Weibo Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 25, 2023

There are 4 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Wibo Reports First Quarter 2023 Financial Results. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sandra Shang, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Welcome to Weibo's Q4 2023 earnings conference call. During me today are our Chief Executive Officer, Gaofei Wang and our Chief Financial Officer, Fei Cao. The conference call is also being broadcasted on the Internet and is available through our IR website. Before the management remarks, I would like to read you the Safe Harbor statement in connection with today's conference call.

Speaker 1

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 For deeper materials from those contained in any forward looking statements, Weibo assumes no obligation to update the forward looking statements 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.

Speaker 1

All the information provided in this press release is occurring as of the date of payroll. 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 performance and the future prospects, our non GAAP financials exclude certain expenses, Gains or losses and other items that are now expected to result in future cash payments were non recurring in nature were not indicative of our core operating results and outlook. Please refer to our press release for more information about our non GAAP measures.

Speaker 1

Following management prepared remarks, we open the lines for a brief Q and A session. With this, I would like to turn the call over to our CEO, Gaofei Wang. Thank you. Hello, everyone. Welcome to Weibo's 4th quarter 2023 earnings conference call.

Speaker 1

Today, I'll share with you highlights in Weibo's user product and monetization in the Q1 of 2023. On the user front, Weibo's MAUs reached 593,000,000 and average DAUs reached 255,000,000 adding approximately 11,000,000 and 3,000,000 users year over year respectively. In the Q1, 95% of premium MAUs came from mobile. Our monetization Affected by the over peak pandemic, macro uncertainties and off season during the spring festival, the overall ad demand was still relatively lukewarm in the 1st quarter, coupled with the high base brought by the 2022 Winter Olympics, our total revenues reached of US413.8 million dollars in the Q1, a decrease of 15% or 7% year over year on constant currency basis. Our total ad revenues reached US355.3 million dollars of which 95% of our ad revenues came from mobile.

Speaker 1

Our non ad revenues reached US58.5 million dollars an increase of 2% year over year or 10% year over year on a constant currency basis. This year, we continue to focus on improving operating efficiency And our non GAAP operating income reached US128.6 million dollars representing a non GAAP Operating margin of 31%. On a constant currency basis, our non GAAP operating income has nearly returned to the same level versus last year, which decreased 1% year over year. In the past 3 years, due to the pandemic, users pay more attention to news related hot topics, which benefit Weibo's user and traffic growth. With the reopening, the one suppressed travel and offline consumption demand has been released altogether and users consumption demand for content in vertical areas has increased accordingly.

Speaker 1

Such changes in the market environment and user demand has brought certain challenges to our product operation strategy. In the Q1, we quickly adapt to changes in user demand. While maintaining investment in key content verticals, we focus more on the development of content verticals that have a strong user consumption need. With Weibo's advantages of Hot Topic and KOL integration across verticals, we increased the content supply and Diversity to meet users' consumption need and boost user engagement. Next, let me share with you our progress made in product monetization in the Q1.

Speaker 1

In 2023, our Our strategy is to focus on user scale growth and improve operating efficiency to boost traffic growth and further strengthen platform competitive advantage. On the channel front, in terms of this year's collaboration strategy with handset manufacturers, in addition to coverage of Weibo's core content in core positions of The handset, we are also further strengthened our completion on system level basis with focus on driving the user scale and engagement of the mid to high end smartphone users. In the Q1, leveraging manufacturers' top billed user reach channel, We continue to optimize our product mechanism such as push to efficiently strengthen our easy reach and reach calls through Weibo's hot topics and social contents. As a result, the average DAU from the handset channel grew double digit year over year. On social attributes, I'll introduce the highlights of product adjustments.

