Weibo Corporation (WB) Q1 2019 Earnings Call Transcript

Weibo Corporation (NASDAQ: WB)Q1 2019 Earnings CallMay 23, 2019, 7:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, standing by. And welcome to Weibo Report's First Quarter 2019 Unaudited Financial Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 23rd of May 2019.

I'd like to hand the conference over to the first speaker today, Mr. Sandra Zhang. Thank you. Please go ahead.

Sandra Zhang -- Investor Relations

Thank you, operator. Welcome to Weibo's first 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. This conference call is also being broadcast on the Internet and it's available available through Weibo's IR website.

Before management remarks, I would like to read you the Safe Harbor statement in connection with today's conference call. During today's call, we may make forward-looking statements, statements that are not historical facts, including statements (Technical Difficulty) Hello (Foreign Language) including statements of our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties.

A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Weibo assumes no obligation to update the forward-looking statements in this call and elsewhere, further information regarding these and other risks, is included 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 and for the applicable law.

Additionally, I'd like to remind you that our discussion today includes certain non-GAAP measures, which excludes stock-based compensation and certain other expenses. We use non-GAAP financial measures to gain a better understanding of Weibo's comparative operating results and the future prospects. Our non-GAAP financial excludes certain expenses, gains or losses and other items that are now expected to result in future cash payments or that are non-recurring in nature 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 will open the lines for a brief Q&A session.

With that I'd like to turn the call over to our CEO, Gaofei Wang.

Gaofei Wang -- Chief Executive Officer

(Foreign Language) Thank you. Hello everyone and welcome to Weibo First Quarter 2019 Earnings Conference Call.

(Foreign Language) On today's call, I'll share with you highlights of Weibo's user growth, product and the monetization, as well as progress we made on key initiatives in 2018

(Foreign Language) Let me start with our first quarter financial results. We continue to see solid growth in revenues and user base this quarter. Our total revenue reached $399.2 million, up 14% year-over-year or 21% on a constant currency basis. Advertising and marketing revenues reached $341.1 million, up 13% year-over-year or 20% on constant currency basis with 85% of our ad revenues coming from mobile. Non-GAAP net income during the first quarter was $128.5 million, up 14% year-over-year.

(Foreign Language) On the user front, in March 2019, Weibo's MAUs reached 465 million, up 13% year-over-year representing a net addition of 54 million users on annual basis. Average DAUs reached 203 million, up 10% year-over-year. 94% of Weibo's MAUs came from mobile.

During the Chinese New Year, we delivered solid user growth and improved user engagements through innovative grant (ph) advent of marketing and holiday specific branding campaigns. On the monetization front, KA business continues its momentum thanks to sales team's effort and our ongoing ad product optimization and innovation. SME business is also exhibiting some positive signs with progress made in customer structure to leave them and add product optimization.

(Foreign Language) In discussing, our operating outlook for the first quarter, I'll cover the areas of users content and the customers of Weibo.

(Foreign Language) Let's start from user growth and user engagement. We have two areas of focus this year. First, our user growth will strive to ramp up our use scale in the third and fourth tier cities to further use the product optimization and the channel investments. From a channel perspective, we continue to partner with major domestic smartphone manufacturers for user acquisition.

From a product perspective, we will continue the enhance the location-based content consumption and creation experience to meet the specific content and social interaction demands of low tier city users. In 2019, we'll further drive users engagement constant growth by boosting content consumption and a social interaction of the lower tier cities user underpinned by our step up effort increasing location based social and content consumption context. Weibo will further penetrate into lower tier cities, leveraging our core strengths in social attributes and trend discovery coupled with our effective channel investments.

(Foreign Language) On user engagement, our emphasis this year is to increase frequency of usage by each Weibo user. To achieve this purpose, our first area of focus is to drive content generation and user engagement to strengthening our cooperation with partner in public sectors including media all at TV stations and sports events and also launching brand campaigns to integrate vertical resources and future participation of top content creators combined with the efforts to diverse user interactive functionalities.

