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Weibo Corporation (NASDAQ:WB)
Q3 2019 Earnings Call
Nov 14, 2019, 6:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by and welcome to the Weibo Reports Third Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Sandra Zhang. Thank you. Please go ahead ma'am.

Sandra Zhang -- Investor Relations

Thank you, operator. Welcome to Weibo's third quarter 2019 earnings conference call. Joining me today are Chairman of the Board, Charles Chao; our CEO, Gaofei Wang; our Sina Group CFO, Bonnie Zhang and our VP, Finance and Interim CFO, Fei Cao. The conference call is also being broadcast on the Internet and is available through Weibo's IR website.

Before the management remarks, I would like to read you the safe harbor statement in connection with today's conference call. During today's call, we will 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 to differ materially from those contained in any forward-looking statements. Weibo assume no obligation to update the forward-looking statement in this call and elsewhere. Further information regarding these and other risks is included in 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 under applicable law.

Additionally, I'd like to remind you that our discussion today includes certain non-GAAP measures, which exclude stock-based compensation and certain other items. We use non-GAAP financial measures to gain a better understanding on Weibo's comparative operating performance and the future prospects. Our non-GAAP financial exclude certain expenses, gains or losses, and other items that are not expected to result in future cash payments or are non-recurring in nature or 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'll open the lines for a brief Q&A session.

With this, I would like to turn the call over to our CEO, Gaofei Wang.

Gaofei Wang -- Chief Executive Officer

[Foreign Speech] Thank you. Hello everyone, and welcome to Weibo's third quarter 2019 earnings conference call. [Foreign Speech] On today's call, I'll share with you highlights in Weibo's users, product and monetization as well as progress we made on our key initiatives in 2019.

[Foreign Speech] Let me start with our third quarter financial results. In the third quarter, our total revenue reached $467.8 million, up 2% year-over-year or 6% on a constant currency basis. Advertising and marketing revenue reached $412.5 million, up 1% year-over-year or 5% on a constant currency basis. 87% of our ad revenues came from mobile. Non-GAAP net income during the third quarter was $176.1 million, representing a non-GAAP net margin of 38%.

[Foreign Speech] On the user front, in September Weibo's MAUs reached 497 million, up 12% year-over-year, representing a net addition of approximately 51 million users year-over-year. Average DAUs reached 216 million, up 11% year-over-year, representing a net addition of approximately 21 million users year-over-year. In September, 94% of Weibo's MAU came from mobile.

[Foreign Speech] This quarter, leverage reinforced the social interactive features, optimized with other reasons and traffic-allocation mechanisms, we capped the ramping up our efficiency in traffic distribution. Correspondingly, these refreshment, impressions and user interactions continue to grow double-digit year-over-year. Meanwhile, we continue to improve trend and topic products which help us empower user to more efficiently discover trends and hot topics and participate in discussions. These initiatives continue to drive solid user scale extension and engagement growth in the third quarter.

On the monetization front, KA business continue to deliver solid growth, benefiting from Weibo's unique value propositions skewed upon KOL's influence in branding and driving performance coupled with the increasing adoption of social marketing solution within clients at budget. SME business has achieved a generally stabilized status year-over-year and grew double-digit quarter-over-quarter, leveraging the continued increase of platform traffic, improved ad performance and optimize the sales channels. That said, the near-term market challenges do persist, especially on the pricing side due our favorable demand and supply dynamics in the market amid competition.

[Foreign Speech] In discussing our operating update for the third quarter, I will elaborate our progress we made in areas of product and monetization.

[Foreign Speech] Under the current competitive landscape, instead of solely focusing on our user growth, we progressively emphasis on both user field and engagement growth to achieve platform expansion as well as reinforcement of Weibo's core advantages such as hot trend discussion and social interaction to build higher competitive barrier.

[Foreign Speech] First, on user growth and engagement. In the third quarter, we continued to deliver solid user and traffic growth. Our user base continue to grow double-digit year-over-year, representing a net addition of approximately 51 million MAU on annual basis. Coupled with our existing channel investment, we increasingly leverage Weibo's advantage in trend discovery and social features to further acquire users and enhance user engagement. This strategy enable us to acquire users at a lower cost and meanwhile enhance user engagement against market competition. Now, let me elaborate.

