Weibo Corp

NASDAQ:WB

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Weibo Reports Second Quarter Financial Results Conference Call. [Operator Instructions]

I must advise you that this conference is being recorded today, Wednesday, August 8, 2018. I would like to hand the conference over to your first speaker today, Ms. Wen Li. Thank you. Please go ahead.

[Wen Li, executive]

Thank you, operator. Welcome to Weibo's 2018 Second Quarter Earnings Conference Call. Joining me today are our Chairman of the Board, Charles Chao; our CEO, Gaofei Wang; and our Interim CFO, VP Finance, Fei Cao. The conference call is being broadcasted on internet and is available through Weibo's IR website. Before the management presentation, I want to review the safe harbor statement in connection with the -- today's conference call. During the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements of our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Weibo assumes no obligation to update the forward-looking statements in this conference call and elsewhere, further information regarding [ these ] and other risks, including the Weibo's Annual Report on Form 20-F and other filings with the SEC. All information provided in this press release is occurring as of the date hereof, and Weibo assumes no obligation to update such information, except as required under applicable law. Additionally, I'd like to remind you that our discussion today include certain non-GAAP measures, which excludes stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating performance and the future prospects. Our non-GAAP financial exclude certain expenses, gains or losses and other items that are now expected to result in future cash payments or that are now recurring in nature and will now be indicative in our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures. Following management's prepared remarks, we will open the lines for a brief Q&A session. With this, I'd like to turn the call over to our CEO, Gaofei Wang.

[Gaofei Wang, executive]

[Foreign Language]

Thank you. Hello, everyone, and welcome to Weibo's Second Quarter 2018 Earnings Call. [Foreign Language] On today's call, we'll share with you highlights of Weibo's user growth, product and the monetization as well as our key initiatives in 2018. [Foreign Language] First, let me discuss our second quarter financial results. We continued to see strong revenue and user growth this quarter. Our total revenue reached $426.6 million, up 68% year-over-year. Advertising and marketing revenue reached $369.9 million, up 69% year-over-year, with 82% of our ad revenue in Q2 from mobile. Non-GAAP operating margin during the second quarter reached the 39%. [Foreign Language] On [ the ] user front, Weibo's monthly active user reached 431.1 million in June, an increase of 19% year-over-year or up 20 million on a quarter-over-quarter basis, representing the largest net addition of MAUs in the second quarter 2017. The average daily active users in June reached 189.9 million, up 19% year-over-year. In June, 93% of Weibo's MAU were from mobile. [Foreign Language] With the recent Fifa World Cup and other events, Weibo has once again achieved [ the ] strong user growth and user engagement this quarter, leveraging our enhanced offering, consistent user engagement and content distribution as well as our insight into market opportunity. Weibo's monetization capability was further improved. We have diversified our advertising in the marketing solutions, tailored to different customer segments for individuals to small and medium-sized enterprises to key accounts, to offer better marketing experience and the higher investment returns to our customer. Advertisers are increasingly recognizing our social marketing capabilities. [Foreign Language] In discussing our operational OpEx for the second quarter, I will cover Weibo's program in areas of users, content and the customers. [Foreign Language] First, on user growth. We continue to increase our channel coverage and the efficiency in user acquisition. This quarter, our strategic partnership with the smartphone manufacturers, TV programs and other channels have allowed our product to reach our broader user base more rapidly. In particular, our partnership with a key domestic smartphone manufacturers have shown meaningful results. During the first half of 2018, our mobile direct coverage increased by double-digit year-over-year, setting the stage for -- of our strong MAU growth. Our continued investment in user acquisition is essential to help us enhance our network impact; achieve user base expansion; increase penetration into lower tier cities; and solidify our leading act in the social and media competitive landscape. In the meantime, our efforts to promote the user discussion over high events and to strengthen the social attributes of our user product have result in greater user engagement at each level of our platform compared to the last quarter. [Foreign Language] This quarter, leveraging Weibo's unique market acquisition within the social media space, Weibo was able to form strategic partnership with Fifa, CCTV, youkou and the China Mobile and to distribute the license to work-up content generated by the partners. We will have become the primary platform for users to come to work-up-related content. Users otherwise enjoy the consumption of the premium content. We're able to participate in work-up-related Weibo activities, [ lead ] by the celebrity and the sports KOLs in a number of interactive format. The significant participation by the users work-up helped by the platform to attract new users and boost our user engagement. The workup brought together over 100 million users on Weibo, generating more than 1 billion highly related interactions. Meanwhile, related short video posted nearly 700,000 and were viewed more or less 17 billion times, while related topic has viewership by nearly 100 billion times during the workup. [Foreign Language] Moreover, our deep collaboration with online variety show helped Weibo further solidify its competitive act in content distribution and helped our celebrities increase their influence. For example, as part of our strategic partnership with the Tencent talent show, Produce 101, Weibo was one of the official voting channels. This collaboration has promoted the show and its contestants to interact with the broad user base, as a result, Produce 101-related topics, nearly 37 billion viewership. Meanwhile, short videos exceeded 11 billion viewership, and the fan base of [ the ] Produce 101 contestants reached 40 million. This partnership has enabled Produce 101 to become the blockbuster variety show in 2018, while Weibo benefited from their increased user engagement, including the rise in daily user post on platforms. [Foreign Language] Other than our continuing investment in channel marketing, we have increased our efforts and investments in user product to more efficiently acquire new users and reactivate old users. For example, we launched a number of social-focused activities, such as giving away red envelope to new users when they complete -- completed designated tasks in content creation, content consumption or social relation pertubation. In addition, we have achieved a meaningful result by deploying more effort in machine learning, which have helped the users establish more social connections and optimize their content consumption experience.