For example, during the Chinese New Year this year, we focus on aggregation of video content and innovation of online interactive activities to enhance user engagement leveraging our collaboration with CCTV's Chinese New Year Gala. As a result, we are encouraged to see higher usage of Weibo in such contexts with feeds posted passing 100 million facilitating over 300 million social interactions and over 5 billion short video views. These three measures are growing at double digit percentage year-over-year. We also organized a hashtag, the Chinese New Year for the top of the context in concert with CCTV News encouraging users to capture the moments in their life to the swing festival in forms of pictures and videos. June the 20 date contacts over 10 million related photos and video contests were generated a label with nearly 100 quality for top photographic work, so like to be shown on CCTV programs. The topic of the context was viewed over 10 billion times, a week during that period.

Our second area of focus is to further enhance the social attributes of our user products and improve social interaction among users. For instance, we have established a social interaction arena (inaudible) based on super topic community and fans group function in the past two years. User penetration and user engagement generated through these two functions grew nicely year-over-year with user interaction within super topic community, the number of daily average users to access fans group and their daily average user all delivering double digit growth year-over-year in March 2019.

We believe our set up investing in the social attributes of our user product will play a critical role in growing our user base, improving user engagement and particularly enhancing Weibo users content consumption frequency. Specifically, common consumption information feed grew very robustly in 2019. Our emphasis on social attributes of our user products could enhance the competitive advantage of our products, amid intense competition in the industry. Building a solid foundation for further user base expansion and elevate monetization efficiency underpinned by user frequency improvement on the platform.

(Foreign Language) Next on accountants. Let's start with content consumption for the relationship based of fees. We further enhance content distribution capability based on social relationships leading to high efficiency in social content consumption and improve the user engagement. In the first quarter, the average refreshment per user for the relationship based feed further increased year-over-year. For the interest base fees, we continue to optimize algorithm backing the feeds.

On the one hand, the refined algorithm enhance exposure of contents from Hot Search, trend and topic in interest-based feeds leveraging stronger synergies within these two -- these products. On the other hand, we enhance our data mining and distribution capabilities of content from mid tier and long tier verticals in terms of traffic and viewership, which led to over 50% year-over-year growth of company exposure from these vertical in interest based fees. Subsequently in March both users feel an massive refreshment of interest based fees continue to grow from the same period last year.

(Foreign Language) From the content generation perspective as of March 2019, Weibo's partnership with MCNs have exceeded 2,800. Weibo still holds distinct leadership in the area of top content creators with number of upcoming creator they report the views generated in March 2019 or maintaining double digit growth year-over-year. Regarding video content generation in the first quarter daily video post by top content creator increased over 50% year-over-year primarily driven by PGC video content.

The robust growth of PGC video content generation was mainly attributable to the below two factors. First, benefiting from the rich expression offshore videos, we saw an increasing adoption of video format among top content creators. For example, VLOG (ph) which caught on last year offers content creator a better experience to express their personalities to capture daily life moments in a video format, compared with photo and text, video format offer content creator a more vivid and immersive experience to interact with fans. In March, the number of daily post of VLOG grew over 50% on sequential basis.

(Foreign Language) Second, Weibo video community enable us to derive massive target user topic to high-quality video content creators. In a first quarter, we proactively invited content creator to generate quantity video content or single out quarterly video contribution and then offered heavy traffic support through these video contents in interest-based feeds.

We saw many growth in average video views of those videos being selected. Over the next two quarters, we will further strengthen traffic support mechanism to selected quantity video content from two aspects.

First, we distribute this quality video content through notable feeds to ensure and enhance the content exposure. Second, we will more precisely distribute those video content to target users with different interest through various vertical channels within the video community, which further promoted content exposure while solidify the new things for video content consumption on Weibo. We are encouraged to see that the average daily time spent per user for those who access the video community tab more than doubled compared with that for those who didn't.