Speaker 1

In the Q1 last year, we adjusted social network product to improve user consumption efficiency and help users build more High quality and real social relations. In the Q1 of this year, we further upgraded the product mechanism and algorithm We incorporate users' social relations and interest and as a result, the distribution efficiency was largely increased for quality content. Now in the relationship based feed, users not only can consume and interact with content generated by follow-up accounts, but can also consume and interact with content based on user social network and build more relations. This product We are also pleased to see stronger user intention to form new social relationships and interact on our platform with the number of new relationship build tripled year over year. Also around 70% of the incremental user interactions Around the relationship based speed was generated through content of unfollow of content creators.

Speaker 1

In particular, Users were more willing to interact and follow with mid tier KOLs. The product adjustment for relationship based feed Also play a positive role in promoting the content generation by KOL and a suitable development of content for system. In the Q2, we will continue to optimize product and recommendation algorithms based on user engagement level and focus on accounts in key verticals to help content creators to achieve higher social value and further stabilized Weibo's core social competitiveness. On the content front, the consumption needs for entertainment and lifestyle verticals were growing rapidly. As user attention shift, the average daily traffic volume and the number of users who interact grew significantly year over year for key verticals such as entertainment, digital and automobile in the Q1.

Speaker 1

For the entertainment vertical, the movies and TV series Scheduled during the spring festival, such as the Knockout and Freebody, etcetera, has improved the traffic trend of the entertainment sector With the quarterly average traffic volume and the number of users who interacted grew double digits compared with the same period last year And the growth trend continues in the Q2. For the automobile and digital verticals, as the offline users consumption has improved, Weibo was able to capture more ad budget leveraging our advantages in hot trend and KOL marketing even when the offline consumption is due to recover. In terms of other e commerce verticals that also have high consumption needs, such as tourism and fashion and cosmetic verticals. We are also accelerating investment in product operations and improving the content ecosystem. On the one hand, for operation, we will leverage our platform's advantages in cross vertical KOLs integration and quickly enrich content ecosystem for related verticals.

Speaker 1

On the other hand, the product We'll utilize recommendation and hostage traffic to distribute vertical hot trends and high quality content to targeted users, which has strengthened the recovery of users' mindset in key content verticals and encourage KOL's willingness to generate content. For example, since March, there has been a significant increase in activities in entertainment and fashion verticals. For example, the Beijing International Film Festival and Luxury Brands shows during the period, We have organized celebrities, makeup artists, stylists and KOLs in fashion verticals and KOLs in the Humanities and Arts and Popular Science verticals to create content around fashion related hot topics. As a result, in March, the effective views in fashion vertical and the number of users who interacted with related content increased double digit compared with December last year with an ongoing growth trend in April May. We believe with the strategy adjustments and our implementation during the 1st and second quarters, the traffic will increased significantly and user consumption mindset will recover as well.

Speaker 1

On the top content creators in the Q1, we completed the transaction to increase shareholding of Inmiceo Digital Technology. We upgraded the V test platform system and went online in April with a new evaluation mechanism for the top KOLs. The platform now shifts its evaluation mechanism for top content creators from traffic value only to traffic plus social value, putting more emphasis on KOL's capability to interact with fans and monetize on social assets. Upon the upgrade, we have screened top KOLs that have sound influence and a high social value and will further reinforce our traffic operations and monetization mechanism in the next one and two quarters to promote a healthy KOL ecosystem. According to the data in May, the traffic and interactions of top KOLs increased double digits compared to that in March and the ad revenue from vTest also resumed double digit year over year growth Lastly, let me introduce the key application areas for AITC technology on Weibo.

Speaker 1

Since last year, We have been exploring suitable scenarios for AIGC on Weibo and have made solid progress on improving our products and operational efficiency recently. As we continue to collaborate with AIGC Partners, we plan to launch some tools in the 2nd quarter To better assist the content creators in the content generation and to improve efficiency of creative ad solution, Some large model companies are also using Weibo's open platform to provide users with relevant service. Going forward, we will keep a close eye on the development of AIGC and explore new application area to create greater value for users and content creators. Next, let me share some color on the monetization front. In 2023, leverage is a gradual economic recovery post pandemic.

