Weibo Corp

NASDAQ:WB

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Weibo reports third quarter financial results conference call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sandra Zhang. Thank you. Please go ahead, ma'am.

[Yunyun Zhang;Investor Relations, executive]

Thank you, operator. Welcome to Weibo's Third Quarter 2019 Earnings Conference Call. Joining me today are our Chairman of the Board, Charles Chao; our CEO, Gaofei Wang; our Senior Group CFO, Bonnie Zhang; and our VP Finance and Interim CFO, Fei Cao. The conference call is also being broadcast on the Internet and is available through Weibo's IR website. Before the management remarks, I'd like to read you the safe harbor statement in connection with today's conference call. During today's call, we will 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 containing any forward-looking statements. We will assume no obligation to update the forward-looking statement in this call and elsewhere. Further information regarding these and other risks is included in Weibo's annual report on Form 20-F and the other filings with the SEC. All the information provided in this press release is current 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 exclude stock-based compensation and certain other items. We use non-GAAP financial measures to gain a better understanding on Weibo's comparative operating performance and the future prospects. Our non-GAAP financial exclude certain expenses, gains or losses and other items that are not expected to result in future cash payments or are nonrecurring in nature or will 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'll open the lines for a brief Q&A session.

With this, I will 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 Third Quarter 2019 Earnings Conference Call.

[Foreign Language] On today's call, I will share with you highlights in Weibo's user product and monetization as well as progress we made on our key initiatives in 2019. [Foreign Language] Let me start with our third quarter financial results. In the third quarter, our total revenue reached $467.8 million, up 2% year-over-year or 6% on a constant-currency basis. Advertising and marketing revenue reached $412.5 million, up 1% year-over-year or 5% on a constant-currency basis. 87% of our ad revenues came from mobile. Non-GAAP net income during the third quarter was $176.1 million, representing a non-GAAP net margin of 38%. [Foreign Language] On the user front, in September, Weibo's active users reached 497 million, up 12% year-over-year, representing a net addition of approximately 51 million users year-over-year. Average daily users reached 216 million, up 11% year-over-year, representing a net addition of approximately 21 million users year-over-year. In September, 94% of Weibo's revenue came from mobile. [Foreign Language] This quarter, leverage reinforced the social interactive features optimized with other reasons and traffic-allocation mechanisms, we capped the ramping up of our efficiency in traffic distribution. Correspondingly, these refreshment, impressions and the user interaction continued to growth double-digit year-over-year. Meanwhile, we continue to improve trend and topic products, which help us empower user to more efficiently discover trends and hot topics and participate in discussions. These initiatives continue to drive solid user field expansion and engagement growth in the third quarter. On the monetization front, KA continued to deliver solid growth, benefiting from Weibo's unique value proposition, build up strong KOLs influence in branding and driving performance, coupled with the increasing adoption of social marketing solution within clients at budget. SME business has achieved a generally stabilized status year-over-year and include double-digit quarter-over-quarter, leveraging the continued increase of platform traffic, improved asset performance and optimized the sales channel. That said, the near-term market challenge still persists, especially on the pricing side due to the unfavorable demand and supply dynamics in the market amid competition. [Foreign Language] In discussing our operating updates for the third quarter, I will elaborate on our progress made in areas of product and monetization.

[Foreign Language] Under the current competitive landscape, instead of solely focusing on user growth, we progressively emphasis on both user field and engagement growth to achieve profit expansion as well as reinforcement of Weibo's core advantages such as hot trend discussions and social interactions to build higher competitive barrier. [Foreign Language] First on user growth and engagement. In the third quarter, we continued to deliver solid user and traffic growth. Our user base continued to grow double-digit year-over-year, representing a net addition of approximately 51 million MAU on annual basis. Coupled with our existing channel investment, we increasingly leverage Weibo's advantage in trend discovery and social features to further acquire user and enhance user engagement. The strategy enable us to acquire users at a lower cost and, meanwhile, enhance user engagement against market competition. Now let me elaborate.

[Foreign Language] First on hot trend. We have been constantly investing in the discovery and distribution of trends, which enable Weibo to solidify its leadership in this area and service one of our key competitiveness to acquire user and enhance user engagement in the past. This year, we further emphasized on extending the life span of hot trend consumption and discussion through 3 initiatives. First, we optimized our topic products. Second, we enhanced distribution synergies among hot search topic and hot trend feeds. Third, in hot trend feeds, we further offered traffic support to promote original content and accounts around hot trend. Consequently, on the one hand, our advantage in discovery and consumption of hot events over other media platform has been further strengthened. As an example, during the celebration of the 70th anniversary birthday of the Founding of the People's Republic of China, the total number of related topics generated on Weibo was 700 with public discussions surpassing 100 million and topic views exceeding 150 billion.