This year, we'll establish an operating mechanism for video content generators to further development of the video community, which will fortify Weibo's competitive edge in the PDC content area.

(Foreign Language) This year, we'll continue to execute against our vertical content strategy with a special focus on building our ecosystem around top verticals and empowering KOLs to uplift their fans engagement and thus better monetize within our ecosystem. Through years of investment, Weibo have well established the monetization ecosystem for content creators to monetize through advertising, e-commerce, live streaming and a paid subscription et cetera.

This year, we'll facilitate more top content creators to benefit from the ecosystem, further reinforcing the platform ecosystem around the content, influence and monetization. Moreover, for the mid-tier and long-term verticals, we'll focus on expanding the scale of top content creators and uplifting their influence. Take aviation and collection verticals as examples. In the first quarter, the two verticals ran among top five out of the 60 verticals by year-over-year growth in the scale of top content creators and and amounts viewed. In particular, the collection vertical was the most rapid growing vertical with monthly viewership more than doubled year-over-year.

(Foreign Language) Lastly, on monetization, KA revenue continue to grow robustly in the first quarter, increasing 31% year-over-year with 39% on a constant currency basis. We attributed the strong growth to multiple reasons. First, in the past several years we benefited from the Leju ad partnership from offline to online for brand advertisers. Second, we've capitalized on the trend that an increasing number of branded customers decide to associate their campaigns with the blockbuster IP and also accurately measure their campaign results through afterwards; leveraging IT partnerships with TV stations and celebrities as well as a new marketing program with Alibaba, we will continue elevate this capability to satisfy customers various market demands. Third, we pioneered that innovation in social marketing products and ad formats in a digital ad industry and showcase desired ROI to customers, with a series of successful cases. For instance, we offer integrated social marketing solutions for customers to uplift their marketing performance that associating Weibo's ad inventory with our rich IP content resources such as celebrities, variety shows, TV programs and films.

Take the marketing campaign of Yili, The National famous dairy group as an example, where Weibo worked closely with the TV program seen on 2019 to maximize the brand and marketing effect of Yili. During the campaign, for the first time fans interaction on Weibo really impacted the competition rules of the TV program effectively transforming the contestants and their fans into Yili's endorsers. Weibo also proactively invited over 30 engrossed celebrities and over 100 participants to generate of around 500 posts, which brought in 1.6 billion views, 20 million interactions significantly uplifting Yili's trend exposure. In total, views on topic discussion around the 2019 program exceeded 20 billion. According to third-party research, the campaign drove up users of brand preference on Yili's promoted products by 41% and desire for consumption by 25%.

(Foreign Language) SME business, on the other hand, will continue to face intense competition across the feed at advertising market. First, top SME customers ad spend became more scattered across platform following a traffic search and adding inventory released into the market. The oversupply of an inventory also caused pricing pressure in a bidding process across the industry. And meanwhile starting from the third quarter and fourth quarter of 2018, lack of uncertainties and tightened financing environment also weighed on the growth of the entire SME end market.

In response to these challenges, we took decisive steps to form a separate sales team to directly serve our top SME customers aiming to improve their ad performance. We also enhance our capability to acquire mid-tier and long-tier customers through adjustment to our sales agency structure.

Overall our SME business reached a trough in March and April and started to recover in May with double digit sequential growth in daily ad spends. As this above initiative gradually play out, we estimate that our SME ad business will be covered in a more meaningful way in the latter half of 2019.

(Foreign Language) On the ad product front, we had made plenty of optimization as well. For example, we launched an automatically recommended targeting data package on (inaudible) system to meet customers industry specific targeting requirements. We saw double-digit growth in ECPM and ad engagement for the same customer upon the adoption of such package. We have also refined functionalities of vertical video ad products in terms of traffic direction and social interaction leading to double -- double the click-through rate and a higher sell through rate as well as customers purchase intention.