Speaker 1

We are pleased to see many verticals start to beef up investment for future in the first half of the year with accelerated paces in brand building, especially new product release versus last year. As such, our overall monetization strategy will continue to focus on enhancing The marketing combo, which centers around media and celebrities, supported by KOL distribution across verticals, We'll underpin by traffic context featuring strong exposure and mindset cultivation. In particular, We will beef up Weibo's unique culture and IP and the new product launch and offerings aiming to earn recognition from more industries and customers and thus further strengthen Weibo's core competitive needs in the end market. Based on Weibo's performance in the Q1, our overall ad business exhibited gradual recovery churn month by month. To elaborate, due to pandemic and the high base of last year's winter Olympics, advertising revenues in January February decreased year over year.

Speaker 1

However, since March, our revenues has already returned to a positive growth trajectory on an annual basis. In terms of industry trends, we saw diversion trends among different sectors in the Q1. For certain sectors such as Automobile, handset and luxury products, we are encouraged to see that clients demonstrate strong confidence in 2023 and have picked up their investment in new product and branding. For example, in the automobile industry, the number of new car released At the Guangzhou and Shanghai International Auto Show in the first half of the year increased by 40% compared to the same period last year. Leveraging Weibo's differentiated automotive new product launch model, nearly 100% of the OEMs was ad budget for new of intensive release for Luxury Blues shows.

Speaker 1

With the number of Luxury Blues shows in a single quarter reaching almost half of last year. Leveraging the hard trend effect around this shows, we achieved nearly 90% Coverage of business cooperation with clients shown in the Q1. On the fleet side, certain industries were still in the course of gradual recovery, such as Beauty and Personal Care sector, mainly due to two reasons. First, some clients in the Beauty and Personal Care Industry had relatively weak pipeline for new products due to industry competition strategy and their own business headwinds. Secondly, intensified competition landscape of the advertising market across media platform also drag its recovery pace.

Speaker 1

As such, our first priority is still to quickly restore our competitiveness in the respective content ecosystem post the pandemic. Moreover, we will continue to amplify our monetization model featuring hot trends and new product marketing, While empowering clients to achieve better long term growth in the market. Entering into the Q2 with further pickup in offline consumption, We expect to see a more meaningful recovery in the demand side of the advertising market, driven by ongoing recovery of various consumer markets. Also, there will still be a diversion trend among different industries. In light of such trend, we will actively embrace the market opportunities brought by the June 18th Mega Shopping Festival.

Speaker 1

Leveraging our positioning as the leading social media platform, we will amplify Weibo's differentiated competitive edge in the hot trends and the content marketing In the hotels capturing incremental ad wallet gradually released into the market. With that, let me turn the call over to Fei Cao for a financial review. Thank you, Gao Fei, and hello, everyone. In March 2023, we booked with ongoing execution of the disciplined channel investment strategy. Turning to financials, And both comparisons are on a year over year basis unless otherwise noted.

Speaker 1

Now let me walk you through our financial highlights For the Q1 2020, Weibo's Q1 2020 net revenue was $413,800,000 a decrease of 15% or 7% on a constant currency basis. Operating income was RMB 128,600,000, representing an operating margin of 31%. Net income attributable to Weibo reached RMB111,200,000 representing a net margin of 27%. Let's make a little bit harder on the Q1 2023 revenue performance. Weight was advertising revenue for the Q1 of 2023 were RMB 355,300,000, a decrease of 17% or 9% on a constant currency basis.

Speaker 1

Reflecting conservative ad barges, immediate reopening as well as seasonality factor compared with Q1 last year With Winter Olympics related ad revenue, mobile ad revenues were 36,400,000 1st, the product and e commerce. In terms of growth, we are delighted to see solid growth in 1st and automobile sector Underpaid by tailwinds of an eventful product launch team as well as strong sales execution in this vertical industry. Customers in this sector embrace our full spectrum of social ad combo to build market cap and reach high value users of strong transaction power. As we said, our largest vertical FMCG Continued our descending trend against half of digital analytics last year, coupled with relatively conservative ad budget By our plan, in early stage of reopening the ad product, promoting fees was the largest, followed by social media ads Ad revenues from Alibaba for the Q1 were 18.3 years, a decrease of 30% or 23% on a constant currency basis, primarily attributable to its own conservative marketing strategy, Let me share some preliminary color on the trends entering the Q2. On AppSec, our advertising market has been bottling off Month on month, with many sectors rebased since the Q2 last year, leveraging normalization in offline activities and gradual during the e commerce shopping festival in 2nd quarter.

