Phoenix New Media clips vice-president amidst advertising slowdown

Phoenix New Media and other smaller web firms dependent on advertising revenue are suffering disproportionately in China's sharp advertising slowdown.

PUBLISHED : Monday, 24 December, 2012, 10:31am
UPDATED : Monday, 24 December, 2012, 10:36am

Web portal Phoenix New Media (NYSE: FENG) appears to be going through a behind-the-scenes reshuffle, with word that a top executive has left the company as it continues to struggle with fallout from a national advertising slowdown. It's hard to know what exactly is going on behind the scenes at Phoenix, which once wowed investors with triple-digit gains in its core advertising business following its 2011 IPO on the New York Stock Exchange. But its most recent financial reports have clearly shown the company is having a much harder time than many of its larger peers in coping with China's recent advertising slowdown, which I suspect is a major reason for the newly announced resignation of vice president Wang Yulin.

Chinese media reported that Phoenix, the new media arm of Hong Kong-listed Phoenix Satellite Television (2008.HK), disclosed Wang's departure in a filing with the US securities regulator. But I couldn't find any formal press release about the move, indicating the company probably considered it an important development but not one that it wanted to publicise very much.

Investors still took notice of the announcement, with Phoenix shares tumbling 4 per cent in Friday trade in New York. That sell-off was just the latest in a long decline for Phoenix New Media shares that dates back to April, when the company's financial results started to deteriorate sharply. Since that time, Phoenix shares have lost more than half of their value and now trade at about a third of their 2011 IPO price.

Phoenix certainly isn't alone in feeling the effects of the national advertising slowdown, with much bigger names like search leader Baidu (Nasdaq: BIDU) and leading portal Sina (Nasdaq: SINA) also both reporting rapid slowdowns in their advertising growth. Leading broadcaster CCTV summarised the situation last month, when its annual advertising auction for the year ahead saw sales post their lowest growth in more than a decade

CCTV's revenue at the auction rose by around 11 per cent, but much of that was driven by aggressive spending by makers of traditional Chinese liquor known was baijiu. Without the baijiu makers, who target an older audience and seldom advertise on new media like Phoenix, growth would have been relatively flat for the year – a huge slowdown for an industry that has posted double-digit growth every year in the last decade.

Phoenix New Media's own slowdown looked particularly alarming, with the company posting just 11 per cent revenue growth for its core advertising business and an 80 per cent profit decline in its most recent reporting quarter. While the company did manage to post positive revenue growth, the 11 per cent rise was just a tiny fraction of the 156 per cent growth that Phoenix posted just a year earlier in the third quarter of 2011.

There's not much detail in Phoenix's latest announcement of Wang Yulin's departure, though it appears that many of his functions will be taken over by the company's CEO and COO, hinting the move may be as much to save money as it is strategic. But regardless of what's happening behind the scenes, this new move is just the latest indication that China's advertising slowdown is coming faster and harder than many expected, posing an exceptionally difficult challenge for smaller, second-tier Internet players like Phoenix.

Bottom line: Phoenix New Media and other smaller web firms dependent on advertising revenue are suffering disproportionately in China's sharp advertising slowdown.