Ad market in the first three quarters of 2018
CCTV Market Research (hereinafter referred to as “CTR”) Media Intelligence data suggest the advertising market bottomed out in Q1 and has since been recovering in the first three quarters of 2018 at a growth rate of 5.7%. After a 9.3% growth rate in the first half, growth decelerated in Q3.
In terms of advertising spend by media format, elevator, movie theater and internet media continued to grow significantly and lead on incremental ad spend. In the first three quarters of 2018, elevator TV and posters and movie theater videos kept moderate rate. The ad revenue on each of these categories grew 24.8%, 25.5% and 22.6% respectively.
Summary of Focus’ results in the first three quarters of 2018
In the first three quarters of 2018, Focus booked a VAT-deducted operating income of RMB 10.877 billion, a year-on-year increase of approximately 24.59%. The net profit attributable to shareholders of the Company was RMB 4.81 billion, a year-on-year increase of approximately 22.81%. The net profit attributable to shareholders of the Company, net of non-recurring gains and losses was RMB 4.198 billion, a year-on-year increase of approximately 23.41%.
In Q3 2018, Focus recorded RMB 3.767 billion in VAT-deducted operating income, an increase of 21.94% over the same period last year. The net profit attributable to shareholders of the Company was RMB 1.463 billion, a year-on-year increase of approximately 5.73%. The net profit attributable to shareholders of the Company, net of non-recurring gains and losses, was RMB 1.38 billion, a year-on-year increase of approximately 6.66%.
Advertising communication is in an era of brands competing for user mindshare. Omni-channel engagement strategy has become the norm of digital communication in China. Focus’ inner building advertising and movie theater advertising continue to reach and engage the everyday consumers offline and generate critical momentums to its revenue/profit growth.
Focus’ expansion plan of 2018
Since 2018, Focus has been steadily advancing to its medium-term goal of covering 5 million terminals in 500 cities with an average daily reach of 500 million new middle-class urban citizens. Focus continues to deploy media resources with higher reach and penetration.
Focus’ customer mix
In the first half of 2018, the revenue shares of customers in consumer staples, internet, transportation, and communications was 23.40%, 21.92%, 14.84% and 14.20%, respectively. Traditional industries other than internet contributed more to the topline and spent more on building media advertising. Starting in the second half of 2017, consumer staples category had shown greater willingness to place ads, and customer segments such as wines and spirits, food and beverages, and home improvement increased the buying of building ads. The share of consumer staples customers increased markedly.
The further optimized customer mix means that Focus’ competitive advantages have been consistently recognized by advertisers as building blocks of its sustained and steady revenue growth.
Why did Focus’ account receivables increase in 2018?
The increase in the ending balance of account receivables compared with the same period last year is attributable to: 1) Since 2018, due to the macroeconomic climate, the AR turnover cycle of Focus’ key accounts has generally slacked. 2) To accommodate the shift in customer mix towards larger and more strategic customers in terms of revenue contribution, Focus offered longer AR turnover periods.
As at the end of Q3, Focus’ provision for bad debts was more than 15% of its AR balance. The Company believes such provision was prudent and sufficient.
How does Focus respond to competition?
The market has always been open. Focus has historically been growing rapidly amid competition. As an industry pioneer, Focus has extensive market experience and a growing media network. It has a strong reputation and high brand visibility in the industry. These core competencies will continue to help Focus win favors from advertisers in the highly competitive market and buttress its market positioning.
Focus has prime media resources and advertiser access. It enjoys an indisputably leading market share on elevator TV and poster and movie theatre advertising media. By quickening the pace of expansion, Focus is further cementing its unmatched leadership position in an ever-growing life style media industry. Going forward, Focus will further improve big data analysis to help advertisers accurately place ads and attract important offline traffic.
What to make of Alibaba's strategic investment in Focus?
Alibaba and its related parties have made strategic equity investment in Focus for approximately RMB 15 billion for joint innovation of digital marketing in the context of new retail trends. Alibaba's new retail infrastructure and big data capabilities will generate great chemistry with Focus’ extensive network of offline reach, delivering brand-new experiences and unique values to users and businesses.