Phoenix New Media Reports Third Quarter 2016 Unaudited Financial Results

BEIJING, Nov 9, 2016 /PRNewswire/ --

• Live Conference Call to be Held at 8:00 PM U.S. Eastern Time on November 8

Phoenix New Media Limited (NYSE: FENG), a leading new media company in China ("Phoenix New Media", "ifeng" or the "Company"), today announced its unaudited financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Highlights

• Net advertising revenues increased by 3.5% to RMB310.4 million (US$46.6 million) from RMB300.0 million in the same period last year.
• Paid service revenues were RMB49.6 million (US$7.4 million), as compared to RMB90.4 million in the same period last year.

"We are encouraged by the solid results of our ongoing evolution as one of China's leading new media platforms and remain focused on strengthening our core capabilities through providing our users with personalized, specialized, and high-quality content across our platforms," stated Mr. Shuang Liu, CEO of Phoenix New Media. "We remain diligent and agile as the media landscape evolves in China and are committed to providing users the highest quality of content across mobile and PC platforms. As such, we are excited to have the Chinese media veteran, Mr. Tong Chen, join us as the co-president of ifeng and the president of Yidian Zixun ("Yidian", a strategic investment of ifeng). Mr. Chen is a proven leader with significant media and content development expertise and a deep understanding of the changes and direction which are taking place in our industry and the opportunities they present for ifeng. We look forward to working with him to build upon the Company's strong foundation and accelerate our success for years to come."

"We are pleased to share the encouraging progress being made on the Yidian and ifeng platforms," Mr. Ya Li, President of Phoenix New Media, further commented, "The user growth of Yidian continues to be encouraging and the total daily active users reached over 40 million in September this year. Further, Yidian's strategic partnership with OPPO is moving along seamlessly. OPPO started to pre-install Yidian's app on its new shipments recently. Meanwhile, both OPPO and Xiaomi began to exclusively embed Yidian's newsfeed service into their browsers. Additionally, although we continue to face headwinds associated with the market-wide pressure on PC ad revenues, we were able to slower the decrease by our innovative native marketing solution and programmatic buying. We are confident that by continuing to execute on our strategic initiatives with both ifeng and Yidian, we will capture new growth opportunities and enhance our market position to drive value for our users, strategic partners, and shareholders."

Third Quarter 2016 Financial Results

REVENUES

Total revenues for the third quarter of 2016 were RMB360.0 million (US$54.0 million), as compared to RMB390.4 million in the third quarter of 2015.

Net advertising revenues (net of advertising agency service fees) for the third quarter of 2016 increased by 3.5% to RMB310.4 million (US$46.6 million) from RMB300.0 million in the third quarter of 2015. The increase was primarily due to the 69.4% year-over-year growth in mobile advertising revenues and was partially offset by the 22.8% year-over-year decrease in PC advertising revenues.

Paid service revenues for the third quarter of 2016 were RMB49.6 million (US$7.4 million), as compared to RMB90.4 million in the third quarter of 2015, primarily due to the 63.7% year-over-year decrease in mobile value-added services ("MVAS")^[1] revenues to RMB25.8 million (US$3.8 million) from RMB71.1 million in the third quarter of 2015. The decrease in MVAS revenues mainly resulted from the decline in users' demand for services provided through telecom operators in China, which was consistent with the Company's expectations given the shrinking demand for such services in general. Revenues from games and others^[2] for the third quarter of 2016 increased by 23.5% to RMB23.8 million (US$3.6 million) from RMB19.3 million in the third quarter of 2015, primarily due to the increased revenues generated from online digital reading services through the Company's own platform.