During the quarter, the user consumption rate of the -- both relationship-based and interest-based feeds continues to grow. Moreover, the number of users on Weibo Lite, which mainly targets mobile users who owns relatively low-end smartphones rose sharply in June. MAUs for Weibo Lite had a triple digit sequential increase. This has further expanded our channel network, and the product coverage and increased efficiency in acquiring new users. [Foreign Language] Moving to the relationship-based feed. We continued to strengthen the relationship-based feed with social attributes on the promoter side and interactions. In June, the users engagement rate in the relationship-based feed maintained double-digit growth year-over-year. Pertaining to the interest-based feed, we allocated considerable resources associated with the content safety such as implementing manual review of the content compliance in the first quarter. These actions have resulted in lower traffic growth of the hot search and the hot Weibo feeds in the first quarter. However, as our operations gradually return to normal during the second quarter, we were able to improve our content offerings and the user consumption rate of the interest-based feeds and the trending topics. [Foreign Language] In the second quarter, we have enhanced the distribution scale of the full screen vertical short video to users on Weibo to promote user consumption and the content creation by allowing users to distribute Weibo story in the [ fleet ] and add a separate fee to recommend other story to users in the discover zone of the Weibo app. In the second quarter, daily post of Weibo story increased by double digits sequentially, and the daily star viewership increased by triple digits sequentially. We are confident that our effort to increase the distribution of [ a ] full screen ratable short video will help to build a stronger content ecosystem and attract more top KOLs from other platforms to accumulate incremental social assets of Weibo. In addition to vertical short videos, our focus and efforts were primarily on horizontal short videos. We will leverage our deepened collaboration with the content creators in multiple fields to focus on content creation with IP and the programs in the period. In the second quarter, we [ allowed -- ] Weibo app client to allow users to access video content at a primary entry point rather than asking user to navigate through the video sections. We also partially rolled out this version upgrade to certain Weibo users. As the new version of the app will prioritize the consumption of the premium video content, the preliminary past result show a significant increase in the user scale of Weibo -- of video feeds and [ the user can't find ]. We plan to roll out Weibo upgrades beyond initial pass-through of the user in the third quarter. We believe this revamp will help increase our market share in the mobile short video industry. [Foreign Language] Moving on to the content. One of our key focus area has been to further verticalize our content to build stronger engagement throughout every level of Weibo platform. To support this cause, in June, we expanded content category to 16 verticals, and we partnered with more or less 1900 MCNs. We're going to build the number of our daily posters by top content creators, and the number of our monthly views maintained double-digit growth year-over-year in the -- this quarter. [Foreign Language] Now I would like to share a few thoughts on our strategy on how to work with the top content providers, and that differentiate Weibo in operation from other content operating platform. A key product assumption of Weibo's primary focus on facilitating social relation perturbation and enabling top content creators to express themselves, grow social assets and interact with the followers who are fast leveraging Weibo's diverse media formats, including fast picture live broadcasting on the video. For example, [ Sama ], a KOL in this vertical, was originally using Bilibili to build her personal brand. When she opened an account on Weibo and has started posting content in various formats, in June, both the viewership of [ Sama's ] feed and the fan's engagement increased by 20 times on a year-over-year basis. Another example is Shenwei, KOL originally from [indiscernible] who has grew his fans to nearly 5 million followers year-on-year on Weibo. The interesting part that we observed recently is that, despite the selected verticals, small and the medium content creators such as [ building content ] on Weibo may distribute [ other content on other platforms ]. We have returned to Weibo after establishing a baseline of influence. Weibo is reflected as the automated platform for KOL to expand our horizon and again, their public influence, whereby achieving effective monetization. [Foreign Language] Lastly, turning to monetization. We achieved a strong ad revenue growth in the second quarter. More and more key accounts have [ liked ] the value of our social marketing on Weibo, and our successful marketing campaigns have demonstrated Weibo's ability to help advertisers generate a high marketing return rate. As a result, both the number of key advertisers and key ad revenues continued to grow rapidly in the second quarter. Our KOL revenue was up 91% year-over-year, while our customer standing hit a historical high at more than 50% year-over-year. Despite the price increase of our display app product earlier this year, our product sales rate hasn't been affected.