On the other hand, we also have distinct advantage on the hot event discussion front, particularly from diversity of opinion point of view. This quarter, top hot events discussed on Weibo cover across 11 content verticals, and the total number of topics discussed increased 67%, and the number of post around hot events generated by top content creators increased 54% quarter-over-quarter. Compared with other media platform with the sole purpose on news coverage, we were offered the wide range of hot events, more comprehensive information and diversified opinion around the hot events for the user to consume. Coupled with our partnership with Tencent manufacturer around preinstalled and exposure of contents on the handset interface, we can maintain relatively lower user acquisition costs than other media platforms and further improve our user engagement and user acquisition efficiency.

[Foreign Language] Moving on to the social features. Driving social content production and interaction has been our relentless focus as we take a step to further sharpen our long-term competitive edge. To that end, for one thing, we have introduced more social features to our product. For instance, we rolled out hot content and community products in previous quarters. And this quarter, we further launched an option for content creators to limit certain posts to be shown exclusive to fans as well as improved fans interactive functionalities. These efforts uplift the content creators' sense of security in content sharing and improve their interaction experience with them, leading to stronger social relationships and thus deepen user engagement. As a result, with these relationships with feed, we saw higher efficiency in content distribution and user reactivation as well as improved the engagement. Total refreshment for the relationship is the feed and number of user who refresh the feed continue to grow double-digit year-over-year. For another, we took steps to optimize the traffic mix of interest data feed. To facilitate incremental social relationships build out, we keep our -- give more weight to quality content from midtier to longer-tier verticals in terms of traffic distribution. Such optimization also contributed to diversifying our current ecosystem and improving user stickiness. Executing well against this initiative, traffic to the interest data feed continue to grow double-digits. Correspondingly, increased traffic facilitate vertical content creators to better grow fans. The net addition of fans with these content creators tripled sequentially and, hence, drove user engagement as well. [Foreign Language] On video consumption, given intensified competition in surely the industry in the past 2 years, we took a step back and revisited our video product positioning and organization which is centered around 3 categories, including media, PTC and UGC videos. First, the media video category has always been our core strength. Leveraging constructive partnership with media outlet and MCNs, Weibo has become one of the most important channels for media to release video content and to uplift their influence. For instance, during the celebration of China's 70th anniversary, nearly 6,000 media outlets generated 280,000 videos of related feeds, with video views surpassing 8.6 billion.

Second, PTC video will be our future focus on production and operational front and serve as a key driver of short video growth. In the competitive landscape of PTC video, we will demonstrate certain advantage in traffic, content production and monetization on top of our existing strength. We have been constantly optimizing our PTC video offerings and expanding the video exposure in the traffic distribution, while at the same time, improving the social and interactive features around these videos. For instance, we optimized the recommendation and the push function of video community and enhanced hard-core fans and bully chats features. In September, those that daily video view within the video community tab and user engagement on video main page grew double-digits compared to the number in Q1 as well as fans attachment to the video creators trending up. Lastly, we continue to face -- and maybe face through challenges in the UGC video area. Currently, we are better testing a new version of Weibo Star Wars, which we expect to launch in the fourth quarter. I will share with you more color after we have further progress. [Foreign Language] Also, I like to share some color on Oasis. As you may know, we recently roll out our photo and video sharing social community product named Oasis as one of our approach to further tap into the social area. The product was still in the beta testing, awaiting for the final approval from regulator. Oasis is positioned as a lifestyle focus photo and video sharing social platform. In terms of differentiation from Weibo, Oasis will encourage more UGC posting, particularly from vertical content creators. Content is lifestyle related and mainly taking in photo and video format, which complements Weibo's content per system and address users' diversified social and content consumption needs.

During the beta testing period, we're encouraged with the early momentum in user content generation and social interaction. We expect to obtain approval and officially launch the product within this month. Going forward, we will continue to optimize product features, and these are the efforts in the channel marketing in the hope of creating a live social platform with a distinct lifestyle live. [Foreign Language] Moving to content. The number of top content creators post generated as well as content viewership have grown double-digits for the eighth consecutive quarters. The increase was primarily driven by our endeavor to improve content creators' user experience and help them to grow on Weibo, including to constantly optimize content recommendation efficiency and support traffic offering to content creators. As such, we could help them to accumulate social assets and monetize our platform.

