Phoenix New Media Limited — FY2013 Form 20-F
Reporting period: Fiscal year ended December 31, 2013. This is an annual report, not a standalone 2013 fourth-quarter filing; the filing does not provide a clear standalone Q4 income statement or cash-flow result. Financial statements are prepared under U.S. GAAP. Amounts below are primarily RMB millions unless stated otherwise; U.S. dollar amounts are convenience translations.
Business context and reporting period
Phoenix New Media operates Chinese-language Internet, video, and mobile media services, earning revenue from advertising and paid services. Its China operations are conducted substantially through variable-interest entities (VIEs) under contractual arrangements. Phoenix TV is its controlling shareholder and a major content partner.
Financial performance and liquidity
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | RMB1,424.5m (US$235.3m) | RMB1,111.0m | +28.2% |
| Net advertising revenue | RMB863.7m | RMB610.2m | +41.6% |
| Paid-service revenue | RMB560.7m | RMB500.8m | +12.0% |
| Gross profit / margin | RMB728.1m / 51.1% | RMB479.7m / 43.2% | Margin +7.9 percentage points |
| Operating income / margin | RMB248.2m / 17.4% | RMB84.6m / 7.6% | Operating income +193.2% |
| Net income attributable to Phoenix New Media | RMB279.6m (US$46.2m) | RMB107.4m | +160.4% |
| Operating cash flow | RMB347.8m | RMB109.6m | More than tripled |
- Advertising grew to 60.6% of revenue, while paid services were 39.4%. Advertising growth was attributed mainly to higher average revenue per advertiser, which rose from RMB1.2m to RMB1.5m.
- Within paid services, mobile value-added services (MVAS) contributed 83.4%; “games and others” contributed 16.6%. Wireless value-added service (WVAS) revenue declined 10.0% to RMB266.5m.
- Gross margin improved as advertising became a larger share of sales. Operating expenses increased 21.5% to RMB479.9m, including a 38.8% rise in sales and marketing expense; general and administrative expense fell 8.3%.
- Net income included RMB67.4m of other income, including RMB19.7m foreign-exchange gain and RMB15.0m of other net income. Adjusted net income, a non-GAAP measure excluding share-based compensation, was RMB296.3m versus RMB114.1m in 2012.
- At year-end, cash and cash equivalents were RMB1,308.1m, term deposits RMB93.7m, and restricted cash RMB10.0m. Current assets were RMB1,941.0m against current liabilities of RMB469.5m. Total liabilities were RMB481.7m and total equity RMB1,575.0m. The filing does not identify material interest-bearing debt.
- Cash increased by RMB392.0m during the year. Investing cash flow was positive RMB111.7m, primarily reflecting term-deposit maturities; financing cash outflow was RMB64.7m, mainly share repurchases. Capital expenditures were RMB29.2m.
Material changes versus FY2012
- Revenue growth accelerated, led by advertising; the advertising share of total revenue increased from 54.9% to 60.6%.
- Gross margin rose from 43.2% to 51.1%, while operating margin rose from 7.6% to 17.4%.
- Operating cash flow strengthened to RMB347.8m from RMB109.6m, although accounts receivable increased to RMB353.4m from RMB281.0m and amounts due from related parties increased to RMB125.2m from RMB63.8m.
- China Mobile-related revenue fell to RMB429.6m, or 30.2% of total revenue, from RMB434.8m, or 39.1%. It remained a major channel and related-party exposure.
- The company repurchased 2.5m ADSs during 2013 for approximately US$11.7m; the authorized US$20m repurchase program was completed.
Outlook, commentary, risks and unusual items
- Management stated that operating cash flow, cash balances, and term deposits should cover anticipated cash needs for at least the next 12 months. It expected 2014 capital expenditures to increase by approximately RMB20m. No formal revenue or earnings guidance was provided.
- Management cited user-traffic growth and higher advertiser spending per customer as drivers of advertising growth. It also described continued investment in mobile applications, product development, content, and convergence across Internet, mobile, and TV platforms.
- Key regulatory exposures include pending Internet news and online audio-visual program licenses, lack of certain health-information permits, and trademark-use noncompliance. The filing describes potential fines, service restrictions, or suspension if authorities take adverse action.
- The VIE structure is central to operations: the company has no equity ownership in the VIEs and depends on contractual control and access to their economic benefits. PRC authorities could challenge the structure or its enforceability.
- Phoenix TV content and brand agreements, including exclusive content licenses, are scheduled to expire in March 2016 unless extended. China Mobile generated 30.2% of FY2013 revenue; 73.7% of paid-service revenue was earned from and through China Mobile.
- A contractual dispute claim seeking RMB7.6m in damages was received in February 2014; the case had not commenced and the outcome was uncertain. The filing reports no other pending proceeding management considered reasonably likely to have a material adverse effect. Contractual commitments totaled RMB158.7m, including RMB115.1m of rental commitments.
- Tax uncertainties include possible retroactive effects of PRC tax guidance and RMB12.2m of unrecognized tax benefits. The filing also warns of currency-conversion limits, preferential-tax qualification changes, and possible PRC tax treatment of the offshore parent.
- Management and the independent auditor concluded internal control over financial reporting was effective as of December 31, 2013. The financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Confirm the annual-period scope: the 20-F covers FY2013 and does not provide standalone Q4 results.
- Assess the durability of advertising growth and margin expansion, and the continued decline in WVAS demand.
- Review China Mobile concentration, related-party balances and transactions, and the timing and collectability of receivables.
- Track renewal of Phoenix TV content and cooperation agreements before their March 2016 expiration.
- Check progress on outstanding PRC licenses and trademark compliance, and assess the enforceability and cash-transfer implications of the VIE arrangements.
- Verify the status and potential exposure of the RMB7.6m claim, uncertain tax positions, and restrictions on moving PRC cash offshore.