Moving forward, we will continue to strengthen our cooperation with the third-party to share brand marketing data across the [ food label chain ]. We expect this will help our KA customers better recognized Weibo's marketing value. In return, we anticipate generating increased KA [ spending. ] In the second quarter, we launched the Weibo Uni Marketing program with Alibaba. Here, the program's data analyticals and integration, we were able to help brand advertisers more precisely reach a larger group of our target users and to better understand app conversion. This program optimized the advertiser's marketing model by starting the marketing reaction to our products, marketing content and more celebrity cooperation. [Foreign Language] Turning to SME. In the second quarter, SME revenues were up 48% year-over-year. Both the number of SME advertisers and app have continued to grow. This growth were preliminary driven by the increased result rates after introducing the new app inventory and the continues optimization of our app algorithm, which has helped the SME customer achieve marketing goals more efficiently. In the second quarter, both ECPM and the app engagement rates grew sequentially. We have made a number of adjustments on our app products and have adapt our strategy to face the -- a serially competitive information piece advertising market in the following suite access. First, [ growth of ] sales rate of new app inventories we added in the video feeds in the discover zone of the Weibo's app, the recommended video feeds and the feed in the main page. However, it may take time for our customers to adjust to our content creations to accommodate the new app format available in the app inventories that we added.

Second, further enhance our [ app ] algorithm, especially on those new app inventories, to boost the targeting capability in different dimensions as well as to improve the app conversion rate. Third, further expand our customer base and to deploy tailored product and the marketing solution to advertisers to different verticals. [Foreign Language] With that, let me turn the call over to Fei Cao for our financial update.

[Cao Fei, executive]

Thank you, Gaofei. Welcome to Weibo's second quarter 2018 earnings call. As a reminder, we're adopting new revenue guidance, ASC Topic 606, on January 1, 2018. In order to provide investors with [ more ] meaningful comparisons, and we also indicate our revenue [ with the ] figures under the old revenue guidance, which excludes barter transactions and [ add ] tax -- value added tax to the reported figures included in our earnings release.

