Weibo Corp

NASDAQ:WB

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Weibo Corporation Report Third Quarter Financial Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today.

And I'll now hand the conference over to your first speaker, Ms. Wen Li. Thank you. Please go ahead.

[Wen Li, executive]

Thank you, operator. Welcome to Weibo's 2018 third quarter earnings conference call. Joining me today are our Chairman of the Board, Charles Chao; our Chief Executive Officer, Gaofei Wang; and our Interim CFO and VP, Finance, Fei Cao; and the SINA CFO, Bonnie Zhang. The conference call is also being broadcasted on the Internet and is available through Weibo's IR website. Before the management presentation, I'd like to review the safe harbor statement in connection with 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 about 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 is included in 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. 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 includes 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 excludes certain expenses, gains or losses and other items that are not expected to result in future cash payments or that are nonrecurring in nature or not be indicative of 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 would like to turn the call over to our Chief Executive Officer, Gaofei Wang.

[Gaofei Wang, executive]

[Foreign Language] Thank you. Hello, everyone, and welcome to Weibo's third quarter 2018 earnings call. [Foreign Language] On today's call, I will share with you highlights of the Weibo user growth, product and the monetization as well as our key initiatives in 2018. [Foreign Language] First, let me discuss our third quarter financial results. We continue to see healthy revenue and user growth in this quarter. Our total revenue reached $460.2 million, up 44% year-over-year. Advertising and marketing revenue reached $409.3 million, up 48% year-over-year, with 83% of our ad revenue in Q3 from mobile. Non-GAAP operating margin during the third quarter reached 41%. [Foreign Language] On the user front, Weibo's monthly active users reached 445.9 million in September, an increase of 19% year-over-year. Additionally, the average daily active users in September reached 195.2 million, up 19% year-over-year, with 93% of Weibo's MAU from mobile. [Foreign Language] Thanks to our continuous efforts to enhance the operation and distribution of the trends, which are typically either hot issues or popular events discussed by users on Weibo, Weibo has further solidified its leading position as a platform for users to create and consume content. This strategy has allowed Weibo's user scale to continue to expand during the third quarter.

Our focus to strengthen our platform ecosystem for social interactions among users and the content distribution has further increased Weibo's value proposition as a social media platform and strengthened our platform effect. In return, more and more advertisers are recognizing Weibo's ability in the social marketing. [Foreign Language] In discussing our operational updates for the third quarter, I will cover Weibo's progress in the area of users, content and the customers. [Foreign Language] First, on the user growth, we see that the organic growth of the mobile Internet user is slowing down and the short video industry is becoming increasingly competitive. These sectors have put some pressure on the growth rate of the user scale and the user engagement in the first half of 2018.

In order to face these challenges, we have refined our strategy to be more focused on taking advantage of Weibo's core capabilities in social and the media areas to acquire users and to promote user engagement. [Foreign Language] For example, we will have to remain as an important platform for the discovery and distribution of the trends. These have been Weibo's main differentiators to acquire new users and to promote user engagement, and we continue to improve these capabilities. This quarter, we have adjusted our product operations strategy and the recommendation algorithm to strengthen our competitive edge.

First, we have upgraded our topic products to highlight trends with hashtags adding as a point of aggregation, allowing users to discover and consume trends in multiple entry points such as our Weibo Hot Search and the topic feeds within the discovery zone.

Second, we enhanced the distribution of trends on other platforms such as Weibo's WeChat mini program. These updates have encouraged more users to discover, consume, distribute and participate in the discussion of a trend, which in return has allowed us to effectively acquire more users and promote user engagement. Notably, in Q3, the number of trends increased by triple digits sequentially and top content creators' posts around trends increased by double digits on quarter-over-quarter basis.

