UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the transition period from to
Commission file number 001-35158
Phoenix New Media Limited
(Exact name of Registrant as specified in its charter)
Cayman Islands
(Jurisdiction of incorporation or organization)
Sinolight Plaza, Floor 16
No. 4 Qiyang Road
Wangjing, Chaoyang District,
Beijing 100102
People’s Republic of China
(Address of principal executive offices)
Contact Person: Mr. Edward Lu
Chief Financial Officer
(86 10) 6067-6869
Sinolight Plaza, Floor 16
No. 4 Qiyang Road
Wangjing, Chaoyang District,
Beijing 100102
People’s Republic of China
*(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
American Depositary Shares, each representing eight
Class A ordinary shares
Class A ordinary shares, par value $0.01 per share*
Trading Symbol(s)
FENG
Name of each exchange on which registered
New York Stock Exchange, Inc.
N/A
New York Stock Exchange, Inc.
* Not for trading, but only in connection with the registration of American Depositary Shares representing such Class A ordinary
shares pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
264,998,965 Class A ordinary shares were outstanding as of December 31, 2020
317,325,360 Class B ordinary shares were outstanding as of December 31, 2020
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐ Yes ☒ No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act. ☐
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant
has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐ Yes ☐ No
PHOENIX NEW MEDIA LIMITED
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2020
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBIT INDEX
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Conventions that Apply to this Annual Report on Form 20-F
In this annual report, unless otherwise indicated:
• “ADSs” refers to our American depositary shares, each of which represents eight Class A ordinary shares and “ADRs” refers
to the American depositary receipts that may evidence our ADSs;
• “affiliated consolidated entities” refer to Beijing Fenghuang Ronghe Investment Co., Ltd., Beijing Tianying Jiuzhou Network
Technology Co., Ltd., and Beijing Chenhuan Technology Co., Ltd., each of which is a PRC domestic company. Substantially
all of our operations in China are conducted by our affiliated consolidated entities, in which we do not own any equity
interest, through our contractual arrangements. We treat all of these three PRC domestic companies as variable interest
entities and have consolidated their financial results in our financial statements in accordance with generally accepted
accounting principles in the United States, or U.S. GAAP;
• “Chenhuan” refers to Beijing Chenhuan Technology Co., Ltd., a PRC domestic company and one of our affiliated
consolidated entities;
• “China” or “PRC” refers to the People’s Republic of China, excluding, for the purposes of this annual report on Form 20-F
only, Taiwan, Hong Kong and Macau;
• “Class A ordinary shares” refer to our Class A ordinary shares, par value US$0.01 per share;
• “Class B ordinary shares” refer to our Class B ordinary shares, par value US$0.01 per share, each of which shall be entitled
to 1.3 votes on all matters subject to shareholders’ vote;
• “Fenghuang On-line” refers to Fenghuang On-line (Beijing) Information Technology Co., Ltd., a wholly foreign-owned PRC
entity and an indirect wholly-owned subsidiary of our company;
• “Fenghuang Ronghe” refers to Beijing Fenghuang Ronghe Investment Co., Ltd., a PRC domestic company and one of our
affiliated consolidated entities;
• “Fengyu Network” refers to Beijing Fengyu Network Technology Co., Ltd., a PRC domestic company and a subsidiary of
Chenhuan;
• “Huanyou Tianxia” refers to Beijing Huanyou Tianxia Technology Co., Ltd., a PRC domestic company and an indirect
subsidiary of Tianying Jiuzhou;
• “ordinary shares” refer to our Class A ordinary shares and Class B ordinary shares, collectively;
• “Phoenix TV” refers to Phoenix Media Investment (Holdings) Limited;
• “Phoenix TV (BVI)” refers to Phoenix Satellite Television (B.V.I.) Holding Limited, a wholly owned direct subsidiary of
Phoenix TV, which directly owned 54.5% of our share capital as of March 31, 2021.
• “Phoenix TV Group” refers to Phoenix TV and its subsidiaries, not including our company.
• “PRC subsidiaries” refer to Fenghuang On-line (Beijing) Information Technology Co., Ltd., Beijing Fenghuang Yutian
Software Technology Co., Ltd., Fenghuang Feiyang (Beijing) New Media Information Technology Co., Ltd., Beijing
Fenghuang Borui Software Technology Co., Ltd., Qieyiyou (Beijing) Information Technology Co., Ltd. and any other
companies established in the PRC in which we hold direct or indirect certain equity interests and whose financial results are
consolidated into our financial statements in accordance with U.S. GAAP; and unless otherwise specified herein, references
to “PRC subsidiaries” in this annual report do not include the companies established in the PRC in which we do not hold
directly or indirectly any equity interest but whose financial results are consolidated into our financial statements as variable
interest entities in accordance with U.S. GAAP.
• “Qieyiyou” refers to Qieyiyou (Beijing) Information Technology Co., Ltd., a wholly foreign-owned PRC entity and an
indirect wholly-owned subsidiary of our company;
1
• “RMB” or “Renminbi” refers to the legal currency of China; “$”, “dollars”, “US$” and “U.S. dollars” refer to the legal
currency of the United States;
• “Tianying Jiuzhou” refers to Beijing Tianying Jiuzhou Network Technology Co., Ltd., a PRC domestic company and one of
our affiliated consolidated entities;
• “we”, “us”, “our company”, “our” and “Phoenix New Media” refer to Phoenix New Media Limited, a Cayman Islands
company and its predecessor entities and subsidiaries, and, unless the context otherwise requires, our affiliated consolidated
entities and their subsidiaries in China; and
• “Yifeng Lianhe” refers to Yifeng Lianhe (Beijing) Technology Co., Ltd., a PRC domestic company wholly owned by
Fenghuang Ronghe.
This annual report contains statistical data that we obtained from various government and private publications, as well as a
database issued by Shanghai iResearch Co., Ltd., a third-party PRC consulting and market research firm focused on Internet media
markets. We have not independently verified the data in these reports and database. Statistical data in these publications also include
projections based on a number of assumptions. If any one of the assumptions underlying the statistical data turns out to be incorrect,
actual results may differ from the projections based on these assumptions.
This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31,
2018, 2019 and 2020, and as of December 31, 2019 and 2020.
Our ADSs are listed on the New York Stock Exchange under the symbol “FENG.”
2
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
PART I
Not required.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not required.
3
ITEM 3. KEY INFORMATION
A.
Selected Financial Data
We sold all of our investment in Beijing Yitian Xindong Network Technology Co., Ltd., or Yitian Xindong, on May 18, 2020
and the disposal of Yitian Xindong was qualified for reporting as a “discontinued operation” in our financial statements. See “Item 4.
Information on the Company — C. Organizational Structure — Our Corporate Structure” for further details. Accordingly, the
historical financial results of Yitian Xindong for the periods from 2018 to 2020 are reflected in our audited consolidated financial
statements included in this annual report as discontinued operations, and historical results discussed elsewhere in this annual report
exclude such results unless they are expressly included.
Starting from January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers,
or ASC 606, using the modified retrospective method. The consolidated statements of operations and comprehensive loss data for the
years ended December 31, 2018, 2019 and 2020 presented below have been prepared in accordance with ASC 606, while the
comparative information for the years ended December 31, 2016 and 2017 presented below have not been restated and continue to be
reported under the accounting standards in effect for those periods. Starting from January 1, 2019, we adopted ASC 842, Leases, using
the modified retrospective method. The consolidated balance sheet data as of December 31, 2019 and 2020 presented below has been
prepared in accordance with ASC 842, while the comparative information for those periods prior to January 1, 2019, presented below
have not been restated and continue to be reported under the accounting standards in effect for those periods. Starting from January 1,
2020, we adopted ASC 326, Financial Instruments—Credit Losses, using the modified retrospective method. The consolidated
balance sheet data as of December 31, 2020 presented below has been prepared in accordance with ASC 326, while the comparative
information for those periods prior to January 1, 2020, presented below have not been restated and continue to be reported under the
accounting standards in effect for those periods.
The selected consolidated financial data shown below should be read in conjunction with “Item 5. Operating and Financial
Review and Prospects,” and the financial statements and the notes to those statements included elsewhere in this annual report on
Form 20-F. The selected consolidated statements of comprehensive income/(loss) data for the years ended December 31, 2018, 2019
and 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from our audited
consolidated financial statements, which are included elsewhere in this annual report on Form 20-F. The selected consolidated
statements of comprehensive income/(loss) data for the years ended December 31, 2016 and 2017 and the selected balance sheet data
as of December 31, 2016, 2017 and 2018 have been derived from our audited financial statements not included in this annual report on
Form 20-F. The historical results are not necessarily indicative of results to be expected in any future period.
4
Consolidated Statements of Comprehensive
Income/(Loss) Data
Revenues:
Net advertising revenues
Paid services revenues
Total revenues
Cost of revenues (1)
Gross profit
Operating expenses (1) :
Sales and marketing expenses
General and administrative expenses
Technology and product development expenses
Impairment of goodwill
Total operating expenses
Income/(loss) from operations
Other income, net*
Income/(loss) from continuing operations before
income taxes
Income tax expense
Net income/(loss) from continuing operations
Net (loss)/income from discontinued operations, net
of income taxes
Net income/(loss)
Net loss/(income) from continuing operations
attributable to noncontrolling interests
Net loss from discontinued operations attributable to
noncontrolling interests
Net loss attributable to noncontrolling interests
Net income/(loss) from continuing operations
attributable to Phoenix New Media Limited
Net (loss)/income from discontinued operations
attributable to Phoenix New Media Limited
Net income/(loss) attributable to Phoenix New
Media Limited
Net income/(loss)
Other comprehensive income/(loss), net of tax: fair
value remeasurement for available-for-sale
investments
Other comprehensive loss, net of tax: reclassification
adjustment for disposal of available-for-sale debt
investments
Other comprehensive income/(loss), net of tax:
foreign currency translation adjustment
Comprehensive income/(loss)
Comprehensive loss attributable to noncontrolling
interests
Comprehensive income/(loss) attributable to
Phoenix New Media Limited
Basic net income/(loss) per Class A and Class B
ordinary share:
-Continuing operations
-Discontinued operations
Basic net income/(loss) per Class A and Class B
ordinary share
Diluted net income/(loss) per Class A and Class B
ordinary share:
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
2019
RMB
2020
RMB
US$
(In thousands, except for number of shares and per share (or ADS) data)
1,232,210
212,697
1,444,907
(726,807)
718,100
1,353,480
221,612
1,575,092
(727,197)
847,895
1,198,150
178,131
1,376,281
(595,843)
780,438
1,194,761
133,020
1,327,781
(683,330)
644,451
1,113,017
95,828
1,208,845
(559,286)
649,559
(339,171)
(181,677)
(161,880)
—
(682,728)
35,372
56,937
(493,664)
(146,923)
(192,325)
—
(832,912)
14,983
34,224
(536,980)
(162,424)
(204,723)
—
(904,127)
(123,689)
78,510
(541,772)
(242,047)
(216,741)
—
(1,000,560)
(356,109)
1,047,819
(279,429)
(277,931)
(171,989)
(22,786)
(752,135)
(102,576)
549,198
170,577
14,686
185,263
(85,714)
99,549
(42,824)
(42,595)
(26,358)
(3,492)
(115,269)
(15,720)
84,168
92,309
49,207
(45,179)
691,710
446,622
68,448
(14,089)
78,220
(14,783)
34,424
(20,119)
(65,298)
(21,950)
669,760
(18,977)
427,645
(2,909)
65,539
—
—
(314)
54,242
(62,366)
(9,558)
78,220
34,424
(65,612)
724,002
365,279
55,981
2,391
3,048
2,156
(5,564)
(9,669)
(1,482)
—
—
234
9,391
24,759
2,391
3,048
2,390
3,827
15,090
3,795
2,313
80,611
37,472
(63,142)
664,196
417,976
64,058
—
—
(80)
63,633
(37,607)
(5,764)
80,611
37,472
(63,222)
727,829
380,369
58,294
78,220
34,424
(65,612)
724,002
365,279
55,981
247,336
321,538
566,320
1,188,762
(887,248)
(135,977)
—
—
—
(1,008,795)
(491,197)
(75,279)
27,669
(49,640)
51,794
37,483
(55,577)
(8,517)
353,225
306,322
552,502
941,452
(1,068,743)
(163,792)
2,391
3,048
2,390
3,827
15,090
2,313
355,616
309,370
554,892
945,279
(1,053,653)
(161,479)
0.14
0.00
0.14
0.07
0.00
0.07
(0.11)
0.00
(0.11)
1.14
0.11
1.25
0.72
(0.07)
0.65
0.11
(0.01)
0.10
5
-Continuing operations
-Discontinued operations
Diluted net income/(loss) per Class A and Class B
ordinary share
Basic income/(loss) per ADS (1 ADS represents 8
Class A ordinary shares):
-Continuing operations
-Discontinued operations
Basic net income/(loss) per ADS (1 ADS represents
8 Class A ordinary shares)
Diluted net income/(loss) per ADS (1 ADS
represents 8 Class A ordinary shares):
-Continuing operations
-Discontinued operations
Diluted net income/(loss) per ADS (1 ADS
represents 8 Class A ordinary shares)
Weighted average number of Class A and Class B
ordinary shares used in computing net
income/(loss) per share:
Basic
Diluted
0.14
0.00
0.14
1.12
0.00
1.12
1.12
0.00
1.12
0.06
0.00
0.06
0.52
0.00
0.52
0.51
0.00
0.51
(0.11)
0.00
(0.11)
(0.87)
0.00
(0.87)
(0.87)
0.00
(0.87)
1.14
0.11
1.25
9.13
0.87
10.00
9.13
0.87
10.00
0.72
(0.07)
0.65
5.74
(0.51)
5.23
5.74
(0.51)
5.23
0.11
(0.01)
0.10
0.88
(0.08)
0.80
0.88
(0.08)
0.80
573,521,536 574,786,887 581,084,453 582,275,800 582,324,325 582,324,325
577,037,906 590,433,907 581,084,453 582,275,800 582,324,325 582,324,325
Note:
*
Other income, net generally reflects net interest income, foreign currency exchange gain or loss, income/(loss) from equity
method investments, net of impairments, gain on disposal of convertible loans due from a related party, gain on disposal of
available-for-sale debt investments, changes in fair value of forward contract in relation to disposal of investments in Particle,
changes in fair value of loan related to co-sale of Particle shares, impairment of available-for-sale debt investments and others,
net.
(1)
Includes share-based compensation as follows:
Allocation of share-based compensation:
Cost of revenues
Sales and marketing expenses
General and administrative expenses
Technology and product development expenses
Total share-based compensation included in cost of revenues
and operating expenses
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
2019
RMB
2020
RMB
US$
(In thousands)
(4,367)
(2,842)
11,025
(1,926)
5,017
1,877
10,796
3,162
3,750
2,360
5,072
2,807
5,173
1,402
4,041
1,243
1,890
20,852
13,989
11,859
2,613
1,764
3,648
1,358
9,383
400
270
560
208
1,438
Consolidated Balance Sheet Data
Cash and cash equivalents
Term deposits and short term investments
Accounts receivable, net
Total current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total shareholders’ equity
2016
RMB
2017
RMB
As of December 31,
2018
RMB
2019
RMB
(In thousands)
2020
RMB
US$
202,694
781,298
405,033
2,068,385
3,168,542
983,079
23,035
1,006,114
2,162,428
362,862
737,657
458,744
2,243,266
3,599,108
1,071,931
26,026
1,097,957
2,501,151
161,100
912,594
460,649
2,020,570
4,630,719
1,073,267
167,091
1,240,358
3,390,361
310,876
1,271,889
609,627
2,556,702
5,325,817
1,505,443
275,359
1,780,802
3,545,015
357,796
1,280,033
675,616
2,419,917
2,772,552
1,062,413
46,166
1,108,579
1,663,973
54,835
196,174
103,543
370,868
424,912
162,822
7,075
169,897
255,015
6
Non-GAAP gross profit (2)
Non-GAAP income/(loss) from operations
(2)
Non-GAAP adjusted net income/(loss)
from continuing operations attributable
to Phoenix New Media Limited (3)
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
2019
RMB
2020
RMB
US$
713,733
37,262
852,912
(In thousands)
784,188
649,624
35,835
(109,700)
(344,250)
652,172
(70,407)
99,949
(10,790)
84,277
52,028
(54,505)
(326,120)
(33,650)
(5,157)
Notes:
(2) Non-GAAP gross profit and non-GAAP income or loss from operations are both non-GAAP financial measures. Non-GAAP
gross profit is gross profit excluding share-based compensation. Non-GAAP income or loss from operations is income or loss
from operations excluding share-based compensation and impairment of goodwill.
