Phoenix New Media Reports Second Quarter 2017 Unaudited Financial Results

BEIJING, Aug. 16, 2017 /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 second quarter ended June 30, 2017.

"We are pleased to announce better than expected financial and operating performances during the second quarter of 2017," stated Mr. Shuang Liu, CEO of Phoenix New Media. "Our mobile advertising revenues increased by 66% year-over-year in the past quarter. We are encouraged to see our mobile strategy continued to achieve great results in both ifeng news application and Yidian Zixun ("Yidian"^[1], a strategic investment of ifeng) in terms of user acquisition, viewership improvement, content enrichment and product offerings, as well as strategic cooperation. In order to stay ahead of the competition, we remain committed to expanding our user base and market share, and expect to continue investing in traffic acquisition. We will remain prudent in our traffic acquisition spending and have proper mechanisms in place to ensure effective return on investment, or ROI. Meanwhile, we will continue to leverage our core media DNA, advanced A.I. technology and differentiated content offerings to capitalize on various growth opportunities. Looking ahead, we believe we have the right strategy and team in place to maintain our leadership position in the highly competitive market and generate value for our shareholders."

Mr. Ya Li, co-president of Phoenix New Media, further stated, "By leveraging our strong content production capability and expertise in native marketing solutions, we acquired about 20 renowned brand advertisers during the second quarter at some highly visible events and projects, including the Belt and Road Forum, Davos World Economic Forum and the BRICs Forum. Meanwhile, we officially launched a new version of performance-based advertising platform, Fengyu, in the second quarter. Driven by this powerful new platform, our performance-based advertising experienced a robust 104% year-over-year growth in the second quarter. On the Yidian side, we understand that Yidian's user base continued to grow rapidly in the second quarter. Currently Yidian is the No. 1 content provider on OPPO's branded handsets in terms of user time spent. In addition, on both Xiaomi and OPPO's mobile handsets, Yidian will further strengthen its brand recognition through integrated campaigns cooperated with the two parties."

Second Quarter 2017 Financial Results

REVENUES

Total revenues for the second quarter of 2017 increased by 12.3% to RMB393.3 million (US$58.0 million) from RMB350.1 million in the second quarter of 2016.

Net advertising revenues (net of advertising agency service fees) for the second quarter of 2017 increased by 14.0% to RMB338.7 million (US$50.0 million) from RMB297.2 million in the second quarter of 2016, which was primarily attributable to a 66.0% increase in mobile advertising revenues that was partially offset by a 21.2% decrease in PC advertising revenues.

Paid services revenues^[2] for the second quarter of 2017 increased by 3.2% to RMB54.5 million (US$8.0 million) from RMB52.8 million in the second quarter of 2016. Revenues from digital entertainment^[3] for the second quarter of 2017 increased by 13.6% to RMB45.6 million (US$6.7 million) from RMB40.1 million in the second quarter of 2016, primarily attributable to a 62.2% increase in digital reading revenues to RMB14.9 million (US$2.2 million) in the second quarter of 2017 from RMB9.2 million in the second quarter of 2016. The increase in digital reading revenues mainly resulted from stronger demand and the Company's strategic expansion efforts in digital reading. Revenues from games and others^[4] for the second quarter of 2017 decreased by 29.4% to RMB9.0 million (US$1.3 million) from RMB12.7 million in the second quarter of 2016, which was primarily attributable to a decrease in revenues generated from web-based games operated on the Company's own platform.

COST OF REVENUES

Cost of revenues for the second quarter of 2017 decreased by 7.0% to RMB167.8 million (US$24.8 million) from RMB180.5 million in the second quarter of 2016, primarily attributable to a decrease in content and operational cost and revenue sharing fees. Content and operational costs for the second quarter of 2017 decreased to RMB106.0 million (US$15.6 million) from RMB117.2 million in the second quarter of 2016, primarily attributable to a decrease in staff cost and advertisement-related content production cost. Revenue sharing fees to telecom operators and channel partners for the second quarter of 2017 decreased to RMB15.1 million (US$2.2 million) from RMB19.3 million in the second quarter of 2016, primarily attributable to a decrease in the sales of MVAS products. Bandwidth costs for the second quarter of 2017 decreased to RMB13.6 million (US$2.0 million) from RMB15.3 million in the second quarter of 2016. Sales taxes and surcharges for the second quarter of 2017 increased to RMB33.2 million (US$4.9 million) from RMB28.8 million in the second quarter of 2016. Share-based compensation included in cost of revenues was RMB1.2 million (US$0.2 million) in the second quarter of 2017, as compared to RMB0.8 million in the second quarter of 2016. The change in share-based compensation was due to the newly granted share-based awards and the Company's option exchange program implemented in the fourth quarter of 2016.