For example, in the third quarter, super typhoon Mangkhut, the strongest storm of 2018 and the most intense typhoon to affect the region since recordkeeping began, hit Guangdong province. We immediately engaged more than 100 local government agency accounts and our city ambassadors to broadcast the disaster relief efforts and to report the devastating effect of the typhoon and other related coverage in real time. More than 200,000 top content creators participated in the discussion on our platform, helping more people be aware of the natural disaster and the support recovery efforts. Over a 7-day period, the number of impressions on the topic Typhoon Mangkhut reached 7.3 billion, which resulted in an increase of millions of daily active users. [Foreign Language] Moving to the feed product. Our focus have always been on enhancing social content production and maintaining the user's social relations as the top priority for content distribution. Our goal is to amplify the platform's social features and to distinguish ourself from the market. During the past 2 years, the competitive landscape of information feeds and for videos have increased in the mobile Internet industry. Both have been the key drivers for user growth and our main focus around product development. [Foreign Language] Our 2 years of product development and enhancement have been paying off. Weibo's relationship-based feeds and interest-based feeds' user scale and user consumption have grown rapidly and have gained popularity among users to consume content. This quarter, user engagement rate of relationship-based feeds as well as user consumption of interest-based feeds both achieved a healthy growth on a sequential basis.

[Foreign Language] Meanwhile, with video, [ viral as a page or UGC ] format has become an important and a growing area within our content ecosystem. And we have achieved meaningful progress with our video products. In September, there were short video views and the posts grew by double digits from last year. Weibo stories' monthly active users and daily stories viewerships both achieved healthy growth on a sequential base. [Foreign Language] The short video market has become increasingly competitive. In order to best position Weibo for success and to sustain our long-term competitiveness, we are increasing investment in our user products to feature Weibo's unique advantages in content creation, consumption and user social interaction so we can improve user acquisition efficiency. [Foreign Language] This quarter, we rolled out a new version of the Weibo app beyond initial test for of users. Compared to the old version, we made 2 primary modifications. First, we have created a video chat named video -- named Weibo video community, allowing users to access video content at a primary entry point and featuring premium video content with IP and programs in series such as our daily vlog, makeup tutorials or self-help videos with recurring characters or themes. We intend to cultivate habits for users to discover premium videos more efficiently and connect and interact with those creators they love.

The viral distribution of short video is showing great promise and the increase of user viewership and advertising inventory are leveraging our core capabilities in content distribution and fans' social connectivity. We think the video community will further help driving the growth of our video user scale and user time spent as it will be a designated center stage to a wide range of premium videos and a platform for users to connect and interact with each other and with content creators. [Foreign Language] Further on the user product, we have optimized our discovery zone to further strengthen our competitive edge in the discovery and the discussion of the trends. We have structures -- structured a topic feed and provide users personalized recommendation on topics they might be interested in, helping to promote user discussion around topics.

We have integrated topics -- topic products seamlessly into Weibo's hot search. On the one hand, any content on the hot search that have been formed as a topic will be assigned with a separate topic page. Users not only to discover what are hot and the new controversial content on the hot search, they will be also able to view other relevant information including discussions, video, articles and others based on the topic page. On the other hand, as more users discover, consume, share, distribute and participate in the discussion of a particular issue or event, the hot issue or popular event could become the hottest topic on the hot search and eventually go viral on Weibo. This integration represents an information reinforcing cycle that effectively extends user content consumption for a longer period. [Foreign Language] We believe this upgrade is vital to further strengthen Weibo's uniqueness in social media market, especially in the creation and consumption of a video content and the distribution of trends. It's also a key driver to accelerate Weibo's future growth. The new version will be available to our users in the coming quarters based on the product optimization progress and the users' feedback. [Foreign Language] Moving to live broadcasting. Our strategic investment in Yi live broadcasting has solidified our leading edge in the live broadcasting market for media and the celebrity vertical. Given the current competitive landscape of live broadcasting, we plan to acquire Yi's live broadcasting business in Q4. Our goal is to provide Weibo's users with a improved live broadcasting experience by enabling better product integration between Weibo and Yi that focus in media, celebrity and showcase vertical. Ultimately, this acquisition is intended to increase traffic and revenue to Weibo's platform. Once the acquisition process is completed, it will take us 1 or 2 quarters to fully integrate and optimize product. We believe the combination of Yi's live broadcasting business with Weibo will further enrich our content ecosystem, offer better support to top content creators and improve our monetization capability and efficiencies. [Foreign Language] Moving on to content. In the third quarter, we expanded strategic cooperation with over 2,200 MCNs. Top content creators' posts as well as post views maintained double digits growth from last year, representing higher engagement of the top content creators on Weibo. Weibo has become the inevitable platform for top content creators, primarily because of the following 2 reasons: [Foreign Language] First, as I mentioned last quarter, more and more KOLs have recognized Weibo's uniqueness from other content offering platforms. During this year, as short video platforms became more popular among users, many content creators returned to Weibo after establishing a baseline of influence and becoming top content creators on other platforms. Weibo is recognized as the ultimate platform for KOLs to expand their audience reach and to further gain public influence, whereby generating better monetization. In Q3, the number of top content creators from other platform that returned to Weibo increased to nearly 3x sequentially. Those returned top content creator have been actively creating content. [Foreign Language] Second, we value the top content creators' experience and growth on Weibo. We have largely increased the traffic support and the subsidies to help top content creators monetize their content. For example, in Q3, we have provided more than RMB 500 million worth of advertising inventory as a subsidy to support top content creators to grow. At the same time, Weibo has allowed more top content creators to more effectively monetize their social assets after have joined the Weibo advertising alliance program. As a result, the average number of posts generated by those content creators who entitle with our revenue sharing increased double digits. The considerable subsidies we're providing might temporarily restrain the demand of our native app on the platform, thus affecting our short-term financial performance.