COST OF REVENUES

Cost of revenues for the third quarter of 2016 decreased by 12.8% to RMB182.9 million (US$27.4 million) from RMB209.8 million in the third quarter of 2015. The decrease in cost of revenues was primarily due to the decrease in revenue sharing fees and bandwidth costs. Revenue sharing fees to telecom operators and channel partners for the third quarter of 2016 decreased to RMB16.6 million (US$2.5 million) from RMB51.6 million in the third quarter of 2015, primarily due to the decreased sales of MVAS products. Content and operational costs for the third quarter of 2016 increased to RMB119.5 million (US$17.9 million) from RMB107.8 million in the third quarter of 2015, which was primarily driven by the increase in general operating cost and advertisement-related content production cost. Bandwidth costs for the third quarter of 2016 decreased to RMB16.4 million (US$2.5 million) from RMB20.7 million in the third quarter of 2015. Sales taxes and surcharges for the third quarter of 2016 slightly increased to RMB30.4 million (US$4.6 million) from RMB29.8 million in the third quarter of 2015. Share-based compensation included in cost of revenues was negative RMB5.1 million (US$0.8 million) in the third quarter of 2016, as compared to RMB4.1 million in the third quarter of 2015. The decrease was primarily due to an increase of the estimated forfeiture rate of share-based awards as a result of the decrease of headcounts.

GROSS PROFIT

Gross profit for the third quarter of 2016 was RMB177.1 million (US$26.6 million), as compared to RMB180.6 million in the third quarter of 2015. Gross margin for the third quarter of 2016 increased to 49.2% from 46.3% in the third quarter of 2015, mainly due to the reduction of sales from low gross margin products in paid services.

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 non-cash or non-operating 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, which excludes share-based compensation, for the third quarter of 2016 slightly increased to 47.8% from 47.3% in the third quarter of 2015.

OPERATING EXPENSES AND INCOME FROM OPERATIONS

Total operating expenses for the third quarter of 2016 decreased by 13.0% to RMB149.9 million (US$22.5 million) from RMB172.3 million in the third quarter of 2015. Share-based compensation included in operating expenses decreased to negative RMB3.1 million (US$0.5 million) in the third quarter of 2016 as compared to RMB7.9 million in the third quarter of 2015. The decrease was primarily due to an increase of the estimated forfeiture rate of share-based awards as a result of the decrease of headcounts.

Income from operations for the third quarter of 2016 increased by 228.0% to RMB27.2 million (US$4.1 million) from RMB8.3 million in the third quarter of 2015. Operating margin for the third quarter of 2016 increased to 7.6% from 2.1% in the third quarter of 2015. The increase in operating margin was mainly due to the decrease in share-based compensation, which was partially offset by the increase in mobile traffic acquisition expenses.

Non-GAAP income from operations for the third quarter of 2016, which excludes share-based compensation, decreased by 6.4% to RMB19.0 million (US$2.9 million) from RMB20.3 million in the third quarter of 2015. Non-GAAP operating margin for the third quarter of 2016, which excludes share-based compensation, slightly increased to 5.3% from 5.2% in the third quarter of 2015.

OTHER INCOME / (LOSS)

Other income/(loss) reflects interest income, interest expense, foreign currency exchange gain/loss, loss from equity investments, including impairments, and others, net^[3]. Total other income for the third quarter of 2016 was RMB6.7 million (US$1.0 million), as compared to RMB16.8 million in the third quarter of 2015. Interest income for the third quarter of 2016 was RMB7.9 million (US$1.2 million), as compared to RMB7.0 million in the third quarter of 2015. Interest expense for the third quarter of 2016 was RMB1.6 million (US$0.2 million), as compared to RMB1.1 million in the third quarter of 2015. Foreign currency exchange gain for the third quarter of 2016 was RMB0.6 million (US$0.1 million), as compared to RMB2.7 million in the third quarter of 2015. Loss from equity investments, including impairments, for the third quarter of 2016 was RMB1.2 million (US$0.2 million), as compared to RMB2.7 million in the third quarter of 2015.

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

Net income attributable to Phoenix New Media Limited for the third quarter of 2016 increased by 49.5% to RMB31.7 million (US$4.8 million) from RMB21.2 million in the third quarter of 2015. Net profit margin for the third quarter of 2016 increased to 8.8% from 5.4% in the third quarter of 2015. Net income per diluted ADS^[4] in the third quarter of 2016 increased by 50.1% to RMB0.44 (US$0.07) from RMB0.29 in the third quarter of 2015.

