Weibo Corp

NASDAQ:WB

Good day and thank you for standing by. Welcome to Weibo Reports Fourth Quarter and Fiscal Year 2023 Financial Results Conference call.At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to turn the call over to the first speaker today, Ms. Sandra Zhang from Weibo Corporation. Thank you. Please go ahead.

Thank you, operator. Welcome to Weibo's fourth quarter and full year 2023 earnings conference call.Joining me today are Chief Executive Officer, Gaofei Wang; and our Chief Financial Officer, Fei Cao. The conference call is also being broadcasted on Internet and is available through Weibo's IR website.Before the management remarks, I would like to read you the Safe Harbor statement in connection with today's conference call. During today's 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 statements. Weibo assumes no obligation to update the forward-looking statement in this conference call and elsewhere.Further information regarding this and other risks is included in Weibo's Annual Report on Form 20-F and other filings with the SEC. All the 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 would 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 results, performance and future prospects. Our non-GAAP financials exclude certain expenses, gains or losses, and other items that are not expected to result in future cash payment or are non-recurring in nature, or are not indicative of our core operating results and outlook. Please refer to our press release for more information about our non-GAAP measures.Following the management prepared remarks, we'll open the lines for a brief Q&A session.With this, I would like to turn the call over to our CEO, Gaofei Wang.