Additionally, our continued investment in monetization ecosystem empower content creators to further strengthen their capability to monetize. For example, our latest collaboration with Taobao on e-commerce live broadcasting, which allow e-commerce KOL to synchronize Taobao live broadcasting content on Weibo in real-time manner stimulates real-time interaction between KOLs and can enhance the monetization efficiency and, meanwhile, help them to better accumulate social assets on Weibo.

[Foreign Language] Last on monetization. In the third quarter, our KOL revenue continued to deliver solid growth, representing a year-over-year growth of 6% or 10% in renminbi terms. On a sequential basis, KOL revenues grew 19% in renminbi terms. In the past few years, Weibo has been constantly innovating and optimize differentiated marketing offerings such as celebrity marketing, IP program marketing and the customized content marketing. This allow Weibo to continue to capture our wallet share from brand advertisers such as FMCG and luxury sectors, despite escalation competition. For instance, our top brand advertisers such as Estee Lauder and L'Oréal has increased their annual ad budget by double-digit for the past consecutive years as they have treated Weibo as a strategic partner in planning and executing their marketing campaigns.

As social marketing continue to gain traction, we believe we have much more potential to gain additional wallet share from brand advertisers as the social ad budget and our [ missions ] still have ample room to grow. Let me give an example of celebrity marketing. This quarter, a TV series called Go Go Squid! became very popular on Weibo as well as its leading actor, Li Xian, whose fan base grew quickly from 5 million to 20 million. Xi Lian's huge influence on Weibo attracts dozens of brand advertisers to seek cooperation, including Puma, [ Keep and Pudong ]. Consequently, this led to a new round of marketing campaigns on Weibo, leveraging Xi Lian's influence to target wider audience and promote brand image. Moreover, our celebrity marketing solution featuring a combination of selected celebrity and customized the content as opposed to pure celebrity endorsement resonates well with brand advertisers. As an example. For a biggest marketing campaign to promote the ultra-boost of 2019 will help the brand advertisers to screen out 4 celebrities, including Justin Wong [ and the JoJong team ], whose image best match the new product positioning and then customized the short videos to show different personality of each celebrity. The well-executed initiative largely motivated fans' willingness to create and post content of their own life story on Weibo. As a result, the total video views generated for the customized video surpassed 40 million and the new product brand exposure was maximized. [Foreign Language] Moving on to the SME business. We are pleased to see a stabilizing trend with SME ad revenue growing 1% year-over-year or 5% in renminbi term. On a sequential basis, SME revenues grew 16% quarter-over-quarter in renminbi terms. That said, the macro and regulatory headwinds as well as enhanced competition coming to weigh on the growth prospects of the overall performance -- overall performance and market. The stabilization of our SME ad business are mainly attributable to the solid execution and reinforcement of several key initiatives. Let me elaborate on the progress we made. [Foreign Language] Third, we continue to improve our ad performance and the customer's ROI. For instance, we may strive on driving the adoption of the optimized bidding, namely optimize the CPX bidding model among customers, which enable customers to bid according to a specific target. This further facilities programmatic buying and significantly enhance customers' ad performance efficiency.

In the third quarter, ad spent through oCPX increased over 30% on a sequential basis, making up a higher percentage of the total SME ad spend. Second, we took steps to further differentiate our ad product offerings. For example, we introduced the KOL marketing solution, featuring a short film celebrity on KOL endorsement aiming to help the advertiser quickly accumulate social assets, reach a wider community and achieve better conversion on our platform. Such products resonate well with our customer in the test run. As an example, our customer Magic Ears, a company offering English classes for juvenile initiated a KOL marketing campaign on Weibo. The leveraged influence of KOLs from baby and maternity vertical through their posting of promotional contents of Magic Ears. During the campaign, Magic Ears precisely talked to users who were recognized as the parents of juveniles. As a result, the number of consultation and registration to Magic Ears English classes ramped up, with ad engagement increasing by fivefold and user acquisition costs reduced by 50% compared to the promotional campaign run by Magic Ears itself without the involvement of vertical KOLs. We continued to optimize ad agency structure and enhance go-to-market strategies with the focus on developing new customers and diversifying industry exposure. As a result, ad spend of newly acquired customer static improved, contributing a higher proportion of the total SME ad revenues than prior quarter.