(3) We define non-GAAP adjusted net income or loss from continuing operations attributable to Phoenix New Media Limited as net
income or loss from continuing operations attributable to Phoenix New Media Limited excluding share-based compensation,
impairment of goodwill, income or loss from equity method investments, net of impairments, gain on disposal of available-for-
sale debt investments, changes in fair value of loan related to co-sale of Particle shares, impairment of available-for-sale debt
investments and changes in fair value of forward contract in relation to disposal of investments in Particle.
We believe the separate analysis and exclusion of the following non-GAAP to GAAP reconciling items add clarity to the
constituent parts of our performances. We review non-GAAP gross profit, non-GAAP income or loss from operations and non-GAAP
adjusted net income or loss from continuing operations attributable to Phoenix New Media Limited together with gross profit, income
or loss from operations and net income or loss from continuing operations attributable to Phoenix New Media Limited to obtain a
better understanding of our operating performance. We use these non-GAAP financial measures for planning and forecasting and
measuring results against the forecast. Using these non-GAAP financial measures to evaluate our business may assist us and our
investors in assessing our relative performance against our competitors and ultimately monitoring our capacity to generate returns for
our investors. We also believe it is useful supplemental information for investors and analysts to assess our operating performance
without the effect of items like share-based compensation, income or loss from equity method investments, net of impairments, which
have been and will continue to be significant recurring items, and without the effect of impairment of goodwill, gain on disposal of
available-for-sale debt investments, changes in fair value of loan related to co-sale of Particle shares, impairment of available-for-sale
debt investments and changes in fair value of forward contract in relation to disposal of investments in Particle, which have been
significant and one-time items. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One
of the limitations of using non-GAAP financial measures is that they do not include all items that impact our gross profit, income or
loss from operations and net income or loss from continuing operations attributable to Phoenix New Media Limited for the period. In
addition, because non-GAAP financial measures are not calculated in the same manner by all companies, they may not be comparable
to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP
financial measures in isolation from or as an alternative to the financial measures prepared in accordance with U.S. GAAP.
7
Our non-GAAP gross profit, non-GAAP income or loss from operations and non-GAAP adjusted net income or loss from
continuing operations attributable to Phoenix New Media Limited are calculated as follows for the years presented:
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
2019
RMB
2020
RMB
US$
718,100
847,895
(In thousands)
780,438
644,451
649,559
99,549
(4,367)
713,733
5,017
852,912
3,750
784,188
5,173
649,624
2,613
652,172
400
99,949
35,372
14,983
(123,689)
(356,109)
(102,576)
(15,720)
1,890
—
37,262
20,852
—
35,835
13,989
—
(109,700)
11,859
—
(344,250)
9,383
22,786
(70,407)
1,438
3,492
(10,790)
80,611
37,472
(63,142)
664,196
417,976
64,058
1,890
1,776
20,852
(6,296)
13,989
(5,352)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,859
3,447
—
9,383
(5,598)
22,786
1,438
(858)
3,492
(1,143,755)
(573,860)
(87,949)
(4,441)
(16,085)
(2,465)
—
—
—
24,535
2,000
3,760
307
(11,393)
(1,746)
142,574
96,606
14,806
84,277
52,028
(54,505)
(326,120)
(33,650)
(5,157)
Gross Profit
Excluding:
Share-based compensation
Non-GAAP gross profit
Income/(loss) from operations
Excluding:
Share-based compensation
Impairment of goodwill
Non-GAAP income/(loss) from operations
Net income/(loss) from continuing
operations attributable to Phoenix New
Media Limited
Excluding:
Share-based compensation
Loss/(income) from equity method
investments, net of impairments
Impairment of goodwill
Gain on disposal of available-for-sale debt
investments
Changes in fair value of forward contract in
relation to disposal of investments in
Particle
Changes in fair value of loan related to co-
sale of Particle shares
Impairment of available-for-sale debt
investments
Loss attributable to noncontrolling interest
related to impairment of goodwill
Accrued withholding taxes of gain on
disposal of available-for-sale debt
investments*
Non-GAAP adjusted net income/(loss)
from continuing operations attributable
to Phoenix New Media Limited
Note:
* The gain on disposal of available-for-sale debt investments had been net of accrued PRC withholding tax, which was calculated
based on 10% of the gain recognized from the disposal of available-for-sale debt investments in Particle, with any relevant tax
adjustments if applicable, as regulated by the Public Notice on Several Issues regarding Enterprise Income Tax for Indirect Property
Transfer by Non-resident Enterprises, or SAT Circular 7, issued on February 3, 2015, and the Public Notice Regarding Issues
Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Public Notice 37, issued on October 17, 2017.
The accrued withholding tax may vary with the actual withholding tax to be paid in the future. The difference between the currently
calculated withholding tax and the actual withholding tax to be paid will be recognized as gain or loss on disposal of available-for-sale
debt investments in the period when we actually settle the withholding tax with the tax authorities in PRC.
Currency Translation and Exchange Rates
We have translated certain Renminbi, or RMB, amounts included in this annual report on Form 20-F into U.S. dollars for the
convenience of the readers. The rate we used for the translations was RMB6.5250 = US$1.00, which was the noon buying rate on
December 31, 2020 as set forth in the H.10 weekly statistical release of the Federal Reserve Board. The translation does not mean that
RMB could actually be converted into U.S. dollars at that rate.
B.
Capitalization and Indebtedness
Not required.
8
C.
Reasons for the Offer and Use of Proceeds
Not required.
D.
Risk Factors
Risks Relating to Our Business and Industry
Due to the rapidly evolving market in which we operate, our historical results may not be indicative of our future performance and
there can be no assurance that we will be able to meet internal or external expectations of future performance.
The Internet industry is rapidly evolving and new products, new business models and new players emerge on a regular basis,
and we may not be able to achieve results or growth in future periods as we expected. Due to the rapidly evolving market in which we
operate, our historical year-over-year and quarter-over-quarter trends may not provide an accurate or reliable indication of our future
performance. For certain lines of our business, we have experienced high growth rates in the past and there may be expectations that
these growth rates will continue. For other lines of our business, we have experienced declining trends. Our ability to achieve and
maintain profitability depends on, among other factors, the growth of the Internet advertising market and mobile Internet services
industry in China, our ability to maintain cooperative relationships with Phoenix TV and mobile operators, our ability to control our
costs and expenses and the continued relevance and usage of our various paid services. We may not be able to achieve or sustain
profitability on a quarterly or annual basis. Accordingly, our historical growth rates may not be indicative of our future performance.
In addition, our online advertising business may suffer from price competition from other online advertising companies. We may have
to reduce our profit margins or operate at a loss in order to adequately fund critical innovations that we believe will create value for
our company and strengthen our market position over the long term. In the past our operating results have failed to meet expectations
of industry analysts and investors, and our future operating results may also fail to meet such expectations. There can be no assurance
that we will be able to meet internal or external expectations of future performance, and our share price may decline as a result of any
failure to meet such expectations.
We expect to continue to rely on advertising to drive a significant portion of our future revenues, and if we fail to retain existing
advertisers or attract new advertisers for our advertising services, our business, operating results and growth prospects could be
materially affected.
In 2018, 2019, and 2020, we generated 87.1%, 90.0% and 92.1% of our total revenues from advertising services, respectively.
Going forward, we expect our net advertising revenues to continue to contribute the majority of our total revenues. Our ability to
generate and maintain substantial advertising revenues will depend on a number of factors, many of which are ultimately beyond our
control, including but not limited to:
•
•
•
•
•
the acceptance of online (including mobile and PC-based) advertising as an effective way for advertisers to market their
businesses;
the maintenance and enhancement of our brand;
the maintenance and development of advertising technology, such as the maintenance of advertising data base and
advertising placement platform, and the ability to prevent computer virus attack;
the maintenance and development of our programmatic advertising platforms. We launched our self-developed demand-
side platform, or DSP, Fengyu (“凤羽”) in 2017. In addition, we launched Fengyi (“凤翼”) in 2018, another
customizable marketing solution, catering to premium advertising demands to help our brand advertising clients track and
improve the performance of their applications. Besides, we also launched Fengfei (“凤飞”) in 2020, an advertising
platform enables mobile application developers with less traffic to access our commercial resources, advertising data, and
service capabilities through a set of advertising monetization solutions. The global macroeconomic uncertainties, more
stringent local regulations on advertisements and more intense competition may slowdown the growth of our
programmatic advertising platforms. Our ability to maintain and upgrade Fengyu, Fengyi, Fengfei and their related
platforms, such as data management platform and advertisement exchange platform is crucial to our advertising services
and we cannot assure you that such revenue generated from our programmatic advertising platforms will not decline in
the future;
the development of independent and reliable means of measuring online traffic and verifying the effectiveness of our
online advertising services;
9
•
•
the development and retention of a large user base with attractive demographics for advertisers; and
our ability to have continued success with innovative advertising services.
Our advertisers may choose to reduce or discontinue their business with us if they believe their advertising spending has not
generated or would not generate enough sales to end customers or has not improved or would not effectively improve their brand
recognition. In addition, certain technologies could potentially be developed and applied to block the display of our online
advertisements and other marketing products on PC websites, mobile applications and mobile websites, which may in turn cause us to
lose advertisers and adversely affect our operating results. Moreover, changes in government policies could restrict or curtail our
online advertising services. Furthermore, the outbreak of a novel strain of coronavirus or COVID-19, and the various temporary
measures introduced by the central and local governments in China to contain COVID-19 outbreak have had, and is expected to
continue to have, a negative impact on our advertising business as our clients in China may be forced to reevaluate their marketing
strategies and budgets. Failure to retain our existing advertisers or attract new advertisers for our advertising services could seriously
harm our business, operating results and growth prospects.
We may not be successful in growing our mobile Internet related business and our revenue growth could be negatively impacted.
The growth of the mobile Internet services and applications and the level of demand and market acceptance of our services
are subject to many uncertainties. The development of this market and our ability to derive revenues from this market depends on a
number of factors, some of which are beyond our control, including but not limited to:
•
•
•
•
•
the growth rate of mobile Internet industry in China;
changes in consumer demographics and preferences;
development in mobile device platform technologies and mobile Internet distribution channels;
changes in government policies, regulations or their enforcement with respect to various types of mobile Internet services
and applications; and
potential competition from more established companies that decide to enter the mobile Internet market.
We rely in part on application marketplaces, Internet search engines, navigation sites, web browsers, pre-installations on handsets
and other social media platforms to drive traffic to our PC websites, mobile applications and mobile websites, and if we fail to
appear near the top of such search results or rankings or to retain partnership with certain handset manufacturers, traffic to our
PC websites, mobile applications and mobile websites could decline and our business and operating results could be adversely
affected.
We rely on application marketplaces, such as Apple’s iOS App Store, and other handset manufactures’ Android App Store, to
drive downloads of mobile applications of our products, including ifeng News, ifeng Video and our digital reading applications. In the
future, iOS App Store, Android stores or other operators of application marketplaces may make changes to their marketplaces which
could hinder or impede access to our products and services. We also depend in part on Internet search engines, navigation sites and
web browsers, such as Baidu, Sougou, Hao123, Hao360, UC Browser, 360 Browser and Cheetah Browser, to drive traffic to our PC
websites and referrals to our mobile applications and mobile websites. For example, when a user types an inquiry into a search engine,
we rely on a high organic search result ranking of our webpages in these search results to refer users to our websites. However, our
ability to maintain high organic search result rankings is not totally within our control. Our competitors’ search engine optimization,
or SEO, efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could
revise their methodologies in a way that would adversely affect our search result rankings. If Internet search engines modify their
search algorithms or other methodologies in ways that are detrimental to us, or if our competitors’ SEO efforts are more successful
than ours, the growth in our user base could be adversely affected. In addition, navigation websites or web browsers might reduce the
recommendation of our products for various reasons from time to time. We may also rely on pre-installations on handsets to increase
traffic to our mobile applications. By partnering with mobile handset manufacturers, we can have our mobile applications exposed
directly to our users without downloading from application stores once they buy certain handsets. In this way, users are more inclined
to use our mobile applications for convenience reasons. In addition, we rely on other social media platforms, such as Weixin, Weibo,
Douyin and Kuaishou, to generate effective traffic and active interactions among users. If any of these social media platforms stops
offering its service to us, we may not be able to locate alternative platforms of similar scale to provide similar services in a timely
manner. Any reduction in the number of users directed to our PC websites, mobile applications and mobile websites through
application marketplaces, Internet search engines, navigation sites, web browsers, pre-installations and other social media platforms
could harm our business and operating results.
10
If we are unable to successfully expand our mobile strategy and increase our mobile advertising revenues, our business, operating
results and growth prospects could be materially affected.
Use of mobile devices has been the primary way for consumption of news and other media content by consumers in China.
This shift towards mobile has brought with it both challenges and opportunities. Our ability to maintain and increase our mobile
advertising revenues will be critical to our future business prospects. While we are taking measures to expand our user base across our
various mobile applications, optimize our targeting technology and integrate next-generation high-efficiency advertising solutions,
there can be no assurance that these measures will be effective. User preferences and behaviors on mobile devices are rapidly evolving
and we may not be able to successfully adapt to these changes. The variety of technical and other configurations across different
mobile devices, platforms and applications also increases the challenges associated with our mobile expansion. Although we have
taken strict control over operating expenses, we still incurred certain traffic acquisition costs to maintain our user growth trajectory.
Our traffic acquisition expenses may increase in the future, which will adversely impact our financial results. Our mobile strategy is
also subject to risks relating to changes in government policies, regulations or their enforcement with respect to mobile Internet
services and applications. Any change to laws and regulations applicable to the mobile Internet industry, such as those relating to
content, user privacy, pricing, copyrights and distribution, may impede the growth of mobile Internet in China or make it more
difficult for us to carry out our mobile advertising business. If we cannot successfully grow our user base and capitalize on emerging
monetization opportunities on mobile devices, we may not be able to maintain or grow our advertising revenues, which could
materially and adversely affect our operating results and growth prospects.
Newsfeed advertising is an important mobile advertising format in China. If we are unable to successfully develop our newsfeed
advertising solution and adapt to new changes in advertising formats and trends, our mobile advertising revenues and growth may
be materially and adversely affected.
Newsfeed advertising is the practice of constantly updating lists of advertisements alongside news and information. It
effectively helps mobile applications enlarge their advertising inventory by inserting advertisements into the flow of content, while
improving the user experience based on native appearance and contextual relevance, implying greater monetization potential. We
expect newsfeed advertising to maintain strong growth momentum and become an increasingly important mobile advertising format in
China. While we had developed and added newsfeed advertising into our mobile applications and mobile websites in late 2016, we are
facing an increasingly competitive environment. For example, several mobile applications of other companies, such as Baidu app,
Jinri Toutiao, QQ news (Tencent) and NetEase News, are all competing in newsfeed advertising. If we are unable to successfully
develop our newsfeed advertising solution and deliver better return on investment, or ROI, to our advertising clients, our future mobile
advertising revenues may be materially and adversely affected. Except for newsfeed advertising, we believe that more types of
innovative mobile advertising formats may emerge in the future. If we are unable to swiftly develop and adapt to new changes in
advertising formats and trends, our mobile advertising revenues may be materially and adversely affected.
Any failure to retain large advertising agencies or attract new agencies on reasonable terms could materially and adversely affect
our business. If advertising agencies demand higher service fees, our gross margin may be negatively affected.
Approximately 80.2%, 65.2% and 64.6% of our net advertising revenues in China were derived from advertising agencies in
2018, 2019 and 2020, respectively. We primarily serve our advertisers through advertising agencies and rely on these agencies for
sourcing our advertisers and collecting advertising revenue. In consideration for these agencies’ services, the agencies earn advertising
agency service fees which are deducted from our gross advertising revenues. While advertising agencies in China commonly increase
their agency service fees on a sliding scale basis along with increased volume of business, if our agency service fees increase at a
materially disproportional rate relative to our gross advertising revenues, our operating results may be negatively affected. We do not
have long-term or exclusive arrangements with these agencies, and we cannot assure you that we will continue to maintain favorable
relationships with them. If we fail to maintain favorable relationships with large advertising agencies or attract additional agencies, we
may not be able to retain existing advertisers or attract new advertisers and our business and operating results could be materially and
adversely affected.
Over the years, there has been some consolidation among advertising agencies in China. If the consolidation trend continues
and the market is effectively controlled by a small number of large advertising agencies, such advertising agencies may be in a
position to demand higher advertising agency service fees based on increased bargaining power, which could reduce our net
advertising revenues.