(Foreign Language) Finally, on gaming sector, despite a resumption of gaming license approval and a modest recovery of ad spend in the quarter, our view is that it will still take one or two more quarters for a market rebound. In view of the current situation, we have nevertheless stepped up our operating effort to engage more users in the gaming sector, hoping to lay a good foundation for the monetization in the future.

(Foreign Language) With that let me turn the call over to Fei Cao for financial update.

Fei Cao -- Vice President, Finance

Thank you, Gaofei. And hello everyone. Welcome to Weibo's First Quarter 2019 Earnings Conference Call. Before the detailed financial review, I would like to remind you that my prepared remarks will focus on non-GAAP results and all the comparisons on a year-over-year basis unlike otherwise noted.

Now, let me walk you through our financial highlights for the first quarter 2019. Weibo's first quarter 2019 net revenues was $399.2 million up 14% or 21% on a constant currency basis. Operating income is $136.8 million, representing operating margin of 34%. Net income attributable to Weibo was $128.5 million representing a net margin of 32%. Value to the EPS was $0.56 compared to $0.50 last year.

Let me give you more color on our first quarter 2019 revenue growth. Advertising and marketing revenues for the first quarter 2019 reached a %341.1 million up 13% or 20% on a constant currency basis. Mobile ad revenue was $288.4 million up 19% or 26% on a constant currency basis representing 85% of total ad revenues up from 18% last year. Let's start with KA. In the first quarter, our key ad revenues reached 168.8 (ph) million up 31% or 39% on a constant currency basis.

Despite macroeconomic completion and a highly competitive digital advertising market in China, our KA sector continued a strong momentum and demonstrated the resilience we grabbed from Weibo's unique value proposition to brand advertisers as an indispensable platform for mobile and social marketing demands. Among various brand industries that Weibo covers, we're particularly impressed with strong performance of FMCG sector, as Weibo consistently adjust value for these customers to target broader audience to enhance brand awareness and deliver better ad performance through our differentiated social marketing tool and the powerful KOLs influence.

Turning to SME, in the first quarter, Weibo's SME ad revenue reached $155.7 million, up 5% or 12% on a constant currency basis. We are pleased that we see a solid growth from our field sectors such as e-commerce, many attributable to team's efforts, to optimize targeting capability and improve our ad content for these customers. Finally, this positive move we continue to face challenges from all tools segment especially with high-ARPU categories amid macro uncertainties as well as from attrition in the performance ad market.

Ad revenue from Alibaba was 16 -- was sorry -- ad revenues from Alibaba was $16.6 million (ph), a decrease of 37% or 36% on constant currency basis. This decrease is partially resulted from a tougher comparable base in the same period last year. The Alibaba actively invested in marketing campaigns, which will run out for fourth quarter 2018, such as a sponsorship for 2018 Chinese Lunar Year Gala and the Winter Olympic Games. On top of this, as we mentioned in the third quarter, the ad spend from Alibaba highly correlated to its marketing strategy, which may change time from time.

Value-Added Service. VAS revenues was $58 million in the first quarter, up 24% or 31% on constant currency basis. This growth was primarily driven by increased revenue contribution from live streaming business. Turning to costs and expenses. Total cost and expenses for first quarter was $262.4 million, up 14%. The increase in costs and expenses was primarily due to the incremental costs of revenue sharewe incurred in that live streaming business and increase in personnel related costs and expenses.

Sales and marketing expenses remained flat year-over and the sales and the marketing expenses as percentage of revenue decreased 4 percentage of point from the same period last year, reflecting further operating efficiency, mainly achieved through more disciplined channel investments. Operating income in the first quarter was $136.8 million rather than the operating margin of 34% at a similar level compare with last year.

Turning to income tax. Under GAAP measure, income tax expense for first quarter was $21.1 million compared to $18.4 million last year. Net income attributable to Weibo in the first quarter increased 14% to $128.5 million, representing net margin of 32% same as last year.

