Phoenix New Media Ltd annual report, Q4 FY2021

Business context and reporting period

Phoenix New Media Limited (NYSE: FENG) filed this Form 20-F annual report for the fiscal year ended December 31, 2021. Although the request identifies 2021 Q4, this is an annual filing; it does not provide a clear standalone fourth-quarter financial summary. The company operates a China-focused digital media platform, earning revenue mainly from online advertising, with paid content and e-commerce and other services contributing the balance. Financial statements are prepared under U.S. GAAP.

The company is a Cayman Islands holding company. A substantial part of its China business is conducted through variable interest entities (VIEs) controlled by contractual arrangements rather than equity ownership. VIEs and their subsidiaries generated 44.7% of 2021 revenue.

Key financial metrics

Unless otherwise stated, amounts below are RMB; 2021 U.S. dollar equivalents are as reported. Revenue and operating results are for continuing operations unless noted.

Consolidated net loss was RMB273.1m, compared with net income of RMB365.3m in 2020. The 2020 comparison included RMB62.4m of discontinued-operation losses; Phoenix New Media-attributable continuing-operations income in 2020 was RMB418.0m. 2021 basic and diluted loss per ordinary share was RMB0.35, or RMB2.83 per ADS.

Cost of revenue rose 6.8% to RMB597.4m, or 58.0% of revenue, from 46.3% in 2020. Operating expenses increased 2.2% to RMB769.0m; general and administrative expense rose 20.2% to RMB334.2m, while sales and marketing and technology/product development expenses declined modestly. Reported gross margin and operating loss reflect U.S. GAAP results.

At year-end, cash and cash equivalents were RMB189.0m, restricted cash RMB15.6m, and term deposits and short-term investments RMB1,309.0m. Together these totaled RMB1,513.6m; cash, cash equivalents and restricted cash alone totaled RMB204.6m. Current assets were RMB2,077.0m and current liabilities RMB967.0m. Total liabilities were RMB1,016.7m and shareholders’ equity RMB1,389.2m. The balance sheet reports no conventional borrowings at December 31, 2021; operating lease liabilities were RMB45.9m. The filing describes no significant capital commitments, long-term obligations or guarantees beyond disclosed commitments.

Material changes versus the prior comparable period

• Advertising revenue fell amid reduced advertiser spending in certain industries and stronger competition. Advertising remained the dominant revenue source.
• Paid services revenue increased, mainly from e-commerce and audio-book licensing. Paid services remained small and dependent in part on third parties; China Mobile accounted for 29.7% of paid services revenue in 2021, down from 31.8% in 2020.
• Cost of revenue increased despite lower revenue, including higher business-partner revenue sharing and personnel costs for original content. Gross profit fell 33.4%.
• Operating expenses were relatively stable overall, but general and administrative expense rose due to a larger credit-loss provision. The company recognized RMB186.5m of provision for credit losses in 2021, citing receivables and notes receivable from Evergrande Group. Total allowance for credit losses reached RMB380.0m at year-end.
• Other income, net fell to RMB83.6m from RMB549.2m, principally because 2020 included a RMB477.3m gain on disposal of Particle investments. No comparable disposal gain was recorded in 2021.
• Operating cash outflow increased to RMB142.8m. Investing cash outflow was RMB42.7m and financing cash outflow RMB3.5m; cash, cash equivalents and restricted cash declined by RMB184.2m.

Outlook, risks, contingencies and unusual items

• Outlook and liquidity: No quantified revenue or earnings guidance is provided. Management stated that operating cash flows, cash balances, term deposits and short-term investments were expected to cover anticipated cash needs for the 12 months from April 28, 2022. Planned 2022 capital expenditure was approximately RMB40.2m. Management cautioned that changed business conditions, investments or acquisitions could require additional funding.
• Credit and collection risk: Evergrande-related receivables and notes drove a substantial 2021 credit-loss provision. The auditor identified the accounts-receivable allowance as a critical audit matter; gross accounts receivable were RMB799.4m with an allowance of RMB360.7m at year-end. Notes receivable had a separate gross balance of RMB37.5m and allowance of RMB19.3m.
• Licensing and regulation: The company disclosed that it lacked an Internet audio-visual program transmission license and an Internet news license; approximately 90.7% of 2021 revenue came from Internet information services and services relying on third-party Internet access. The network publication license of Tianying Jiuzhou had expired and was being renewed. The company was also applying for algorithmic-recommendation service filing. Regulatory action could restrict or halt affected services.
• VIE and China risks: The company does not own its VIEs, which generated 44.7% of 2021 revenue. Contractual control and benefit arrangements may be challenged or prove difficult to enforce. The filing also highlights evolving Chinese rules concerning data, cybersecurity, foreign investment, overseas listings, cash transfers and required approvals.
• Listing and audit oversight: The company reported NYSE notice of noncompliance with the US$1.00 minimum ADS price requirement, with a six-month cure period beginning January 2022. The PCAOB had determined it could not fully inspect the company’s auditor in mainland China; the filing warned of potential trading prohibition under the HFCA Act. These matters could affect listing, liquidity and access to capital.
• Content, counterparties and brand: Advertising dependence, competition for mobile traffic, agency relationships, content rights and Phoenix TV licensing are key business risks. A new Phoenix TV content agreement signed in August 2021 carries annual fees of RMB45.0m for three years. Phoenix TV controls the company through a dual-class structure, and related-party arrangements may create conflicts.
• Contingencies and unusual items: From January 2021 through March 2022, the company was subject to 300 PRC cases, 228 of which were concluded; damages and settlements paid totaled RMB2.7m. A copyright case previously resulted in approximately RMB1.0m of damages paid, but the plaintiff sought retrial. The filing also identifies ongoing litigation uncertainty. COVID-19, content regulation and macroeconomic conditions may affect advertising demand, collections and asset values.
• Dividends and controls: The company stated it had no present plan to pay cash dividends in the foreseeable future. Management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2021; the audit opinion on the financial statements was unqualified.

Important facts for investors to verify

• Review the audited statements and notes for the scope and recoverability of Evergrande-related receivables, the RMB380.0m total credit-loss allowance and subsequent collections.
• Confirm the status and renewal of the Internet news, audio-visual and network publication licenses, and completion of algorithmic filing and any required cybersecurity or overseas-listing procedures.
• Assess whether advertising revenue stabilizes and whether paid services can grow enough to reduce the company’s dependence on advertising.
• Verify liquidity by distinguishing cash available at the parent and operating entities from term deposits, restricted cash and funds subject to PRC transfer controls.
• Monitor NYSE minimum-price compliance, HFCA/PCAOB inspection developments and any effects on ADS trading or listing.
• Review the VIE contractual structure, Phoenix TV content and trademark agreements, related-party fees, and the pending copyright retrial and other litigation disclosures.
• Use the full annual filing for any quarterly comparison: this Form 20-F reports annual results and does not provide a clear standalone 2021 Q4 income statement or cash-flow figure.