However, based on our proven track record of successful cases, we believe it's more important to help top content creators grow on Weibo and accumulate social assets and be able to monetize on our platform over the longer run. We believe our strategy will facilitate top content creators greater incentive to create higher quality content, enhance user acquisition and the user engagement and to further broaden Weibo's content ecosystem. All of this will in return help our long-term sustainable growth of our future monetization. [Foreign Language] Lastly, turning to monetization. We achieved healthy ad revenue growth in the third quarter. This quarter, KA revenue increased to 73% year-over-year. More and more advertisers do not just pass their marketing content on Weibo, they have increasingly realized Weibo's unique value of social marketing and the power of leveraging our content distribution strengthened the KOL's influence. In short, they have considered Weibo as a strategic partner. This achievement could not be made without Weibo's continuous investment in the innovation and the optimization of our monetization products. Our focus to strengthen the strategic cooperation with third party helped KA customer better recognize Weibo's marketing value and enabling them to have a better marketing experience.

Separately, the Weibo uni-marketing program, our cooperation with -- collaboration with Alibaba launched in Q2, has made impressive progress this quarter. Currently, more than hundreds of the brand advertisers have joined the program and are benefiting from its broad reach. For example, after joining the Weibo uni-marketing program, Dyson was able to more precisely identify the target potential customers by leveraging the existing customer base on Weibo and Ali. After the marketing campaign, user's favorability of Dyson's vacuum product increased 43%. Moreover, data confirms that more a user interacts with the Dyson app on Weibo, the higher possibility the user will make a purchase through Dyson's Tmall store.