Finally, we offer more operational resources to nurture the so-called native ad customers such as self-media and MCNs to empower them to grow and monetize within our ecosystem, which will ultimately manifest in driving their future ad demand with us.

[Foreign Language] With that, let me turn the call over to Fei Cao for a financial update.

[Cao Fei, executive]

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's Third Quarter 2019 Earnings Conference Call. Let's start with user metrics. Weibo's annual use reached to 497 million in September 2019, representing a net addition of 51 million users on a year-over-year basis. Weibo's average daily users reached 216 million, representing a net addition of 21 million users on a year-over-year. Mobile annual use represented approximately 94% of total annual use. Turning to financials. As a reminder, my prepared remarks, which focus on [ mandatory ] results and old comparisons on a year-over-year basis unless otherwise noted. Weibo's third quarter 2019 net revenues were $467.8 million, up 2% or up 6% on a constant-currency basis. Operating income reached $190.2 million, representing an operating margin of 41%. Net income attributable to Weibo was $176.1 million, and the diluted EPS was $0.77. Let me give you more color on revenues. Advertising and marketing revenues for the third quarter 2019 reached to $412.5 million, up 1% or 5% on a constant-currency basis. Mobile ad revenue was $316.3 million, up 5%, contributing approximately 87% of total ad revenues, up from 83% last year. Moving on to Page 8. In the third quarter, KA ad revenues reached $197.2 million, up 6% or 10% on a constant-currency basis. From industry perspective, FMCG continues its resilience and bolstered the KOL revenue growth. We are also impressed with solid performance of luxury industry, despite macro headwinds as Weibo has further demonstrated its indispensable value to a growing trend base with an integrated social marketing solutions from awareness to purchase. On the flip side, IT-related sector and entertainment industry has faced slowdown of growth primarily due to industry-specific cyclical issues and the regulation factor, respectively. Turning to SMEs. In the third quarter, Weibo's SME ad revenues reached $196.1 million, up 1% or 5% on a constant-currency basis. As we mentioned, in the third quarter, our team has taken a series of measures to enhance ad performance through product revamp and innovation and better repair and acquire customers to adjust trend optimization. These measures have taken effect on stabilization of our SME ad business in the third quarter on an annual basis. We see solid performance of categories such as app download and consumption-related sectors. And let me reiterate the modest recovery of online gaming industry. Nevertheless, we continued to see ad budget cutbacks from certain large-ticket item categories with tough comp last year, I mean the market competition such as local service and the forest industry. Overall, we continued to see market dynamics as unfavorable risk supply of inventories over demand, and we think it still takes time to reach market equilibrium and the rebound of our SME business. Ad revenues from Alibaba for the third quarter was $19.2 million, down 33% or 30% on a constant-currency basis, reflecting the consistent discipline in the marketing strategy of Alibaba Group since the start of the year. Excluding the ad revenues from Alibaba, ad revenues from KA and SME sector were 3% or 7% on a constant-currency basis.

Value-added service, net revenues was $55.3 million in the third quarter, up 9% or 13% on a constant-currency basis. The increase was mainly attributable to the incremental revenues derived from the live streaming business acquired in the fourth quarter last year.

Turning to cost and expenses. Total cost and expenses for the third quarter was $277.5 million, up 2%. Operating income in the third quarter was $190.2 million, representing an operating margin of 41% at similar levels for the same period last year. Turning to income tax and the GAAP measure. Income tax expense for the third quarter was $31.4 million compared to $37.9 million last year.

Net income attributable to Weibo in the third quarter was $176.1 million, representing a net margin of 38% compared to 37% last year. Turning to our balance sheet and cash flow items. As of September 30, 2019, Weibo's cash, cash equivalents and short-term investments totaled $2.37 billion. In the third quarter, cash provided for operating activities was $164.8 million. Capital expenditures totaled $4.4 million, and depreciation and amortization expenses amounted to $6.3 million. Now let me turn to business outlook. In light of the currency translation risk, our business outlook is focused on financial estimates on a constant-currency basis. We anticipate our fourth quarter 2019 net revenue growth rate to range from 0% to 3% year-over-year on a constant-currency basis. The deceleration of revenue growth outlook is still in part to lightning of live streaming business, which we started to consolidate in the first quarter last year. As well as the relatively conservative outlook will remain for the advertising business amid the macro headwinds and the market competition in the near term. This forecast reflects Weibo's current and the preliminary view and is subject to change.

With that, let me now turn the floor over to the operator for the Q&A session.