Turning to our balance sheet and the cash flow items. As of March 31st, 2019, Weibo's cash, cash equivalents and short-term investments totaled $1.49. In the first quarter, cash provided by operating activities was $18.8 million. Capital expenditures totaled $7.7 million. And depreciation and amortization expenses amounted to $6.2 million.

Now, let me turn to our financial outlook. We anticipate our second quarter of 2019 revenue to be in the range of $427 million and $437 million or an increase of 7% to 10% year-over-year on a constant currency basis. This assumes currency rate of RMB6.9 to $1. This forecast reflects Weibo's current and preliminary view and is subject to change.

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

Questions and Answers:


Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Your first question comes from the line of Binbin Ding from JP Morgan. Please ask your question.

Binbin Ding -- JP Morgan -- Analyst

Good evening, management. Thanks for taking my question. My question is about the SME advertising revenue. As you and many other Internet companies indicated in their 1Q earnings report, condition in ad inventory supply. So one major reason leading to the weakness of the performance that's growth. I'm just wondering, if management can share some color regarding your current views in terms of the competition intensity on Weibo's SME advertising versus last year.

And what kind of measures are you going to take in response to this competition? Lastly, how shall we think about the long-term growth rate of SME advertising revenue say, in two to three years. Thank you.

Gaofei Wang -- Chief Executive Officer

(Foreign Language) Based on our ad industry tracking and their peer operating results, virtually, we see the overall ad market growth is significantly slowing down or even a cutback in the first half of 2019. This was mainly caused by the macro and the regulation headwinds as well as the competition on the inventory supply side. For us, we saw sluggish ad growth from some of our top SME customers since the latter part of 2018, particularly in those industries hit hard by macro and the regulation factors.

On top of that, pricing pressure across the industry cost by the oversupply of ad inventory in the market. The growth of our SME business was short of expectations. Also, I think just for particular industry on the gaming part, the bulk of the licensing approval for gaming happened in Q2 2018, which means gaming customers still contributed very meaningful revenue to us in the first quarter 2018. So the tough comp was another reason for the deceleration in our SME business.

(Foreign Language) So coming back to our results. In response to the external environment analytics competition, we have been focusing on three areas since fourth quarter 2018. And we are start to see some initial progress. One is we introduced the social marketing playbook to SME as well, such as the KOL marketing to highlight our unique value proposition in the market.

Number two, we beef up our efforts in optimizing our advertising algorithm so that we could improve our targeting and ad provision conversion and and ultimately customer ROI. This is very essential for both our customer acquisition and retention. As -- to give you some color, our e-commerce customer, particularly Taobao merchant, ramped up their ad spending platform in .Q1 2019, mainly in cost of better targeting our platform, as are indicated in the prepared remarks. As we have introduced the target data package to them.

The other thing is, we initiate a series of adjustments to better line up our agency or distribution channel structure and the incentive mechanism. To encourage them to develop a new industry and customers. We started to provide direct service to our top customers. To give you an update, since 2019 Q1, we saw higher percentage of revenue coming from new customers as their spending also continued to increase in Q2.

But as -- I think that will be -- take a while and to see meaningful ARPA to go up for those new customers. So this is quite typical as new customers generally have low ARPA in the initial stage. So for us in the coming quarters, our next step is to further work on our service and the targeting gradually to drive up their spendings.

(Foreign Language) Just try to give in a more updated information. If we revisit the all monthly figures, we believe the revenue growth for SME costs hit the bottom for the month of February, March and April. We -- relative meaningful rebound in May, even though we continue to experiencing price decline in our ad service. Our daily ad spend has grow over 20% on a Q-over-Q basis.