If we fail to continue to anticipate user preferences and provide high quality content that attracts and retains users, or if we have to
cease providing certain content in order to comply with changing regulatory requirements, we may not be able to generate
sufficient user traffic to remain competitive.
Our success depends on our ability to generate sufficient user traffic through the provision of attractive content. If we are not
able to license or otherwise obtain popular premium content (such as we-media content, professionally-generated content, or PGC and
11
user-generated content, or UGC, etc.) at commercially reasonable terms, if our desired premium content becomes exclusive to our
competitors, or if we are not able to continue to use Phoenix TV’s content, the attractiveness of our offerings to users may be severely
impaired.
We may also be prevented from providing certain content to our users due to regulatory requirements or sanctions. For
example, we received a public notice issued by the State Administration of Press, Publication, Radio, Film and Television of the
People’s Republic of China, or the SAPPRFT, on June 22, 2017 in connection with our and certain other Internet companies’
regulatory non-compliances. The notice required us to suspend our ifeng video and audio services due to our lack of the Internet
audio-visual program transmission license and our certain commentary programs that violates government regulations. We have
cooperated with SAPPRFT to make the necessary changes to our ifeng video and audio services. We are not sure when we will be
allowed to distribute this kind of content again, and whether our video and audio services that provide other content will not be
ordered to suspend again in the future.
We also produce content in-house, and intend to continue to invest resources in producing original content. If we are unable
to continue to procure premium and distinctive licensed content or produce in-house content that meets users’ tastes and preferences,
we may lose users, and our operating results may suffer. In addition, we rely on our team of skilled editors to edit and repackage our
sourced content in a timely and professional manner for our users and any deterioration in our editing team’s capabilities or losses in
personnel may materially and adversely affect our operating results. If our content fails to cater to the needs and preferences of our
users, we may suffer from reduced user traffic and our business and operating results may be materially and adversely affected.
If we have to limit or suspend our services in order to comply with changing and increasingly stringent regulatory requirements,
our business, financial condition and results of operation may be materially adversely affected.
Recently, regulatory authorities in China have increased their supervision of content platforms similar to our website and
mobile applications. In addition to the contents that are considered to be violating PRC laws and regulations, such oversight tends to
pay more attention to content that is or may be deemed misleading, obscene, pornographic, detrimental, and/or contradicting to social
values and moral prevailing in China. A finding of such violation by the regulatory authority may cause the operator of the platform to
be subject to penalties and other administrative actions. We have received and may continue to face regulatory inquiries and oral
warnings from relevant regulatory authorities from time to time. In a couple of instances, the regulatory authority has ordered
suspension of downloads of our mobile applications and prohibited us from providing any update to some of our content for a short
period of time. Started on September 26, 2018, we temporarily suspended the services provided through our ifeng News mobile
application and wireless application protocol website, or WAP website, as well as our general news and finance channel on ifeng.com
for two weeks, and our technology channel on ifeng.com for 30 days, in compliance with a notice from the regulatory authority
directing us to do so. In addition, in February 2020, we temporarily suspended the services of the “finance” channel on our ifeng.com
website and two channels on our ifeng News mobile application for 15 days in compliance with a notice from the regulatory authority
directing us to do so. We cannot assure you that similar events will not occur in the future. In particular, we may have to limit or
suspend some or all of our services due to changing regulatory requirements or new government initiatives from time to time. We
cannot predict the duration or potential impact of such limitation or suspension either. Any of these events could severely impair the
attractiveness of our applications and websites to users, reduce our user traffic and affect our revenue, and our business, financial
condition and results of operation may be materially adversely affected.
If we fail to successfully develop and introduce new products and services to meet the preferences of users, our competitive position
and ability to generate revenues could be harmed.
The preferences of viewers are continuously evolving and we must continue to develop new products and services. If we fail
to react to changes in user preferences in a timely manner or fall behind our competitors in providing innovative products and services,
we may lose user traffic, which would negatively affect our operating results. In addition, the planned timing or introduction of new
products and services is subject to risks and uncertainties. Actual timing may differ materially from original plans. Unexpected
technical, operational, distribution or other problems could delay or prevent the introduction of one or more of our new products or
services. Moreover, we cannot assure you that our new products and services will achieve widespread market acceptance or generate
incremental revenues. At the same time, other new media providers may be more successful in developing more attractive products
and services. If our efforts to develop market and sell new products and services to the market are not successful, our financial
position, operating results and cash flows could be materially adversely affected, the price of our ordinary shares could decline and
you could lose part or all of your investment.
In addition, due to the tightened regulations in the media industry, the services that we may provide to users may be subject to
limitations and we may not be able to roll out new products and services under such regulatory environment. We have been
continuously adjusting our business in response to such regulatory changes. However, if we fail to successfully diversify our products
and services, our business, financial condition and operating results may be adversely affected.
12
Devices such as mobile phones, tablets and other Internet-enabled mobile devices, are widely used to access the Internet, we have
to continue to develop products and applications for such devices if we are to maintain or increase our market share and revenues,
and we may not be successful in doing so.
Devices such as mobile phones, tablets, wearable devices and other Internet-enabled mobile devices are widely used in China
and in overseas markets to access the Internet. We believe that, for our business to be successful, we will need to continue to design,
develop, promote and operate new products and applications that will be compatible with such devices and attractive to users. The
design and development of new products and applications may not be successful. We may encounter difficulties with the development
and installation of such new products and applications for mobile devices, and such products and applications may not function
smoothly. As new devices are released or updated, we may encounter difficulties in developing and upgrading our products or
applications for use on mobile devices and we may need to devote significant resources to the creation, support and maintenance of
such products or applications for mobile devices, and we may not be successful in doing so. If these efforts are unsuccessful and we
are thereby unable to maintain or increase our market share and revenues, our business, operating results and growth prospects could
be materially and adversely affected.
We operate in highly competitive markets and we may not be able to compete successfully against our competitors.
We face significant competition in the new media industry in China, including competition from major Internet
portals, mobile news and information application operators, Internet video companies, online video sites of major TV broadcasters,
online digital reading companies, interactive and social network service providers, mobile Internet services providers and other
companies with strong media, online video and paid services businesses. Some of our competitors have longer operating histories and
significantly greater financial resources than we do, which may allow them to attract and retain more users and advertisers. Our
competitors may compete with us in a variety of ways, including by obtaining exclusive online distribution rights for popular content,
conducting more aggressive brand promotions and other marketing activities and making acquisitions to increase their user bases. If
any of our competitors achieves greater market acceptance or are able to offer more attractive online content, interactive services or
paid services than us, our user traffic and our market share may decrease, which may result in a loss of advertisers and have a material
and adverse effect on our business, financial condition and operating results. We also face competition from traditional advertising
media such as television, newspapers, magazines, billboards and radio.
We have contracted with third-party content providers and we may lose users and revenues if these relationships deteriorate or
arrangements are terminated. If third-party content providers increase their content licensing fees, our operating results may be
negatively affected.
We have relied and will continue to rely mostly on third parties for the content we distribute across our channels. If these
parties fail to develop and maintain high-quality and engaging content or raise their licensing fees, or if a large number of our existing
relationships are terminated, we could lose users and advertisers and our brand could be materially harmed. If such license fees
increase significantly in the future, our income from operations may be negatively affected. In addition, the Chinese government has
the ability to restrict or prevent state-owned media from cooperating with us in providing certain content to us, which, if exercised,
would result in a significant decrease in the amount of content we are able to source for our PC websites, mobile applications and
mobile websites and negatively impact our operating results.
We may not be able to continue to receive the same level of support from Phoenix TV Group in the future. We could lose our
license and priority over any third party to use Phoenix TV Group’s content and licensed trademarks, which could have an adverse
effect on our business and operating results.
Phoenix TV is a leading global Chinese language TV network broadcasting premium content globally and into China. In
November 2009, our PRC subsidiary, Fenghuang On-line, entered into a cooperation agreement with Phoenix TV, or the Phoenix TV
Cooperation Agreement, under which Fenghuang On-line and Phoenix TV agreed to certain cooperative arrangements in the areas of
content, branding, promotion and technology. Pursuant to the Phoenix TV Cooperation Agreement, in November 2009 each of
Tianying Jiuzhou and Yifeng Lianhe entered into a program content license agreement, or Content License Agreement, with Phoenix
Satellite Television Company Limited, a subsidiary of Phoenix TV, and a trademark license agreement, or Old Trademark License
Agreement, with Phoenix Satellite Television Trademark Limited. Considering the significant growth and changes in our business
since execution of these agreements in 2009, we and Phoenix TV Group entered into a new set of agreements in May 2016 and
December 2017, or the 2016 and 2017 Agreements, to amend and replace the previous agreements and provide the terms of our
continued cooperation. The 2016 and 2017 Agreements include Program Resource License Agreements and Program Text/Graphics
Resource License Agreements, or the Program License Agreements, between Phoenix Satellite Television Company Limited and each
of Tianying Jiuzhou, Yifeng Lianhe and Fengyu Network, and new trademark license agreements by and between Phoenix Satellite
Television Trademark Limited and each of Tianying Jiuzhou and Yifeng Lianhe, or the New Trademark License Agreements. Under
the Program License Agreements, we benefited from the license granted to Tianying Jiuzhou, Yifeng Lianhe and Fengyu Network by
Phoenix Satellite Television Company Limited to use Phoenix TV Group’s copyrighted content from three television channels of
Phoenix TV Group for our various media services in China (excluding Hong Kong, Macau and Taiwan). In addition, Phoenix Satellite
Television Trademark Limited and Tianying Jiuzhou entered into four supplementary agreements to the New Trademark License
13
Agreements in April 2018, August 2018 and October 2018, to grant Tianying Jiuzhou the right to sublicense certain trademarks to
agents that operate local websites of our Company. In December 2020, we successfully renewed the terms of the New Trademark
License Agreements to December 2023.
The Program License Agreements expired in May 2019 and Tianying Jiuzhou and Yifeng Lianhe each entered into a
supplemental agreement with Phoenix Satellite Television Company Limited to extend the term of the original Program License
Agreements to January 14, 2020. Subsequently, Tianying Jiuzhou and Yifeng Lianhe entered into a program resource license and
cooperation agreement with Phoenix Satellite Television Company Limited on January 15, 2020, or the 2020 Program Resource
License and Cooperation Agreement. According to the 2020 Program Resource License and Cooperation Agreement, Phoenix
Satellite Television Company Limited grants Tianying Jiuzhou and Yifeng Lianhe the license to use Phoenix TV Group’s copyrighted
content from two television channels of Phoenix TV Group for our various media services in China (excluding Hong Kong, Macau
and Taiwan). See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements and
Transactions with Phoenix TV and Certain of its Subsidiaries” for more information about the terms of these agreements.
If the aforementioned existing agreements expire and we cannot reach new agreements with Phoenix TV Group before the
expiration, we may not be able to obtain rights to use Phoenix TV Group’s content and licensed trademarks on our platforms on
commercially reasonable terms, with any priority or at all, which would have negative effects on our paid services business, and may
also negatively affect our video advertising business. Together, these impacts could have an adverse effect on our business, operating
results and financial condition.
In addition, Tianying Jiuzhou and Yifeng Lianhe are able to use certain of Phoenix TV Group’s logos pursuant to the Old
Trademark License Agreement and the New Trademark License Agreements. We believe that our use of these logos helps to affiliate
us with the brand of Phoenix TV Group, which helps to enhance our own brand. Different from the Old Trademark License
Agreement, however, the New Trademark License Agreements no longer allow us to use the double-phoenix logo of Phoenix TV
Group on a stand-alone basis and increased the annual license fee payable to Phoenix TV Group from a total of US$10,000 to the
greater of 2% of the annual revenues of Tianying Jiuzhou or Yifeng Lianhe (as the case may be) or US$100,000 for each company.
Tianying Jiuzhou and Yifeng Lianhe had total annual revenues of RMB231.2 million (US$35.4 million) in 2020 in accordance with
U.S. GAAP, which meant that the annual license fee payable to Phoenix TV Group was RMB4.3 million (US$0.6 million) in 2020.
See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements and Transactions with
Phoenix TV and Certain of its Subsidiaries” for more information about the terms of the New Trademark License Agreements.
On March 17, 2017, the State Administration of Taxation issued the Announcement of the State Administration of Taxation on
Issuing the Administrative Measures for Special Tax Adjustment and Investigation and Mutual Consultation Procedures, or SAT
Circular 6, which became effective on May 1, 2017, and replaced the Circular on Enterprise Income Tax Issues concerning
Disbursement of Expense by Enterprises to Overseas Related Parties. Pursuant to SAT Circular 6, tax authorities carry out special tax
adjustment monitoring and management of enterprises via review of the reporting of connected transactions, management of
contemporaneous documentation, profit level monitoring and other means. When enterprises are found to have special tax adjustment
risks, they will send notices to such enterprises, suggesting the existence of a tax risk. The tax authorities will pay special attention to
an enterprise with the risk characteristics in the implementation of the special tax investigation. Such risk characteristics include but
are not limited to: (i) engaging in connected transactions with affiliates in countries (regions) subject to lower tax rates; (ii) no
distribution or reduced distribution of profit without reasonable business needs by an enterprise that is established in a country
(region) where the actual tax burden is less than 12.5% controlled by resident enterprises and/or Chinese resident individuals; or
(iii) other tax planning or arrangements that do not have reasonable business purposes. According to SAT Circular 6, payments made
by Tianying Jiuzhou and Yifeng Lianhe to Phoenix TV or its offshore affiliates under the above arrangements may be subject to
stringent supervision by competent tax authority.
Any negative development in Phoenix TV’s market position, harm to Phoenix TV’s brand or operations, or regulatory actions or
legal proceedings affecting Phoenix TV’s intellectual properties on which our business relies could materially and adversely affect
our business and operating results.
Our business benefits significantly from our association with Phoenix TV’s brand. Many of our users and advertisers are
attracted to the “Phoenix” (“鳳凰”) brand, with which our brand, “ifeng.com” (“鳳凰網”) shares a similar Chinese name. Any
negative development in Phoenix TV’s market position or brand recognition may materially and adversely affect our marketing efforts
and the popularity of our business. Any negative development in Phoenix TV’s operations or attractiveness to users or advertisers may
materially and adversely affect our business and operating results. Moreover, as we benefit from the content licensed to us by Phoenix
TV, any regulatory actions or legal proceedings against Phoenix TV related to such content could have a material adverse impact on
our operating results.
14
If we are unable to keep pace with rapid technological changes in the PC and mobile Internet industries, our business may suffer.
The PC and mobile Internet industries have been experiencing rapid technological changes. With the advances in Internet
interactivity, the interests and preferences of Internet users may increasingly shift to UGC and we-media content, such as WeChat,
Weibo and short-form videos. As broadband becomes more accessible, Internet users increasingly demand content in pictorial, audio-
rich and video-rich format. With the development of the mobile Internet in China, mobile users shift from text messaging services and
other mobile value-added services, or MVAS, to newer services, such as mobile video streaming and mobile digital reading services.
In addition, our success may in part depend on the impact of the expected coming LTE 5G rollout. The 5G technology is expected to
increase the speed of mobile service operator networks significantly and such development may further change the way that users
access and consume contents. If we are unable to upgrade our product and the services we provide to adapt to the LTE 5G technology
and the changes in user behavior that comes with it, we could lose users and our operating results may suffer. Our future success will
depend on our ability to anticipate, adapt and support new technologies and industry standards. If we fail to anticipate and adapt to
these and other technological changes, our market share and our profitability could suffer.
Our lack of an Internet audio-visual program transmission license has exposed, and may continue to expose, us to administrative
sanctions, including the banning of our paid mobile video services and video advertising services, which would materially and
adversely affect our business and results of operation.
The PRC government regulates the Internet industry extensively, including foreign ownership of, and the licensing
requirements pertaining to, companies in the Internet industry. A number of regulatory agencies, including the Ministry of Culture and
Tourism, or the MCT (formerly the Ministry of Culture, or MOC), the Ministry of Industry and Information Technology, or MIIT, the
National Radio and Television Administration, or NRTA, (formerly the SAPPRFT), the State Council Information Office, or the
SCIO, the Cyberspace Administrator of China, or CAC, and other governmental authorities, jointly regulate all major aspects of the
Internet industry. Operators are required to obtain various government approvals and licenses prior to providing the relevant Internet
information services.