[Foreign Language] Turning to SME. In the third quarter, SME revenue were up 35% year-over-year. However, our SME ad business confronted challenges in the following 2 aspects: [Foreign Language] First, macroeconomic headwinds are expected to continue in the near future, which have already led to a decrease in merchant advertising spending in our [ sales ] vertical industries such as auto services, wedding business and other consumer sectors with large ticket size and with a focus on targeting users in the first and second tier cities. [Foreign Language] Second, the gaming industry has been one of our top subsector of SME ad business. However, the regulatory changes in the gaming industry had a significant impact on marketing demand of a gaming company. We expect the regulatory impact and the length of the supervision lasting longer than we expected. [Foreign Language] In response to these challenges, we have made strategic adjustments by focusing on the following 3 aspects. [Foreign Language] First, we have adjusted the structure and the focus of our sales teams who will actively seek for more opportunities to expand the customer base, including regional brand customers, and deploy tailored product and a marketing solution to advertisers across more verticals. Notefully, we made a meaningful progress in the online education sector in this quarter. Revenue contributed by this sector increased by triple digits year-over-year. [Foreign Language] Additionally, we intend to further subsidize MCNs and top content creators to grow and monetize on Weibo under the current macroeconomic condition, as they are one of our unique assets helped Weibo differentiate from other platform. Our process support and investments have enabled large amounts of MCNs and top content creators to grow rapidly on Weibo in the past few years. The considerable subsidies we provided might temporarily restrain the demand of our native app on the platform, thus affecting our short-term financial performance. However, we believe our investment will benefit Weibo's overall ecosystem in the long run. [Foreign Language] Plus, although we expect the gaming sector's revenue contribution will decline in the short term, we insisted on increasing the investment to strengthen the operation of our gaming vertical on Weibo. On the one hand, we believe the resources we invested in the gaming vertical will enable us to acquire younger users at a lower cost while the gaming industry is currently in the adjustment cycle. And in the longer term, we expect it will bring us corresponding returns after the industry returns back to normal. Notably, in this summer, we acquired many user in the gaming vertical through a series of activity and events. [Foreign Language] Overall, we have encountered challenges to grow our SME's ad business in the second half of the year, including the impact of macroeconomic headwinds on selected industry segments and the short- and medium-term impact of regulatory and economic policy changes on gaming. However, we will continue to invest in expanding customer base from resilient industries, supporting MCNs and top content creators to build a better monetization ecosystem, developing more verticals that users will be interested in. All of this will in return help us to promote the growth of Weibo's SME assets in the longer term. [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 third quarter 2018 earnings call. As a reminder, we adopted ASC Topic 606 on January 1, 2018, and our new revenue guidance is consistent with these standards. In order to provide investors with clear comparisons during today's call, I will also refer to our revenue and expense figures under the old revenue guidance, which excludes other transactions and includes value-added tax to the reported figures in our earning release. Now let me walk you through our financial highlights. All comparisons are on a year-on-year basis, unless otherwise noted. Weibo's third quarter net revenue was $460.2 million, a 44% or 43% under the old accounting standard or an increase of 48% on a constant currency basis.

Strong advertiser revenue growth was offset by the recent regulatory changes in certain verticals, particularly in the gaming industry, which led to a decrease in merchant advertising spending during the quarter, especially for SMEs. We expect these regulatory adjustments will continue to affect growth of this vertical's advertising spend in the near term. In addition, the continued depreciation of RMB related to U.S. dollar had an unfavorable impact on revenue growth during the quarter. And we expect foreign currency headwinds to continue in the near term. Non-GAAP operating income reached $188 million, up 42%. Non-GAAP net income attributable to Weibo was 171.8 million, up 49%. Non-GAAP diluted EPS was $0.75 compared to $0.51 a year ago. Advertising and marketing revenue for the third quarter reached $409.3 million, up 48%, or an increase of 52% on a constant currency basis. Mobile ad revenue in the third quarter was $341.6 million, up 58%, representing 83% of our total ad revenue. Our focus to strengthen our platform ecosystems with user social interaction and the content distribution has further increased Weibo's value proposition as a social media platform and strengthened the platform effect. Thereby, we continue to benefit from the shift in corporate ad spending to our mobile, social and video with 93% of MAU for mobile in September. As a result, we are pleased to see that our total advertisers continued to grow from the last quarter. Turning to KAs. In third quarter, our KA ad revenue reached [ $156.2 million ], up 73% or an increase of 78% on a constant currency basis. This strong key advertising revenue growth was driven by both an increase in ARPA and the expansion of Weibo's key advertiser base.

Weibo is tracking key advertisers of all backgrounds based off of social relationships, combined with the competitive differentiators we have with our unique celebrity assets, KOLs, network effect, content diversity and the integrated marketing solution. Most notably, we continue to see most of the growth in Weibo's top tech industries with FMCG and IT, electronics, telecom, [indiscernible] growing at triple digits year-over-year.

In addition, I'll stress the cooperation with Alibaba and third parties such as AdMaster and Nielsen in data analytical integration will further allow our key customers to realize better returns on their marketing efforts. In return, we anticipate generating increased KA ad spending. Moving on to SMEs. In third quarter, Weibo's SME ad business delivered revenue of $194.5 million, up 35%, or an increase of 39% on constant currency basis. The number of SME advertisers continue to grow. The top categories of our SME business include app downloads, O2O companies and e-commerce.