Having said that I think we still need more time to fully execute against these strategies to drive a more considerable growth. So currently our tasks is focusing on -- or currently, our take is that we will probably would take more -- two more quarters for SME business to return to a healthy growth rate, with our focusing -- with our focus much more on the new customers and to grow ARPA versus the CPM itself. We believe the customer structure change and product optimization are essential for our platform in the longer run. For the gaming sector, which, I think, in most -- a lot of people are asking questions, will we see initial recovery. So ad spend from gaming sector was still -- at relatively historical low levels into Q1 2019.

We are encouraged to see some resumption of gaming license approval and a gradual turnaround in the industry. And our ad from the gaming sector will be better in Q2 as well. However, we believe that in the second half, our gaming revenue will be returned to the first two meaningful percentage of first half 2018. So that still take a bit more time to get there.

Binbin Ding -- JP Morgan -- Analyst

Okay. Thank you. May I have a quick follow-up on the expansion into the new customer base in your category. So is there any specific industries, are we going to focus in the next few quarters. And will -- these new initiatives bring some support to your revenue growth in 2019? Thank you.

Gaofei Wang -- Chief Executive Officer

(Foreign Language) I think in terms of the segments for new customers, it's continued to be relatively broad. So we're talking about auto, we're talking about e-commerce, even the gaming. sector. Historically, our key SME customers, meaning those top SME customers takes relative large percentage of our total SME revenue. However, we are slowly making adjustments with this composition. Now we are giving priority to new customers for certain new inventories. So for us on scale and the market share being the key focus at this point.

Binbin Ding -- JP Morgan -- Analyst

Thank you for the color. Thank you.


Your next question comes from the line of Binnie Wong from HSBC. Please ask your question.

Freya Liu -- HSBC -- Analyst

Hello. This is Freya on behalf Binnie Wong. My question is regarding to the user growth strategy. So the company mentioned that we are going to increase the online video sector exposure. So I was wondering like what is -- especially, like investment we're going to make in this sector and how we expect our users to grow in the rest of the year? Thank you.

Fei Cao -- Vice President, Finance

(Foreign Language)

Gaofei Wang -- Chief Executive Officer

(Foreign Language) Even though I have mentioned that our engagement, user engagement was primary benefiting the user engagement and trend spend growth has been majorly benefiting from our new video tab. But for the scales growth on the platform, it's more coming from our social -- our efforts in enhancing the social attributes on the product.

(Foreign Language) I'll probably go back to look at 2018. If you are familiar wi our res

ults, particularly our increased investments on user growth in 2018 through the channels. We have achieved a relative solid user scale in 2018 by means of our increased investments. However, these new users came to our platform, our total users scale expansion lagged behind the growth of user engagement. Especially the growth of the user social interaction as our platform, core competence lies on our users' social relations and interaction. Our data tracking through the user behavior of new user versus the -- like old user or royalty users have prove that.

As a result, in the first half of 2019, we will put more emphasis on promoting our user engagement and the frequency of usage by each user through enhancing their user social interactions. Along with the increase of user frequency, we believe our monetization scale and efficiency could also grow.

(Foreign Language) For -- if you look at our DAU versus MAU percentages, you might note that our -- such percent and number has to -- has moved to a higher percentage level sequentially. And for the -- from operation key performance -- KPI perspective, the user content consumption frequency and the volume of their content consumptions will be our key focus or the key KPI for right now.

(Foreign Language) From a user growth perspective, there's still a large room for us to further penetrate into lower tier city. However, as I indicated the first half the 2019 will -- of we will be focusing to increase the user engagement level of those customers we acquired in last year. So we tend to convert those new users from pure content consumption users to users that will be engaging in social interaction on the platform. In terms of whether we will or we'll not adjust our user growth strategy that depends on how the progress we're making in terms of user engagement growth, performance on the operation.

So there's a possibility we will adjust our channel marketing strategy, particularly in the lower tier city in the second half as we judge on the market condition, as well as to develop our current user base.

Unidentified Participant



Your next question comes from the line of Gregory Zhao from Barclays. Please ask your question.