Now let me go through our financial highlights. All comparisons are on a year-over-year basis, unless otherwise noted. For the second quarter, Weibo's net revenue reached $426.3 million, up 68% or up 67% under the old basis. We are pleased that we delivered this growth, with [indiscernible] of the China RMB related to the U.S. dollar had unfavorable impact on the revenue during the quarter. Notably, the foreign exchange rate assumption of RMB 6.35 to USD 1 that we provided last quarter is an increase of approximately 2% in the second quarter. [indiscernible] depreciation of the R&D since June 2018. Looking ahead, we expect to face continued foreign currency headwinds in the second half of this year due to the depreciation of the RMB. Non-GAAP operating income reached $167.4 million, up 67%. Non-GAAP net income attributable to Weibo was $156.1 million, up 18%. Non-GAAP diluted EPS was $0.68 compared to $0.38 a year ago. Advertising and the marketing revenue for the second quarter reached $369.9 million, up 68%. Mobile ad revenue in the second quarter was $305 million, up 91%, with [ 82% ] of our total ad revenue. Given our unique market exploitation of China's [ premier ] social media platform, and with 93% of our MAU for mobile in June, Weibo is continuing to benefit from the shift in corporate SME towards mobile, social and video. As a result, total advertisers exceeded 935,000 in the second quarter, up 6%. Turning to KA. In the second quarter, our KA ad revenue reached RMB 153.3 million, up 91%. Restructuring and advertising revenue growth was driven by both an increase in ARPA and expansion of Weibo's advertiser base. Weibo has become a must-have by increasing amount of key advertisers, as more brand advertisers has seen the repricing result from their Weibo social marketing campaign. Weibo's ability to drive the highest levels of social traffic combined with competitive edge. This has raised our unique celebrity access, KOLs, network effect, content diversity and integrated marketing solutions will continue to generate increased KA ad spending. Moving on to SMEs. In the second quarter, Weibo's SME ad business delivered revenue of $105.3 million, up 38%. Both number of SME advertisers and ARPA continue to grow. The top categories of our SME business include app downloads, O2O companies and e-commerce, which includes sub categories such as beauty and wellness, [ gaming ] app, entertainment app, travel, education and others. More notably, the advertising spending of SME customers on both the channel and education segments decreased by triple digit year-over-year. Revenue from Alibaba was $31.3 million, up 137%, up 19% quarter-over-quarter. As we mentioned the last quarter, revenue from Alibaba is highly correlated with their marketing campaigns and initiative spending, which can fluctuate significantly on a sequential and annual basis for any given quarter. In the second quarter, Alibaba further increased its investment on Weibo's platform, mainly to support its June 18th marketing campaign and other new branded promotion events. Weibo also has a unique position in Alibaba's ecosystem, not only providing the marketing channel for Alibaba's for e-commerce business, but also integrating into O2O, payment solutions, entertainment and video opportunities. Value-added service net revenue was $56.6 million in the second quarter, up 62%. Membership fees, which include individual membership, enterprise account verification and V-Plus membership were up 52%, and games revenue was up 36%. Membership fees and games revenue together [ make up more than 50% ] of Weibo's VAS revenues. Turning to costs and expenses. Total non-GAAP cost and expenses were $259.4 million, up 69% or 68% under the old basis. Excluding the barter transactions related to the marketing expense of $25.2 million recognized under the new basis, the increase in costs and expenses was primarily due to the increases in marketing fees and the product development cost. We are taking a more focused approach to increase user acquisition and retention as well as expand user engagement over multiple channels. As such, the non-GAAP sales in the marketing as a percentage of net revenue was 26% during the second quarter under the old basis, up from 23% last year. The drive in sales and marketing as a percentage of revenue is driven by increase in channel marketing spending, our investment on the collaboration with several online variety shows, and the investment on the promotion of Weibo Lite. The increase in product divestment expenditure was primarily attributable to increase in personnel-related costs. Non-GAAP operating income was $167.3 million in the second quarter, up 67%, representing a non-GAAP operating margin of 39%. Income tax expense was $25.1 million compared to $16.4 million last year, a result of higher profitability. Non-GAAP net income attributable to Weibo in the second quarter was $136.1 million or up 18%. Turning to our balance sheet and cash flow items. As of June 30, 2018, Weibo's cash, cash equivalents and short-term investments totaled $1.6 billion. Cash provided by operating activities was $117.2 million. Capital expenditures totaled $7.5 million, while depreciation and amortization expenses amounted to $4.8 million. As leading social media platform in China, Weibo's scale and brand strength has allowed us to grow the platform efficiently. As a result, we delivered free cash flow of $109.7 million in the second quarter. According to our ADR depositary form, as of June 30, 2018, approximately 28% of Weibo's shares outstanding were represented by American depositary shares, 86% of which were considered floating shares. Turning to Weibo's third quarter 2018 guidance. We anticipate our third quarter revenues to be in the range of $465 million and $475 million or an increase of 49% year-over-year to 52% year-over-year on a constant currency basis. This forecast reflect the currency translation rates and assume the foreign exchange rates of RMB 6.8 to USD 1 during the third quarter. With that, let me now turn the floor over to the operator to begin the Q&A portion of the call.