[Foreign Speech] Third, on hot trend. We have been constantly investing in the discovery and distribution of trends, which enable Weibo to solidify its leadership in this area and serve as one of our key competitiveness to acquire user and enhance user engagement in the past. This year, we further emphasized on extending the life span of hot trend consumption and discussions to three initiatives. First, we optimized our topic products. Second, we enhanced distribution synergies among hot search topics and hot trend feed. Third, in hot trend feeds, we further offered traffic support to promote original content and accounts around hot trend. Consequently, on one hand, our advantage in discovery and consumption of hot events over other media platform has been further strengthened. As example, during the celebration of the 70th anniversary birthday of the Founding of the People Republic of China, the total number of related topics generated on Weibo was 700 with topic discussion surpassing 100 million and top views exceeding 150 billion.

On the other hand, we also have distinct advantage on the hot event discussion front, particularly from a diversity of opinion point of view. This quarter's top hot events discussed on Weibo cover across 11 content verticals and the total number of topics discussed increased 67% and a number of post around hot events generated by top content creators increased to 54% quarter-over-quarter. Compared with other media platform with a sole focus on news coverage, we will offer the wide range of hot events, more comprehensive information and diversified opinions around the hot events for the user to consume coupled with our partnership with handset manufacturer around preinstalled and exposure of contents on the handset interface, we can maintain relative lower user acquisition cost than other media platforms and further improve our user engagement and user acquisition efficiency.

[Foreign Speech] Moving onto the social features. Driving social content production and interactions has been our relentless focus as we take step to further sharpen our long-term competitive edge. To that end, for one thing, we have introduced more social features to our product. For instance, we rolled out hot content and community products in previous quarter and this quarter we further launched an option for content creators to limit certain post to be shown exclusive to fans as well as improve fans interactive functionalities. These efforts uplift the content creators sense of security in content sharing and improve their interaction experience with them, leading to stronger social relationship and thus deepen user engagement. As a result, within relationship based feed, we saw higher efficiency in content distribution and user reactivation as well as improved the engagement.

Total refreshment for the relationship is the feed and number of user who refresh the feed continue to grow double-digit year-over-year. For another, we took steps to optimize the traffic mix of interest based feed. To facilitate incremental social relationship build out, we give more weight to quality content from mid-tier to longer-tail verticals in terms of traffic distribution. Such optimization also contributed to diversifying our current ecosystem and improving user stickiness. Executing well against these initiatives, traffic to the interest based feed continue to grow double-digit. Correspondingly increased traffic facilitate vertical content creators to better grow fans, the net addition of fans for these content creators tripled sequentially and hence drove user engagement as well.

[Foreign Speech] On video consumption, given intensified competition in surely the industry in the past two years, we took a step back and revisited our video product positioning and organization which is spent around three categories including media, PTC and UGC videos. First, the media video category has always been our core strength, leveraging constructive partnership with media outlet and MVNs, Weibo has become one of the most important channels for media to release media content and uplift their influence. For instance, during the celebration of China's 70th Anniversary, nearly 6,000 media outlets generated 280,000 videos of related feeds with video views surpassing 8.6 billion.

Second, PTC video will be our future focus on production and operational front and serve as a key driver of short video growth. In the competitive landscape of PTC video, Weibo demonstrate certain advantage in traffic, content production and monetization. On top of our existing strength, we had been constantly optimizing our PTC video offerings and spending the video exposure in the traffic distribution, while at the same time improving the social and interactive features around these videos. For instance, we optimize the recommendation and push function of video community and enhance hardcore fans and bully chat features. In September, those that daily video view within the video community tab and user engagement on video main page grew double-digit compared to the number in Q1 as well as fans attachment to the video creators trending up.

Lastly, we will continue to face and maybe face through challenges in the UGC video area. Currently, we are beta testing a new version of Weibo Star Wars, which we expect to launch in the fourth quarter. I'll share with you more color after we have further progress.

[Foreign Speech] Also I'd like to share some color on Oasis. As you may know, we recently roll-out our photo and video sharing social community product named Oasis as one of our approach to further tap into the social area. The product was still in the beta testing, are waiting for the final approval from regulators. Oasis is positioned as a lifestyle focused photo and video sharing social platform. In terms of differentiation from Weibo, Oasis will encourage more UGC posting, particularly from vertical content creators. Content is lifestyle related and mainly taking photos and video format, which complements Weibo's content per system and address users' diversified social and content consumption needs.

During the beta testing period, we are encouraged to see early momentum in user content generation and social interaction. We expect to obtain approval and official launch of the product within this month. Going forward, we will continue to optimize product features and beef-up our efforts in the channel marketing in the hope of creating a live social platform with a distinct lifestyle live.