Gregory Zhao -- Barclays -- Analyst

Hi, management. Thanks for taking my question. Two quick questions. First, can you share any colors of a user activities of your new version Weibo app? And how does the new version can help improve your user engagement.

And secondly, we feel KA advertising still maintain very strong growth momentum in Q1, while consistent of some of your other peer companies, your media advertising have some very substantial differentiation. We want to understand your bargaining power in KA advertising and what's your current price trend and the contract especially the contracts signed after the Chinese New Year compared to last year. Thank you.

Gaofei Wang -- Chief Executive Officer

(Foreign Language) I think to comment on the new version, particularly on the new video community, I think, as I indicated in the prepared remarks, that has helped in the time spent of our user in a meaningful way. For us, we think the functionality of our video community is to attract KOL in the video creation area so that PTC -- the high-quality PTC video creators would have be able to have a specific place to land their product -- to land their products or their accountant. So effectively, we will have the ability to track users in the video community as well.

(Foreign Language) So we have seen significant growth from video KOL content creation in the first half -- of first quarter. We are in the process of -- to optimize their creation and their contents in a easier way for user to consume. There's a update of version likely to come out in the month of June. By then, we will push much harder for new users or user engagement at the -- at the video community top.

(Foreign Language) In terms for the lower-tier-city users, we are actually in the progress of generating a new feed to specifically targeting these users. What we have noted that users from third-, fourth tier cities, they are not typical user to consume content related to celebrities or hot topics, hot trend on label. Their interests has -- they have a tendency to consume much more UGC content compared to people from first or second tier city.

With that our feed has been revised to provide a more UGC content. And we have started a pilot run in selected locations. The initial test has indicated with updated content with focusing on UGC, the retention rate for a user but the user retention rate in third, fourth tier city has doubled for those contents offered for the first and second tier city people.

So that's on the question on the user part, from the key accounts. I think, I'm just taking this question. So advertise -- I think in general advertising business is very sensitive to economic cycles. So with the term market, the current macro situation, we are tempted to take a much more cautious view on the overall growth for ad market. So despite the strong key accounts growth in first quarter 2019, we're beginning to see some signs of micro headwinds weighing on the spending from several factors. I think those ones are if I break into different industries, we see FMCG being very resilient, particularly in the dairy products for beverage customers.

For automobile, on the contract was very vulnerable in a challenging market, I think that well responded to the decline in the auto sales in the general market. In terms our frame contract execution, it was better than we initially expected. We see meaningful growth in terms of the overall frame contracts signed in the first and even going to the second quarter. For us, I think the key accounts continue to be a very important component for our revenue growth. And I think in a market like this other than the traditional marketing dollar where we try to take a mark -- take a cut on that, we also are tapped into key accounts in those area that drives -- tap into brand customers' performance driven by ad budget. So these were typical, we would say, brand e-commerce budget.

This is the one area, I think, we perhaps advantage, particularly with our cooperation with Alibaba under the union marketing program. So that's because the data exchange existing between these platforms, our ability to promote their products and achieve good conversion results remain very competitive in the marketplace. So that's on the key accounts, I think Greg, you did ask a question on the price part for the key accounts. I think so far we see relative stable pricing for a key account. So there's not so much of a change of our price mechanism at this point for this particular segment.

Gregory Zhao -- Barclays -- Analyst

Thank you very much.


I would like to hand the conference back to these presenters. Please continue.

Sandra Zhang -- Investor Relations

Thanks, operator. This concludes our conference call today. Thank you for joining us. See you next quarter.


Ladies and gentlemen, that does concludes the conference for today. Thank you for participating. You may all disconnect.

Duration: 69 minutes

Call participants:

Sandra Zhang -- Investor Relations

Gaofei Wang -- Chief Executive Officer

Fei Cao -- Vice President, Finance

Binbin Ding -- JP Morgan -- Analyst

Freya Liu -- HSBC -- Analyst

Unidentified Participant

Gregory Zhao -- Barclays -- Analyst

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