[Foreign Language] Thank you. Hello, everyone. Welcome to Weibo's fourth quarter and full year 2023 earnings conference call.[Foreign Language] On today's call, I'll share with you highlights on Weibo's product and monetization, review the progress made in 2023, and elaborate our strategies for 2024.[Foreign Language] Starting from our financial performance in the fourth quarter. In the fourth quarter of 2023, our efforts to improve user acquisition and engagement of high-value users continued to pay off. In addition, we beef-up our initiatives to further recover the video content ecosystem, strengthen content operations, and enhance our ability to serve option marketing. As a result, despite the overall sluggish end market, our total revenue in the fourth quarter reached $463.7 million, an increase of 3% year-over-year and 5% quarter-over-quarter. Our total ad revenues reached $403.7 million, an increase of 3% year-over-year and 4% quarter-over-quarter. On a constant currency basis, both our total revenues and ad revenues in the fourth quarter would have increased 5% year-over-year. Our non-GAAP operating income in the fourth quarter reached $145.9 million, representing a non-GAAP operating margin of 31%.[Foreign Language] Turning to our full year financial performance. In 2023, due to uncertainties of the macro and industry environment, the recovery of ad demand was a bit volatile. It resulted in lower than expected annual marketing budget for some clients in key industries compared with our expectation at the beginning of the year, which weighed down the growth of our ad business. For full year 2023, our total revenues reached $1.76 billion, a decrease of 4% year-over-year. Our total ad revenues reached $1.53 billion, a decrease of 4% year-over-year. On a constant currency basis, both of our total revenues and ad revenues would have increased 1% year-over-year. This year we focus on improving our product's core competitiveness and enhancing operating efficiency to navigate through challenges from an external environment. For full year 2023, our non-GAAP operating income reached $592.1 million, representing a non-GAAP operating margin of 34%.[Foreign Language] On the user front, Weibo's MAUs reached 598 million and average daily users reached 257 million in the fourth quarter, adding approximately 11 million and 5 million users year-over-year, respectively.[Foreign Language] Next, let me elaborate our progress made on product operation and monetization in the fourth quarter and our key strategies for 2024.[Foreign Language] Looking at our strategy from 2023. In the first half of the year, we started to recover user traffic in the post-pandemic era in the second half of the year, while maintaining our core competitiveness in [indiscernible] culture, entertainment and sports. We strengthened the development of vertical content ecosystem through traffic support for vertical content, which enhanced the competitiveness and health of Weibo's overall ecosystem.[Foreign Language] On the channel front, in the fourth quarter, we maintained cooperation with manufacturers to increase channel investment for the acquisition of high-value users through more accurate [indiscernible] and targeting capability, our user engagement has been improved, which laid the foundation for monetization.[Foreign Language] On social attributes, in the fourth quarter, we continue to execute strategies to focus on development of content verticals. On the one hand, we continue to optimize content structure for relationship-based feed to reinforce the distribution of content from key verticals and recover the overall content ecosystem. On the other hand, we continue to enrich the ways vertical KOLs interact with their friends and improve their interaction efficiency. As a result, KOLs from vertical areas continued to gain more traffic and user interactions and became more willing to generate content. In 2023, the number of daily interactive users and the number of interactions in the relationship-based feed continued to grow year-over-year. For Super Topic, we launched the new functions for users to post and interact, boosting user engagement in the community. In particular, for the entertainment vertical, we further enhanced the Super Topic social attributes and interaction for users' in-depth discussion and content recreation in the entertainment sector, leveraging improvement of the overall sector. As a result, user engagement in the entertainment vertical increased significantly in 2023 versus 2022. The number of DAUs of Super Topic increased year-over-year and the number of users who post per day and interaction of the Super Topic increased over 20% year-over-year.[Foreign Language] On the content front, in the fourth quarter, on top of retaining the competitiveness of hot topics, entertainment and other advantages key IP-related verticals, we linked our traffic toward verticals to support the industry market. For example, we increased investment in digital, automobile, online games, fashion and beauty and healthcare verticals to enhance industry partners' perception of the platform value and further enhance the competitiveness of our content ecosystem.[Foreign Language] On IP-related content ecosystem, in the fourth quarter, for entertainment vertical, we continue to boost the engagement and interaction of top celebrities and increased the discussion around their works to strengthen our competitiveness in the fans and entertainment work-related content ecosystem. In 2023, the traffic and interactions in the entertainment vertical increased year-over-year. In particular, top celebrity engagement and posts increased over 30% year-over-year, with a better environment for entertainment work production and release. The traffic around the promotion of entertainment work and discussion around these works have increased significantly year-over-year with total discussion increasing by more than 50% year-over-year. The traffic and discussion around TV series on Weibo reached the record high. In terms of hot trends, we encourage national media to organize discussions of hot trends in the vertical area, facilitating media's hot trend coverage from social news to vertical hot trends to increase the media engagement in the vertical hot trends and stabilize user demand for consumption and discussion of the social hot topics.