[Operator]

[Operator Instructions] Our first question comes from the line of Juan Lin of 86 Research.

[Juan Lin, analyst]

I have 2 questions. My first question is on user acquisition and channel strategy. I'm curious about the split of new users contributed by different channels and the change of the mix. Are we seeing any change in terms of user acquisition cost? And are we addressing our user channel message strategy in case of slowing down smartphone sales? My second question is on our user growth target. I wonder whether there's any change to the 15% to 20% MAU growth target for this year.

[Unknown Executive]

[Foreign Language] We have no specific line to decrease or change our initial plan of MAU growth of 15% to 20%, which we indicated at the very beginning of the year, despite there's slower shipments in the smartphone and also in overall rather internal market. From the user gross point of view has shown some weakness in the market. [Foreign Language] I think Gaofei indicated in his prepared remarks what was viewed today in terms of penetration into the fourth, fifth, even sixth tiered city, very much unlike the time -- if we went back to year 2013 when we start to penetrate into the third tier city. So that's sort of a time spot. In the other words, we are at the very beginning for the company to penetrate into cities lower than the third tier -- of the third tiers. I think the -- what Gaofei indicated is as we penetrate more into the lower tiered city, we start to see some of the benefits being a social media product. As a result, we will -- to further strengthen our collaboration with our -- Tencent manufacturers, our top-tier TV programmers or even the Miaopai video sites, given their contents are very essential to the lower -- their channel and their contents are essential to the lower tier city. And also, once we're -- penetration rate to reach to a certain level, we will start to see the social aspect of our product to be further amplified. [Foreign Language] If we break our user into 2 categories, one category being the 3 -- third tier city above and a third tier city below, over 50% of our new user acquired and either acquired or recalled are from cities below the third tier. [Foreign Language] Our strategy in doing with the penetration into the fourth, fifth and even sixth tier city is quite similar to what we have done few years back when we try to penetrate into the third tier city. We leveraged our channel with smartphone manufacturers. We using premium contents generated from TV programmers and the important corners in the video site. For example, our third tier cities penetration, if you look back 3 years ago, that's about 15%, and now it's over well above 30%. [Foreign Language] This year, we have done quite significant pre-installation to penetrate into the fourth tier city. [Foreign Language] Other than the pre-installation, which is a quite similar strategy, we have deployed -- compared to certain fourth tier city users, we try to adopt other differentiated methodology to increase our engagement level for the fourth tier city. As I indicated in my prepared remarks that we have [ initiated ] a few social-focused activities such as red envelope, giving away red envelopes to first tier city users when they create contents or consume contents or even when they establish certain social relationships. As a result, we see our engagement level for our fourth tier city users has been improved and in terms of retention rate for the fourth tier cities compared to 1 year ago has been also rising. [Foreign Language] For users from the third tier city above, we believe we have really achieved a reasonable penetration rate. [Foreign Language] In terms working with those users from third tier cities above, our relevant cost to maintain or recall those group of user are forecast compared to the cost incurred to attract users from third tiers below. Reason for that is these are -- these group of user are relatively mature, and they know our products very well. And all we need to do is to ensure that our [ app ] is pre-installed or show up on their handset and be close to our ID system in place. So they will be returning right after they install our products.