Pursuant to the Administrative Provisions on Internet Audio-visual Program Service, or the Audio-visual Program Provisions,
which was issued by the State Administration of Radio, Film and Television (the predecessor of SAPPRFT), or SARFT and MIIT on
December 20, 2007, came into effect on January 31, 2008 and was revised on August 28, 2015, online transmission of audio and video
programs requires an Internet audio-visual program transmission license and online audio-visual service providers must be either
wholly state-owned or state-controlled. In a press conference jointly held by SARFT and MIIT to answer questions with respect to the
Audio-visual Program Provisions in February 2008, SARFT and MIIT clarified that online audio-visual service providers that already
had been operating lawfully prior to the issuance of the Audio-visual Program Provisions may re-register and continue to operate
without becoming state-owned or controlled, provided that such providers have not engaged in any unlawful activities. See “Item 4.
Information on the Company—B. Business Overview—Regulatory Matters—Regulation of Online Transmission of Audio-Visual
Programs.”
We started offering Internet audio-visual program services through Tianying Jiuzhou in China prior to the issuance of the
Audio-visual Program Provisions. Tianying Jiuzhou submitted an application to SAPPRFT to apply for the Internet audio-visual
program transmission license when the relevant regulation came into effect. However, as of the date of this annual report, NRTA has
not issued Tianying Jiuzhou an Internet audio-visual program transmission license. Although we have been communicating with the
relevant government authorities, such government authorities have not informed us as to when they will make a decision on whether
to issue such license to Tianying Jiuzhou. In June 2017, SAPPRFT issued a notice requiring us to suspend our ifeng video and audio
services due to our lack of Internet audio-visual program transmission license and certain commentary programs that violated
government regulations. While we have been able to continue our video and audio operation notwithstanding the notice by
cooperating with SAPPRFT to make the necessary changes to our ifeng video and audio services, complying with government
regulation and continuing to improve the management and operation of the ifeng video and audio business, we cannot assure you that
we will not receive similar or other notices or be subject to other penalties or disciplinary action from the relevant governmental
authorities in the future regarding our dissemination of audio-visual programs through our PC websites, mobile applications and
mobile websites without such license. We cannot assure you that Tianying Jiuzhou will be able to obtain the Internet audio-visual
program transmission license. Based on the opinion of our PRC counsel, Zhong Lun Law Firm, due to Tianying Jiuzhou’s lack of an
Internet audio-visual program transmission license, the applicable local counterpart of NRTA may issue further warnings, order us to
rectify our violating activity and impose fines on us. In case of severe contravention as determined by NRTA or its applicable local
counterpart in its discretion, the applicable local counterpart of NRTA may ban the violating operations, seize our equipment in
connection with such operations and impose a penalty of one to two times the amount of the total investment in such operations. The
banning of our paid mobile video services and video advertising services would materially and adversely affect our business and
operating results.
15
Our lack of an Internet news license may expose us to administrative sanctions, including an order to cease our Internet
information services or to cease the Internet access services provided by third parties to us. In 2020, approximately 91.2% of our
total revenues were derived from Internet information services and services that relied on Internet access services from third
parties.
We are required to obtain an Internet news license from CAC for the dissemination of news through our PC websites, mobile
applications and mobile websites. See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—
Regulation of Internet News Dissemination.” Tianying Jiuzhou submitted an application to the CAC to apply for the Internet news
license when the relevant regulation came into effect and we have been trying our best to obtain the license. However, as of the date of
this annual report, the CAC has not issued an Internet news license to Tianying Jiuzhou. Based on the opinion of our PRC counsel,
Zhong Lun Law Firm, as a result of Tianying Jiuzhou’s lack of an Internet news license, the CAC or applicable cyberspace
administrator at the provincial level may order us to cease our Internet information services or to cease the Internet access services
provided by third parties to us and impose a fine on us of not more than RMB30,000. In 2020, approximately 91.2% of our total
revenues were derived from Internet information services and services that relied on Internet access services from third parties; and
therefore if we are ordered to cease such services, our business, financial condition and results of operation will be materially and
adversely affected.
Failure to obtain NRTA’s approval for introducing and broadcasting foreign television programs could have a material adverse
effect on our ability to conduct our business.
Some of the video contents on our PC websites, mobile applications and mobile websites are foreign content. PRC law
requires approval from NRTA for introducing and broadcasting foreign television programs into China. In September 2004, SARFT
promulgated certain regulations of the Administrative Regulations on the Introduction and Broadcasting of Foreign Television
Programs, pursuant to which only organizations designated by SAPPRFT are qualified to apply to SAPPRFT or its authorized entities
for the introduction or broadcasting of foreign television programs. In addition, on July 6, 2004, SARFT issued the Measures for the
Administration of Publication of Audio-Visual Programs through the Internet or Other Information Networks, or the 2004 A/V
Measures, which explicitly prohibit Internet service providers from broadcasting any foreign television program over an information
network and state that any violation may result in warnings, monetary penalties or, in severe cases, criminal liabilities. On
November 19, 2009, SARFT issued a notice which extended this prohibition to broadcasting over mobile phones. In December 2007
and March 2009, however, SARFT issued two notices which provide that certain foreign audio-visual programs may be published
through the Internet provided that certain regulatory requirements have been met and certain permits have been obtained, thereby
implying that the absolute restriction against broadcasting foreign television programs on the Internet as set forth in the 2004 A/V
Measures has been lifted. On April 25, 2016, SAPPRFT issued the Administrative Provisions on Audio-Visual Program Services
through Private Network and Targeted Communication, the 2016 A/V Provisions, which replaced the 2004 Internet A/V Measures.
The 2016 A/V Provisions does not explicitly specify whether broadcasting foreign television program is permitted. See “Item 4.
Information on the Company—B. Business Overview—Regulatory Matters—Regulation of Foreign Television Programs and Satellite
Channels.” As of the date of this annual report, we have not obtained an approval from NRTA for introducing and broadcasting
foreign TV programs produced by certain foreign TV stations in China. Therefore, there is uncertainty as to whether we are permitted
to transmit foreign television programs through the online video services that we offer. If NRTA or its local branch requires us to
obtain its approval for our introduction and online broadcasting of overseas TV programs, we may not be able to obtain such approval
in a timely manner or at all. Based on the opinion of our PRC counsel, Zhong Lun Law Firm, in such case, the PRC government
would have the power to, among other things, levy fines against us, confiscate our income, order us to cease certain content service, or
require us to temporarily or permanently discontinue the affected portion of our business.
Failure to obtain certain permits for our advertising services that contain drug-related information would subject us to penalties.
Entities in China are not allowed to provide drug-related or medical care information services online before obtaining an
Internet Medicine Information Service Qualification Certificate from the relevant local government agencies. See “Item 4. Information
on the Company—B. Business Overview—Regulatory Matters—Regulation of Certain Internet Content.” Certain of our advertising
services contain drug-related information.
As of the date of this annual report, Yifeng Lianhe has obtained an Internet Medicine Information Service Qualification
Certificate from Beijing Municipal Medical Products Administrative. However, Tianying Jiuzhou does not currently have such
certificate and we cannot assure you that Tianying Jiuzhou may be able to obtain the certificate. We may be subject to administrative
warnings, termination of any Internet drug-related services and online health diagnoses and treatment services on our PC websites,
mobile applications and mobile websites, and other penalties that are not clearly provided for in the relevant regulations.
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If we fail to obtain or maintain all applicable permits and approvals, or fail to comply with PRC regulations, relating to Internet
publishing services, our ability to conduct our digital reading business and certain other businesses could be affected and we could
be subject to penalties and other administrative sanctions.
According to PRC regulations regulating Internet publishing services, the provision of online novels is deemed a network
publication activity, therefore, a Network Publication Service License from National Press and Publication Administration, or NPPA
(formerly the SAPPRFT) is required to operate digital reading business in China. See “Item 4. Information on the Company—B.
Business Overview—Regulatory Matters—Regulation of Online Cultural Activities and Internet Music.”
As of the date of this annual report, Tianying Jiuzhou has obtained a Network Publication Service License from SAPPRFT
with respect to the distribution of published books and periodicals via Internet (including the mobile Internet), and the publication of
online and mobile games. However, neither Fengyu Network nor Yifeng Lianhe has obtained a Network Publication Service License.
We cannot assure you that Fengyu Network and Yifeng Lianhe can obtain a Network Publication Service License to operate
digital reading business. If the relevant authority determines that we are in violation of the relevant laws and regulations regarding
Internet publishing services, it would have the power to, among other things, levy fines against us, confiscate our income and require
us to discontinue our digital reading business. In addition, if we were deemed to be in violation of the relevant laws and regulations
regarding Internet publishing services, NPPA would have the ability to withdraw the Network Publication Service License that the
government authority granted to Tianying Jiuzhou on February 23, 2017, which may affect, directly or indirectly, our ability to
conduct our online digital reading services.
Our business and operating results may be harmed by service disruptions, or by our failure to timely and effectively scale and
adapt our existing technology and infrastructure.
The continual accessibility of our PC websites, mobile applications and mobile websites and the performance and reliability
of our network infrastructure are critical to our reputation and our ability to attract and retain users, advertisers and partners. Any
system failure or performance inadequacy that causes interruptions in the availability of our services or increases the response time of
our services could reduce our appeal to users and consumers. Factors that could significantly disrupt our operations include system
failures and outages caused by fire, floods, earthquakes, power loss, and telecommunications failures and similar events. Despite we
have endeavored efforts to implement network security measures to our systems, it may also be vulnerable to computer viruses, break-
ins and similar disruptions from unauthorized tampering, and security breaches related to the storage and transmission of proprietary
information, such as personal information. If we were to suffer a sustained system failure or an extended decline in performance that
interrupts or reduces speed of access to our services, our reputation may be harmed, we may fail to attract or retain users, advertisers
and partners, and our business and operating results may be harmed as a result.
Security breaches or computer virus attacks could have a material adverse effect on our business prospects and operating results.
Any significant breach of security of our products could significantly harm our business, reputation and operating results. We
have in the past experienced security breaches by third parties, including redirecting our user traffic to other websites, and we were
able to rectify the security breaches without significant impact to our operations. However, we cannot assure you that our IT systems
will be completely secure from future security breaches or computer virus attacks. Anyone who is able to circumvent our security
measures could misappropriate proprietary information, including the personal information of our users. To cope with these
circumventions, we have (i) organized a professional technical team in cyber security, who are experts in devising cyber security
strategies, conducting security audits of operating source code, tracking and analyzing risks, and solving technology related troubles,
(ii) communicated closely with several external security organizations, to acquire zero-day vulnerability information, (iii) purchased
third-party security services, including vulnerability scanning services, and penetration and vulnerability testing every three years.
Although we have already taken such measures, any circumvention of these security measures may still cause interruptions in our
operations or damage our brand image and reputation, which could have a material adverse effect on our business prospects and
operating results.
New technologies could block our advertisements, desktop clients and mobile applications and may enable technical measures that
could limit our traffic growth and new monetization opportunities.
Technologies have been developed that can disable the display of our advertisements and that provide tools to users to opt out
of our advertising products. Most of our revenues are derived from fees paid to us by advertisers in connection with the display of
advertisements on webpages to our users. In addition, our traffic growth is significantly dependent on content viewing via mobile
devices, such as smart phones and tablets. Technologies and tools for PCs and mobile devices, such as operating systems, Internet
browsers, anti-virus software and other applications, as well as mobile application download stores could set up technical measures to
direct away Internet traffic, require a fee for the download of our products or block our products all together, which could adversely
affect our overall traffic and ability to monetize our services.
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If we fail to maintain effective internal control over financial reporting, our ability to accurately and timely report our financial
results in accordance with U.S. GAAP may be materially and adversely affected. In addition, investor confidence in us and the
market price of our ADSs may decline significantly.
We are subject to reporting obligations under U.S. securities laws. Among other things, the United States Securities and
Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, adopted
rules requiring every public company, including us, to include a report from management on the effectiveness of its internal control
over financial reporting in its annual report on Form 20-F starting in the annual report for its second fiscal year as a public company.
In addition, beginning at the same time, an independent registered public accounting firm must attest to and report on the effectiveness
of such public company’s internal control over financial reporting. We were subject to these requirements for the first time with
respect to our annual report on Form 20-F for the fiscal year ended December 31, 2012.
As of December 31, 2020, our management has concluded that our internal control over financial reporting is effective. See
“Item 15. Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting.” Our independent
registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial
reporting is effective as of December 31, 2020.
However, we may not be able to always maintain an effective internal control over financial reporting for a variety of reasons.
Among others, we are based in China, an emerging market where the overall internal control environment may not be as strong as in
more established countries. If we fail to maintain effective internal control over financial reporting in the future, our management and
our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial
reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial
statements and negatively impact the trading price of our ADSs. Furthermore, we have incurred and anticipate that we will continue to
incur considerable costs, management time and other resources in an effort to maintain compliance with Section 404 and other
requirements of the Sarbanes-Oxley Act.
We may experience continued decline in demand for our MVAS business and any expected economic benefits from this business
may not be realized.
In 2018, 2019 and 2020, revenues from our MVAS accounted for 4.0%, 1.4% and 1.1%, respectively, of our total revenues,
due to lower demand from mobile users. For more information about our MVAS, see “Item 4. Information of the Company — B.
Business Overview — Our Channels—Our Operations with the Telecom Operators.” In addition, we cannot assure you that we will be
successful in developing our MVAS business. Due to the uncertainties of our MVAS business and the MVAS industry in China, we
may experience continued decline in demand for our MVAS business, and we expect that our MVAS business will contribute to an
even smaller proportion of our future revenues. Any further decline in this business could have a negative impact on our business,
financial condition and operating results.
Our quarterly revenues and operating results may fluctuate, which makes our operating results difficult to predict and may cause
our quarterly operating results to fall short of expectations.
Our quarterly revenues and operating results have fluctuated in the past and may continue to fluctuate depending upon a
number of factors, many of which are out of our control. For these reasons, comparing our operating results on a period-to-period
basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly and
annual revenues and costs and expenses as a percentage of our revenues may be significantly different from our historical or projected
rates. Our operating results in future quarters may fall below expectations. Any of these events could cause the price of our ADSs to
fall. Other factors that may affect our financial results include, among others:
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China macro-economic conditions;
our ability to maintain and increase user traffic;
our ability to attract and retain advertisers;
changes in the policies of mobile operators;
changes in government policies or regulations, or their enforcement; and
geopolitical events or natural disasters such as war, threat of war, earthquake or epidemics.
Our operating results tend to be seasonal. For instance, we may generate less revenue from brand advertising sales and paid
services revenues during national holidays in China, in particular during the Chinese New Year holidays in the first quarter of each
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year. We may have higher net advertising revenues during the fourth quarter of each year primarily due to greater advertising
spending by our advertisers near the end of the year when they spend the remaining portions of their annual budgets. In addition,
advertising spending in China has historically been cyclical, reflecting overall economic conditions as well as the budgeting and
buying patterns of our customers.
Our affiliated consolidated entities and their respective shareholders do not own all the trademarks used in their value-added
telecommunications services, which may subject them to revocation of their licenses or other penalties or sanctions.
Pursuant to the Notice on Strengthening the Administration of Foreign Investment in Value-added Telecommunications
Services issued on July 13, 2006 by MIIT, or the MIIT 2006 Notice, domestic telecommunications service providers are prohibited
from leasing, transferring or selling telecommunications business operating licenses to any foreign investors in any form, or providing
any resources, sites or facilities to any foreign investors for their operation of telecommunications businesses in China. According to
the MIIT 2006 Notice, the holder of a value-added telecommunications business operating license, or ICP License, or its shareholders
must directly own the domain names and trademarks used in their value-added telecommunications business operations. After the
promulgation of the MIIT 2006 Notice in July 2006, the MIIT issued a subsequent notice in October 2006, or the MIIT
October Notice, urging value-added telecommunication service operators to conduct self-examination regarding any noncompliance
with the MIIT 2006 Notice prior to November 1, 2006. Pursuant to the MIIT October Notice, ICP License-holders who were not in
compliance with the MIIT 2006 Notice were allowed to submit a self-correction report to the local provincial-level branch of MIIT by
November 20, 2006.
Tianying Jiuzhou and Yifeng Lianhe are currently engaged in the provision of value-added telecommunications services and
each of them has obtained ICP Licenses from MIIT or its local counterpart in Beijing. In addition, Tianying Jiuzhou owns our material
domain names, including ifeng.com, and, as of March 31, 2021, owned six registered trademarks that were transferred to it from
Phoenix Satellite Television Trademark Limited. Tianying Jiuzhou and Yifeng Lianhe continue to use certain of Phoenix TV’s logos
that are licensed from Phoenix Satellite Television Trademark Limited, a wholly owned subsidiary of Phoenix TV, in their value-
added telecommunications services. Therefore, we are not currently in compliance with the MIIT 2006 Notice.
