Phoenix New Media Reports Third Quarter 2017 Unaudited Financial Results

BEIJING, Nov. 14, 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 third quarter ended September 30, 2017.

"In the third quarter of 2017, we not only delivered solid financial and operating performance, but also achieved several important milestones," stated Mr. Shuang Liu, CEO of Phoenix New Media. "Among others, Yidian, a company in which we invested and accounted for as available-for-sale investments, received the License for Internet News Information Service, which is the first license  issued by the Cyberspace Administration of China that covers PC, mobile and we-media platforms since new regulations in China came into effect on June 1, 2017. This license will allow Yidian to differentiate and gain competitive advantages over its peers, especially on content acquisition on its we-media platform Yidianhao. The license also fulfills a prerequisite for an equity investment in Yidian by Long De Cheng Zhang Culture Communication (Tianjin) Co., Ltd., which together with the other two investors that we discussed in the second quarter, are expected to invest approximately US$112.1 million in total at an estimated transaction valuation of Yidian of about US$1.0 billion. We are very pleased to have finalized this round of investments as certain major terms, including the valuation, were negotiated late last year.

We also further executed our content strategy during the third quarter. We continued to be a leading news distributor in China of major current affairs around the world. According to a report from iResearch, during the 19th National Congress of the Communist Party of China, the growth rate of weekly active users of our iFeng News App surpassed all of our peers and we also ranked first on the PC platform based on the number of page views of featured stories. 

Looking ahead, we will remain focused on market share expansion. By leveraging our professional journalism, cutting-edge technology, extensive partnership resources as well as our branding power, we believe we can maintain our leading position in the highly competitive market."

Ms. Betty Ho, CFO of Phoenix New Media, further stated, "We are delighted to have strong financial results this quarter. Net advertising revenues increased by 17.0% year-over-year to RMB363.1 million, primarily driven by a 50.0% year-over-year increase in our mobile advertising revenues. In particular, revenues from our programmatic advertising showed robust year-over-year growth of 106.0% to RMB142.1 million during the third quarter, mainly resulted from our strong operations and product optimization. Non-GAAP net income attributable to Phoenix New Media increased by 38.9% year-over-year to RMB34.4 million. We are very pleased with the results we achieved during the third quarter and expect our mobile advertising business will continue to grow in line with the industry trend. On the other hand, in order to expand our market share, we need to further invest in traffic acquisition while adopting strict cost control measures and closely monitoring the investment return of our products."

Third Quarter 2017 Financial Results

REVENUES

Total revenues for the third quarter of 2017 increased by 18.2% to RMB425.6 million (US$64.0 million) from RMB360.0 million in the third quarter of 2016.

Net advertising revenues (net of advertising agency service fees) for the third quarter of 2017 increased by 17.0% to RMB363.1 million (US$54.6 million) from RMB310.4 million in the third quarter of 2016, which was primarily attributable to a 50.0% year-over-year increase in mobile advertising revenues and partially offset by a 11.8% year-over-year decrease in PC advertising revenues.

Paid services revenues^[1] for the third quarter of 2017 increased by 25.9% to RMB62.4 million (US$9.4 million) from RMB49.6 million in the third quarter of 2016. Revenues from digital entertainment^[2] for the third quarter of 2017 increased by 41.8% to RMB52.6 million (US$7.9 million) from RMB37.1 million in the third quarter of 2016. The increase was due to a 51.5% increase in digital reading revenue to RMB 17.2 million (US$2.6 million), which mainly resulted from stronger demand and the Company's strategic expansion efforts, and a 37.5% increase in the MVAS revenues related to certain short-term new business with telecom operators. Revenues from games and others^[3] for the third quarter of 2017 decreased by 21.3% to RMB9.8 million (US$1.5 million) from RMB12.5 million in the third 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 third quarter of 2017 increased by 2.9% to RMB188.2 million (US$28.3 million) from RMB182.9 million in the third quarter of 2016, primarily attributable to an increase in revenue sharing fees and sales taxes and surcharges.

• Content and operational costs for the third quarter of 2017 decreased to RMB110.5 million (US$16.6 million) from RMB119.5 million in the third quarter of 2016, primarily attributable to a decrease in advertisement-related content production cost and the Company's strict control of general operation costs.
• Revenue sharing fees to telecom operators and channel partners for the third quarter of 2017 increased to RMB27.9 million (US$4.2 million) from RMB16.6 million in the third quarter of 2016, primarily attributable to an increase in the sales of MVAS products.
• Bandwidth costs for the third quarter of 2017 decreased to RMB14.1 million (US$2.1 million) from RMB16.4 million in the third quarter of 2016, primarily due to the decrease in bandwidth purchase price as a result of intense competition.
• Sales taxes and surcharges for the third quarter of 2017 increased to RMB35.7 million (US$5.4 million) from RMB30.4 million in the third quarter of 2016.
• Share-based compensation included in cost of revenues was RMB0.9 million (US$0.1 million) in the third quarter of 2017, as compared to negative RMB5.1 million in the third quarter of 2016 resulting from the increase of estimated forfeiture rate of share-based awards based on the actual forfeiture rate in the quarter.

GROSS PROFIT

Gross profit for the third quarter of 2017 increased by 34.0% to RMB237.4 million (US$35.7 million) from RMB177.1 million in the third quarter of 2016. Gross margin for the third quarter of 2017 increased to 55.8% from 49.2% in the third quarter of 2016. The increase in gross margin was primarily attributable to the increase of revenues and decrease of certain cost of revenues as explained above.

