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Phoenix New Media Reports Third Quarter 2019 Unaudited Financial Results

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BEIJING, Nov. 11, 2019 /PRNewswire/ -- Phoenix New Media Limited (NYSE:FENG) ("Phoenix New Media", "ifeng" or the "Company"), a leading new media company in China, today announced its unaudited financial results for the third quarter ended September 30, 2019.

Mr. Shuang Liu, CEO of Phoenix New Media, commented, "Despite the continuing macroeconomic headwinds, we have been able to revitalize and sustain the growth of our businesses. Leveraging our continued professional journalism and by combining our seasoned editorial daily picks and AI-powered recommendation engine, we have improved our user acquisition, retention, and engagement rates. During the third quarter, we upgraded our iFeng app, expanded our proprietary content library, advanced our in-house production capability, and enhanced our vertical channels. As a result, we sharpened our competitive edge and cultivated our monetization potential. While we continue to optimize our cost structure, the first tranche of proceeds from the Yidian transaction has provided us with sufficient working capital to fuel our long-term growth engine. Looking ahead, we are confident that we have the right team, strategy, and knowhow to adapt to the changing market dynamics and thrive in the new media industry."

Ms. Betty Ho, CFO of Phoenix New Media, further stated, "In the third quarter of 2019, our total revenues increased by 15.4% year-over-year, out of which, total net advertising revenues increased by 16.4% and total paid services revenues increased by 10.0% year-over-year, mainly driven by the consolidation of revenues from Tianbo and Tadu. As I pass the financial leadership role to our next CFO, Edward Lu, we are confident that as we continuing to optimize our product, to strengthen our content initiatives, and with the adequate working capital resources, we are well positioned for a renewed growth cycle."

Third Quarter 2019 Financial Results

REVENUES

Total revenues for the third quarter of 2019 were RMB380.2 million (US$53.2 million), representing an increase of 15.4% from RMB329.3 million in the third quarter of 2018. The increase was caused by the addition of consolidated revenues of RMB40.3 million (US$5.6 million) in the third quarter of 2019 from Beijing Yitian Xindong Network Technology Co., Ltd. ("Yitian Xindong" or "Tadu"), which has been consolidated starting from December 28, 2018 and the consolidated revenues of RMB80.1 million (US$11.2 million) in the third quarter of 2019 from Beijing Fenghuang Tianbo Network Technology Co., Ltd. ("Tianbo"), which has been consolidated starting from April 1, 2019.

Net advertising revenues for the third quarter of 2019 were RMB327.6 million (US$45.8 million), representing an increase of 16.4% from RMB281.5 million in the third quarter of 2018. The increase was primarily attributable to the consolidation of advertising revenues from Tianbo and Tadu. The Company's net advertising revenues from traditional business decreased by 16.2% due to the macroeconomic uncertainties and increased competitions.

Paid services revenues[1] for the third quarter of 2019 were RMB52.6 million (US$7.4 million), which represented an increase of 10.0% from RMB47.8 million in the third quarter of 2018. Revenues from paid contents for the third quarter of 2019 increased by 39.5% to RMB39.2 million (US$5.5 million) from RMB28.1 million in the third quarter of 2018, primarily attributable to the consolidation of digital reading revenues from Tadu, which was partially offset by a decrease in the Company's traditional digital reading business due to the regulatory tightening on digital reading sector in China. Revenues from games for the third quarter of 2019 were RMB2.5 million (US$0.3 million), which represented a decrease of 27.8% from RMB3.4 million in the third quarter of 2018. Revenues from MVAS for the third quarter of 2019 were RMB1.7 million (US$0.2 million), which represented a decrease of 84.7% from RMB10.8 million in the third quarter of 2018. Revenues from others for the third quarter of 2019 increased to RMB9.2 million (US$1.4 million) from RMB5.5 million in the third quarter of 2018, representing an increase of 68.6% year-over-year, which was mainly caused by the increase in revenues from E-commerce and online real estate related services.