[Foreign Language] On industry-related content verticals, we continue to invest more resources across the platform in the fourth quarter. First, we strengthened the traffic distribution of high-quality vertical content, increased the proportion of vertical content on the platform, and promoted the development of top KOLs in each content vertical. Second, we adjusted the product mechanism to enhance traffic support to vertical hot content that creates hot trend effect, improving the perception of industry-related hot trends. Third, we improved the operation of industry-related vertical topics and events, leveraging Weibo's advantages in cross-vertical operation to guide media and top cross-vertical KOLs to post and engage with the vertical content. All these measures contributed to the continuous growth of the traffic and interaction in industry-related verticals compared with the third quarter. For example, since October, we have seen a surge in user interest in various respiratory diseases such as influenza and mycoplasma. We encourage the media accounts to actively post content of popular science and also promote related content sharing from vertical KOLs from across verticals. As a result, the total consumption of the related hot topics has exceeded 2 billion, attracting a large number of doctors to join and engage on Weibo. It has quickly increased Weibo's influence in the medical industry and established user habit of discovering, consuming and discussing hot topics in the healthcare vertical on Weibo.[Foreign Language] Moving on to monetization front. In the fourth quarter, thanks to the e-commerce shopping festivals, the year-end promotion and tailwinds from game license approval, Weibo's ad revenues grew 3% year-over-year and 4% quarter-over-quarter, leveraging Weibo's strength in hot trend marketing.[Foreign Language] By industry, revenues from the automobile and the handset sector sustained solid year-over-year growth in the fourth quarter. The growth was mainly attributable to Weibo's differentiated advantage of content marketing in new product launch as well as favorable discussion light in the areas of digital technologies and new energy vehicles. In addition, the online games and healthcare industries booked a double-digit growth year-over-year in the fourth quarter. As for the healthcare sector, we are pleased to see steady growth trajectory of both our industry influence and monetization with a surge of user interest in the healthcare industry post the reopening. Our increased investment in vertical content ecosystem of healthcare also gradually bear fruit. In terms of the online game industry, with tailwinds from game license approval and better recognition of our content marketing solution among customers, we captured the opportunity to promote the new blockbuster titles for key clients in the fourth quarter, delivering sustained year-over-year revenue growth. For example, in the fourth quarter, Tencent's Dream Star and NetEase Eggy Party spent heavily on Weibo for new game campaign. With budget allocated mostly to hot trend and content marketing, we have delivered strong branding effect, beating client's expectation entertained by our unique content marketing and service capability of building market hype for the new games. Ad revenues from e-commerce sector also boosted year-over-year and quarter-over-quarter growth in the fourth quarter, thanks to the mega e-commerce shopping festivals.[Foreign Language] On the flip side, for the beauty and personal care industry, even with strong traffic support to entire content generation, top clients were still closing out inventory during the Double 11 shopping festival, resulting in continued budget shifts towards performance-based platforms. Therefore, the recovery pace of the beauty and personal care industry still fell short of our expectations, which has become the major drag for the overall ad growth in 2023. For one thing, driven by ad budget shifts from offline to online during the pandemic, revenue contributions from the beauty and personal care industry increased significantly in 2020 and 2021, which created a high base at that time. This [indiscernible] for another since 2022, customers have been shifting their sales channel for e-commerce live streaming platforms, leading to a decline in ad volume share of social media and traditional e-commerce platforms. Additionally, we also need to further beef up our investments to strengthen Weibo's competitiveness in the content vertical of beauty and personal care. We hope to resume positive ad growth in this sector this or next year with further recovery of content ecosystem and normalization in customers' sales channel adjustments.[Foreign Language] Looking back on 2023, we faced challenges from rapid shifts in user interest in the post-pandemic era. Namely, we saw a decline in content consumption demand for news and hot trends, while a surge in consumption demand for vertical content. In the meantime, the recovery pace of the overall consumer market also fell short of expectations, leading to a cut in brand ad budget for certain customers. In light of the headwinds from content consumption and advertising demand side, we focus on improving the platform's operating efficiency in 2023. We strengthened our competitiveness in hot trends and social products, further grown our user community and traffic, as well as enhanced the monetization value of the platform traffic. This effort laid solid foundation for us to promote vertical traffic and thus revitalize Weibo's company ecosystem and competitiveness.[Foreign Language] Overall speaking, although revenues from certain industries fell short of expectation and dragged the total revenue growth, we delivered decent operating profit, which further increased from last year, thanks to solid execution of our efficiency initiatives, leveraging improved operating efficiency, stable profitability and healthy cash flow further elevated our financial flexibility, giving us ample room to invest in vertical content ecosystem and drive user growth and engagement. In view of the challenging competition landscape of vertical content, we'll take gradual steps to restoring our competitiveness of vertical content ecosystem while focus on solidifying our advantageous areas. It may take 2 to 3 years to drive up the traffic share of vertical content on the platform. In this way, we could further reinforce Weibo's market influence, achieve healthy development of the content ecosystem, and thus lay a solid foundation to enhance our monetization efficiency.