[Foreign Speech] Moving to content. The number of top content creators posts generated as well as content viewership have grown double-digit for the eighth consecutive quarters. The increase was primarily driven by our endeavor to improve content creators user experience and help them to grow on Weibo including to constantly optimize content recommendation efficiency and support traffic offering to content creators, as such we could help them to accumulate social assets and monetize our platform. Additionally, our continued investment in monetization ecosystem empower content creators to further strengthen their capability to monetize. For example, our latest collaboration with Taobao on e-commerce live broadcasting, which allow e-commerce KOLs to synchronize Taobao live broadcasting content on Weibo in a real time manner, stimulates real time interaction between KOLs and fans, enhance their monetization efficiency and meanwhile help them to better accumulate social assets on Weibo.

[Foreign Speech] Last on monetization, in the third quarter, our KA revenue continued to deliver solid growth, representing a year-over-year growth of 6% or 10% in renminbi term. On a sequential basis, KA revenues grew 19% in renminbi term. In the past few years, Weibo has been constantly innovating and optimize differentiated marketing offerings, such as celebrity marketing, IP program marketing and the customized content marketing. This allow Weibo to continue to capture our wallet share from brand advertisers [Technical Issues]. As social marketing continued to gain traction, we believe we have much more potential to gain additional wallet share from brand advertisers as a social ad budget and our [Indecipherable] still have ample room to grow.

Let me give an example of celebrity marketing. This quarter a TV series called Go Go Squid! became very popular on Weibo as well as its leading actor Li Xian whose fan base grew quickly from 5 million to 20 million. Li Xian's huge influence on Weibo attracted dozens of brand advertisers to seek co-operation including Puma, [Indecipherable]. Consequently, this led to a new round of marketing campaigns on Weibo, leveraging Li Xian's influence to target broader audience and promote brand image. Moreover, our celebrity marketing solutions featuring a combination of the likely celebrity and customize the content as opposed to pure celebrity endorsement resonate well with brand advertisers.

As an example, for Adidas marketing campaign to promote UltraBoost 2019 will help the brand advertisers to screen out four celebrities including Justin Wong, [Indecipherable] whose image best match the new product positioning and then customize the short videos to show different personality of each celebrity. The well executed initiative largely motivated fans willingness to create and post content of their own life story on Weibo. As a result, the total video views generated for the customized video surpassed 40 million and the new products brand exposure was maximized.

[Foreign Speech] Moving on to the SME business. We are pleased to see a stabilizing trend with SME revenue growing 1% year-over-year or 5% in renminbi term. On a sequential basis, SME ad revenue grew 16% quarter-over-quarter in renminbi term. That said the macro and regulatory headwinds as well as intense competition coming to weigh on the growth prospects of the overall performance and market. The stabilization of our SME ad business are mainly attributable to the solid execution and reinforcement of several key initiatives. Let me elaborate on the progress we made.

[Foreign Speech] First, we continuously improve our ad performance and the customers' ROI. For instance, we may strive in driving the adoption of the optimized bidding, namely optimize the CPX bidding model among customers, which enable customer to bid according to a specific target. This further facility programmatic buy has significantly enhanced customers at performance efficiency. In the third quarter, ad spent through all CPX increased over 30% on a sequential basis, making up a higher percentage of the total SME ad spend.

Second, we took step to further differentiate our ad product offerings. For example, we introduced a KOL marketing solution featuring a short-term celebrity on KOL endorsement, aiming to help the advertiser quickly accumulate social assets, reach a wider community and achieve better conversion on our platform. Such products will resonate well with our customer in the test run. As an example, our customer Magic Ears, a company offering English classes for juvenile initiated our KOL marketing campaign on Weibo that leverage influence of KOLs from baby and maternity vertical through their posting of promotional contents of Magic Ears. During the campaign, Magic Ears precisely target users who were recognized as the parents of juvenile. As a result, the number of consultation and registration to Magic Ears English classes ramped up with ad engagement increasing by five-fold and user acquisition cost reduced by 50% compared to the promotional campaign run by Magic Ears itself result involvement of vertical KOLs.

Three, we continue to optimize ad agency structure and enhance go-to-market strategies with a focus on developing new customers and diversifying industry exposure. As a result, ad spend of newly acquired customer static improved, contributing a higher proportion of the total SME ad revenues in prior quarter. Finally, we'll offer more operational resources to nurture the so-called native added customers such as self-median and MCNs to empower them to grow and monetize within our ecosystem, which will ultimately manifest in driving their future ad demand with us.