GROSS PROFIT

Gross profit for the second quarter of 2017 increased by 32.9% to RMB225.4 million (US$33.3 million) from RMB169.6 million in the second quarter of 2016. Gross margin for the second quarter of 2017 increased to 57.3% from 48.4% in the second quarter of 2016. The increase in gross margin was primarily attributable to an increase in revenues as well as a decrease in content and operational cost and revenue sharing fees.

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 excluded 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 second quarter of 2017, which excluded share-based compensation, increased to 57.6% from 48.7% in the second quarter of 2016.

OPERATING EXPENSES AND INCOME/(LOSS) FROM OPERATIONS

Total operating expenses for the second quarter of 2017 increased by 7.4% to RMB200.4 million (US$29.6 million) from RMB186.7 million in the second quarter of 2016, primarily attributable to an increase in mobile traffic acquisition expenses, which was partially offset by a decrease in bad debt provision. Share-based compensation included in operating expenses was RMB4.2 million (US$0.6 million) in the second quarter of 2017, as compared to RMB3.6 million in the second quarter of 2016.

Income from operations for the second quarter of 2017 was RMB25.0 million (US$3.7 million), as compared to a loss from operations of RMB17.1 million in the second quarter of 2016. Operating margin for the second quarter of 2017 was 6.4%, as compared to negative 4.9% in the second quarter of 2016, which was primarily attributable to the increase in gross profit and partially offset by the increase in mobile traffic acquisition expenses.

Non-GAAP income from operations for the second quarter of 2017, which excluded share-based compensation, was RMB30.5 million (US$4.5 million), as compared to non-GAAP loss from operations of RMB12.7 million in the second quarter of 2016. Non-GAAP operating margin for the second quarter of 2017, which excluded share-based compensation, was 7.7%, as compared to negative 3.6% in the second quarter of 2016.

OTHER INCOME/(LOSS)

Other income/(loss) reflects interest income, interest expense, foreign currency exchange gain/(loss), gain/(loss) from equity investments, including impairments, and others, net^[5]. Total other income for the second quarter of 2017 was RMB3.4 million (US$0.5 million), as compared to RMB12.4 million in the second quarter of 2016. Interest income for the second quarter of 2017 was RMB13.5 million (US$2.0 million), as compared to RMB8.3 million in the second quarter of 2016. Interest expense for the second quarter of 2017 was RMB6.4 million (US$0.9 million), as compared to RMB1.0 million in the second quarter of 2016. Foreign currency exchange loss for the second quarter of 2017 was RMB7.9 million (US$1.2 million), as compared to foreign currency exchange gain of RMB2.4 million in the second quarter of 2016. Gain from equity investments for the second quarter of 2017, including impairments, was RMB1.1 million (US$0.2 million), as compared to loss from equity investments of RMB1.5 million in the second quarter of 2016. Others, net, for the second quarter of 2017 was RMB3.1 million (US$0.5 million), as compared to RMB4.2 million in the second quarter of 2016.

NET INCOME/(LOSS) ATTRIBUTABLE TO PHOENIX NEW MEDIA LIMITED

Net income attributable to Phoenix New Media Limited for the second quarter of 2017 was RMB24.9 million (US$3.7 million), as compared to net loss attributable to Phoenix New Media Limited of RMB2.5 million in the second quarter of 2016. Net margin for the second quarter of 2017 was 6.3%, as compared to negative 0.7% in the second quarter of 2016. Net income per diluted ADS^[6] in the second quarter of 2017 was RMB0.35 (US$0.05), as compared to net loss per diluted ADS of RMB0.03 in the second quarter of 2016.

Non-GAAP net income attributable to Phoenix New Media Limited for the second quarter of 2017, which excluded share-based compensation and gain/(loss) from equity investments, including impairments, increased by 740.0% to RMB29.3 million (US$4.3 million) from RMB3.5 million in the second quarter of 2016. Non-GAAP net margin for the second quarter of 2017 increased to 7.4% from 1.0% in the second quarter of 2016. Non-GAAP net income per diluted ADS in the second quarter of 2017 increased by 740.6% to RMB0.41 (US$0.06) from RMB0.05 in the second quarter of 2016.

For the second quarter of 2017, the Company's weighted average number of ADSs used in the computation of diluted net income per ADS was 72,101,949. As of June 30, 2017, the Company had a total of 572,269,650 ordinary shares outstanding, or the equivalent of 71,533,706 ADSs.