Speaker 1

Like that, a full recovery of consumption sentiment In certain discretionary categories, we must be more drawn off than expected upon the aftermath of pandemic with our consumer confidence. In light of a volatile macro landscape, we have closely monitoring opportunities In those relatively resilient sectors, which benefited from sector 4, That's our unique value proposition and diversified economy ecosystem we will unlock. Value added service, VAD revenue were $58,700,000 in the 1st quarter, an increase of 2% or 10% on an constant currency basis. Turning to cost and expenses. Total cost and expenses for the Q1 were 285,200,000 The decrease was mainly attributable to lower personnel related costs and disciplined channel investments.

Speaker 1

I'm going into 2023. We have emerged with a more focused team and a major cost structure, Positioning us a visible path to operating earnings growth. Operating income in the Q1 was 128,600,000 representing operating margin of 31% compared to 29% in the same period last year. Turning to income tax. As a GAAP net income tax expense for the Q1 was $21,900,000 compared to $11,700,000 last year.

Speaker 1

The increase was primarily resulted from changes with deferred tax liabilities related to very little change on certain investments. Net income attributable to LIBOR in the 1st quarter was $111,200,000 representing a net margin of 27%, flat compared to last year. Turning to our balance sheet and cash flow items as of March 31, 2023. Weibo's cash, cash equivalents and short term investments totaled $2,780,000,000 in the Q1. Cash provided by operating expenses was $180,600,000 Capital expenditures Before turning to the planned expansion, I would like to share from her our newly announced cycle dividend.

Speaker 1

This led to our healthy profitability and strong balance sheet. We are pleased to announce that our Board of Directors has approved a special cash dividend of US0.85 dollars per ordinary share or ADS for our shareholders. The average amount of the dividend will be approximately US200 $1,000,000 with January date expected to be in mid late July. Looking ahead, we will continue to embrace long term growth opportunities, while focusing on financial discipline With commitment to returning value to shareholders and bolstering market confidence, besides, I would also like to provide update on our ESG initiatives. In April, we released our 2nd ESG report outlining the company's progress and performance in ESG areas for fiscal year 2022.

Speaker 1

ESG initiatives Discribed in the report speak to our long standing commitment to sustainable divestment, current impact to users, content creators, I'm Wei, business partners and other stakeholders. We are dedicated to the vision of making the world a better place with In various areas such as cybersecurity and private protection, company colleagues, company's investments, including their strong vision and and and further integrated ESG initiatives across our daily operations in the hope of creating value for society I'm working on a sustainable future together with Weibo's community. You may visit our IR website to obtain more information on our VSP disclosure. With that, let me now turn the call over to the operator for the Q and A session. Thank you.

Operator

Thank Thank you. We'll now take our first question. Please stand by. First question is from the line of Miranda Zhuang from Bank of America Securities. Please go ahead.

Speaker 1

Thank you. My question is about AIGC. Can you elaborate more on your plan for the AIGC area? What would be the main applications and what are your product plans? Thank you.

Speaker 2

Yes. Thank you for your question. So first of all, as a social media platform, we are looking at our competitors, especially among our users and also in terms of commercialization, 2 kinds. 1 is actually a social platform like Weixin and also another one is like those Douyin and also Xiaohongshu, those kind of recommended base Social media platforms. So of course, in Weibo, we confronted actually 2 kinds of creators.

Speaker 2

1 is, of course, the content creator Of media or by the media and other one is the We media that are having a very strong personality. Okay. So First of all, in terms of application of VIGC, we have 2 areas. And one is that on our platform, we have a lot of top notch We media. And also, we are going to help them to enhance their efficiency of creating more personalized and also individualized content.