[Foreign Speech] 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 third quarter 2019 earnings conference call. Let's start with user metrics. Weibo's MAUs reached 497 million in September 2019, representing a net addition of 51 million users on year-over-year basis. Weibo's average DAUs reached 216 million, representing a net addition of 21 million users on year-over-year basis. Mobile MAUs represented approximately 94% of total MAUs.

Turning to financials. As a reminder, my prepared remarks will focus on non-GAAP results and all the comparisons on a year-over-year basis unless otherwise noted. Weibo's third quarter 2019 net revenues were $467.8 million, up 2% or up 6% on constant currency basis. Operating income reached $119.2 million, representing an operating margin of 41%. Net income attributable to Weibo was $176.1 million and the diluted EPS was $0.77.

Let me give you more color on revenue. Advertising and marketing revenues for the third quarter 2019 reached $412.5 million, up 1% or 12% on a constant currency basis. Mobile ad revenue was $316.3 million, up 5%, contributing approximately 87% of total ad revenue, up from 83% last year.

Moving on to KA. In the third quarter, KA ad revenues reached $197.2 million, up 6% or 10% on a constant currency basis. From industry perspective, FMCG continued its resilience and bolstered the KA revenue growth. We are also impressed with the solid performance of [Indecipherable] industry beside macro headwinds as Weibo has further demonstrated its indispensable value to a growing trend base with an integrated social marketing solutions from awareness to purchase. On flip-side, IT related sector and entertainment industry has faced slowdown of growth, primarily due to industry specific cyclical issues and the regulation sector respectively.

Turning to SMEs. In the third quarter, Weibo's SME ad revenues reached $196.1 million, up 1% or 12% on a constant currency basis. As we mentioned in prior quarter, our team has taken a series of measures to enhance ad performance through product revamp and the innovation and better repair and acquire customers to adjust trend optimization. This matter have taken effect on the stabilization of our SME ad business in the third quarter on a annual basis. We see solid performance of categories such as app download and consumption related sectors.

I'm now pleased with the modest recovery of online gaming industry. Nevertheless, we continue to see ad market cutback from certain large-ticket item categories with tough comp last year amid market competition such as local service and the foreign industry. Overall, we continue to see market dynamics as unfavorable with supply of inventories over demand and we think it still takes time to reach market equilibrium and the rebound of our SME business. Ad revenues from Alibaba for the third quarter was $19.2 million, down 33% or 30% on a constant currency basis reflecting the consistent and disciplined marketing strategy of Alibaba Group since the start of the year. Excluding the ad revenues from Alibaba, ad revenues from KA and SME together grew 3% or 7% on a constant currency basis. Value added service, VAT revenue were $55.3 million in the third quarter, up 9% or 13% on a constant currency basis. The increase was mainly attributable to the incremental revenue derived from the live streaming business acquired in the first quarter last year.

Turning to costs and expenses, the total cost and expenses for the third quarter was $277.5 million, up 2%.

Operating income in the third quarter was $119.2 million, representing operating margin of 41%, at similar level with the same period last year.

Turning to income tax and the GAAP measure. Income tax expense for the third quarter was $31.4 million compared to $37.9 million last year. Net income attributable to Weibo in the third quarter was $176.1 million, representing a net margin of 38% compared to 37% last year.

Turning to our balance sheet and the cash flow items. As of September 30th 2019, Weibo's cash, cash equivalents and short-term investments totaled $2.37 billion. In the third quarter, cash provided by operating activities was $164.8 million. Capital expenditures totaled $4.4 million and the depreciation and amortization expenses amounted to $6.3 million.

Now let me turn to business outlook. In light of the currency translation risk, our business outlook was focused on financial estimates on constant currency basis. We anticipate our fourth quarter 2019 net revenue growth rate to range from 0% to 3% year-over-year on a constant currency basis. The deceleration of revenue growth outlook is still in part to lighting of live streaming business, which we started to consolidate in the fourth quarter last year as well as the relatively conservative outlook will remain for the advertising business amid the macro headwinds and the market competition in the near term. This forecast reflects Weibo's current and the preliminary view and is subject to change.

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

Questions and Answers:


Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Alicia Yap from Citigroup. Please go ahead.

Alicia Yap -- Citigroup -- Analyst

Hi, good evening, management. Thanks for taking my questions. Can you give us some update regarding the new app, Oasis. How are you positioning the app versus super app Weibo, what are the reasons the company decided to develop the app and then what are your product strategy and how are you going to balance the operation and user acquisition between Oasis and Weibo app? So any qualitative feedback from user during this testing period that you could share with us?