Nevertheless, the recent macro and the regulatory headwinds have slowed growth in several sectors, particularly in the gaming sector, which was considered as one of our top sub-industries of SME ad business with outstanding results from some of our other sub-industries here in the quarter, including online education, entertainment and others. Revenue of $28.5 million from Alibaba contributed 6% of our net revenue, up 13% or an increase of 16% on a constant currency basis. Revenue from Alibaba is highly correlated with its marketing campaign and initiative spending, which can fluctuate significantly for any given quarter. Weibo also has a unique position in Alibaba's ecosystem. We not only provide the marketing channel for Alibaba's whole e-commerce business but will also integrate into Alibaba's O2O payment solutions, products and data integration, entertainment and video [indiscernible]. Value-added service, VAS, revenue were $50.9 million in third quarter, up 18%, or an increase of 20% on constant currency basis. Game services declined year-over-year and it now makes up only 6% of our VAS revenue.

Membership fees, which include individual memberships, enterprise account verification and V-Plus memberships, were up 45%. Turning to costs and expenses. Total non-GAAP cost and expenses were $272.2 million, up 45%, or 43% under the old basis. Excluding the related barter transactions, marketing expenses were $108.9 million under the old basis. The increase in expense were primarily due to the increase in sales and the marketing fees as well as product development costs. We continue to 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 and the marketing spend as a percentage of net revenue was 24% during the third quarter under the old basis, up 1% from the same period last year, and is mainly due to the increase in channel marketing spending and investments related to the promotion of Weibo Lite. The increase in product development expenditure was primarily attributable to an increase in personnel-related costs. Non-GAAP operating income was $188 million in third quarter, up 42%, representing a non-GAAP operating margin of 41%.

Income tax expense was $37.9 million compared to $22 million last year. The increase was primarily due to the deferred tax liability recognized from the fair value changes of the investments and higher profitability. Non-GAAP net income attributable to Weibo in the third quarter was $171.8 million or up 49%. Turning to our balance sheet and cash flow items. As of September 30, 2018, Weibo's cash, cash equivalents and short-term investments totaled $1.6 billion. Cash provided by operating activities was $122.1 million. Capital expenditures totaled $6 million, while depreciation and amortization expenses amounted to $4.5 million.

As leading social media platform in China, Weibo's scale and brand strength have allowed us to grow the platform efficiently. As a result, we delivered free cash flow of $116.1 million in third quarter. According to our ADR depositary form as of September 30, 2018, approximately 28% of Weibo's share outstanding was represented by ADR shares, 86% of which were considered floating shares. Regarding acquisition of Yi's live broadcasting business, as Gaofei mentioned in his remarks, the combination of Yi's live broadcasting business with Weibo will further enrich our content ecosystem. Off the back [ of the support to protect ] content creators and the improved our monetization capability and efficiency, we plan to complete the acquisition process in fourth quarter. Now let me turn to our financial outlook. We anticipate our fourth quarter of 2018 revenue to be in the range of $480 million and $490 million, which assumes a foreign exchange rate of RMB 7 to USD 1 or an increase 35% or 38% year-over-year on a constant currency basis. This forecast reflect the potential impact of macro and regulatory uncertainties as well as currency translation headwinds.

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, 86Research.

[Juan Lin, analyst]

My first question is on your Q4 guidance. I noticed that the Q4 guidance shows a slowdown compared to the third quarter in terms of growth. I'm wondering whether the guidance is mainly due to the regulatory environment change and also the macro impact on certain categories that you have already noticed or whether you have noticed some more further impacts from the macro environment change. And how should we look at 2019? The second question is on your margin. I notice that non-GAAP operating margin actually improved versus last quarter, especially on sales and marketing expenses, seem to be well controlled. So I wonder what is the future investment plan for user acquisition and how should we look at the margins going forward.

