Phoenix New Media Limited — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone 2020 fourth-quarter filing; the supplied filing does not provide clear Q4-only results. Financial statements are prepared under U.S. GAAP. Amounts below are RMB unless otherwise noted.
Business context
Phoenix New Media operates Chinese-language PC and mobile media platforms, earning revenue mainly from online advertising and, to a lesser extent, paid content and other services. Substantially all operations are in China; key businesses are conducted through variable interest entities (VIEs) under contractual arrangements. Advertising generated 92.1% of FY2020 revenue. Mobile accounted for 70.4% of net advertising revenue.
Key financial metrics
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Total revenue | RMB1,208.8m (US$185.3m) | RMB1,327.8m | Down 9.0% |
| Net advertising revenue | RMB1,113.0m | RMB1,194.8m | Down 6.8% |
| Paid services revenue | RMB95.8m | RMB133.0m | Down 28.0% |
| Gross profit / margin | RMB649.6m / 53.7% | RMB644.5m / 48.5% | Profit slightly higher; margin improved |
| Operating loss | RMB102.6m | RMB356.1m | Loss narrowed |
| Net income attributable to Phoenix New Media | RMB380.4m | RMB727.8m | Lower, with results affected by investment-disposal gains |
| Continuing-operations net income attributable to Phoenix New Media | RMB418.0m | RMB664.2m | Down; FY2020 included a RMB477.3m gain on Particle investment disposal |
| Non-GAAP adjusted net loss from continuing operations attributable to the company | RMB33.7m | RMB326.1m | Loss narrowed; non-GAAP measure |
| Net cash used in continuing operating activities | RMB103.3m | RMB371.4m | Cash outflow narrowed |
| Cash and cash equivalents | RMB357.8m | RMB310.9m | Year-end balance |
| Term deposits and short-term investments | RMB1,280.0m | RMB1,271.9m | In addition to cash; maturities up to one year |
| Total liabilities | RMB1,108.6m | RMB1,780.8m | Included RMB1,062.4m current liabilities |
Year-end restricted cash was RMB31.0m. Operating lease liabilities totaled approximately RMB53.0m. The balance sheet reports no bank-loan balance; the company reported repaying short-term bank loans in 2019. FY2020 investing cash flow was positive RMB746.2m overall, while financing cash flow was negative RMB639.7m, principally reflecting the special dividend. Cash, cash equivalents and restricted cash ended the year at RMB388.8m.
Material changes and unusual items
- Revenue declined in both major lines. Management attributed weaker advertising demand in certain customer industries to COVID-19, and the paid-services decline mainly to tighter digital-reading rules and a market shift toward free online reading.
- Cost of revenue fell 18.2% and operating expenses fell 24.8%, reflecting cost controls, including lower traffic-acquisition and personnel expenses. General and administrative expense rose 14.8%, mainly from a higher allowance for credit losses.
- FY2020 other income included a RMB477.3m gain on the sale of Particle investments. The comparable FY2019 figure included a RMB1,001.2m gain. These gains materially affected reported net income.
- Despite net income, comprehensive loss attributable to the company was RMB1,053.7m, mainly reflecting fair-value changes and reclassification adjustments for available-for-sale investments, plus foreign-currency translation effects.
- The company recorded RMB22.8m of goodwill impairment for Tianbo and RMB10.6m of impairment on licensed reading and audio content. Yitian Xindong was sold in May 2020 for RMB313.6m; it was reported as a discontinued operation, with a RMB62.4m net loss for FY2020 including a disposal loss.
- A special cash dividend of US$0.1714 per ordinary share, or US$1.3712 per ADS, totaling approximately US$100m, was paid in December 2020.
Outlook, risks and contingencies
- Management said cash balances, term deposits, short-term investments and operating cash flows were expected to cover anticipated needs for the 12 months from April 28, 2021. It planned approximately RMB31.6m of 2021 capital expenditures. No revenue or earnings guidance was provided.
- Management said COVID-19 could continue to weigh on revenue, receivable collections, credit-loss allowances and asset values; the overall financial impact was not reasonably estimable.
- The company depends heavily on advertising and third-party distribution, and faces competition, changing user behavior, agency bargaining power and content costs. Advertising agencies sourced 64.6% of net advertising revenue in 2020.
- Several important PRC licenses had not been obtained as of the filing, including Internet news and Internet audio-visual program transmission licenses. The company stated that about 91.2% of FY2020 revenue came from Internet information services and services relying on third-party Internet access. Regulatory action could restrict or suspend services.
- The VIE structure is subject to PRC legal and regulatory uncertainty; the company does not own equity in its principal VIEs. It also disclosed noncompliance with a PRC rule requiring certain trademarks used in value-added telecom services to be owned by the license holder or its shareholders.
- Phoenix TV controls voting outcomes through its Class B shares and provides licensed content and trademarks. Program-resource licensing was renewed in 2020 for two years; trademark licenses were renewed to December 2023.
- The company identified substantial risk of PFIC status for 2020. It also warned that its auditor could not be inspected by the PCAOB under then-current restrictions, creating potential U.S. trading and listing risks under the HFCA Act.
- From January 2020 through March 2021, the company was party to 223 PRC cases, 178 concluded; damages and settlements paid totaled RMB3.4m. A copyright case resulted in a final RMB1.0m payment, but the plaintiff could still seek retrial at the filing date.
Most important facts for investors to verify
- Separate recurring operating performance from gains on Particle disposals and other investment-related items; assess the continuing operating loss and non-GAAP reconciliation.
- Review receivable quality: gross receivables were RMB756.3m and the allowance for credit losses was RMB189.5m at year-end; operating cash flow remained negative.
- Confirm the accessibility and deployment of cash held in China, including restrictions on VIE assets, dividends, currency conversion and statutory reserves.
- Track renewal or resolution of outstanding PRC licenses and the enforceability of VIE contractual arrangements, particularly under evolving foreign-investment rules.
- Assess the sustainability of advertising revenue, the ongoing decline in paid services, and the effects of COVID-19, regulation and content-market changes.
- Monitor remaining legal claims, potential tax liabilities and withholding-tax adjustments, and PCAOB inspection/HFCA Act developments affecting the ADS listing.