We have designed propriety logos for use in the respective businesses of Tianying Jiuzhou and Yifeng Lianhe. As of
March 31, 2021, Tianying Jiuzhou owned 471 PRC registered trademarks, six of which were transferred from Phoenix Satellite
Trademark Limited, and Yifeng Lianhe owned 35 PRC registered trademarks. Despite our having registered many trademarks used in
our value-added telecommunications business operations, we may continue to use certain of Phoenix TV’s logos that are licensed
from Phoenix Satellite Television Trademark Limited.
Although neither of our affiliated consolidated entities or their respective subsidiaries has been required by the MIIT or its
local counterpart to obtain and hold the ownership of the relevant trademarks related to our value-added telecommunications services
to date, the provincial-level counterpart of MIIT may enforce the MIIT 2006 Notice on our affiliated consolidated entities and their
respective subsidiaries. In such case, the provincial-level counterpart of MIIT could order our affiliated consolidated entities and their
respective subsidiaries to own the registered trademarks used in their value-added telecommunications business within a specified
period of time. We do not have knowledge about the period of time that MIIT would provide us to complete the necessary remediation
measures. We are also not aware that since issuing the MIIT October Notice, MIIT has promulgated any additional notices or
guidelines with respect to timelines for self-examination or remediation of noncompliance with the MIIT 2006 Notice. Moreover, the
MIIT October Notice does not specify how much time the MIIT allows for ICP License-holders to remedy their noncompliance issues.
If we fail to remedy any noncompliance within the time frame specified by the provincial counterpart of MIIT, the relevant
governmental authority would have the discretion to revoke our affiliated consolidated entities’ or their respective subsidiaries’
licenses for value-added telecommunications or subject them to other penalties or sanctions, which would have a material and adverse
effect on our business, financial condition, operating results and prospects.
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We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of Internet businesses and
companies, including limitations on our ability to own key assets, such as our PC websites, mobile applications and mobile
websites.
The Chinese government heavily regulates the Internet industry, including foreign investment in the Chinese Internet
industry, content on the Internet and license and permit requirements for service providers in the Internet industry. Since some of the
laws, regulations and legal requirements with respect to the Internet are relatively new and evolving, their interpretation and
enforcement involve significant uncertainties. In addition, the Chinese legal system is based on written statutes and so that prior court
decisions can only be cited for reference and have little precedential value. As a result, in many cases it is difficult to determine what
actions or omissions may result in liabilities. Issues, risks and uncertainties relating to China’s government regulation of the Chinese
Internet sector include the following:
• We operate our PC websites, mobile applications and mobile websites in China through our affiliated consolidated
entities and their respective subsidiaries, which we control through contractual arrangements due to restrictions on
foreign investment in businesses providing value-added telecommunication services, including substantially all of our
paid services and advertising services.
• Uncertainties relating to the regulation of the Internet business in China, including evolving licensing practices, give rise
to the risk that some of our permits, licenses or operations may be subject to challenge, which may be disruptive to our
business, subject us to sanctions or require us to increase capital, compromise the enforceability of relevant contractual
arrangements, or have other adverse effects on us. The numerous and often vague restrictions on acceptable content in
China subject us to potential civil and criminal liability, temporary blockage of our PC websites, mobile applications and
mobile websites or complete shut-down of the above-mentioned sites. For example, the State Secrecy Bureau, which is
directly responsible for the protection of state secrets of all Chinese government and Chinese Communist Party
organizations, is authorized to block any websites or mobile applications it deems to be leaking state secrets or failing to
meet the relevant regulations relating to the protection of state secrets in the distribution of online information. In
addition, the newly amended Law on Preservation of State Secrets which became effective on October 1, 2010 provides
that whenever an Internet service provider detects any leakage of state secrets in the distribution of online information, it
should stop the distribution of such information and report to the authorities of state security and public security. As per
request of the authorities of state security, public security or state secrecy, the Internet service provider should delete any
contents on its websites or mobile applications that may lead to disclosure of state secrets. Failure to do so on a timely
and adequate basis may subject the service provider to liability and certain penalties imposed by the State Security
Bureau, Ministry of Public Security and/or MIIT or their respective local counterparts.
• Under the Cyber Security Law of the People’s Republic of China, or Cyber Security Law, which became effective on
June 1, 2017, when network operators, such as us, provide users with information publication services, instant messaging
services and other services, they shall require users to provide real identity information at the time of signing agreements
with users or confirming the provision of services. Where users do not provide real identify information, network
operators shall not provide them with relevant services. If network operators fail to comply with these requirements,
relevant competent authorities may order the operators to rectify, and if they fail to rectify or if the circumstances are
serious, a fine may be imposed, and the relevant competent authorities may order the operators to suspend operation,
close down the website, and revoke their relevant business permits and licenses; and a fine of no less than RMB10,000
but no more than RMB100,000 may be imposed on the persons directly in charge and other directly responsible persons.
• On September 28, 2009, the General Administration of Press and Publication (the predecessor of SAPPRFT), or GAPP
and the National Office of Combating Pornography and Illegal Publications jointly published a circular expressly
prohibiting foreign investors from participating in Internet game operating business via wholly owned, equity joint
venture or cooperative joint venture investments in China, and from controlling and participating in such businesses
directly or indirectly through contractual or technical support arrangements. On February 4, 2016, the SAPPRFT and the
MIIT jointly issued the Administrative Measures on Network Publication Service, which took effect on March 10, 2016
and prohibit wholly foreign-owned enterprises, Sino-foreign equity joint ventures and Sino-foreign cooperative
enterprises from engaging in the provision of web publishing services. In addition, project cooperation between an
Internet publishing service provider and a wholly foreign-owned enterprise, Sino-foreign equity joint venture, or Sino-
foreign cooperative enterprise within China or an overseas organization or individual involving Internet publishing
services shall be subject to examination and approval by the SAPPRFT in advance.
Due to the popularity and broad use of the Internet and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products and services. The adoption of additional laws or
regulations may impede the growth of the Internet or other online services, which could, in turn, decrease the demand for our products
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and services and increase our cost of doing business. Moreover, the applicability to the Internet and other online services of existing
laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain
and may take years to resolve. Any new legislation or regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services
could significantly disrupt our operations or subject us to penalties.
The interpretation and application of existing PRC laws, regulations and policies, the stated positions of relevant PRC
government authorities and possible new laws, regulations or policies have created substantial uncertainties regarding the legality of
existing and future foreign investments in, and the businesses and activities of, Internet businesses in China, including our business.
The Chinese government may prevent us from advertising or distributing content, including UGC, that it believes is inappropriate
and we may be subject to penalties for such content or we may have to interrupt or stop the operation of our PC websites, mobile
applications and mobile websites.
China has enacted regulations governing Internet access and the distribution of news and other information. In the past, the
Chinese government has stopped the distribution of information over the Internet or through mobile Internet devices that it believes
violates Chinese law, including content that it believes is obscene or defamatory, incites violence, endangers the national security, or
contravenes the national interest. In addition, certain news items, such as news relating to national security, may not be published
without permission from the Chinese government. If the Chinese government were to take any action to limit or prohibit the
distribution of information through our PC websites, mobile applications and mobile websites, or through our services, or to limit or
regulate any current or future content or services available to users on our network, our business could be significantly harmed.
In addition to professionally produced content, content from Phoenix TV and our in-house produced content, we allow our
users to upload text and images (UGC) to our PC websites, mobile applications and mobile websites. We have a content screening
team of four employees and more than 200 outsourced staff members who are responsible for monitoring and preventing the public
release of inappropriate or illegal content, including UGC, on our PC websites, mobile applications and mobile websites or through
our services. In addition to the staff of our content screening team, we also take advantage of the assistance of AI technology to ensure
the efficiency and safety of content monitoring. Although we have adopted internal procedures to monitor the content displayed on our
PC websites, mobile applications and mobile websites, due to the significant amount of UGC uploaded by our users, we may not be
able to identify all the UGC that may violate relevant laws and regulations. Failure to identify and prevent inappropriate or illegal
content from being displayed on our PC websites, mobile applications and mobile websites may subject us to liability.
Content provided on our PC websites, mobile applications and mobile websites may expose us to libel or other legal claims which
may result in costly legal damages.
Claims have been threatened and filed against alleging for libel, defamation, invasion of privacy and other matters based on
the nature and content of the materials posted on our PC websites, mobile applications and mobile websites. While we screen our
content for such potential liability, there is no assurance that our screening process will identify all potential liability, especially
liability arising from UGC and content we license from third parties. In the past, some of the claims brought against us have resulted
in liability. Although to date none of such claims resulting material loss, we cannot assure you we will not be subject to future claims
that could be costly, encourage similar lawsuits, distract our management team or harm our reputation and possibly our business. For
more information, see “Item 4. Information on the Company—B. Business Overview—Legal and Administrative Proceedings.”
Advertisements on our PC websites, mobile applications and mobile websites may subject us to penalties and other administrative
actions.
Under PRC advertising laws and regulations, we are obligated to monitor the advertising content shown on our PC websites,
mobile applications and mobile websites to ensure that such content is true, accurate and in full compliance with applicable laws and
regulations. In addition, where a special government review is required for specific types of advertisements prior to websites or mobile
application posting, such as advertisements relating to medical treatment, pharmaceuticals, medical instruments, agrochemicals,
veterinary pharmaceuticals and health food, we are obligated to confirm that such review has been performed and approval has been
obtained from relevant governmental authorities, which include the local branch of the State Administration for Market Regulation
(formerly known as the State Administration for Industry and Commerce, or SAIC), or SAMR, the local branch of the National Health
Commission and the local branch of the State Administration of Traditional Chinese Medicine. On April 24, 2015, the Standing
Committee of the National People’s Congress issued the Advertisement Law, which took effect on September 1, 2015 and was
amended on October 26, 2018, to further strengthen the supervision and management of advertisement services. In addition, on July 4,
2016, the SAIC issued the Interim Measures for the Administration of Internet Advertising, the New Interim Measures, to further
regulate Internet advertising activities. Pursuant to these laws and regulations, any advertisement that contains false or misleading
information to deceive or mislead consumers shall be deemed false advertising. Furthermore, the Advertisement Law explicitly
stipulates detailed requirements for the content of several different kinds of advertisement, including advertisements for medical
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treatment, pharmaceuticals, medical instruments, health food, alcoholic drinks, education or training, products or services having an
expected return on investment, real estate, pesticides, feed and feed additives, and some other agriculture-related advertisement. Also,
according to the New Interim Measures, no advertisement of such special commodities or services which are subject to examination
by an advertising examination authority shall be published unless it has passed such examination. In addition, an Internet
advertisement shall be identifiable and clearly identified as an “advertisement” so that consumers will know that it is an advertisement.
Paid search advertisements shall be clearly distinguished from natural search results. We may be subject to enhanced supervision and
more serious penalties in case of a violation (if any) pursuant to such new Advertisement Law and the New Interim Measures. To
fulfill these monitoring functions, we include clauses in most of our advertising contracts requiring that all advertising content
provided by advertisers must comply with relevant laws and regulations. Pursuant to the contracts between us and advertising
agencies, advertising agencies are liable for all damages to us caused by their breach of such representations. Before a sale is
confirmed and the advertisement is publicly posted on our PC websites or mobile applications and mobile websites, our account
execution personnel, who comprise a separate back-office team, are required to review all advertising materials to ensure there is no
racial, violent, pornographic or any other improper content, and will request the advertiser to provide proof of governmental approval
if the advertisement is subject to special government review. Violation of these laws and regulations may subject us to penalties,
including fines, confiscation of our advertising income, orders to cease dissemination of the advertisements and orders to eliminate the
effect of illegal advertisement. PRC governmental authorities may even force us to terminate our advertising operation or revoke our
licenses in circumstances involving serious violations.
A majority of the advertisements shown on our PC websites, mobile applications and mobile websites are provided to us by
third-party advertising agencies on behalf of advertisers. We cannot assure you that all of the content contained in such advertisements
is true and accurate as required by the advertising laws and regulations. For example, the Advertisement Law provides that an
advertisement operator who posts false or fraudulent advertisements related to the life and health of the consumers, or who knows or
should have known other kind of posted advertisement is false or fraudulent will be subject to joint and several liabilities. The New
Interim Measures provides that Internet advertisement publishers shall verify related supporting documents, check the contents of the
advertisement and be prohibited from publishing any advertisement with nonconforming contents or without all the necessary
certification documents. However, for the determination of the truth and accuracy of the advertisements, there are no implementing
rules or official interpretations, and such a determination is at the sole discretion of the relevant local branch of the SAMR, which
results in uncertainty in the application of these laws and regulations. If we are found to be in violation of applicable PRC advertising
laws and regulations in the future, we may be subject to penalties and our reputation may be harmed, which may have a material and
adverse effect on our business, financial condition, operating results and prospects.
In addition, online information distributors and related service providers, as well as marketplace platform operators, are
required to conduct businesses in full compliance with the Anti-unfair Competition Law in China, and may not unfairly compete with
others or cause disruption to social and economic orders, including but not limited to carrying out any false or misleading commercial
promotions, inserting a link into an online product or service legally provided by another business operator to compel a destination
jump without the approval of such business operator. In November 2017 and April 2019, the Anti-unfair Competition Law of the PRC
was amended, which further emphasized that a business operator that engage in production and business activities utilizing the
information network shall abide by all the provisions of the Anti-unfair Competition Law, and may not engage in any false or
misleading publicity for its products or services. Violation of these provisions may subject the relevant business operators to various
penalties, including an order from the competent governmental authorities to cease its illegal acts and fines, or in case of a severe
violation, revocation of business licenses.
Ineffective implementation of the separation of our advertising sales and regulatory compliance functions may result in
insufficient supervision over the content of advertisements shown on our PC websites, mobile applications and mobile websites and
may subject us to penalties or administrative actions.
We keep our advertising sales function separate from our team that is in charge of government compliance in order to prevent
potential conflicts between our advertising business and our compliance with relevant PRC advertising laws and regulations. Before a
sale is confirmed and the relevant advertisements are publicly posted on our PC websites, mobile applications and mobile websites,
our account execution personnel, who comprise a separate back-office team that does not interface directly with advertisers, are
required to review all advertising materials to ensure that the relevant advertisements do not contain any racial, violent, pornographic
or any other improper content. These personnel will request an advertiser to provide proof of governmental approval if its
advertisement is subject to special governmental review. Such procedures are designed to enhance our regulatory compliance efforts.
However, in the event that the separation of advertising sales and regulatory compliance functions is not effectively implemented, the
content of our advertisements may not be in full compliance with applicable laws and regulations. If we are found to be in violation of
applicable laws and regulations in the future, we may be subject to penalties and our reputation may be harmed. This may have a
material and adverse effect on our business, financial condition and operating results.
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We prioritize product innovation and user experience over short-term operating results, which may harm our revenue and
operating results.
We encourage employees to quickly develop and help us launch new and innovative features. We focus on improving the user
experience for our products and services and on developing new and improved products and services for the advertisers on our
platforms. We frequently make product and service decisions that may negatively impact our short-term operating results if we believe
that the decisions are consistent with our goals to improve user experience and performance for advertisers, which we believe will
improve our operating results over the long term. These decisions may not be consistent with the short-term expectations of investors
and may not produce the long-term benefits that we expect, in which case our user growth and user engagement, our relationships with
advertisers and our business and operating results could be harmed. In addition, our focus on user experience may negatively impact
our relationships with our existing or prospective customers. This could result in a loss of customers and platforms partners, which
could harm our revenue and operating results.
The continuing and collaborative efforts of our senior management, key employees and other employees are crucial to our success,
and our business may be harmed if we were to lose their services.
Our success depends on the continuous efforts and services of Mr. Shuang Liu, our director and Chief Executive Officer, Mr.
Edward Lu, our Chief Financial Officer, Ms. Xiaoyan Chi, our director and Senior Vice President and Mr. Chun Liu, our Senior Vice
President. If, however, one or more of our executives or other key personnel are unable or unwilling to continue to provide services to
us, we may not be able to find suitable replacements easily or at all. Competition for management and key personnel is intense and the
pool of qualified candidates is limited. We may not be able to retain the services of our executives or key personnel, or attract and
retain experienced executives or key personnel in the future. We do not maintain key-man life insurance for any of our key personnel.
If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose advertisers, know-
how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment
agreement and a non-compete agreement with us. However, if any dispute arises between us and our executives or key employees,
these agreements may not be enforceable in China, where these executives and key employees reside, in light of uncertainties with
China’s legal system. See “—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal system could
limit the protections available to you and us.”