And then lastly, I think on your prepared remark, you mentioned that you are going to launch the app officially once you get the regulatory approval. So what is the go-to-market strategy for Oasis and how do you plan to acquire user when it is launched? [Foreign Speech]

Gaofei Wang -- Chief Executive Officer

[Foreign Speech] As I indicated in my prepared script, our positioning for Oasis is to develop a platform for people to sharing their status of their life. This would be supplemental to Weibo ecosystem and particularly from a content perspective, we believe there is quite clear distinguishment between these two platforms.

[Foreign Speech] As of you are aware of, one of the key features of the Weibo platform is its viral distribution capability. As Weibo grow bigger and bigger, we see that capability further being strengthened. That has been the key reason and we are the primary open social media platform. With that our platform with strong feature in media in nature and also on the distribution capability will be the key advantages.

[Foreign Speech] Because of the viral distribution nature of the Weibo, it's by default our key or major content creators and the media accounts attract the most traffic on the platform. In the last few quarters, as I indicated in the prepared remarks, we are trying very hard to direct more traffic to vertical areas, but unfortunately our non-media content on the platform throughout these years is showing a descending trend because of the distribution mechanism we have.

[Foreign Speech] For each vertical area, their top content generators, what we found is they are ready to share their lifestyle related content on Weibo. As a result, we are providing Oasis as an alternative for them to provide more lifestyle related content. With that we are hoping these content generators can cross platform to provide different content, one for Weibo and one for Oasis, but with Oasis with more focus on lifestyle and the vertical areas content in nature.

[Foreign Speech] If you had used Oasis, you would find there is distinguished content generation on the two platforms. For example, for celebrities, they have been using Weibo to promote their movies or their new products, but on the Oasis, their content will be much more focused on their daily lives and the lifestyle related photos or videos.

[Foreign Speech] I am taking few vertical area for example like auto, home furnishing, art, the top content generators, they are already existing on Weibo, but they've been very active on Oasis. One of the reason is under the current traffic distribution mechanisms, their ability to obtain large traffic allocation on Weibo is difficult, but because their content is much more fixing to the Oasis setup, their fans group or the interaction rate on Oasis for these vertical Big Vs is much more than what they can get on Weibo. So this would have served a very important supplemental platform to our vertical areas who is already existing on the Weibo platform.

[Foreign Speech] Irrespective of the marketing and the channel marketing, I assume most of the user acquisition on Weibo these days are through the pre-installation and hence integrated with our operation of hot events and hot topics. But of course there is other channels existing for Weibo user acquisitions. For Oasis, we probably would be using other channels in a more frequent manner to gain new users.

Alicia Yap -- Citigroup -- Analyst

Thank you.


Thank you. We have the next question from the line of Thomas Chong from Jefferies. Please go ahead.

Thomas Chong -- Jefferies -- Analyst

Hi. Thanks management for taking my questions. I have three questions. The first question is about the macro and the advertising market updates. Can management comment about how we think about the macro and the advertising outlook?

And my second question is about our key accounts. Can management comment about by interest fee categories in particular, our major industry categories in terms of their performance as well as the sentiment as we go into next year?

And my final question is about our strategies on how we can ramp-up the growth in our KA ad revenue? [Foreign Speech]

Gaofei Wang -- Chief Executive Officer

[Foreign Speech] With the recent guidance reported by peer group companies as well as Weibo, I think in general in the digital marketing area companies being very conservative toward fourth quarter end market. With the uncertainties continue existed for the micro situation, we see advertisers are getting more and more cautious on the ad marketing dollars. In terms for 2020 at this moment, it's very hard for us to give a very give the clear expectation in terms of how we will be performing for the year to come given the current micro situation and the market competition.

[Foreign Speech] Okay. In terms of the industry performance, FMCG continue to be the key industry to drive the growth on Weibo. What we have seen in the FMCG industry, this is one area continue to outperform than the others and has been mitigated through a lot of uncertainties existing in the micro situation. In particular within the FMCG personal care and cosmetic as well as apparel, we see pretty strong performance in the last few quarters and continue to be the largest industry segment for Weibo and we foresee that it will continue to be the largest industry segment for Weibo in the quarters to come. As more and more FMCG companies moving their marketing dollar from offline to the online, our UV program running between Weibo and Alibaba will help us to further taking marketing shares or the marketing dollars for key accounts, not only on the brand side, partiality will be coming from the increase in number of customers who will be participating in the UV programs, but more importantly we are going to tap into the app budget for the integrated marketing for brands and performance.