[1] Prior to 2019, paid services revenues comprised of (i) revenues from digital entertainment, which included MVAS and digital reading, and (ii) revenues from games and others, which included web-based games, mobile games, content sales, and other online and mobile paid services through the Company's own platforms.
Beginning from January 1, 2019, paid services revenues have been re-classified and now comprised of (i) revenues from paid contents, which includes digital reading, audio books, paid videos, and other content-related sales activities, (ii) revenues from games, which includes web-based games and mobile games, (iii) revenues from MVAS, and (iv) revenues from others. For comparison purposes, the revenues from paid services for the quarters of 2018 have been retrospectively re-classified. 

 

COST OF REVENUES

Cost of revenues for the third quarter of 2019 was RMB194.3 million (US$27.2 million), representing an increase of 27.6% from RMB152.2 million in the third quarter of 2018. The increase in cost of revenues was mainly due to the following:

  • Content and operational costs for the third quarter of 2019 increased to RMB161.6 million (US$22.7 million) from RMB123.2 million in the third quarter of 2018, primarily attributable to the consolidation of content and operational costs of Tianbo and Tadu.
  • Revenue sharing fees to telecom operators and channel partners for the third quarter of 2019 increased to RMB17.4 million (US$2.4 million) from RMB14.3 million in the third quarter of 2018, primarily attributable to the increase in revenue sharing fees paid to content providers by Tadu.
  • Bandwidth costs for the third quarter of 2019 increased to RMB15.3 million (US$2.1 million) from RMB14.7 million in the third quarter of 2018.
  • Share-based compensation included in cost of revenues was RMB1.9 million (US$0.3 million) in the third quarter of 2019, as compared to RMB0.4 million the third quarter of 2018, primarily attributable to the restricted share units newly granted to some employees in 2019 under the restricted share unit scheme adopted in 2018 by Fread Limited, a subsidiary of the Company, and the options newly granted by the Company in July 2019.

GROSS PROFIT

Gross profit for the third quarter of 2019 increased to RMB186.0 million (US$26.0 million) from RMB177.1 million in the third quarter of 2018. Gross margin for the third quarter of 2019 decreased to 48.9% from 53.8% in the third quarter of 2018, mainly attributable to a decrease in gross margin of the Company's traditional advertising business and the acquisition of Tadu, partially offset by the margin contribution from Tianbo.

To supplement the financial measures presented in accordance with the United States Generally Accepted Accounting Principles ("GAAP"), the Company has presented certain non-GAAP financial measures in this press release, which excludes the impact of certain reconciling items as stated in the "Use of Non-GAAP Financial Measures" section below. 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."

Non-GAAP gross margin for the third quarter of 2019, which excluded share-based compensation, decreased to 49.4% from 53.9% in the third quarter of 2018.

OPERATING EXPENSES OR GAINS AND LOSS FROM OPERATIONS

Total operating expenses for the third quarter of 2019 decreased by 15.8% to RMB196.7 million (US$27.5 million) from RMB233.7 million in the third quarter of 2018, primarily attributable to the gain of RMB62.1 million arising from the changes in fair value of financial assets-contingent returnable consideration and a decrease in bad debt provision primarily caused by the collection of previously fully-reserved receivables of RMB16.2 million in the third quarter of 2019, which was partially offset by the consolidation of operating expenses from Tianbo and Tadu. Share-based compensation included in operating expenses was RMB3.4 million (US$0.5 million) in the third quarter of 2019, as compared to RMB2.1 million in the third quarter of 2018, mainly caused by the options newly granted by the Company in July 2019.

Changes in fair value of financial assets-contingent returnable consideration for the third quarter of 2019 was a gain of RMB62.1 million (US$8.7 million), which represented the changes in fair value of the Company's right to receive the contingent returnable consideration in relation to the acquisition of Tadu, subject to certain price adjustment mechanisms based on Tadu's operating and financial performance in 2019 and 2020. The Company recorded the financial assets-contingent returnable consideration as prepayments and other current assets in the balance sheet. Based on Tadu's estimated operating and financial performance in 2019, the Company adjusted the fair value of financial assets-contingent returnable consideration and recognized the changes in fair value in the consolidated statements of comprehensive income/(loss) in the third quarter of 2019.