Our future success will also depend on our ability to attract and retain highly skilled technical, managerial, editorial, finance,
marketing, sales and customer service employees. Qualified individuals are in high demand, and we may not be able to successfully
attract, assimilate or retain the personnel we need to succeed.
We have granted, and may continue to grant, stock options, restricted shares and restricted share units under our share incentive
plans or adopt new share incentive plans in the future, which may result in increased share-based compensation.
We adopted a share option plan in June 2008, a restricted share and restricted share unit plan in March 2011 and a share
option scheme in June 2018. In addition, one of our subsidiaries, Fread Limited, adopted a restricted share unit scheme in March 2018.
As of March 31, 2021, options to purchase 51,394,112 Class A ordinary shares granted under the 2008 share option plan and the 2018
share option scheme were outstanding. As of March 31, 2021, a total of 920,000 restricted shares of Fread Limited were granted. See
“Item 6. Directors, Senior Management and Employees—B. Compensation of Directors, Supervisors and Executive Directors—Share
Incentive Plans.” For the years ended December 31, 2018, 2019 and 2020, we recorded RMB14.0 million, RMB11.9 million and
RMB9.4 million (US$1.4 million), respectively, in share-based compensation. We believe the granting of share-based awards is of
significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant stock options to
employees in the future. We intend to grant additional stock options to our employees going forward, and we may implement
additional option exchange program in the future, which we expect will further increase our share-based compensation. If we continue
to grant share options in the future, our share-based compensation will increase accordingly.
We have been and expect we will continue to be exposed to intellectual property infringement and other claims, including claims
based on content posted on our PC websites, mobile applications and mobile websites, which could be time-consuming and costly
to defend and may result in substantial damage awards and/or court orders that may prevent us from continuing to provide certain
of our existing services.
Our success depends, in large part, on our ability to operate our business without infringing third-party rights, including third-
party intellectual property rights. Companies in the Internet, technology and media industries own, and are seeking to obtain, a large
number of patents, copyrights, trademarks and trade secrets, and they are frequently involved in litigation based on allegations of
infringement or other violations of intellectual property rights or other related legal rights. There may be patents issued or pending that
are held by others that cover significant aspects of our technologies, products, business methods or services. We license our premium
licensed content from third parties. We also derive profits from online digital reading that are based on intellectual property licensed to
us by third parties. Although our license agreements with our licensors generally require that the licensors have the legal right to
license such content to us and give us the right to promptly remove any content that we have been notified contains infringing
material, we cannot ensure that each licensor has such authorization and we may not receive notification of infringement. If any
purported licensor does not actually have sufficient authorization relating to the premium licensed content or right to license a work of
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authorship provided to us, we may be subject to claims of copyright infringement from third parties and penalties imposed by
competent government authorities, and we cannot ensure we can be fully indemnified by the relevant licensor for all losses we may
incur from such claims.
In order to strengthen the protection of intellectual property right, Chinese government and courts are improving the judicial
system for resolving intellectual property disputes in China. As intellectual property litigation is becoming more common in China, we
face increased risk of being sued for potential intellectual property infringements. Third parties may take action and file claims against
us if they believe that certain content on our site violates their copyrights or other related legal rights. We have been subject to such
claims in the PRC. Government authorities may also impose administrative penalties on us if they find that we have infringed third
parties’ intellectual property rights. In October 2015, the National Copyright Bureau imposed a fine of RMB250,000 on Tianying
Jiuzhou for disseminating on our PC websites, mobile applications and mobile websites one work of literature that we licensed from
third parties that were alleged to have no legal rights to license such work. In November 2016, China Youth Book Inc. and Dewey
Press LLC filed a claim against Tianying Jiuzhou and our company for intellectual property infringement of such work based on the
above-mentioned finding of the National Copyright Bureau, and the related claim for damage was approximately RMB235.8 million,
even though the actual income we generated from such work was less than RMB1,500. This claim was withdrawn by the plaintiffs in
January 2018. In April 2018, we received notices from the local court that the plaintiffs have filed a lawsuit against us again for the
same claim, with the related claim for damages reduced to approximately RMB99.8 million. In April 2020, we received the judgment
from the local court which ordered us to pay the plaintiffs a total of approximately RMB1.0 million as economic compensation and
reimbursement of the plaintiff’s reasonable expenses. After the plaintiff filed an appeal against the judgment made by the local court,
the appellate court made the final judgment in December 2020 and upheld the local court’s decision. Tianying Jiuzhou has
subsequently paid a total of approximately RMB1.0 million in damages to the plaintiff and fulfilled its obligation under the judgment.
Nevertheless, the plaintiff could still apply for a retrial under PRC civil procedures, and as of the date of this annual report, the time
limit for an application for a retrial has not expired yet and we cannot assure you that the plaintiffs will not make such application. In
2020, we also received some complaints and claims from third parties alleging intellectual property infringements by us, although
some of the complainants have not provided necessary proofs of title or infringements. While we are negotiating with theses
complainants and some of these claims are still pending as of the date of this annual report, we cannot assure you that we will not be
proved to have infringed their intellectual property rights or be required to pay any compensation. For more information, see “Item 4.
Information on the Company—B. Business Overview—Legal and Administrative Proceedings.”
In addition, our platforms are open to Internet users for uploading text and images and our we-media vertical obtained content
produced by a large number of we-media publishers, such as we-media outlets, public intellectual, commentators, scholars, key
opinion leaders, or KOLs and professors. As a result, content posted by our users, including we-media publishers and other Internet
users, may expose us to allegations by third parties of infringement of intellectual property rights, invasion of privacy, defamation and
other violations of third-party rights. Pursuant to our user agreement, users agree not to use our services in a way that is illegal,
obscene or may otherwise violate generally accepted codes of ethics. However, given the volume of content uploaded, it is not
possible and we do not attempt to identify and remove all potentially infringing content uploaded or published by our users, which
may subject us to various claims by third parties.
Moreover, as we continue to hire additional personnel to expand our product development teams, we may be subject to
allegations and claims that some of our new employees may have disclosed trade secrets or other proprietary information of their
former employers to us, especially when such employees were previously employed by our competitors or companies with similar
businesses as ours. Any such allegation or claim, even if unfounded, could have a negative impact on our reputation, and our financial
condition and operating results may suffer as a result.
We cannot assure you that we have not become subject to copyright laws in other jurisdictions, such as the United States, by
virtue of our listing in the United States, the ability of users to access our videos in the United States and other jurisdictions, the
ownership of our ADSs by investors, the extraterritorial application of foreign law by foreign courts or otherwise. Although we have
not previously been subject to legal actions for copyright infringement in jurisdictions other than China, it is possible that we may be
subject to such claims in the future. Any such claims in China, U.S., or elsewhere, regardless of their merit, could be time-consuming
and costly to defend, and may result in litigation and divert management’s attention and resources. Furthermore, an adverse
determination in any such litigation or proceedings to which we may become a party in China, U.S. or elsewhere could cause us to pay
substantial damages. For example, statutory damage awards in the U.S. can range from US$750 to US$30,000 per infringement, and if
the infringement is found to be intentional, can be as high as US$150,000 per infringement. Additionally, the risk of an adverse
determination in such litigation or an actual adverse determination may result in harm to our reputation or in adverse publicity. The
risk of an adverse result or the actual adverse result in litigation may also require us to seek licenses from third parties, pay ongoing
royalties or become subject to injunctions requiring us to remove content or take other steps to prevent infringement, each of which
could prevent us from pursuing some or all of our business and result in our users and advertisers or potential users and advertising
customers deferring or limiting their use of our services, which could materially and adversely affect our financial condition and
operating results.
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We may not be able to adequately protect our intellectual property, which could cause us to be less competitive.
We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our
intellectual property rights. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use our copyrighted content and other intellectual property. Monitoring such unauthorized use is difficult and costly, and
we cannot be certain that the steps we have taken will prevent misappropriation. From time to time, we may have to resort to litigation
to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. The PRC is increasing
the protection to a company’s intellectual property, but has historically afforded less protection than the United States and the Cayman
Islands, and therefore companies such as ours operating in the PRC face an increased risk of intellectual property piracy.
The discontinuation of any of the preferential tax treatments available to us in China could materially and adversely affect our
operating results and financial condition.
Under PRC tax laws and regulations, our PRC subsidiary, Beijing Fenghuang Yutian Software Technology Co., Ltd., or
Fenghuang Yutian, Beijing Fenghuang Borui Software Technology Co., Ltd., or Fenghuang Borui, Fenghuang On-line and Tianying
Jiuzhou enjoyed, or are qualified to enjoy, certain preferential income tax benefits. The PRC Corporate Income Taxes Law (“CIT
Law”), effective on January 1, 2008, further amended on February 24, 2017 and December 29, 2018, and as well as its
implementation rules, all significantly curtail tax incentives granted to foreign-invested enterprises. The CIT Law generally applies an
income tax rate of 25% to all enterprises, but grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”)
and Software Enterprises. Under these preferential tax treatments, HNTEs are entitled to an income tax rate of 15%, subject to a
requirement that they re-apply for HNTE status every three years and Software Enterprises are entitled to an income tax exemption for
two years beginning from its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years.
Fenghuang On-line was qualified as an HNTE in 2017 and 2020, respectively, and therefore, Fenghuang On-line was subject
to a 15% income tax rate for the years from 2018 to 2020. Tianying Jiuzhou was qualified as an HNTE in 2017 and 2020,
respectively, and therefore, Tianying Jiuzhou was subject to a 15% income tax rate from 2018 to 2020. In 2017 and 2020, Fenghuang
Yutian was qualified as an HNTE, and therefore, Fenghuang Yutian was subject to a 15% income tax rate from 2018 to 2020. In 2016,
Fenghuang Borui was qualified as a Software Enterprise. As 2016 was the first year Fenghuang Borui generated taxable profit, it was
exempted from income taxes for the years 2016 and 2017, and was subject to a 12.5% income tax rate from 2018 to 2020. See “Item
10. Additional Information—E. Taxation.”
We have limited business insurance coverage.
The insurance industry in China is still young and the business insurance products offered in China are limited. We do not
have any business liability or disruption insurance coverage for our operations. Any business disruption, litigation or natural disaster
may cause us to incur substantial costs and divert our resources.
A prolonged slowdown in the global or PRC economies may materially and adversely affect our operating results, financial
condition, prospects and future expansion plans.
The global financial markets experienced opportunities and challenges side by side in 2020. There is considerable uncertainty
over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of
some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist
threats in the Middle East, Europe and Africa and over the conflicts involving Ukraine, Syria and North Korea. There have also been
concerns over regional instability and tension, such as the relationship among China and other Asian countries, which may result in, or
intensify potential conflicts in relation to, territorial disputes, and the trade disputes between the United States and China. The
outbreak of COVID-19 throughout the world could also result in an economic downturn globally. It is unclear whether these
challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic
conditions in the long term.
Economic conditions in the PRC are sensitive to macroeconomic conditions. As China shifts from high-speed to high-quality
growth, China’s gross domestic product growth decelerated since 2012. According to the National Bureau of Statistics of China,
China’s gross domestic product growth was at 2.3% in 2020, primarily due to impacts from the COVID-19 pandemic. Since demand
for our paid and advertising services are sensitive to macro-economic conditions globally and in the PRC, our business prospects may
be affected by the macroeconomic environment. Any prolonged slowdown or contraction in the global or PRC economy may have a
material adverse effect on our business, operating results and financial condition, and continued turbulence in the international
markets may materially and adversely affect our ability to access the capital markets to meet liquidity needs.
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PRC regulations establish complex procedures for certain acquisitions of PRC companies by foreign investors, which could make
it more difficult for us to pursue growth through acquisitions in China.
On August 8, 2006, six PRC regulatory authorities, including the CSRC, jointly promulgated the Regulations on Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors, or the 2006 M&A Rules, which were later amended on June 22, 2009. The
2006 M&A Rules establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors
more time-consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change-
of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law
requires that the anti-trust governmental authority shall be notified in advance of any concentration of undertaking if certain thresholds
are triggered. In addition, national security review rules issued by the PRC governmental authorities in 2011 require acquisitions by
foreign investors of domestic companies engaged in military related or certain other industries that are crucial to national security to
be subject to prior security review. According to the MOFCOM Security Review Rules, a security review is required for mergers and
acquisitions of PRC domestic enterprises by foreign investors (i) having “national defense and security” concerns, and (ii) where the
foreign investors may acquire the “de facto control” of the PRC domestic enterprises having national security concerns such as key
farm products, key energy and resources, and key infrastructure, transportation, technology and major equipment manufacturing
industries. Circular No. 6, however, does not define the term of “key” or “major”, nor has it exhausted all the industries that may be
deemed as sensitive industries subject to the security review.
We may expand our business in part by acquiring complementary businesses. Complying with the requirements of the 2006
M&A Rules, the MOFCOM Security Review Rules, if applicable, and other PRC regulations to complete such transactions could be
time-consuming, and any required approval processes, including obtaining approval from MOFCOM, may delay or inhibit our ability
to complete such transactions, which could affect our ability to expand our business or maintain our market share. However, it is also
uncertain whether the 2006 M&A Rules, the MOFCOM Security Review Rules or the other PRC regulations regarding the
acquisitions of PRC companies by foreign investors will be materially repealed or amended as the Foreign Investment Law, or the
FIL, became effective on January 1, 2020. Any adverse change in rules or regulations may have a material adverse effect on our
business and operating results.
There is a substantial risk we will be classified as a passive foreign investment company, or PFIC, for 2020, which could result in
adverse United States federal income tax consequences to United States Holders (as defined below).
Based upon the past and projected composition of our income and assets, and the valuation of our assets, including goodwill,
we believe there is a substantial risk that we will be classified as a “passive foreign investment company,” or PFIC, for 2020, and we
may be classified as a PFIC for future taxable years. The determination of whether or not we are a PFIC is made on an annual basis
and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for
United States federal income tax purposes for any taxable year in which: (i) at least 75% of our gross income in a taxable year is
passive income, or (ii) at least 50% of the value (determined based on a quarterly average) of our assets is attributable to assets that
produce or are held for the production of passive income. The calculation of the value of our assets will be based, in part, on the
quarterly market value of our ADSs, which is subject to change. See “Item 10. Additional Information—E. Taxation—Material United
States Federal Income Tax Consequences—Passive Foreign Investment Company.”
In addition, it is not entirely clear how the contractual arrangements between us and our affiliated consolidated entities will be
treated for purposes of PFIC rules. If it is determined that we do not own the stock of our affiliated consolidated entities for United
States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we are more
likely to be treated as a PFIC.
Such characterization as a PFIC could result in adverse United States federal income tax consequences to you if you are a
United States Holder, as defined under “Taxation—Material United States Federal Income Tax Consequences.” For example, you may
become subject to increased tax liabilities under United States federal income tax laws and regulations, and will become subject to
burdensome reporting requirements.
If we are a PFIC for any year during which a United States Holder holds our ADSs or Class A ordinary shares, we generally
will continue to be treated as a PFIC for all succeeding years during which such United States Holder holds our ADSs or Class A
ordinary shares, unless we cease to be a PFIC and such United States Holder makes a certain election. See “Item 10. Additional
Information —E. Taxation—Material United States Federal Income Tax Consequences—Passive Foreign Investment Company.” The
determination of our PFIC status is based on an annual analysis that includes ascertaining the fair market value of all of our assets on a
quarterly basis and the character of each item of income we earn. Because this involves extensive factual investigation and cannot be
completed until the close of a taxable year, there can be no assurance we will not be a PFIC for any future year.
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Our strategy of acquiring complementary assets, technologies and businesses may fail and may result in equity or earnings
dilution.
As part of our business strategy, we intend to identify and acquire assets, technologies and businesses that are complementary
to our business. Acquired businesses or assets may not yield the results we expect. In addition, acquisitions could result in the use of
substantial amounts of cash, potentially dilutive issuances of equity securities, significant amortization expenses related to intangible
assets and exposure to potential unknown liabilities of the acquired business. Moreover, the cost of identifying and consummating
acquisitions, and integrating the acquired businesses into ours, may be significant, and the integration of acquired business may be
disruptive to our business operations. In addition, we may have to obtain approval from the relevant PRC governmental authorities for
the acquisitions and comply with any applicable PRC rules and regulations, which may be costly. In the event our acquisitions are not
successful, our financial condition and results of operation may be materially and adversely affected.
Failure of our business strategies through our subsidiaries, affiliates and other business alliance partners could negatively affect
our financial condition, operating results and reputation.
Aligned with our business strategies, we have made and may undertake in the future investments in subsidiaries, affiliates and
other business alliance partners in various Internet-related businesses.