[Gaofei Wang, executive]

[Foreign Language] I think I addressed -- somewhat addressed this issue in my prepared remarks. From -- as I indicated in my script, there's 2 main elements that are affecting our growth rate in the fourth quarter. As you have -- we indicated that our growth rate in the fourth quarter will be slower compared to the third quarter. The first element will be the macro situation, in particular for those items what was big dollar ticket size in the -- we're looking at industry segments such as auto. Auto segment with the travel and like big-ticket items such as [Foreign Language], wedding services. And the other element were -- we addressed on the call is the gaming industry. I think you are very much aware of the regulatory challenges most companies are facing these days and that has had an impact on the marketing dollar spend on that particular industry. That impact was a lot larger than the initial estimate we had made at the beginning of the year. As a result, that could have -- that could impact our growth rate in the fourth quarter. [Foreign Language] What I have indicated earlier, these are considered external factors. There will be a few like company-specific factors for you to consider. One, as I indicated in my remarks, during the tough period of the microeconomic situation, we're doing -- we are actually expanding our investments in the gaming verticals. We believe that right now, it's a good time to acquire users, Weibo users at a much more reasonable cost. That's one factor even though this is not too much related to the revenue growth. The other thing which I also indicated on my script is we have a significant increase our investments in those MCN multi-channel network agencies who are actively with -- who are being very active with Weibo. We are providing our operating inventory for them to subsidize their content creation as well as to help them to monetize. Our -- the new subsidy we have been providing to them would effectively reduce their native app demand on our platform. However, we believe this would be a short-term impact. History or our past experience have been telling us that these things, once the overall economic situation improves, those entities tend to return to their normal spending levels. This is the first question. The second, on the margin expansion question, I think we've been -- very much been very disciplined in terms of our spending throughout the years. I don't think that has been a particular issue for the third quarter. If you look back to the past few quarters, as we indicated at the beginning of the year, we've been expecting our margins for the year be relative stable on a year-over-year basis. As a result, our sales growth -- sales marketing absolute dollar as a percentage of revenue has been a relative stable basis. So we do not have any particular reduction in sales and marketing or cut back of sales and marketing per se. So these are our plan. I think most of our sales and marketing expenditures, the work had -- from a quarter perspective. So hopefully, that answers that question. From a forward-looking point of view, I think the -- there are -- excluding the impact from Yi Zhibo, which it's bit of a different from a margin composition point of view from our normal business, I think our core business will continue to bear a margin that's similar to the level with last year.

[Operator]

Our next question comes from the line of Ding Binbin from JPMorgan.

Move on to the next question from Karen Chan, Jefferies.

[Karen Chan, analyst]

So my first question is just wondering what general thoughts on China's social ad market growth going into 2019 and how should we think about Weibo's growth profile versus industry as peers like Tencent, they start adding more ad inventories. My second question is, any color management can provide on Yi Zhibo current monthly grossing level? Or how much of a revenue contribution should we be expecting starting first quarter 2019 as a result of consolidation? That would be very helpful.

[Gaofei Wang, executive]