[Foreign Language] In 2024, we will focus on growing our user community and engagement, strengthening the competitiveness of our content ecosystem, as well as further enhancing our operating efficiency. In light of the current market conditions, we strive to maintain steady revenue growth and improving the overall efficiency in the meantime. On the operation front, we will beef-up our efforts to reinforce the competitive edge of hot trends and IPs and revitalize our vertical ecosystem at the same time. On the monetization front, we aim to optimize our content marketing and performance-based ad products. We believe the execution of these strategies will lay a solid foundation for our top-line recovery from the user, content and monetization side, enabling us to capture market opportunities once the macro-economy gets better and brand ad demand improves.[Foreign Language] On the user and engagement front, in 2024, our product operation will focus on 3 aspects. First, we will continue to operate closely with strategic channel partners with a focus on improving high-value user acquisition and usage frequency. Second, we emphasize on optimizing the structure of social products and further enhancing the recommendation efficiency of information feeds in the hope of driving user-scale, social interactions, and engagement. Third, we'll refine the product vibe and user experience of hot trend products in order to reinforce the mindset and market influence of [indiscernible] users. Meanwhile, we will also try to create more hot trend-based products, enabling users to discover more hot topics and trends enter public discussion and thus grow the user scale and engagement of hot trend products.[Foreign Language] On the content ecosystem, we also highlight 3 aspects in 2024. First, we will continue to reinforce our leading position around the ecosystem of entertainment and sports events. In particular, as for the entertainment sector, we'll strengthen the celebrity followers ecosystem to increase user interactions and focus on strengthening our strategic cooperation with the promotion and distribution platform of movies, TV series and variety shows. This will not only solidify the competitiveness of entertainment work-based ecosystem, but also drive platform traffic and user engagement. Taking the movie promotion during the 2024 Spring Festival, as example, leveraging our cooperation with movie IP holders around the hot trend operation of movie plots, celebrity followers interactions and extended vertical topics. We are pleased to see a 50% increase in topic discussion year-for-year giving us confidence in becoming a go-to platform for movie promotion this year. 2024 also marks the year of the Olympics. Our years of cultivation around the sports vertical will be paid-off with an opportunity to achieve new record highs in sports-related traffic and discussions.[Foreign Language] Second, we will continue to solidify our leading position around hot trends. We hope to receiving the steady growth of society and media-related hot topics. The key is to better engage the media and top content creators in the distribution and discussion of hot topics around vertical trends, enabling the build-out of mega hot topics. These efforts would hopefully consolidate Weibo's market influence in the hot trend area and facilitate user acquisition at a large scale.[Foreign Language] Third, we'll further strengthen the cultivation of vertical ecosystem in key industries. To elaborate, we will grow the number and engagement of golden and orange verified accounts, boosting the discussion of vertical hot topics and thus reinforcing the synergy between company ecosystem and monetization ecosystem, which forms a virtuous self-reinforcing cycle.[Foreign Language] Finally, on the operating efficiency, we'll step-up our efforts in enhancing our monetization competitiveness. We will continue to strengthen the recognition of Weibo's content and IP marketing among more industries and clients and thus improve our competitive edge in capturing clients' budgets. In terms of the ad products, we'll standardize and scale-up the sales of our content and IP marketing offerings. As for performance-based ads, we strive to improve our service capability around ad performance and content with a focus on optimizing evaluation of ad performance of key industries and top clients. For instance, the renowned down-jacket brand Bosideng capitalized on its two product concepts, lightweight and thin, and reshaping classics in winter campaign of 2023, leveraging a combination of celebrity endorsement and content marketing on Weibo. Bosideng deeply bonded with hot topics around this brand ambassador Yang Zi tapping into real-time winter-related trends such as temperature drops and white snow to firmly associate the brand with sustained one in Bosideng. At the same time, Bosideng leveraged the celebrity's popularity to drive e-commerce traffic online while promoting its opening of the [indiscernible] flagship store as a grand event offline. As a result, the sales performance boosted dramatically in the fourth quarter, with sales volume increasing 40% year-over-year. This year, we will standardize our ad products and service processes to timely integrate popular IPs such as entertainment and sports events with the campaign goal of our clients, which will further promote the monetization value of hot trends. On top of these initiatives to drive top-line growth, we will also continue to effectively discipline our cost expenses, strengthen the platform management, and further improve the overall operating efficiency of our platform.[Foreign Language] With that, let me turn the call over to Fei Cao for a financial review for the fourth quarter of 2023 and full-year financial results.