In March 2014, IDG-Accel China Growth Fund III L.P. and IDG-Accel China III Investors L.P., or the IDG-Accel Funds,
acquired US$3.0 million convertible preferred shares of Phoenix FM Limited, or Phoenix FM, previously a subsidiary of us, to
accelerate development of the ifeng application business. Despite holding 71.8% of the equity interest in Phoenix FM at the time, we
accounted for our investment in Phoenix FM as an equity method investment since we did not control Phoenix FM due to substantive
participating rights that had been provided to the IDG-Accel Funds. We had fully written down the entire investment in Phoenix FM
in 2015. In April 2020, IDG-Accel Funds transferred all of its investment in Phoenix FM to us and Phoenix FM became a wholly
owned subsidiary of us.
As of December 31, 2019, we had loan receivable of approximately RMB9.8 million due from Phoenix FM (Beijing)
Information Technology Co., Ltd., or FM Beijing, the former subsidiary of Phoenix FM, which had been fully impaired in 2015. In
April 2020, through a series of debt restructuring transactions, we acquired 19.99% of the equity interest in FM Beijing. In August
2020, we acquired 6.04% equity interest in Humanistic Intelligence Inc., or Humanistic Intelligence, through a share exchange
transaction related to FM Beijing, and recognized a gain of RMB6.0 million (US$0.9 million) from the transaction, which was
included in the income/(loss) from equity method investments, net of impairment item in the consolidated statements of
comprehensive income/(loss) of 2020. As the investment in Humanistic Intelligence is redeemable at the option of us, it is not
considered in-substance common stock but considered debt securities. Our investment in Humanistic Intelligence is classified as
available-for-sale debt investments and reported at fair value. As of December 31, 2020, the fair value of investment in Humanistic
Intelligence was RMB6.0 million (US$0.9 million).
We made substantial investments in Particle in the form of investments and loans in the past. Particle operates Yidian, a
personalized news and life-style information application in China that allows users to define and explore desired content on their
mobile devices. In March 2019, we entered into a share purchase agreement with Run Liang Tai Management Limited, or Run Liang
Tai, to sell 32% equity interest in Particle on an as-if converted basis to Run Liang Tai and its designated entities, or the Proposed
Buyers, for a total consideration of US$448 million in cash. On July 23, 2019, we entered into a supplemental agreement with Run
Liang Tai, or the Particle Supplemental Agreement, to increase the number of shares to be transferred to the Proposed Buyers after we
had a dispute with Run Liang Tai regarding the satisfaction of certain closing conditions under the original share purchase agreement.
According to the Particle Supplemental Agreement, we agreed to increase the number of shares of Particle to be transferred to the
Proposed Buyers from 199,866,509 shares to 212,358,165 shares while the total purchase price will remain unchanged at US$448
million. In addition, we agreed that the Proposed Buyers may pay the purchase price in several installments and deliver the preferred
shares of Particle to the Proposed Buyers in batches. We completed delivery of the first batch of Particle shares to the Proposed
Buyers pursuant to the Particle Supplemental Agreement and received consideration of US$200 million for such shares and
recognized a gain on disposal of available-for-sale debt investments of RMB1,001.2 million in the consolidated statements of
comprehensive income/(loss) in 2019, and we have received a further deposit of US$50 million for the second batch preferred shares
of Particle to be delivered to the Proposed Buyers in or before August 2020. On January 20, 2020, we entered into an agreement with
Long De Cheng Zhang (Tianjin) Investment Management Center and Long De Holdings (Hong Kong) Co., Limited, collectively the
Long De Entities, or the Co-Sale Agreement. Pursuant to the Co-Sale Agreement, the Long De Entities will sell approximately 9.8
million preferred shares of Particle, or the Long De Sale Shares to the Proposed Buyers and the number of Particle shares to be sold by
us will be reduced accordingly. In August 2020, we signed a new share purchase agreement, or the New SPA, with Run Liang Tai.
Under the New SPA, the rights and obligations of both the Proposed Buyers and us with respect to the second batch of shares under
the previous agreements were terminated, and instead, we agreed to sell a total of 140,248,775 shares of Particle to the Proposed
Buyers at a total purchase price of US$150 million. On August 10, 2020, the Proposed Buyers paid approximately US$99.3 million to
us under the New SPA, which represents the difference between the total purchase price and the US$50 million deposit already paid
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by the Proposed Buyers to us under the previous agreements plus certain other accrued interests. The transaction was closed on
October 19, 2020 and we recognized a gain on disposal of available-for-sale debt investments of RMB477.3 million (US$73.1
million) in the consolidated statements of comprehensive income/(loss) in 2020. As of the date of this annual report, we held Series
D1 convertible redeemable preferred shares of Particle, which had been accounted for as available-for-sale debt investments,
representing an aggregate of approximately 0.66% equity interest in Particle on an as-if converted basis (which reflected the
completion of the issuance of additional shares under Particle’s share incentive plan). The fair value of our available-for-sale debt
investments in Particle was RMB30.7 million (US$4.7 million) as of December 31, 2020.
In December 2018, we acquired a 25.5% equity interest in Yitian Xindong, for an aggregate purchase price of RMB144.1
million. Telling Telecommunication Co., Ltd., or Telling Telecom, concurrently transferred another 25.5% of its equity interests in
Yintian Xindong to Shenzhen Bingruixin Technology Co., Ltd., or Bingruixin, a third party, which then granted an option to us that
allowed us to acquire a 25.5% equity interest from Bingruixin for RMB144.1 million. Bingruixin also entrusted the voting rights of
such 25.5% equity interest to us, as a result of which we started to consolidate Yitian Xindong in our financial statements from
December 28, 2018. We exercised the call option granted by Bingruixin on March 1, 2019 and acquired another 25.5% equity interest
in Yitian Xindong. In May 2020, we entered into agreements with Shenzhen Shenghuayu Energy Conservation Service Co., Ltd., or
Shenzhen Shenghuayu, Yitian Xindong and its management, and the other shareholder of Yitian Xindong. Pursuant to the agreements,
we sold all of our equity interests in Yitian Xindong, as well as our rights to receive the contingent returnable consideration under the
price adjustment mechanisms in connection with our original investment, to Shenzhen Shenghuayu for a total price of RMB313.6
million in cash. The disposal of Yitian Xindong was qualified for reporting as a “discontinued operation” in our financial statements.
See “Item 5. Operating and Financial Review and Prospects — Overview” for further details on the relevant accounting treatment.
We hold 50% of the equity interests in Beijing Fenghuang Tianbo Network Technology Co., Ltd., or Tianbo. Before April
2019, as we had significant influence over financial and operating decision-making, we accounted for the 50% equity interest by using
the equity method of accounting. On April 1, 2019, we obtained control over Tianbo and consolidated Tianbo starting from April 1,
2019 as we and other shareholders of Tianbo agreed to make certain revisions to the articles of association of Tianbo, which granted
us the voting power to decide Tianbo’s significant financial and operating decisions at both the shareholder level and the board level,
to accelerate the development of our real estate vertical and to further bolster the development of our real estate vertical and to create
more synergies on Tianbo’s new business, with the equity interest in Tianbo of 50% unchanged. At the same time, we agreed with
other shareholders of Tianbo and would provide free advertising resources to Tianbo as consideration to gain control over Tianbo.
Tianbo is principally engaged in operation of the real estate vertical and sales of real estate advertisements for us.
In January 2015, we established a subsidiary, Shanghai Meowpaw Info&Tech Co., Ltd., or Meowpaw. Meowpaw is engaged
in creating intellectual properties, related games, books, movies and animations, etc. In July 2020, we, through one of our subsidiaries,
Meowpaw and the non-controlling shareholder of Meowpaw entered into a share transfer agreement. According to such agreement,
the non-controlling shareholder sold the 25% of Meowpaw’s equity interest it then held to us at a nominal consideration and
Meowpaw has become a 100% owned subsidiary of us.
In November 2018, we acquired a 10% equity interest in Yitong Technology (Hangzhou) Limited, or Yitong Technology, by
investing in newly issued shares of Yitong Technology with a total consideration of RMB13.0 million. Yitong Technology mainly
engages in big data application development and operation in China. As of December 31, 2020, the carrying value of our equity
investment in Yitong Technology was RMB13.0 million (US$2.0 million).
In January 2020, we and an independent third party proposed to jointly operate advertising business. One of our wholly-
owned subsidiaries, Fengqingyang (Beijing) Culture Transmission Co., Ltd., or Fengqingyang, formerly known as Beijing Youjiuzhou
Technology Co., Ltd., underwent an increase in share capital and as a result, we and the third-party hold 60% and 40% of the equity
interest in Fengqingyang, respectively. We continue to consolidate Fengqingyang.
In May 2020, our board of directors approved an investment program in selected venture capital funds, according to which,
we signed the relevant agreements in relation to a total amount of RMB90.0 million investments and acquired partnership interests in
three funds. As of December 31, 2020, we made a total of RMB72.0 million (US$11.0 million) investments in these three funds.
Investments in two of such funds with total considerations of RMB60.0 million (US$9.2 million) were accounted for under equity
method as significant influence could be imposed by us, and the investment in the other fund of RMB12.0 million (US$1.8 million)
was accounted for using the net asset value as a practical expedient under ASC 820. The carrying value of investments in the three
funds as of December 31, 2020 were RMB71.8 million (US$11.0 million). As of March 31, 2021, we have already made investments
in these three funds with a total amount of RMB81.0 million (US$12.4 million).
In December 2020, we acquired, through Tianying Jiuzhou, approximately 3.7773% partnership interests in Guangzhou
Kesheng Jiada Network Partnership, or Kesheng Jiada, with a consideration of RMB10.0 million (US$1.5 million), representing 1.0%
indirect equity interests in 4K Garden Network Technology (Guangzhou) Co., Ltd., or 4K Garden, a company that focuses on
developing 4K ultra HD content ecosystem and related technology and 5G+ ultra HD application technology platform. Kesheng Jiada
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is a special purpose vehicle that holds equity interests in 4K Garden. As the investments in Kesheng Jiada lack readily determinable
fair values, we elect to use the measurement alternative defined as cost, less impairments, adjusted by observable price changes in
orderly transactions for the identical or a similar investment of the same issuer. As of December 31, 2020, the carrying value of the
equity investment was RMB10.0 million (US$1.5 million). In January 2021, we acquired additional 1.8886% partnership interests in
Kesheng Jiada, representing 0.5% indirect equity interests in 4K Garden, with a consideration of RMB5.0 million (US$0.8 million).
In addition, we previously invested in several other businesses. After considering the operating results of these entities and the
likelihood of recovering value from such investments, our equity interests in these businesses have been fully impaired and we have
fully written off our entire investments in these entities.
It is uncertain whether we will receive the expected benefits from these investments, due to any adverse regulatory changes,
worsening of economic conditions, increased competition or other factors that may negatively affect the related business activities. We
accounted for some of our investments in affiliates under the equity method. Therefore, net losses incurred by equity method investees
may cause us to record our share of the net losses. Furthermore, we may lose the capital which we have invested in affiliates and other
business alliances or may incur impairment losses on securities acquired in such alliances.
While we do not have such arrangements in place, we may in the future be required under contractual or other arrangements
to provide financial support, including credit support and equity investments, to our business alliance partners in the future.
Additionally, we may also incur credit costs from our credit exposure to such business alliance partners. If there is any negative news
coverage about our business alliance partners, our reputation may also be harmed as a result of our affiliation with them.
Some of the businesses we have invested in are subject to intensive regulation. As a result of such regulations which are
beyond our control, our business strategies may fail. Any adverse regulatory change may have a material adverse impact on the
business and financial performance of our subsidiaries, affiliates and other business alliance partners. Furthermore, unanticipated costs
and liabilities may be incurred in connection with those business strategies, including liabilities from the claims related to the
businesses prior to our business alliances, and cost from actions by regulatory authorities.
We may have conflicts of interest with some of the affiliated companies we have invested in and, because some of our board
members and executive officers also hold positions and have other interests in such companies, we may not be able to resolve such
conflicts on terms favorable for us.
We may have conflicts of interests with some of the affiliated companies we have invested in. Certain of our board members
and executive officers hold directorship and/or senior management positions and own shares, restricted share units and/or options in
these affiliated companies. These affiliated companies may continue to grant or promise incentive share compensation to certain of
our board members and executive officers from time to time. These relationships could create, or appear to create, conflicts of interest
when these persons are faced with decisions with potentially different implications for these affiliated companies and us. In addition,
we do not have a non-compete agreement with most of these affiliated companies and therefore neither we nor they are prohibited
from entering into competition with each other in respect of our respective current businesses or new businesses. As such, we may not
be able to resolve potential conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing with
unrelated parties.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
In particular, we could be materially adversely affected by the COVID-19 pandemic.
We are vulnerable to natural disasters and other calamities that are beyond our control. Fire, floods, typhoons, earthquakes,
power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions,
breakdowns, system failures or Internet failures, which could cause the loss or corruption of data or malfunctions of software or
hardware as well as adversely affect our ability to provide our credit products.
Our business could also be adversely affected by the effects of health epidemics and pandemics, such as COVID-19, Ebola
virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS. For example, since January 2020,
COVID-19 has spread throughout China and worldwide. The Chinese central government and local governments in China have
introduced various temporary measures to contain the COVID-19 outbreak that have adversely impacted national and local economy
to different degrees. We have observed negative impact on our advertising business as our clients in China have been forced to
reevaluate their marketing strategies and budgets and our business operations have had and may continue to be adversely affected. In
addition, our business operations could be disrupted if any of our employees is suspected of contracting the COVID-19 or any other
epidemic disease, since our employees could be quarantined and/or our offices be shut down for disinfection. The potential downturn
brought by and the duration of the COVID-19 may be difficult to assess or predict where actual effects will depend on many factors
beyond our control. The extent to which the COVID-19 impacts our business, results of operations, cash flows and financial condition
remains uncertain, and we are closely monitoring its impact on us. Our business, results of operations, financial conditions and
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prospects could be materially and adversely affected to the extent that the COVID-19 or any other epidemic harms the Chinese
economy in general. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the
effect of heightening many of the other risks described in this “Risk Factors” section.
Risks Relating to Our Corporate Structure
Phoenix TV (BVI) owns our Class B ordinary shares with 1.3 votes per share, allowing it and Phoenix TV to exercise control over
matters subject to shareholder approval, and their interests may not be aligned with the interests of our other shareholders.
Phoenix TV (BVI), a wholly owned direct subsidiary of Phoenix TV, owned 54.5% of our total issued and outstanding shares
as of March 31, 2021. Moreover, all shares held by Phoenix TV (BVI) are Class B ordinary shares with 1.3 votes per share. As a
result, Phoenix TV (BVI) held 60.9% of the total voting power of our ordinary shares as of March 31, 2021. Accordingly, Phoenix TV
(BVI), and Phoenix TV through Phoenix TV (BVI), have substantial control over the outcome of corporate actions requiring
shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or
any other significant corporate transaction, and their interests may not align with the interests of our other shareholders. Phoenix TV
(BVI) may take actions that are not in the best interest of us or our other shareholders and may also delay or prevent a change of
control or otherwise discourage a potential acquirer from attempting to obtain control of us, even if such a change of control would
benefit our other shareholders. This significant concentration of share ownership may adversely affect the trading price of our ADSs
due to investors’ perception that conflicts of interest may exist or arise.
We may have conflicts of interest with Phoenix TV and, because of Phoenix TV’s controlling beneficial ownership interest in our
company, may not be able to resolve such conflicts on terms favorable for us.
Conflicts of interest may arise between Phoenix TV and us in a number of areas relating to our past and ongoing
relationships. Potential conflicts of interest that we have identified include the following:
• Our board members or executive officers may have conflicts of interest. Certain of our board members and executive
officers own shares, restricted share units and/or options in Phoenix TV, and also hold senior management positions in
Phoenix TV. Phoenix TV may continue to grant incentive share compensation to certain of our board members and
executive officers from time to time. These relationships could create, or appear to create, conflicts of interest when these
persons are faced with decisions with potentially different implications for Phoenix TV and us.
•
•
•
Sale of shares in our company. Phoenix TV (BVI) may decide to sell all or a portion of our shares that it beneficially
owns to a third party, including to one of our competitors, thereby giving that third party substantial influence over our
business and our affairs. Such a sale could be contrary to the interests of certain of our shareholders, including our
employees or public shareholders.
Competition. We do not have a non-compete agreement with Phoenix TV and its subsidiaries and affiliates, therefore
neither we nor Phoenix TV is prohibited from entering into competition with each other in respect of our respective
current businesses or new businesses.