[Operator]

[Operator Instructions] We have the first question from the line of Alicia Yap from Citigroup.

[Alicis a Yap, analyst]

Can you give us some update regarding the new app Oasis? How are you positioning the app versus your super app Weibo? What are the reasons the company decided to develop the app? And then what are your product strategy? And how are you going to balance the operation and user acquisition between Oasis and Weibo app? So any qualitative feedback from users during this testing period that you could share with us? And then lastly, I think on your prepared remarks you mentioned that you're going to launch the app officially once you get the regulatory approval. So what is the go-to-market strategy for Oasis? And how do you plan to acquire user when it's launched?

[Foreign Language]

[Gaofei Wang, executive]

[Foreign Language] Well as I indicated in my previous script, our positioning for Oasis is to develop a platform for people to sharing their status of their life. This would be supplemental to Weibo ecosystem. And particularly from a content perspective, we believe there is quite clear distinguishment between these 2 platforms. [Foreign Language] As you are aware of, one of the key features of our Weibo platform is its viral distribution capability. As Weibo grows bigger and bigger, we see that capability further being strengthened. That has been the key reason, and we are the primary open platform for the social -- open social media platform. With that, our platform with strong future in media in nature and also the distribution capability will be the key advantages. [Foreign Language] So with the -- because of the viral-distribution nature of Weibo, it's by default our key or major content creators, and the media account attracts the most traffic on the platform. In the last few quarters, as I indicated in our -- in the prepared remarks, we are trying very hard to direct more traffic to vertical areas, but unfortunately, our nonmedia content-only platforms throughout these years has shown a descending trend because of the distribution mechanism we have. [Foreign Language] For each vertical area, there are top content generators. What we found is they are really to share their lifestyle related to content on Weibo. As a result, we are providing Oasis as an alternative for them to provide a more lifestyle-related content. With that, we are hoping these content generators can cross platforms to provide different contents, 1 for Weibo and 1 for Oasis, but with Oasis, with more focus on lifestyle and the vertical area ad content in nature. [Foreign Language] If you had used Oasis, you would find their distinguished content generation on the 2 platforms. For example, for celebrities, they've been using Weibo to promote their release or their new product. But on the Oasis, they -- these are -- their content will be much more focused on their daily life and the lifestyle-related photos or videos. [Foreign Language] I'm taking few vertical areas, for example, like the auto, home furnishing, art, the top content generators, they are already existing on Weibo, but they've been very active on Oasis. One of the reason is under the current traffic distribution mechanism, they will -- their ability to obtain large traffic allocation on Weibo is difficult. But because their content is much more fitting to the Oasis setup, their fans group or the interaction rate on Oasis for these vertical Big Vs is much more than what they can get on Weibo. So this would have served as a very important supplemental platform to our vertical areas who is already existing on the Weibo platforms. [Foreign Language] Irrespective of the marketing and the channel marketing, as you may are aware, most of the user acquisitions on Weibo these days are through the preinstallation, and hence, that are integrated with our operation of hot events and the hot topics. But of course, there's other channels existing for Weibo user acquisitions. For Oasis, we probably would be using other channels more -- in a more frequent manner to gain new users.

[Operator]

We have the next question from the line of Thomas Chong from Jefferies.

[Thomas Chong, analyst]

I have 3 questions. The first question is about the macro and the advertising market updates. Can management comment about how we think about the macro and the advertising outlook? And my second question is about our key accounts. Can management comment about, by industry categories, in particular, our major industry categories in terms of their performance as well as the sentiments as we go into next year? And my final question is about our strategies on how we can ramp up the growth in our KA ad revenue?

[Foreign Language]

[Gaofei Wang, executive]