Thank you, Gaofei, and hello, everyone. Welcome to Weibo's fourth quarter and fiscal year 2023 earnings conference call.Let's start with user metrics. In December 2023, Weibo's MAUs and average DAUs reached 598 million and 257 million, respectively, representing an increase of 11 million and 5 million users on a year-over-year basis in 2023. Our user community and engagement remain healthy despite facing out of pandemic-related traffic as well as the ongoing execution of Egypt and China investment strategies.Turning to financials. As a reminder, my prepared remarks would focus on non-GAAP results. All monetary amounts are in US dollar terms and all the comparisons are on a year-on-year basis unless otherwise noticed. We experienced happiness through our financials due to the volatility of foreign exchange rates throughout the year. Since our business primarily operates in China, while we report our financials in US dollars. Our financial performance was affected by adverse currency movements.Let me now walk you through our financial highlights for the fourth quarter and fiscal year 2023. Weibo's fourth quarter 2023 net revenue was $463.7 million, an increase of 3%, or 5% on a constant currency basis. Operating income was $145.9 million, representing operating margin of 31%. Net income attributable to Weibo reached $76.4 million and diluted EPS was $0.31.For full year 2023, total revenue reached $1.76 billion, a decrease of 4%, or an increase of 1% on a constant currency basis. Operating income was $592.1 million, representing operating margin of 34%. Net income attributable to Weibo reached $450.6 million and diluted EPS was $1.88. Operating cash flow for full year 2023 reached $672.8 million, an increase of 19%.Let me give you more color on fourth quarter and full year 2023 revenue performance. Weibo's advertising and marketing revenue for the fourth quarter 2023 was $403.7 million, an increase of 3%, or 5% on constant currency basis. Mobile ad revenue was [ $379.2 million ], contributing approximately 94% of total ad revenue. Full year 2023 advertising and marketing revenue reached $1.53 billion, a decrease of 4%, or an increase of 1% on constant currency basis, with mobile ad revenue contributing 94% of total as revenue.Regarding our Q4 performance front, consistent with our expectations, advertising business booked a solid growth overall with [ divergent ] performance across our pillar ad verticals. By industry, our largest 3 verticals were beauty products, FMCG and e-commerce. In terms of growth, we are encouraged to see strong momentum of handset sector continue throughout the year. The handset sector delivered double-digit growth for both year-over-year and quarter-over-quarter as customers embraced our platform to reach higher-up users and build market cap. The e-commerce and game sectors also demonstrated a robust recovery trend with double-digit growth, leveraging favorable dynamics in the computation landscape and launch of blockbuster titles [indiscernible]. The FMCG category continued on the ascending trajectory. The food and beverage sector faced a high comparable base because of the World Cup campaign season in 2022. Meanwhile, the cosmetic and personal care sector remained under pressure, suffering from soft sales and a stringent marketing expense control among our multinational customers. Also, we continued to see ad budgets shift toward -- to those platforms to serve the marketing purpose of inventory clearance during the e-commerce season.Moving on to full year 2023 performance, due to macro uncertainties and consumption weakness, the recovery pace of our advertising business in 2023 proved to be rough. On a constant currency basis, our advertising and marketing revenue increased 1% versus 2022. By industry, our largest 3 verticals were FMCG, beauty products and e-commerce. With respect to growth, beauty products was the largest contributor to year-over-year growth, followed by e-commerce and automobile among major categories. However, discretionary consumption categories such as cosmetics and personal care, luxury, apparel faced broad-based [ heaviness from demand trend ] for ad products. [indiscernible] was largely followed by social display ads and topics and research. In 2023, in light of a tepid advertising demand, we focused on revitalizing the content ecosystem with high monetization potential such as beauty products and automobile. This effort has enabled us to further strengthen our content marketing offerings and enhance our market differentiation.Ad revenues from Alibaba for the fourth quarter were $44.9 million, an increase of 6%, or 8% on a constant currency basis, thanks to modest recovery of consumption market and intensified competition during the mega shopping festival. Full year ad revenues from Alibaba were $111.6 million, an increase of 4%, or 10% on constant currency basis, consistent with Alibaba's moderate pickup in marketing budget. Alibaba stepped up marketing spend this year amid sluggish consumption