Loss from operations for the third quarter of 2019 was RMB10.8 million (US$1.5 million), as compared to RMB56.6 million in the third quarter of 2018. Operating margin for the third quarter of 2019 was negative 2.8%, as compared to negative 17.2% in the third quarter of 2018.

Non-GAAP loss from operations for the third quarter of 2019, which excluded share-based compensation and changes in fair value of financial assets-contingent returnable consideration, was RMB67.6 million (US$9.5 million), as compared to RMB54.0 million in the third quarter of 2018. Non-GAAP operating margin for the third quarter of 2019, which excluded share-based compensation and changes in fair value of financial assets-contingent returnable consideration, was negative 17.8%, as compared to negative 16.4% in the third quarter of 2018.

OTHER INCOME OR LOSS

Other income or loss reflects interest income, interest expense, foreign currency exchange gain, income or loss from equity method investments, net of impairments, gain on disposal of convertible loans due from a related party and others, net[2]. Total net other income for the third quarter of 2019 was RMB19.6 million (US$2.7 million), as compared to RMB35.9 million in the third quarter of 2018.

  • Interest income for the third quarter of 2019 decreased to RMB8.1 million (US$1.1 million) from RMB12.3 million in the third quarter of 2018, primarily due to decrease in the loans granted to Particle, which were fully settled in the third quarter of 2018.
  • Interest expense for the third quarter of 2019 decreased to RMB0.3 million (US$0.04 million), from RMB3.1 million in the third quarter of 2018, which was primarily due to the decrease in outstanding short-term bank loans as the Company repaid all of the short-term bank loans in the second quarter of 2019.
  • Foreign currency exchange gain for the third quarter of 2019 was RMB6.1 million (US$0.9 million), which remained unchanged from the third quarter of 2018.
  • Income from equity method investments, net of impairments, for the third quarter of 2019 was nil, as compared to RMB4.2 million of income from equity method investments, net of impairments, in the third quarter of 2018.
  • Gain on disposal of convertible loans due from a related party for the third quarter of 2018 was RMB10.6 million, which was derived from the completion of the assignment to Long De Cheng Zhang Culture Communication (Tianjin) Co., Ltd. of the Company's rights under a loan to Particle Inc. with a principal amount of US$14.8 million originally granted in August 2016 and with the assignment price of approximately US$17.0 million. No such gain was recorded in the third quarter of 2019.
  • Others, net decreased to RMB5.7 million (US$0.8 million) in the third quarter of 2019 from RMB5.8 million in the third quarter of 2018.

 

[2] "Others, net" primarily consists of government subsidies and litigation loss provisions.

 

NET INCOME OR LOSS ATTRIBUTABLE TO PHOENIX NEW MEDIA LIMITED

Higher effective tax rate in the third quarter of 2019 was mainly attributable to larger taxable profits for the Company's subsidiaries as compared to the third quarter of 2018 after considering the valuation allowance of deferred tax assets. Net income attributable to Phoenix New Media Limited for the third quarter of 2019 was RMB5.9 million (US$0.8 million), as compared to net loss attributable to Phoenix New Media Limited of RMB16.6 million in the third quarter of 2018. Net margin for the third quarter of 2019 was positive 1.6%, as compared to negative 5.0% in the third quarter of 2018. Net income per diluted ADS[3] in the third quarter of 2019 was RMB0.08 (US$0.01), as compared to net loss per diluted ADS of RMB0.23 in the third quarter of 2018.

Non-GAAP net loss attributable to Phoenix New Media Limited for the third quarter of 2019, which excluded share-based compensation, income or loss from equity method investments, net of impairments, and changes in fair value of financial assets-contingent returnable consideration, was RMB50.8 million (US$7.1 million), as compared to RMB18.3 million in the third quarter of 2018. Non-GAAP net margin for the third quarter of 2019 was negative13.4%, as compared to negative 5.6%  in the third quarter of 2018. Non-GAAP net loss per diluted ADS in the third quarter of 2019 was RMB0.70 (US$0.10), as compared to RMB0.25 in the third quarter of 2018.