[Foreign Language] I will divide the question into, I guess, 2 parts to address your question on the social ads all of for 2019, starting with the brand ads. I think we look at the competitive landscape in the social ads for brand advertisers. There's -- there were limited competitors in the marketplace. And we -- our primary competitors in this area is WeChat. [Foreign Language] From demand of brand advertisers in terms, they've struck -- they execute a campaign at Weibo. They are not simply looking at the cost that we are providing. They are more concerned about their brand influence -- brand awareness, their influence. Also, the participation of our KOLs in their distribution and amplify their brand impact. As a result, we have seen continued growth of our ARPA from brand advertisers. And on top of that, we are further expanding our customer bases. We're looking into further going to other local brand advertiser level in 2019. [Foreign Language] From -- for a brand -- the growth of our brand advertisers, I think that the primary pressure is not from the competition we had with WeChat, more so it's from the market acceptance, meaning that we can acquire more marketers or brand advertisers who are willing to set up social ad products and to understand and utilize our social marketing efforts. [Foreign Language] On the other side, let's move on to SME side. Overall, we believe the -- for 2019, SME growth will be a bit of challenging. There's twofold: one is with the current macro condition, the overall demand, it's decreasing. And on the other side, we are looking at increasing supply in traffic in the market. [Foreign Language] In the past few years, our growth of SME has largely depending on the growth of our traffic. And we have been paid a little bit less attention in terms of our products with the social marketing features. With 2019, I think we're going to shift some of the focus into this area. [Foreign Language] I think we recognize this could be challenging. However, with the social platform such as Weibo and WeChat, other than providing traffic for purchase conversion, we do have advantages in terms of interactions between merchant and their fans or merchant and their followers compared to other pure media platforms. Of course, in the midst of that, we still need to have effort. We have to pay efforts in terms the ecosystems to support the growth of SMEs by -- including our distributors. [Foreign Language] In terms of Yi live broadcasting, we just take over -- just took over the Yi live broadcasting team in the month of October. For the first 2 quarters, with Yi our focus will be on the product side, particular the product features with Yi live broadcasting with few -- with our Weibo platform that need to be well interfaced. As a result, we have had no specific revenue forecast for 2019 on live broadcasting yet. [Foreign Language] I'll just give you supplemental comments on the live broadcasting. I'm sure a lot of you are aware of that. The live broadcasting industry have been quite impacted by the popularity of short video in 2018. In the past, Yi live broadcasting have been focusing on the live broadcasting of showcase and KOLs. Rather, this is not an area that Weibo has significant competitive advantage compared to others. We plan to, for the first few quarters, spend more time to develop on the verticals -- selected verticals or celebrity live broadcasting with Yi Zhibo so that these 2 platforms can have a better converging their efforts. Thank you.

[Operator]

Our next question comes from the line of Binbin Ding from JPMorgan.

[Binbin Ding, analyst]

My first question is on your short video strategy. So can you elaborate the progress on execution of the short video strategy so far? What is the current revenue and traffic contribution from short video in the third quarter? In terms of monetization, is there any particular sectors we are going to focus at the initial stage? And also, what kind of impact will short video monetization bring to our existing KA and SME advertising revenue? My second question is quickly -- so between the live streaming and short video content, how do you prioritize your focus on investment in these 2 types of content format? And lastly, I would like to quickly ask if there any new initiatives should we expect from your partnership with Alibaba in the next year?

[Gaofei Wang, executive]

[Foreign Language] I think most of you are aware of that, in the last 2 years, the short video has been the primary drivers for our platform growth, both from viewership and from a user growth point of view. However, for the first half of 2018 with the popularity of few short video platforms, that has put pressure in terms of our user growth rate on the video site. [Foreign Language] In the third quarter, we have made adjustment in terms user acquisitions from video content. So we will be focusing more effort in terms of the content consumption and the interactions between the content creators and the users to acquire users. And from the content type and -- the content type point of view, we have -- which is more focusing on the [ PTC ] content and the content with particular IP. [Foreign Language] In terms -- ad advertising demand, rather they've been -- they tried to put more ad advertising material into the video format. They haven't been strictly associated their video campaign with a particular video content on the platform. As a result, you see continued favorable growth of our video advertising dollar as a percentage of our total ad advertising dollar. This quarter has been up 2 percentage points to 27%. [Foreign Language] In terms of your second question on our investment priority in between live broadcasting and short video, no doubt short video will be continued the top priority for this platform. We believe the short video will be the baseline media format going forward in terms of content creation and content consumption. [Foreign Language] In terms the volume of the short video and the live broadcasting, short video creation on the platform on a daily basis, it's in the millions, while the live broadcasting might be in the 10,000s. So from that volume difference, you could see what has been the dominant player. Live broadcasting will be primarily used by our top content creators, such as celebrities, as an supplemental media format for their content distributions.

I think at this point of time, we have not started our particular negotiation or discussion with 2019 plan with Alibaba. So we have no -- at this point, there's no indicator in terms of the further new programs we'll be working with Ali, neither there will be the frame contract in ad advertising dollars, so we will be working with Ali for the following years.

[Operator]

Thank you. As there are no more further questions, I'll hand the conference to the presenter for closing remarks. Please continue.

[Wen Li, executive]

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