environment, as well as heightened competition in the e-commerce sector.Before turning to VAS segment, let me share some preliminary color on the [ TAM ] entering 2024. With the economy in a state of transition and geopolitical uncertainty in 2024, the macro conditions and consumption sentiments are turning even harder to predict. Despite limited visibility of demand set due to macro uncertainties, we are cautiously optimistic on further recovery of our advertising business in 2024. We hope to further leverage tailwinds in Weibo's competitive sectors, as well as a series of mega sports events. Our team will beef up sales execution to further unlock the long-term [indiscernible] opportunities, underpinned by our unique value proposition and diversified content ecosystem.Value-added service, VAS, revenue was $59.9 million in the fourth quarter, an increase of 4%, or 6% on a constant currency basis, mainly due to higher revenue contribution from game-related business. Full year 2023 VAS revenue decreased 6%, or 1% on a constant currency basis, to $225.8 million.Turning to costs and expenses, total costs and expenses for fourth quarter were [ $317.8 million ], an increase of 7%, mainly attributable to higher G&A expenses. The increase of G&A expenses was primarily resulted from lower G&A expenses booked in the fourth quarter of 2022, mainly related to the reversal of compensation expenses for Jiamian Technology based on the contingent payment arrangement between us. Full year costs and expenses totaled $1.17 billion, a decrease of 5%, primarily attributable to a favorable foreign exchange impact on the reported numbers, as well as a decrease of personnel-related costs. This decrease was partially offset by the increase of G&A expenses, mainly related to the recognition of compensation expenses of Jiamian Technology as mentioned above.Operating income in fourth quarter was $145.9 million, representing an operating margin of 31% compared to 34% in the same period last year. Operating income for full year 2023 was $592.1 million, representing operating margin of 34% compared to 33% in 2022.Turning to income tax and the GAAP measures, income tax expense for the fourth quarter was $72.6 million compared to an income tax benefit of $18.7 million last year. The increase was primarily due to 2 factors. First, we booked a reversal of tax liabilities recognized in the fourth quarter of 2022 related to uncertain tax positions. Second, we paid and accrued withholding tax related to earnings remittance from the wholly-foreign owned enterprise, WFOE, to Weibo Hong Kong Limited. The earnings distribution from onshore to offshore will fund our demand for U.S. dollars in business operations and payments of dividends and debt, et cetera. Full year income tax expenses were $145.3 million compared to $30.3 million last year, mainly resulting from increase of tax expenses in the fourth quarter of tax expense.Net income attributable to Weibo in the fourth quarter was $76.4 million, representing a net margin of 16% compared to [ 30% ] last year, primarily due to the aforementioned impact from income tax. Net income for full year 2023 was $450.6 million, representing a net margin of 26% compared to 29% in last year.Turning to our balance sheet and cash flow items, as of December 31, 2023, Weibo's cash, cash equivalent and short-term investments totaled $3.23 billion compared to $3.17 billion as of December 31, 2022. In the fourth quarter, cash provided by operating activities was $218.2 million, capital expenditures totaled $7.5 million, and depreciation and amortization expenses amounted to $14.7 million. On a full-year basis, cash provided by operating activities was $672.8 million compared to $564.1 million in 2022. Capital expenditures totaled $36.8 million, and depreciation and amortization expenses amounted to $58.5 million.Before turning to the Q&A session, I would like to let you know that we completed an offering of USD 330 million convertible bond in December last year. The bond is due to 2030 with an annual coupon rate of 1.375%. We plan to use the net proceeds from the note offering to refinance a portion of the outstanding 3.5% senior note due in July this year. As part of convertible note issuance, we will also effectively keep [indiscernible] in US dollars, which gives us more financial flexibility in capital allocation in the future.Lastly, given our healthy profitability and cash flow generation, we are pleased to announce that our Board of Directors has approved a special cash dividend of USD 0.82 per ordinary share, for ADS, to our shareholders. The aggregate amount of the dividend will be approximately USD 200 million with the payment date expected to be in May. Looking ahead, we remain highly committed to embracing long-term growth opportunities, while generating more returns to shareholders and boosting market confidence.With that, let me now turn the call over to the operator for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Timothy Zhao from Goldman Sachs.