For the third quarter of 2019, the Company's weighted average number of ADSs used in the computation of diluted net loss per ADS was 72,790,541. As of September 30, 2019, the Company had a total of 582,324,325, ordinary shares outstanding, or the equivalent of 72,790,541 ADSs.

CERTAIN BALANCE SHEET ITEMS

As of September 30, 2019, the Company's cash and cash equivalents, term deposits and short term investments and restricted cash were RMB2.06 billion (US$288.9 million), which included RMB18.4 million (US$2.6 million) from Tadu and RMB131.3 million (US$18.4 million) from Tianbo.

As previously announced by the Company, the Company entered into a share purchase agreement (the "SPA") with Run Liang Tai and its designated entities (the "Proposed Buyers") on March 22, 2019 and entered into a supplemental agreement (the "Supplemental Agreement") to the SPA on July 23, 2019 for its proposed sale of 34% of the total outstanding shares of Particle Inc. ("Particle" or "Yidian") (the "Proposed Transaction"). After the Company executed the Supplemental Agreement, two shareholders of Particle, Long De Cheng Zhang Culture Communication (Tianjin) Co., Ltd. and Long De Holdings (Hong Kong) Co., Limited (collectively, the "Long De Entities") notified the Company that they intend to exercise their co-sale rights under the Shareholders Agreement with respect to 16 million shares of Particle for a total selling price of approximately RMB240 million while reserving their rights to co-sell more shares up to the maximum amount allowed under the Shareholders Agreement or fewer shares if they can find other buyers for their shares. The Company is in dispute with the Long De Entities as to whether the co-sale rights were duly exercised and is still discussing with the Long De Entities for an amicable resolution. If the Long De Entities are able to validly exercise their co-sale rights, the Company may have to reduce the Particle shares that it can sell in the Proposed Transaction if it decides to proceed with the transaction, and the proceeds to the Company from the transaction will be reduced accordingly. Alternatively, the Company may decide to terminate the Supplemental Agreement and reverse all transactions occurred under the Supplemental Agreement. In such case, the Company may have to resume its dispute with the Proposed Buyers under the original SPA. Notwithstanding the dispute, shareholders of the Company's parent company, Phoenix Media Investment (Holdings) Limited (HK: 2008), a company listed on The Stock Exchange of Hong Kong ("Phoenix TV") approved the Supplemental Agreement on October 22, 2019, and pursuant to the Supplemental Agreement, the Proposed Buyers paid the Company a further cash deposit of US$50 million in October 2019. The Company has transferred 94,802,752 preferred shares of Particle (the "First Batch of Delivered Shares") to the Proposed Buyers, corresponding to US$200 million of purchase price received before August 10, 2019. There can be no assurance that the Company's disputes with the Long De Entities, or with the Proposed Buyers under the original SPA will be resolved in the Company's favor. There can be no assurance that the Proposed Transaction with respect to the remaining preferred shares to be delivered will ever be closed. The fair value of available-for-sale debt investments in Particle of the Company increased from RMB2,271.1 million as of June 30, 2019 to RMB3,153.2 million (US$441.1 million) as of September 30, 2019, mainly caused  by the adjustments to the assumptions used in valuation for the available-for-sale debt investments in the third quarter of 2019 as the Company transferred the First Batch of Delivered Shares to the Proposed Buyers.

[3] "ADS" means American Depositary Share of the Company. Each ADS represents eight Class A ordinary shares of the Company.

Business Outlook

For the fourth quarter of 2019, the Company expects its total revenues to be between RMB431.2 million and RMB451.2 million; net advertising revenues are expected to be between RMB370.9 million and RMB385.9 million; and paid services revenues are expected to be between RMB60.3 million and RMB65.3 million.

All of the above forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

Conference Call Information

The Company will hold a conference call at 8:00 p.m. U.S. Eastern Time on November 11, 2019, (November 12, 2019 at 9:00 a.m. Beijing/Hong Kong time) to discuss its third quarter 2019 unaudited financial results and operating performance.

To participate in the call, please use the dial-in numbers and conference ID below:

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