[Operator]

Our next question comes from the line of Tian Hou from T.H. Capital.

[Tian Hou, analyst]

[Foreign Language] Regarding competition, so last quarter, when we're on the call, we're talking a lot on the new players like Tencent [indiscernible]. So they cost some pressure to a lot of leading vendors such as Tencent, such as you guys. But this quarter, if we look at the performance, which really are either much better in the older opposition of data, so what's the main driver for that? Is that because media discussion for their actions that can track or what have or the government give a pressure to [indiscernible]? What's the major driver? If those are not the major driver, what is ongoing and substantial -- sustainable driver for the future growth? That is number one question. Number two is now one of your biggest shareholder, Alibaba, also become a shareholder of [indiscernible] [ or against that ]. So is there -- will there be some kind of [ either ] cooperation in the future? And yes, so that's my 2 questions.

[Unknown Executive]

[Foreign Language] In terms of the competition, I will really like to address from 2 aspects. One is on the short video site, and the other -- another angle is from the social future of our product. [Foreign Language] I indicated in my prepared remarks, in the second quarter, we have significantly improved our product experience in the full screen vertical video penetration and also the distribution of content in our ecosystem. As a result, we have observed, there's top content creators who use to generate or create or distribute their content on other platform, have been moving their content distribution to Weibo in the second quarter. And as also I indicated, our viewership for the full screen vertical short video has grown more than 100% on a year-over-year basis for this particular quarter. [Foreign Language] In terms our core competence, to meet our users demand, we have carefully studied at the -- our core competence and believe our product features are quite significantly different from those platforms who solely distribute video content. [Foreign Language] What we have seen, that the other -- the short video platform had very little impact in terms our MAU scale growth in this quarter. However, we did notice that our user product frequency could have be impacted by some of the select platforms, particularly targeting those age group from 20 to 25. [Foreign Language] As a result, we have some modified -- modification in our strategy since first quarter. Instead of purely focusing on the video content itself, we have shift more our attention to the social relationship establishment, and it boosted the engagement level between our content generators and their fan base. [Foreign Language] From a -- In terms to me, the competition with the short video product, where focus continue to be on -- to be to our social attributes for our product. So we've been focusing our product enhancement or upgrade with our content generators with how they engage or how they interact with their fans. [Foreign Language] The data has demonstrated that we see quite significant improvement in engagement level in between our top content generators and with their fans. Our view towards the barrier for us to continue to [ build our business is ] that, from a content distribution point of view, content can be -- content creators can switch from their -- from top 1 to top 1 in terms of their distribution capability. However, to switch their social assets from one platform to another, that is a very different story and have much higher barrier to overcome. [Foreign Language] In terms of your question regarding the Ali's investment in [indiscernible], we have not noticed the related reporting or news. As a result, we will not be able to comment on this particular issue. In terms of the relationship between Weibo and Ali, as I indicated, we have developed quite significant cooperating efforts in between these 2 companies from a user front, from a data exchange point of -- front. Now only in the data exchange for our key accounts campaign, we have started more collaboration in terms our SME customers, the data exchange and the local.

[Operator]

Our next question comes from the line of Gregory Zhao from Barclays.