Non-GAAP net income attributable to Phoenix New Media Limited for the third quarter of 2016, which excludes share-based compensation and loss from equity investments, including impairments, was RMB24.8 million (US$3.7 million), as compared to RMB35.9 million in the third quarter of 2015. Non-GAAP net profit margin for the third quarter of 2016 was 6.9%, as compared to 9.2% in the third quarter of 2015. Non-GAAP net income per diluted ADS in the third quarter of 2016 was RMB0.34 (US$0.05), as compared to RMB0.50 in the third quarter of 2015.

For the third quarter of 2016, the Company's weighted average number of ADSs used in the computation of diluted net income per ADS was 72,179,058. As of September 30, 2016, the Company had a total of 571,877,154 ordinary shares outstanding, or the equivalent of 71,484,644 ADSs.

CERTAIN BALANCE SHEET ITEMS

As of September 30, 2016, the Company's cash and cash equivalents, term deposits and short term investments and restricted cash were RMB1.16 billion (US$173.8 million). Restricted cash represents deposits placed as security for banking facility granted to the company, which are restricted as to their withdrawal or usage.

As previously reported by the Company, the Company granted US$20 million of short-term unsecured loans to Yidian from January to April 2016; and in August 2016, shareholders of Yidian agreed that the Company may, at its option, convert all or a portion of the above-mentioned loans into preferred shares of Yidian at any time prior to December 31, 2016. As a result, the above-mentioned loans were classified as convertible debts due from investee company in August 2016.

Option Exchange Program

With the approvals of the board of directors and shareholders of the Company and Phoenix TV, the Company implemented an option exchange program from October 21, 2016 to November 1, 2016 whereby the Company's directors, employees and consultants exchanged options to purchase 21,011,951 Class A ordinary shares of the Company granted under the Company's 2008 Share Option Plan with various exercise prices greater than US$0.4823 per share (or US$3.8587 per ADS) for new options granted by the Company under the same plan with a new exercise price of US$0.4823 per share and a new vesting schedule that generally adds 12 months to each original vesting date, and the new options would vest no sooner than May 1, 2017.

Business Outlook

For the fourth quarter of 2016, the Company expects its total revenues to be between RMB353 million and RMB368 million. Net advertising revenues are expected to be between RMB306 million and RMB316 million. Paid service revenues are expected to be between RMB47 million and RMB52 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 8:00 p.m. U.S. Eastern Time on November 8, 2016 (November 9, 2016 at 9:00 a.m. Beijing / Hong Kong time) to discuss its third quarter 2016 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 November 16, 2016 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 from operations, non-GAAP operating margin, non-GAAP net income attributable to Phoenix New Media Limited, non-GAAP net profit margin and non-GAAP net income 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 from operations is income from operations excluding share-based compensation. Non-GAAP operating margin is non-GAAP income from operations divided by total revenues. Non-GAAP net income attributable to Phoenix New Media Limited is net income attributable to Phoenix New Media Limited excluding share-based compensation and loss from equity investments, including impairments and gain on disposal of an equity investment and acquisition of available-for-sale investments. Non-GAAP net profit margin is non-GAAP net income attributable to Phoenix New Media Limited divided by total revenues. Non-GAAP net income per diluted ADS is non-GAAP 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 and the non-operating impact of loss from equity investments, including impairments and gain on disposal of an equity investment and acquisition of available-for-sale investments, add clarity to the constituent parts of its performance. The Company reviews non-GAAP 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. 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 and non-operating loss from equity investments, including impairments and gain on disposal of an equity investment and acquisition of available-for-sale investments. Share-based compensation and loss from equity investments, including impairments 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 similarly-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 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 RMB6.6685 to US$1.00, the noon buying rate in effect on September 30, 2016 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 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 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.
Vera Tang
Tel: +1 (646) 277-1215
Email: investorrelations@ifeng.com

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