequent telephone conference to interpret the main points of the financial report and answer the analyst's questions.

The following is the main content of this conference call Q & a session.

Alicia Yap, Citibank analyst: First, many companies are discussing the latest macroeconomic environment and the distribution of advertisers'budgets. Can the management share the current emotional status of top advertisers of interesting headlines and what are the three or five vertical industries that contribute most to the revenue of interesting headlines? The second question is about marketing expenditure in the fourth quarter. Can you tell us what the retention cost of users and the acquisition cost of new users are respectively? Given the current macroeconomic environment, will there be any change in the new user access strategy next year?

Tan Siliang: Like many peers, the headlines also feel the impact of the slowdown in China's macroeconomic growth. However, compared with many peers, the impact of interesting headlines is less, because our traffic is focused on the audience of low-level cities, the demand of users in low-level cities is very large, many of our peers are also trying to penetrate into this market segment. In addition, we can see that more and more advertisers are putting the marketing and advertising budgets into this field. So we are under some kind of macroeconomic impact, but not as big as many peers. As for the industry that contributes most to the revenue of interesting headlines, e-commerce still ranks first, followed by application download, game download and financial business.

Alicia Yap, Citibank analyst: Before you answer the question about marketing spending, I'd like to ask you a question about downloading games. As you mentioned earlier, interesting headlines are less affected than peers who focus on first-tier cities. However, considering that the government has begun to strengthen the regulation of the game industry, and some game manufacturers have also given more cautious performance expectations, is the download revenue of interesting headlines also impacted?

Tan Siliang: Recently, the government's regulation of the game industry has limited impact on the fun headlines. Game downloads account for between 5% and 15% of the company's advertising revenue. Most of the headlines are casual games, so they are not affected by the latest regulatory policies.

Wang Jingbo: according to the third quarter earnings report, the number of users who are interested in headlines is still growing rapidly. We believe that at this stage, we have seen tremendous growth potential in the larger city market, and we hope to become an important source of traffic in this market. Because of this, we plan to extend the current user access strategy. Although the cost of user acquisition has risen slightly, we believe that the rate of return on investment is still considerable.

From a managerial point of view, we think that headlines will continue the relatively fast pace of growth. On the other hand, we also understand that the company is facing tremendous pressure on the income statement, so our plan is to further improve the level of commercialization, so that we can solve this problem from the revenue side, not just from the cost side.

Alicia Yap, Citibank analyst: Assuming that China's macroeconomic deterioration further affects the headlines, will the company change or reduce its investment in user access next year?

Wang Jingbo: I think the key is the return on investment (ROI). The company will evaluate ROI internally to decide whether to reduce or increase its efforts in this area. So ROI is the key to all decisions. As long as ROI is satisfactory, we will invest in a few months. We feel that this is worth doing unless the macroeconomic environment changes significantly next year. For the time being, we are not prepared to reduce investment in this area.

Jerry Liu, UBS analyst: The first question is, recently we have seen a lot of byte bouncing advertisements, promoting the new version of the headlines in many applications. Is there more pressure on management to attract users? Can you comment on the competition pattern in this industry? Second, in the fourth quarter performance outlook, what levels do management expect DAU and ARPU to reach, respectively?

Tan Siliang: I think it is very common for a company to cross-promote its own products in different product portfolios. So there's nothing unusual about what byte bouncing does, but we do feel the competition is intensifying, and it's getting fiercer since the second half of last year. In addition to byte bouncing, one of the largest companies in the industry, many small companies have entered the field, and some have introduced content streaming. However, we believe that as long as interesting headlines continue to improve product quality, they will continue to grow rapidly in the near future.

Wang Jingbo: As for DAU and ARPU in the fourth quarter, I think we are quite cautious here. We expect ARPU in the fourth quarter to be basically the same as in the third quarter. As for DAU, you can figure it out for yourself.

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