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 third quarter of 2017, which excluded share-based compensation, increased to 56.0% from 47.8% in the third quarter of 2016.

OPERATING EXPENSES AND INCOME FROM OPERATIONS

Total operating expenses for the third quarter of 2017 increased by 34.7% to RMB201.9 million (US$30.3 million) from RMB149.9 million in the third quarter of 2016, primarily attributable to an increase in mobile traffic acquisition expenses, which was partially offset by a decrease in bad debt provision primarily due to the collection of RMB8.3 million of previously fully-reserved receivables in the third quarter of 2017. Share-based compensation included in operating expenses was RMB1.5 million (US$0.2 million) in the third quarter of 2017, as compared to negative RMB3.1 million in the third quarter of 2016. The increase in share-based compensation was primarily due to negative share-based compensation expense recognized in the third quarter of 2016 reflecting an increase of estimated forfeiture rate of share-based awards based on the actual forfeiture rate in that quarter.

Income from operations for the third quarter of 2017 increased by 30.3% to RMB35.5 million (US$5.3 million) from RMB27.2 million in the third quarter of 2016. Operating margin for the third quarter of 2017 increased to 8.3% from 7.6% in the third 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 third quarter of 2017, which excluded share-based compensation, increased by 99.1% to RMB37.9 million (US$5.7 million) from RMB19.0 million in the third quarter of 2016. Non-GAAP operating margin for the third quarter of 2017, which excluded share-based compensation, increased to 8.9% from 5.3% in the third 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^[4]. Total other income for the third quarter of 2017 was RMB6.2 million (US$0.9 million), as compared to RMB6.7 million in the third quarter of 2016.

• Interest income for the third quarter of 2017 increased to RMB14.9 million (US$2.2 million) from RMB7.9 million in the third quarter of 2016, which was mainly due to the increase of interest bearing investments and receivables in the third quarter of 2017 as compared to that of 2016.
• Interest expense for the third quarter of 2017 increased to RMB5.7 million (US$0.9 million), from RMB1.6 million in the third quarter of 2016, which was primarily due to the increase in outstanding short-term bank loans in the third quarter of 2017 as compared to that of 2016.
• Foreign currency exchange loss for the third quarter of 2017 was RMB8.9 million (US$1.3 million), as compared to foreign currency exchange gain of RMB0.6 million in the third quarter of 2016, which was mainly caused by the appreciation of Renminbi against US dollars in the third quarter of 2017.
• Gain from equity investments for the third quarter of 2017, including impairments, was RMB1.0 million (US$0.1 million), as compared to loss from equity investments of RMB1.2 million in the third quarter of 2016.
• Others, net, for the third quarter of 2017 increased to RMB4.9 million (US$0.7 million), from RMB1.0 million in the third quarter of 2016, which was primarily attributable to the government subsidies received in the third quarter of 2017.

NET INCOME ATTRIBUTABLE TO PHOENIX NEW MEDIA LIMITED

Net income attributable to Phoenix New Media Limited for the third quarter of 2017 increased by 3.8 % to RMB32.9 million (US$4.9 million) from RMB31.7 million in the third quarter of 2016. Net margin for the third quarter of 2017 decreased to 7.7% from 8.8% in the third quarter of 2016. Net income per diluted ADS^[5] in the third quarter of 2017 increased 3.7% to RMB0.46 (US$0.07) from RMB0.44 in the third quarter of 2016.

Non-GAAP net income attributable to Phoenix New Media Limited for the third quarter of 2017, which excluded share-based compensation and gain/(loss) from equity investments, including impairments, increased by 38.9% to RMB34.4 million (US$5.2 million) from RMB24.8 million in the third quarter of 2016. Non-GAAP net margin for the third quarter of 2017 increased to 8.1% from 6.9% in the third quarter of 2016. Non-GAAP net income per diluted ADS in the third quarter of 2017 increased by 38.8% to RMB0.48 (US$0.07) from RMB0.34 in the third quarter of 2016.

For the third quarter of 2017, the Company's weighted average number of ADSs used in the computation of diluted net income per ADS was 72,227,027. As of September 30, 2017, the Company had a total of 573,879,193 ordinary shares outstanding, or the equivalent of 71,734,899 ADSs.

CERTAIN BALANCE SHEET ITEMS

As of September 30, 2017, the Company's cash and cash equivalents, term deposits and short term investments and restricted cash were RMB1.28 billion (US$191.9 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 fourth quarter of 2017, the Company expects its total revenues to be between RMB433.0 million and RMB448.0 million. Net advertising revenues are expected to be between RMB386.2 million and RMB396.2 million. Paid services revenues are expected to be between RMB46.8 million and RMB51.8 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 13, 2017 (November 14, 2017 at 9:00 a.m. Beijing/Hong Kong time) to discuss its third 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 November 20, 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 from operations, non-GAAP operating margin, non-GAAP net income attributable to Phoenix New Media Limited, non-GAAP net 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 gain from equity investments, including impairments. Non-GAAP net 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 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 from operations and net income 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 RMB6.6533 to US$1.00, the noon buying rate in effect on September 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
Nicole Shan
Email: investorrelations@ifeng.com

ICR, Inc.
Rose Zu
Tel: +1 (646) 405-4883
Email: investorrelations@ifeng.com

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