[Foreign Language] With the recent guidance reported by peer group companies as well as Weibo, I think in general in the digital marketing area, companies are being very conservative towards fourth quarter end market. If the uncertainties continue existed for the macro situation, we see advertisers are getting more and more cautious on the app and marketing dollars. In terms for 2020, at this moment it's very hard for us to give a -- so-called the clear expectation in terms of how we will be performing for the year to come, given the current macro situation and the market competition. [Foreign Language] Okay. In terms of the industry performance, FMCG continues to be the key industry to drive the growth on Weibo. What we have seen in the FMCG industry, this is one area continued to outperform than the others and has been mitigated through a lot of uncertainties existing in the macro situation. In particular, within the FMCG personal care and cosmetics as well as apparel, we see pretty strong performance in the last few quarters, and it continued to be largest industry segment for Weibo, and we foresee that it will continue to be the largest industry segment for Weibo in the quarters to come. As more and more FMCG companies are moving their marketing dollars from offline to the online, our UV program running between Weibo and Alibaba will help us to further taking marketing shares or the marketing dollars for our key accounts, not only on the brand side, partially it will be coming from the increase in number of customers who will be participating in the UV programs, but more importantly, we are going to tap into the app budget for the integrated marketing for brands and performance. [Foreign Language] Another potential upside exists for the -- for our local FMCG brands, which -- that comes along with the general consumption upgrades for consumers. What we have noted is that local FMCG have a strong demand for their upgrades in their brand. And they have -- they -- with that, they are looking for integrated marketing with the celebrities or IP for TV shows or the online variety shows. And that fits very well with Weibo's key advantage with our user scale as well as our capability in distribution with IP product. We believe there will be more growth on the local brands in the near future. Some of them will become very important key accounts for us in the future times. [Foreign Language] In terms of the auto segment, even though, the overall market for the auto industry has been relatively challenging, we see pretty good performance for our auto clients this year with both number of customer -- customer number and ARPA has been increasing throughout the years. The reason behind that, it goes back to the consumption capability for Weibo to user base. We attract a quite significant auto budget for high-end auto brands, which -- that's the key factor for the revenue growth for us this year. [Foreign Language] Another big industry segment for us is the handset manufacturers. In the transitional period of 4G to 5G, we see some relative weak in the app demand for handsets this year. On top of that, we see the local and the domestic brands for handsets actually has been decreasing in the last 2 years, which has led to the challenged marketing exposure for handsets' marketing dollars. For next year, with more 5G products made available into the market, we believe there will be opportunity for the handset budgets -- marketing budgets to pick up in the latter part of 2020.

[Operator]

We will take the next question. The next question comes from the line of Gregory Zhao from Barclays.

[Gregory Zhao, analyst]

Quick one your SME advertising. So I just want to understand more about this overall market trend and the competitive landscape of the SME advertising and also Weibo's market current position. And it will be very helpful if you can share the -- your SME advertising revenue growth outlook and also your strategy to drive growth? [Foreign Language]

[Gaofei Wang, executive]

[Foreign Language] As I indicated in my prepared remarks, the SME -- ad performance for the third quarter was relatively stable. It delivered a 5% year-over-year growth, 16% Q-to-Q growth. Most of the growth were driven by the increase in ad inventory while our sell-through rate of our inventory had some level of increase. [Foreign Language] The -- I think the core issue for the SME is coming from the price pressure we have experienced for a period of time. As we talked about in the last few quarters, our price -- the ad price for SME has been in the descending trend. Even though in the third quarter, the descending percentage has been narrowed to about 10% on a year-over-year basis, but still it remains quite a challenge for us. That primarily comes from the supply end of the inventory in the marketplace. [Foreign Language] The other part of the SME issue comes with the measurement challenge we're facing. In the past couple of years, the way we priced our Weibo's SME app was very similar to Facebook. It's called also a cost per engagement. So that looks -- the measurement was focused on the interaction between the apps and the users. So that includes direct or indirect downloads of the -- indirect of the ad-related product. But with the emerging of the short video platforms, we see quite big changes in the measurement methodology where they are much more focused on the CPC models. So they only account for the first-time click with a much less concern about subsequent conversion, and the ARPU can be generated. So with that, we see a bit of reluctance in the demand side from different customers. With -- so we have to actually to provide a more service and a more -- provide a more education-related training to our distributors to address these issues. [Foreign Language] On the strategy part, we're pushing very aggressively on the automatic app running system, our so-called oCPX model. We see a very rapid ramp-up on this particular program with 30% of increase on a sequential basis. We believe the automatic oCPX model will substantially decrease or lower the barrier for new customer to running their app on Weibo. [Foreign Language] The -- another area to address the SME growth issue is to pushing for more IP or care our integrated marketing solutions to our SME customers. What we've found if a campaign or a marketing can be associated with particular IP products or IP items or the KOL, the costs associated such campaigns can be reduced more than 50%. I think with that one area in the next few quarters where we will be much more focusing on.

[Operator]

I would now like to hand the conference back to our presenters for any closing remarks.

[Yunyun Zhang;Investor Relations, executive]

This wrap up our conference call today. Thank you for joining us. We will see you in next quarter.

[Operator]

Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect now. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]