OTHER COMPREHENSIVE INCOME

In June 2017, Particle Inc., an investee of the Company, issued additional equity securities to unrelated third-party investors for cash consideration. As the Company accounts for its investments in Particle Inc. as available-for-sale investments, the Company reassessed the fair value of its investments in Particle Inc. after the above-mentioned transaction and determined that the fair value of its investments in Particle had increased, and therefore in accordance with generally accepted accounting principles, the Company recorded the fair value change in other comprehensive income, net of tax, of RMB239.5 million (US$35.3 million) in the second quarter of 2017 relating to such fair value remeasurement. This led to a significant increase in the Company's other comprehensive income, net of tax, relating to fair value remeasurement for available-for-sale investments and contributed to the significant increase in comprehensive income attributable to Phoenix New Media Limited in the second quarter of 2017 as compared to the second quarter of 2016.

CERTAIN BALANCE SHEET ITEMS

As of June 30, 2017, the Company's cash and cash equivalents, term deposits and short term investments and restricted cash were RMB1.19 billion (US$175.9 million). Restricted cash represents deposits placed as security for banking facilities granted to the Company, which are restricted in their withdrawal or usage.

Business Outlook

For the third quarter of 2017, the Company expects its total revenues to be between RMB396 million and RMB411 million. Net advertising revenues are expected to be between RMB345 million and RMB355 million. Paid services revenues are expected to be between RMB51 million and RMB56 million. These 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 9:00 p.m. U.S. Eastern Time on August 15, 2017 (August 16, 2017 at 9:00 a.m. Beijing/Hong Kong time) to discuss its second quarter 2017 unaudited financial results and operating performance.

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

A replay of the call will be available through August 22, 2017 by using the dial-in numbers and conference ID below:

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 non-GAAP gross profit, non-GAAP gross margin, non-GAAP income/(loss) from operations, non-GAAP operating margin, non-GAAP net income/(loss) attributable to Phoenix New Media Limited, non-GAAP net margin and non-GAAP net income/(loss) per diluted ADS, each of which is a non-GAAP financial measure. Non-GAAP gross profit is gross profit excluding share-based compensation. Non-GAAP gross margin is non-GAAP gross profit divided by total revenues. Non-GAAP income/(loss) from operations is income/(loss) from operations excluding share-based compensation. Non-GAAP operating margin is non-GAAP income/(loss) from operations divided by total revenues. Non-GAAP net income/(loss) attributable to Phoenix New Media Limited is net income/(loss) attributable to Phoenix New Media Limited excluding share-based compensation and gain/(loss) from equity investments, including impairments. Non-GAAP net margin is non-GAAP net income/(loss) attributable to Phoenix New Media Limited divided by total revenues. Non-GAAP net income/(loss) per diluted ADS is non-GAAP net income/(loss) attributable to Phoenix New Media Limited divided by weighted average number of diluted ADSs. The Company believes that separate analysis and exclusion of the aforementioned non-GAAP to GAAP reconciling items add clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with the related GAAP financial measures 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 these non-GAAP financial 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 investors. The Company also believes that these non-GAAP financial measures are useful supplemental information for investors and analysts to assess its operating performance without the effect of items like share-based compensation and loss from equity investments, including impairments, which have been and will continue to be significant and recurring in its business. However, the use of these non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using these non-GAAP financial measures is that they do not include all items that impact the Company's gross profit, income/(loss) from operations and net income/(loss) attributable to Phoenix New Media Limited for the period. In addition, because these non-GAAP financial measures are not calculated in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider these non-GAAP financial measures in isolation from, or as an alternative to, the financial measures prepared in accordance with 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 RMB6.7793 to US$1.00, the noon buying rate in effect on June 30, 2017 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 Internet platform, including PC and mobile, 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 through their PCs and mobile devices. Phoenix New Media's platform includes its PC channel, consisting of ifeng.com website, which comprises interest-based verticals and interactive services; its mobile channel, consisting of mobile news applications, mobile video application, digital reading application, fashion application and mobile Internet website; and its operations with the telecom operators that provides mobile value-added services.

Safe Harbor Statement

This announcement contains forward−looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward−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 forward−looking statements. Phoenix New Media may also make written or oral forward−looking statements in its periodic reports to the U.S. Securities and Exchange Commission ("SEC") on Forms 20−F and 6−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 forward−looking statements. Forward−looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward−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 online and mobile advertising, online video and mobile paid services markets in China; the Company's reliance on online and mobile advertising and MVAS for a majority of its total revenues; the Company's expectations regarding demand for and market acceptance of its services; the Company's expectations regarding maintaining and strengthening 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 services 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 F−1, as amended, and its annual reports on Form 20−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 forward−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.
Rose Zu
Tel: +1 (646) 405-4883
Email: investorrelations@ifeng.com

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