[Foreign Speech] Another potential upside exists for our local FMCG brands that comes along with in general consumption upgrades for consumers. What we have noted that local FMCG have the strong demand for their upgrades in their brands and they have also -- with that they are looking for integrated marketing with celebrities or IP for TV shows or the online variety shows and that fits very well with Weibo's key advantage with our user scale as well as our capability in distribution with IP products. We believe there will be more growth on the local brands in the near future. Some of them will become very important key accounts for us in the future time.

[Foreign Speech] In terms of the auto segment, even though the overall market for the auto industry has been relative challenging, we see pretty good performance for our auto clients this year with both number of customer number and ARPA has been increasing throughout the years. The reason behind that, it goes back to the consumption capability for Weibo to user base. We attract quite significant auto budgets for high-end auto brands, that's the key factor for the revenue growth for us this year.

[Foreign Speech] Another big industry segment for us is the handset manufacturers. In the transitional period of 4G to 5G, we see some relative weak in the ad demand for handsets this year. On top of that, we see local and the domestic brands for handsets actually has been decreasing in the last two years, which has led to the challenge marketing exposure for handsets marketing dollars. For next year with more 5G products made available into the market, we believe there will be opportunity for the handsets budgets marketing budgets to pick up in the later part of 2020.

Thomas Chong -- Jefferies -- Analyst

Okay, thank you.


Thank you. We will take the next question. The next question comes from the line of Gregory Zhao from Barclays. Please go ahead.

Gregory Zhao -- Barclays Capital -- Analyst

Hi management, thanks for taking my question. Quick one on your SME advertising. So just wanted to understand more about overall market trend and the competitive landscape of the SME advertising and also Weibo's market current position and it will be very helpful if you can share your SME advertising revenue growth outlook and also your strategy to drive the growth. [Foreign Speech]

Gaofei Wang -- Chief Executive Officer

[Foreign Speech] As I indicated in my prepared remarks, the SME ad performance for the third quarter was relatively stable. It delivered 5% year-over-year growth, 16% Q-to-Q growth. Most of the growth were driven by the increase in ad inventory while our sell-through rate of our inventory has had some level of increase.

[Foreign Speech] I think the core issue for the SMEs coming from the price pressure we have experienced for a period of time. As we talked about in the last few quarters, the ad price for SME has been in the descending trend. Even though in the third quarter that descend percentage has been narrowed to about 10% on a year-over-year basis, but still it remains quite challenge for us.That primarily comes from the supply end of the inventory in the marketplace.

[Foreign Speech] The other part of the SME issue comes with the measurement challenge we're facing. In the past couple of years, the way we price our Weibo's SME ad was very similar to Facebook. It's called also a cost per engagement. So the measurement was focused on the interaction between the ads and the users, so that includes a direct or indirect downloads of the -- indirect of the ads related products. But with the emerging of the short video platforms, we see quite big changes in the measurement methodology where they are much more focused on the CPC model. So they only account for the first-time click with a much less concern about the subsequent conversions and the ARPU can be generated. So with that we see a bit of a reluctance in the demand side from different customers. So we have to actually provide a more service and provide a more education related training to our distributors to address these issues.

[Foreign Speech] On the strategy part, we are pushing very aggressively on the automatic ad running system, so called OCPX [Phonetic] model. We see a very rapid ramp-up on this particular program with 30% of increase on a sequential basis. We believe the automatic OCPX model will substantially the decrease or lower the barrier for a new customer to running their app on Weibo.

[Foreign Speech] The another area to address the SME growth issues to pushing for more IP or KOL integrated marketing solutions to our SME customers. What we found, if a campaign or marketing can be associated with particular IP products or IP items or the KOL, the costs associated such campaigns can be reduced more than 50%. I think that's one area in the next few quarters where we will be much more focusing on.

Gregory Zhao -- Barclays Capital -- Analyst

Thank you.


Thank you. I would now like to hand the conference back to our presenters for any closing remarks.

Sandra Zhang -- Investor Relations

This wrap-up our conference call today. Thank you for joining us. We'll see you next quarter.


[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Sandra Zhang -- Investor Relations

Gaofei Wang -- Chief Executive Officer

Fei Cao -- Vice President, Finance

Alicia Yap -- Citigroup -- Analyst

Thomas Chong -- Jefferies -- Analyst

Gregory Zhao -- Barclays Capital -- Analyst

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