Speaker 2

So by having a fine tuning our big models, We are able to help them to leverage this capability to enhance the efficiency of the content creation and generation. And also second of all, it is going to help us to optimize and also help those long tail accounts to have a better creation of content. So now on our platform and on Weibo, we have actually those top notch accounts that are having a very strong capability in doing so, But actually, it is relatively weaker for those medium level and also the long tail accounts. So by applying the AIGC very effectively, This is going to be enhanced. So that's let me talk to you about the application.

Speaker 2

So nowadays, given the strength of the total AIGC capabilities, It is not easy for us to say that it is going to actually replace the top notch free media. So let me talk to you about some of the trials and also applications. So before the mid of 2022 last year, we were primarily adopting the GPT-three model. So it was not as capable as to mitigate and also mitigate or assimilate the interactions with the users. So we used the GBC free model back then For the purpose of learn and also try to keep up with certain solutions in terms of the anti Internet violence, etcetera, that's we're going to enhance operation of the Internet based business.

Speaker 2

And also second of all, starting from the second half of last year and also the beginning of this year, we are using more advanced model of GBT and also the other AIGC relative models. So, it is now able for us to actually simulate the personnel based interactions, but actually it is not able to generate the users' content by its own. So the AIGC is primarily used as assistance for those top notch creators. And also we are starting Already, this particular campaign is in Q2 of this year. And also in the next 1 or 2 years of time, with the advancements of this ARGC models and also the AI models as a whole, We believe that it is able for us to use to generate the content replacing those original content generated by the mid level content creators.

Speaker 2

Actually for those top notch content creators, which have very strong personality, I still believe that it's a challenge Of course, you used the model to actually replace the content creation process. So overall speaking, I believe that the EITC and also the Radicea Technologies Marek, very good to be used to really enrich the content created on our ecosystem and platform and also enhance our competitive edge as a whole. So as a conclusion, talking about this particular technology, now the collaborative model is pretty much based on the collaboration with those open source and also open source models. So primarily speaking, we are just having the adoption and also fine tuning our model, not necessarily proprietary innovate and also invest into the development of L and M model. So as a result, it is not going to enhance a lot of internal R and D investment in response.

Speaker 2

And also it is going to help us to improve our commercial efficiency while at the same time Reduce the cost related to content creation. Thank you.

Speaker 1

Thank you. Thank you very much.

Operator

And we'll now take our next question. Please standby. This is from the line of Alicia Yap from Citigroup. Please go ahead.

Speaker 3

Hi. Good evening, management. Thanks for taking my questions. Can you hear me okay?

Speaker 2

Yes.

Speaker 3

Okay. All right. Thanks. So my question is related to advertising. So can management share reverse So your view on the latest advertising market recovery so far, especially in April May?

Speaker 3

And then what is your expectation for the ad revenue growth in the second half of this year? And then if you can elaborate The performance by the industry category as well. And then also as we look Forward, what is the company, add product and marketing strategy that you can think about to be able to improve the competitiveness in the market? Thank you.

Speaker 2

Thank you for this question. So as we have stated in the script that We have already seen that in Q1, the kind of recovery and also the growth trend of the advertisement industry in our company is actually pretty much weak due to the post COVID, I mean the release of the restricted policies as well as the weak season or low season in the spring festival season. And also in Q2, as we have already stated after March, we have been seeing that the growth of our advertisement business has been on the positive track, But still the growth rate wise, it is still smaller than the same period of our last financial results of the same period. So second of all, in terms of the industrial verticals, now we have seen that, for example, 3 Seas and has that well as the automotive industries. So after March, we've been seeing actually a recovery trend in terms of our investment into the consumption market.