[Gregory Zhao, analyst]

I have 2 question. The first one's about your K and then the SME revenue growth. So can you help us understand the growth outlook of both in the second half? And my second question is about your story. So can you help share some updates of operating metrics and plan to monetize story? And do you think that, going forward, story will be a key revenue driver? And as this quarter, we see Facebook actually substantially cuts second half revenue growth outlook, partially due to the story promotion. So we just want to have a better understanding of your monetization plan on story.

[Unknown Executive]

[Foreign Language] In terms to Weibo story, we see quite significant viewership and the traffic that -- being consumed on story products in the second quarter. [Foreign Language] As I indicated in my script, we have opened -- and there's an advertising inventory since the first quarter. For example, our main page inventory and our video feed and also commentary. So these are -- currently, their sell-through rates have been relatively low. [Foreign Language] So our key task in terms of monetization for the second half of 2018, would it be -- shift to more client budget and allocate more money into those new inventory we opened up in the first half. This is quite similar to those years when we had a transition from a PC inventory utilization to mobile inventory utilization. [Foreign Language] Currently, we have opened up commercial monetization for key accounts to use with the story inventory, and the result has been quite up to our expectations, and we have noted that the first DAU viewership per DAU usage in frequency of Weibo story has been significantly increased in this quarter. However, we are not in a hurry or has the urgency to monetize beyond what we have done so far. In terms your first question on your key accounts and SMU revenue growth for the second half, we generally do not break out our growth rate for each customer segment. I think our overall revenue growth target has been very clearly outlined in our guidance in the earnings release. But I think in the prior calls -- prior calls or in the communication with the sell-side analysts, we have made it very clear that our second half growth in terms of revenue growth will be slower than the first half. That's primarily as a result of a higher comparable base we are experiencing. And also, [ on ] the second half, I'm sure everybody's aware of, we also indicated in our prepared remarks that we are facing a very volatile foreign exchange market with the RMB being depreciated a lot faster than everyone has initially expected.

[Operator]

Our next question comes from the line of Alicia Yap from Citigroup.

[Alicis a Yap, analyst]

I have 2 very quick ones. One is on the margins. Your second quarter OP margin came in better-than-expected, despite the increase in the sales and marketing. I wanted to know how much of the increase in sales and marketing versus the first quarter is attributed to the spend in the workup? And then how much of those workup spend will also be recognized in 3Q? And how should we think about the margin trends for the second half? Second question is quickly on if there's any update or color on the new contract framework from the Alibaba budget commitment for this year. And given the enhanced relationship, especially on the collaboration on the uni-marketing and data integration, how should we think about the Ali revenue for this year?

[Cao Fei, executive]

Alicia, this is Fei. I think to answer your margin -- your question on margin, we expect our margin for the second half will be very similar to the level we were -- we was able to achieve in year 2017. Even though we have been writing off our selling and our marketing expenses as a percentage of revenue, we continue to see that we're able to derive certain operating leverage from our G&A expenses and also our product and development expenses. For your question on the expenses we spend on World Cup, that's quite limited. These are content, these -- most of the content, licensed content we were able to obtain is through the partnership we indicated with CCTV, with youkou, with China Mobile. So we don't -- we have not incurred significant incremental cost in terms of World Cup event. So that's the case for the second quarter, and that will be the case for the third quarter as well. In terms -- your question on the Ali, Alibaba's claim contract, we -- I think, we -- they have a basic frame contract with us, and the remaining RMB amount of 700 million. But the -- similar to prior years, this year, they are spending on Weibo is largely depending on their own strategy and their marketing efforts. So things could have go well beyond the RMB 700 million if they decided they need to beef up their marketing expenditures.

[Operator]

I would like to hand the conference back to today's presenters. Please continue, sir.

[Unknown Executive]

That concludes today's conference call. Thank you for joining us, everyone.

[Operator]

Ladies and gentlemen, that will conclude our conference for today. Thank you for participating. You may all disconnect.