[Foreign Language] My question is regarding our advertising business. Could management elaborate more on your outlook for the advertising revenue growth for this year, including the first quarter? And specifically, regarding the advertising products, what is our key strategy for this year?

[Foreign Language] Thank you for this question. So first of all, because in 2023, for many different quarters, we had a lot of uncertainties for providing these particular expectations. So we remain cautious and prudent in giving the expectations for the whole year of 2024. So in Q1, we do see a recovery of almost all the industries. However, still there are a lot of uncertainties and also challenges relating to the consumption market as a whole. Okay.[Foreign Language] And also in terms of the overall demand, in 2024, still, we have seen some of the certainties for some industries, for instance, in terms of the gaming -- I mean, the sports, for instance, in the Olympics, which took place in July and also the beginning of August. So this has boosted some of the budget of advertisement for the consumption market, for instance, from the food and beverages and also the apparels and also the footwear as well. So, of course, in 2022, we had actually a very high base because of the Asian Games and also the World Cup. But still, we expect to have a better second half of the year in 2024 than the first half of the year. And also in terms of the gaming, we do see a lot of uncertainties. So for instance, with the booming of the granting of licenses to those gamers -- to the game developers, we do -- can leverage our advantages in terms of the content marketing, and we would like to leverage this advantage and also help to explore and also help a lot of new games to be exploited. So in 2024, we expect to have a better gaming industry than that of 2023. Okay.[Foreign Language] And also in 2022, we did see the enhancement of our competitiveness and also the percentage of the ad budget against the total revenue -- against the total budget of the ads of our customers is actually growing as well. But still in 2024, whether those industries are still going to enjoy the same momentum in Weibo, it is pretty much uncertain and also challenging. For instance, take the examples of the headsets and also the automotive industries. So, for instance, in 2023, we had a very good growth in terms of the handset industry, which was double digit. And also, we had an increase of the total ad budget percentage allocated to Weibo in 2023. But still, in 2024, we still remain cautious in terms of maintaining the same momentum of the growth for the handset industry versus that of 2022. Still, we have seen a better-than-expected shipment of the handset industry in Q1. But still throughout the whole year of 2024, there is a big uncertainty about this.And turning to the automotive industry, we have gained a natural advantage in helping to promote those products of new energy vehicles. But still due to the price war and a budget decreased for the ads for the ICE vehicles, still we found it quite challenging to maintain the same momentum of the growth of our business in the automotive industry than that of last year. But still, overall speaking, we are still keeping a very good momentum of maintaining a very high competitiveness and also the attraction of a higher budget of the ads from our customers. Okay.[Foreign Language] And also, last but not least, I would like to share some of the colors on the industries of the beauty and cosmetic products. In 2022 and 2023, we had suffered from some of the challenges because of the industry itself. So in 2021, because of the COVID and also because of our high concentration in promoting the entertainment and also the traffic attraction, so we had a pretty good year in 2021 and also 2022. But reasonably speaking, there are a lot of challenges going on and headwinds going on in the cosmetics and beauty products industries, for instance, the high competitiveness and also the price war engaged by almost all the brands. And also, they were decreasing their allocation of the ad budget, overall speaking. And also, you can see that there are a little bit transfer of the budget from the commercial or the traditional e-commerce industry to the live stream. So this gave us a lot of pressures in terms of the allocation of budget to the brand-based performance, brand-based ad, or the e-commerce-based ad. So still, there are still a lot of challenges.And also in 2024, originally, we wish to have a stabilized performance of the beauty and cosmetics industry and allocation of the ad budget. But still, in Q1, we thought that was less than expected and also less than optimal -- and optimized. So you can see that, for those international brands, still they are a little bit far away from their full recovery. And also, we do see the recovery of the domestic brands, but still, it is not the time for them to increase their ad budget. So of course, overall speaking, we still wish that we could have a very stable vertical like the cosmetics and beauty products. But still, up to now, we think that this industry is still the most challenging industry against our total business portfolio. Okay.[Foreign Language] And also lastly, I want to say that in terms of the overall strategy, as we have already stated in our prepared script, you can see that our focus of this year will be still emphasizing on those IP hot trends, and also the content marketing so that we can increase our competitiveness and also gain more money and also budget from the total budget of our customers. And also, second of all, we would like to further enlarge the user base and also the total scale of that and focusing on those monetizable traffic. So as a whole, in 2024, still very much focus and also the main driver for us to grow further is to getting more budget from our customers and also thus we can grow our overall business.