Speaker 2

So for some of these industries, although we've been seeing some of the decline on our sales, still there is a trend of the consumption upgrade or the competitive edge All competitive market upgrade as well. So for the industry of and headsets and 3C digital products as well as automotive, We've been seeing a double digit growth in Q1 for this diversified business and also after March, we've been seeing that especially March, we've been seeing over 40% of the growth in this area. And also in terms of the assets, we do see the kind of a lot of product launch and new product launch What are happening in Q1? Previously, while we said that it is becoming longer and longer in terms of The mobile phone or smartphone switch cycle, however, still for most of those asset manufacturers, They're still thinking about launching those new products with a lot of technologies inside in Q1 in order to enhance the ARPU value of their users. So Weibo is actually a must to choose a platform for them to collaborate with.

Speaker 2

And also, our next one is for the automotive market. So now we've been seeing a further ramping of the electrification and also as a new energy vehicle in our top selected Advertisement platform, Weibo had years of experience in terms of the content creation and also the content ecosystem for the automotive market. So actually, we are also a necessary choice among the automakers. So in Q2, on the overall basis, we believe that it is going to enjoy a much quicker growth, which is Out of our expectation, I mean, especially surpass the budget that we made in the beginning of the year. And in March, for some of the other industries, we've been seeing some of them actually are back on a positive trend or some of the other verticals are going to recover their growth since Q2.

Speaker 2

But actually for some of the other industries that I'm going to talk to you about later, There has been actually a weaker growth rate than the same period previously. So for instance, for the e commerce vertical, so for some of the key accounts that they have been adjusting their management strategies and especially their competitive strategies as well as their customer structures. So for this, as always, again, we wanted to actually seize the big opportunities, for instance, the June 18 shopping festival or the e commerce Big opportunity. So we do actually have seen a lot of order and also placement of the ad budget In this June 18 this year, way higher than that of last year, but still it is still weaker Than the previous quarters for the e commerce business. And also turning to the vertical of FMCG and then in specific, we are talking about the cosmetics and also Personal Care Products.

Speaker 2

So you can see that in Q1, they had actually a very weak performance due to two reasons. The first one was that Since the December of last year, during COVID, we were not releasing the restrictive policies in China. So last year in December, those Taizus in this particular industry were making the budget for the New Year. So they were actually intending to be very conservative for the New Year of 2023. And also second reason was that for the past 3 years, we had a COVID impact and pretty much and also You can see that the FSCG industry or the cosmetic and also personal care industry is still in the cycle of Concerning their existing inventory, so it still takes time for them to actually fully recover the new user purchase of the products.

Speaker 2

And also next I would like to say is that especially for all the customers in this area, they're having a very conservative fashion They're making their budget and specifically, we're talking about the new product launch plans. So actually this FMCG industry is actually much weaker Than the other industries in terms of the planning of the new product launch. And also, of course, we've been seeing certain recovery during 2018 First of all, but still the recovery speed is actually way lower than the expectation in the beginning of the year. The reason for us to have an overall kind of a slower growth for our total business of advertisement It's because that we have a very high percentage of the FMCG advertisement business accounted for the whole advertisement business. So finally, I would like to say that Weibo is a platform that is Having everything ready or everything in place and covering almost all the areas, including the text and Images as well as videos.

Speaker 2

So actually we are a quite diverse and also widely covered platform. So in terms of the total nature of distribution, we are having actually a much better positioning than the other platforms. So in terms of the development of our budget, it is pretty much subject to the new product launch of our external customers as well as their investments and strength And also mindset into the branding activities. So for instance, if for some of the verticals, they have actually a much diverse plan on their new product launch and also Pretty much intensive investment on the branding activities. We are going to enhance our competitiveness in those verticals.

Speaker 2

However, and also, for instance, in the headset and also e commerce and also automotive verticals, Weibo Has years of experience in accumulating the content and created a very good content ecosystem. So that is to say we gain a bigger advantage than the Other platforms in this area in terms of the diversity of the content. However, in terms of the offline consumption related areas like The cosmetics or the beauty products, sort of personal care or fashion, we've been actually performing like pretty much Weak in this area and also this market is something that we have to further strengthen in the future. So previously, in the past, most of our traffic Well, majority of our traffic were driven from the entertainment and also culture industry, etcetera, but not that much from the offline consumption. So this year, our strategy is that further we have to strengthen our ability in capturing those opportunities in the offline consumption markets, for example, Travel, food and cosmetics and beauty products, etcetera, to further gain momentum.