The next question comes from the line of Thomas Chong from Jefferies.

[Foreign Language] My question is about our strategies in 2024 with regard to users and our content ecosystem. And on the other hand, how should we think about our AIGC strategies?

[Foreign Language] And also for this question, first of all, let me talk to you about the overall user strategy in 2024. So in 2024, still, we are going to maintain the same budget for the marketing activities that of 2023. So for the handset industry in 2023, we do see a decrease of our total shipments, but still we had a net gain of MAU of over 10 million and also over 5 million of net gain of DAUs because of a very deep strategic collaboration with the handset makers, so that you can see that we can have a very low user acquisition cost. And also, overall speaking, by focusing on the entertainment and also the hot trends and hot topics, we have also a very good positioning in getting the users from outside of the Weibo.[Foreign Language] And also, in 2024, as a result, we had almost a flat, or a little bit more budget allocated to this area than in 2023. We do see a very good recovery of the social hot trends and also the entertainment industry and improved by the performance during the Chinese New Year period. And so, thus, we are very confident to have a very good user gain and also user scale in 2024 than of 2023 and also a much better one. Also, the internal challenges still are that, first of all, we would like to focus on a shift of the traffic of entertainment and social hot topics to the verticals because by having more traffic of the vertical or vertical traffics, we are able to increase the user stickiness and enhance our monetization efficiency and also improve our competitiveness. So before the COVID, before 2019, we had almost 58% of our traffic allocated to vertical traffics. But still, during the COVID period, we had a decrease to almost around 47% to 48% by the end of 2022. We had a very good strategy to recover that after that, but still -- it is still at a level of around 50%. So in the next 2 to 3 years of time, by focusing on more efforts taken in this area, we hope to increase the total vertical traffic as the -- amount of the total traffic to about 60% or more so that we are able to enhance the user stickiness, the efficiency of monetization and also our overall competitiveness as a whole. Okay.[Foreign Language] And also relating to AIGC, we have stated a few comments already in the past annual performance or some of the quarterly performance announcements. Still, now we would like to have openmindedness to use the LLMs and also focusing on the applications of those large language models. So for instance, in 2024, still we have some of the directions of the application. First of all, in terms of the AI assistants, assisting the interactions between the new fans and followers and also the KOLs, we have been doing a lot to really enhance the interactiveness between the new fans and some of the followers and also their KOLs. So now, you can see that around 5% to 10% of the overall interactions between the followers and KOLs are actually supported by the AI assistants.And also second of all, in terms of different verticals, so last year, we pretty much focused on the verticals of beauty and cosmetic products and also to facilitating the generation and the production of the content in this area. And also this year, we would like to further expand the application of the content generation to another 4 to 5 different verticals. So last year, 8% of the contents in this cosmetics and beauty products area was generated by the AI tools. And also this year, we hope to have around 10% to 15% of the content generated by AIGC facilitations, which is still challenging to say. And also for the other areas, for instance, the AI robots and also some of the commercializations or monetizations using AI to support, it is still in an experimental phase. So we don't have a very detailed target or a figure to be shared with everyone. Okay.

Our last question comes from the line of Xueqing Zhang from CICC.

[Foreign Language] We noticed that the company announced special dividend this quarter. So with the capital allocation and shareholder return plan this year, can management share more on the share buyback and dividend plan in the future?

Xueqing, thank you for your question. This is Fei. As mentioned in my prepared remarks, Weibo maintained a decent profitability and relatively strong capability to generate operating cash flows. In 2023, our non-GAAP operating income reached $592 million, representing a non-GAAP operating margin of 34%. We generated operating cash flow of approximately $673 million in 2023, representing a year-over-year increase of 19%. So if you can remember last year, when we distributed a special cash dividend for the first time, last May, we talked about certain principles we would adhere to in use of our cash. First of all, we always prioritize supporting business growth and strengthening our platform's competitive advantages such as investing in content ecosystem, in vertical areas and AIGC, and any opportunities which closely related to our business. And then, in addition to investing in our own business development, we certainly need to ensure shareholder returns. So as you know, our Board of Directors has approved the distribution of another $200 million special cash dividend, after we made the USD 200 million cash dividend last year. So going forward, we expect to continue paying out dividends to our shareholders and gradually formulate a new cash dividend distribution policy. The Board would primarily cite the dividend amount based on the -- our company's profit performance in the previous fiscal year, while also considering factors such as our cash flow, our financial condition and the capital requirements. So looking ahead, we will continue to explore various ways to reward our investors, our shareholders, including the dividend payouts and the stock repurchases. These measures will be carefully considered and aligned with our core objectives and subject to our Board approval. We will communicate the progress with market and with our investors in a timely manner. So I hope this can address your question.

There are no further questions at this time. I would like to hand the call back to management for closing.

Thank you all for joining us, and we will see you next time.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.