Speaker 2

And also second of all, our strategy is focusing on the application of integrated marketing strategies so that we are going to further enhance our competitive edge by doing that. Thank you.

Operator

Thank you. We'll now take our next question. Please standby.

Speaker 2

This is

Operator

from the line of Thomas Chung from Jefferies. Please go ahead.

Speaker 2

Good evening. Thanks management for taking my questions. May I ask about the margin outlook for this year? Any initiative on operating efficiency improvement? Separately, may I also ask about our capital allocation plan and also our thoughts on dividends?

Speaker 2

Thank you. So I will answer the first question and second question be addressed by Fei Tan. So first of all, as we have already said in the prepared remarks That in Q1 on the overall cost and expenses, we have been having a reduction of 17%. And also in Q1 of this Yes. We are really sad that since Q4 of last year, we've been having the strategies in making the Restructuring of our organizational structure, so that uncertain kind of a business.

Speaker 2

So in terms of the kind of impact To the overall margin and also profitability, we are going to see the value by doing that things this year. And also second is that we have already mentioned that we have a strategy of a channel user acquisition focusing on that and also further having the ROI related channel user acquisition as an appraisal indicator. So of course, in Q1, we'd be experiencing certain challenges in terms of the smartphones, for instance, The reduction of the sales of the assets. So in terms of the marketing cost, originally, actually, we plan that we might have actually an increase I mean, in terms of this particular area, but still I think that this due to the decreased sales of the handset in this marketing Costa, we're going to keep a flat performance versus last year. And also, overall speaking, in terms of the margin, we expect to have a very stable Development and also with a little bit increase in terms of the margin of this year.

Speaker 2

And also since Q2 because we have now fully reopened market after COVID, so we expect to have more organizations So the offline activities, so this kind of expenses related to the organization of offline activities Are expected to having a growth. So for the rest of the quarters, we expect to have the increase on the overall profit and margin.

Speaker 1

Okay. Thanks for the question. This is Kate. Let me add some color on the margin. So most of our marketing spending, including China investment is discretionary.

Speaker 1

So it's all flexible. We could always manage through dynamic adjustments. As Sophie mentioned, we have successfully implemented A series of cost reduction and efficiency enhancement initiatives last year resulting in a more focused team and a leader cost structure. We will continue these initiatives this year. Moreover, our primary challenge is to restore our top line growth in the second half.

Speaker 1

Rest assured, our focus on margin remains unvary. As you can see that our margin has consistently maintained at a higher level within the industry. So regarding your second question, the capital allocation and the First, the most important of all is to support the organic growth of our business as well as the new business model through M and A within the industry. And 3rd, in addition to investing in our own business, investments and acquisitions, Regarding the announced special tax dividend program, this program demonstrates our commitment to delivering shareholder value and our confidence for long term divestment. This commitment is supported by our current system's profitability check record With our advertised long term competitiveness and financial flexibility, driving to enhance shareholder return within this framework.

Speaker 1

As mentioned, Weibo has achieved sustainable profitability and We ensure that we will maintain a net cash position after the distribution and continue to generate sufficient free cash flow to support operation of the company. Our commitment to healthy financial condition It enables us to navigate market uncertainty and to pursue strategic opportunities while safeguarding our shareholders' interest. Looking ahead, we will continue to explore various ways to reward our investors, including dividend payoffs and stock repurchases. Ms. Waggart will be carefully considered and amend with our core objectives and subject to our Q4.

Operator

Thank you. At this time, I will now hand back to the speakers for any closing remarks.

Speaker 1

Thanks, operator, and thank you all for joining our conference call. We'll see you next quarter.

Operator

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.

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