Allocation of business opportunities. Business opportunities may arise that both we and Phoenix TV find attractive, and
which would complement our respective businesses. We and Phoenix TV do not have an agreement governing the
allocation of new business opportunities presented to us and Phoenix TV in the future, and therefore, it is not certain
which company will have the priority to pursue such business opportunities when such opportunities arise.
Although our company is a separate, stand-alone entity, Phoenix TV (BVI), a wholly owned direct subsidiary of Phoenix TV,
owns Class B ordinary shares, each of which will be entitled to 1.3 votes on all matter subject to shareholders’ vote, and we operate as
a part of the Phoenix TV Group. Phoenix TV may from time to time make strategic decisions that it believes are in the best interests of
its business as a whole, including our company. These decisions may be different from the decisions that we would have made on our
own. Phoenix TV’s decisions with respect to us or our business may be resolved in ways that favor Phoenix TV and therefore Phoenix
TV’s own shareholders, which may not coincide with the interests of our other shareholders. We may not be able to resolve any
potential conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing with non-controlling
shareholder. Even if both parties seek to transact business on terms intended to approximate those that could have been achieved
among unaffiliated parties, this may not succeed in practice.
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If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply
with PRC governmental restrictions on foreign investment in Internet businesses, or if these regulations or the interpretation of
existing regulations change in the future, we would be subject to severe penalties or be forced to relinquish our interests in those
operations.
Current PRC laws and regulations place certain restrictions on foreign ownership of companies that engage in Internet and
mobile businesses. Specifically, pursuant to the Regulations for Administration of Foreign-Invested Telecommunications Enterprises
issued by the State Council on December 11, 2001 and amended on September 10, 2008 and February 6, 2016, foreign ownership in
an Internet content provider or other value-added telecommunication service providers may not exceed 50%. We conduct our
operations in China principally through contractual arrangements among our wholly-owned PRC subsidiaries, Fenghuang On-line and
Qieyiyou, and three affiliated consolidated entities in the PRC, namely, Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan, and
their respective shareholders. Fenghuang Ronghe holds 100% equity interests of Yifeng Lianhe. Yifeng Lianhe holds the licenses and
permits necessary to conduct our mobile business in China, while Tianying Jiuzhou holds the licenses and permits necessary to
conduct our Internet portal, video, mobile business, and Internet advertising and related businesses in China. Our contractual
arrangements with Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan, and their respective shareholders enable us to exercise
effective control over these entities and hence treat them as our affiliated consolidated entities and consolidate their results. For a
detailed discussion of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
We cannot assure you, however, that we will be able to enforce these contracts. Although we believe we are in compliance
with current PRC regulations, we cannot assure you that the PRC government would agree that these contractual arrangements comply
with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be
adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the
relevant government authorities have broad discretion in interpreting these laws and regulations. For example, it is uncertain whether
the government authorities will promulgate other implementation rules of FIL and how the implementation rules, when they come into
force, may impact the viability of our current corporate structure in the future. See “Item 3. Key Information—D. Risk Factors—Risks
Relating to Doing Business in China—Uncertainties exist with respect to the interpretation and implementation of the Foreign
Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business
operations.” If the PRC government determines that we do not comply with applicable laws and regulations, it could revoke our
business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, block our PC
websites or mobile applications and mobile websites, require us to restructure our operations, impose additional conditions or
requirements with which we may not be able to comply, or take other regulatory or enforcement actions against us that could be
harmful to our business. The imposition of any of these penalties would result in a material and adverse effect on our ability to
conduct our business.
In August 2011, MOFCOM promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Rules, to implement the
Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular No. 6. The MOFCOM Security Review
Rules came into effect on September 1, 2011 and replaced the Interim Provisions of MOFCOM on Matters Relating to the
Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
promulgated by MOFCOM in March 2011. According to these circulars and rules, a security review is required for mergers and
acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign
investors may acquire the “de facto control” of domestic enterprises having “national security” concerns. In addition, when deciding
whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review, MOFCOM will
look into the substance and actual impact of the transaction. The MOFCOM Security Review Rules further prohibit foreign investors
from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans,
control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that
our online game business falls into the scope subject to the security review, and there is no requirement for foreign investors in those
mergers and acquisitions transactions already completed prior to the promulgation of Circular No. 6 to submit such transactions to
MOFCOM for security review. As we have already obtained the “de facto control” over our variable interest entities prior to the
effectiveness of these circulars and rules and our current business would not have concerns on “national defense and security” or
“national security”, we do not believe we are required to submit our existing contractual arrangement to MOFCOM for security
review. However, as there is a lack of clear statutory interpretation on the implementation of these circulars and rules, there is no
assurance that MOFCOM will have the same view as we do when applying.
We rely on contractual arrangements with our affiliated consolidated entities in China, and their shareholders, for our business
operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through
ownership of controlling equity interests.
We rely on and expect to continue to rely on contractual arrangements with our affiliated consolidated entities in China and
their respective shareholders to operate our Internet and mobile businesses. These contractual arrangements may not be as effective in
providing us with control over the affiliated consolidated entities as ownership of controlling equity interests would be in providing us
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with control over, or enabling us to derive economic benefits from the operations of, the affiliated consolidated entities. If we had
direct ownership of the affiliated consolidated entities, we would be able to exercise our rights as a shareholder to (i) effect changes in
the board of directors of those entities, which in turn could effect changes, subject to any applicable fiduciary obligations, at the
management level, and (ii) derive economic benefits from the operations of the affiliated consolidated entities by causing them to
declare and pay dividends. However, under the current contractual arrangements, as a legal matter, if any of the affiliated consolidated
entities or any of their shareholders fails to perform its, his or her respective obligations under these contractual arrangements, we may
have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws,
including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For
example, if shareholders of an affiliated consolidated entity were to refuse to transfer their equity interests in such affiliated
consolidated entity to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements,
we may have to take a legal action to compel them to fulfill their contractual obligations.
If (i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and
regulations, (ii) any affiliated consolidated entity or its shareholders terminate the contractual arrangements or (iii) any affiliated
consolidated entity or its shareholders fail to perform their obligations under these contractual arrangements, our business operations
in China would be adversely and materially affected, and the value of your ADSs would substantially decrease. Further, if we fail to
renew these contractual arrangements upon their expiration, we would not be able to continue our business operations unless the then
current PRC law allows us to directly operate the applicable businesses in China.
In addition, if any affiliate consolidated entity or all or part of its assets become subject to liens or rights of third-party
creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our
business, financial condition and operating results. If any of the affiliated consolidated entities undergoes a voluntary or involuntary
liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby
hindering our ability to operate our business, which could materially and adversely affect our business, our ability to generate revenue
and the market price of your ADSs.
All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration
in the PRC. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result,
uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to
enforce these contractual arrangements, we may not be able to exert effective control over our operating entities, and our ability to
conduct our business may be negatively affected.
The shareholders of our affiliated consolidated entities may have potential conflicts of interest with us.
Current PRC laws and regulations place certain restrictions on foreign ownership of companies that engage in Internet and
mobile businesses. The shareholders of our affiliated consolidated entities are individuals who are PRC citizens. None of the
shareholders of our affiliated consolidated entities are significant shareholders of our company. Therefore, the interests of these
individuals as shareholders of the affiliated consolidated entities and the interests of our company may conflict. We cannot assure you
that when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or that any conflict of
interest will be resolved in our favor. In addition, these individuals may breach or cause the affiliated consolidated entities that they
beneficially own to breach or refuse to renew the existing contractual arrangements, which will have an adverse effect on our ability to
effectively control our affiliated consolidated entities and receive economic benefits from them. Currently, we do not have existing
arrangements to address potential conflicts of interest between these shareholders and our company. We rely on these shareholders to
abide by the laws of the Cayman Islands and China. If we cannot resolve any conflicts of interest or disputes between us and the
shareholders of the affiliated consolidated entities, we would have to rely on legal proceedings, the outcome of which is uncertain and
which could be disruptive to our business.
The contractual arrangements with the affiliated consolidated entities may be subject to scrutiny by the PRC tax authorities and
may result in a finding that we owe additional taxes or are ineligible for tax exemption, or both, which could substantially increase
our taxes owed and thereby reduce our net income.
Under applicable PRC laws, rules and regulations, arrangements and transactions between related parties may be subject to
audits or challenges by the PRC tax authorities. If any of the transactions we have entered into between our wholly-owned subsidiary
in China and any of the affiliated consolidated entities and their respective shareholders are determined by the PRC tax authorities not
to be on an arm’s length basis, or are found to result in an impermissible reduction in taxes under applicable PRC laws, rules and
regulations, the PRC tax authorities may adjust the profits and losses of such affiliated consolidated entity and assess more taxes on it.
In addition, the PRC tax authorities may impose late payment fees and other penalties to such affiliated consolidated entity for under-
paid taxes. Our net income may be adversely and materially affected if the tax liabilities of any of the affiliated consolidated entities
increase or if it is found to be subject to late payment fees or other penalties.
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We rely on dividends and other distributions on equity from our PRC subsidiaries to fund any cash and financing requirements we
have, and any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our
ability to conduct our business.
We and our non-PRC subsidiaries rely on dividends and other distributions on equity from our PRC subsidiaries, for our cash
requirements, including the funds necessary to repay the short-term loans or service any debt we may incur. If our PRC subsidiaries
incur debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other
distributions to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements
Fenghuang On-line and Qieyiyou currently have in place with the respective affiliated consolidated entities in a manner that would
materially and adversely affect the ability of Fenghuang On-line and Qieyiyou to pay dividends and other distributions to us. Further,
relevant PRC laws, rules and regulations permit payments of dividends by our PRC subsidiaries only out of their retained earnings, if
any, determined in accordance with accounting standards and regulations of China. Our PRC subsidiaries must set aside at least 10%
of after-tax income each year to reserve funds prior to payment of dividends until the cumulative fund reaches 50% of their respective
registered capital. As a result of these PRC laws, rules and regulations, our PRC subsidiaries are restricted from transferring a portion
of their net assets to us whether in the form of dividends. As of December 31, 2020, our consolidated accumulated deficit was
RMB88.2 million (US$13.5 million), out of which our PRC subsidiaries’ retained earnings were approximately RMB1,015.3 million
(US$155.6 million). Any limitation on the ability of our PRC subsidiaries to pay dividends to us and our non-PRC subsidiaries could
materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay
dividends, repay loans or otherwise fund and conduct our business.
Strengthened scrutiny over acquisition and disposition transactions by the PRC tax authorities may have a negative impact on us
or your disposition of our shares or ADS.
Our operations and transactions are subject to review by the PRC tax authorities pursuant to relevant PRC laws and
regulations. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement
involve uncertainties. For example, on April 30, 2009, the Ministry of Finance and the State Administration of Taxation jointly issued
the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. On
December 10, 2009, the State Administration of Taxation issued the Notice on Strengthening the Management on Enterprise Income
Tax for Equity Transfers of Non-resident Enterprises, or Circular 698. Both Circular 59 and Circular 698 became effective
retroactively on January 1, 2008. Pursuant to the two circulars, in the event that we dispose of any equity interests in wholly foreign-
owned enterprises, whether directly or indirectly, we may be subject to income tax on capital gains generated from disposal of such
equity interests. The PRC tax authorities have the discretion under Circular 59 and Circular 698 to make adjustments to taxable capital
gains based on the difference between the fair value of the equity interests transferred and the cost of the corresponding investment. If
the PRC tax authorities make such an adjustment, our income tax costs will be increased.
By promulgating and implementing the circulars, the PRC tax authorities have strengthened their scrutiny over the direct or
indirect transfer by non-resident enterprises of equity interests in PRC resident enterprises. For example, Circular 698 specifies that
the PRC State Administration of Taxation is entitled to redefine the nature of an equity transfer where offshore holding vehicles are
interposed for tax-avoidance purposes and without reasonable commercial purpose. On February 3, 2015, the State Administration of
Taxation issued the Notice on Several Issues regarding Enterprise Income Tax for Indirect Property Transfer by Non-resident
Enterprises, or SAT Circular 7, which further specifies the criteria for judging reasonable commercial purpose, and the legal
requirements for the voluntary reporting procedures and filing materials in the case of indirect property transfer. SAT Circular 7 has
listed several factors to be taken into consideration by tax authorities in determining whether an indirect transfer has a reasonable
commercial purpose. However, despite these factors, an indirect transfer satisfying all the following criteria shall be deemed to lack
reasonable commercial purpose and be taxable under the PRC laws: (i) 75% or more of the equity value of the intermediary enterprise
being transferred is derived directly or indirectly from the PRC taxable properties; (ii) at any time during the one year period before
the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly
of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed
and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC taxable properties
are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gains derived from the
indirect transfer of the PRC taxable properties is lower than the potential PRC tax on the direct transfer of such assets. Nevertheless,
the indirect transfer falling into the scope of the safe harbor under SAT Circular 7 may not be subject to PRC tax and such safe harbor
includes qualified group restructuring, public market trading and tax treaty exemptions. Under SAT Circular 7, the entities or
individuals obligated to pay the transfer price to the transferor shall be the withholding agent and shall withhold the PRC tax from the
transfer price. If the withholding agent fails to do so, the transferor shall report to and pay the PRC tax to the PRC tax authorities. In
case neither the withholding agent nor the transferor complies with the obligations under SAT Circular 7, other than imposing
penalties such as late payment interest on the transferors, the tax authority may also hold the withholding agent liable and impose a
penalty of 50% to 300% of the unpaid tax on the withholding agent, provided that such penalty imposed on the withholding agent may
be reduced or waived if the withholding agent has submitted the relevant materials in connection with the indirect transfer to the PRC
tax authorities in accordance with SAT Circular 7.
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On October 17, 2017, the SAT released the Public Notice Regarding Issues Concerning the Withholding of Non-resident
Enterprise Income Tax at Source, or SAT Public Notice 37, effective from December 1, 2017. SAT Public Notice 37 replaced a series
of important circulars, including but not limited to SAT Circular 698, and revised the rules governing the administration of
withholding tax on China-source income derived by non-resident enterprises. SAT Public Notice 37 made certain key changes to the
current withholding regime such as (i) the withholding obligation for dividend payment to non-resident enterprises arises on the day
the payment is actually made rather than the day of the board resolution to declare the dividends; and (ii) the self-reporting
requirements on non-resident enterprises in certain circumstances is removed.
It is not clear to what extent the holders of our shares or ADS may be subject to these requirements. We have conducted and
may conduct acquisitions and dispositions involving complex corporate structures, and we may not be able to make timely filings with
the PRC tax authorities as required. The PRC tax authorities may, at their discretion, impose or adjust the capital gains on us or the
holders of our shares or ADS or request us or the holders of our shares or ADS to submit additional documentation for their review in
connection with any relevant acquisition or disposition, and thus cause us or the holders of our shares or ADS to incur additional costs.
Risks Relating to Doing Business in China
Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall
economic growth of China, which could reduce the demand for our services and materially and adversely affect our competitive
position.
Since substantially all of our business operations are conducted in China, our business, financial condition, operating results
and prospects are significantly affected by economic, political, social and legal developments in China, and by continued growth in
China as a whole. The Chinese economy differs from the economies of most developed countries in many respects, including:
•
•
•
•
•
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the degree of government involvement;
the level of development;
the growth rate;
the control of foreign exchange;
access to financing; and
the allocation of resources.
Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic
reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business
enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government
continues to play a significant role in regulating industry development. The Chinese government also exercises significant control over
China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting
monetary policy, restricting the inflow and outflow of foreign capital, regulating financial services and institutions, and providing
preferential treatment to particular industries or companies.
While the Chinese economy has grown significantly in the past years, the growth has been uneven, both geographically and
among various sectors of the economy. The PRC government has implemented various measures to encourage or contain economic
growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a
negative effect on our operations. For example, our operating results and financial condition may be materially and adversely affected
by government control over capital investments or changes in tax regulations that are applicable to us. The PRC government also has
significant authority to exert influence on the ability of a China-based issuer, such as our company, to conduct its business. In
addition, in the past the PRC government has implemented certain measures, including increases in interest rates and the reserve
requirement ratio of the People’s Bank of China, or the PBOC, to control the pace of growth.
Furthermore, there have been ongoing discussions and commentary regarding potential significant changes to the United
States trade policies, treaties, tariffs and taxes, including trade policies and tariffs regarding China. These changes have created
significant uncertainty about the future relationship between the United States and China. It is uncertain what measures will be
adopted by the governments of the United States and China and such measures, or the perception that any of them could occur, may
have a material adverse effect on our region, global economic conditions and the stability of global financial markets.
It is unclear whether PRC economic policies will be effective in sustaining stable economic growth in the future. In addition,
other economic measures, as well as future actions and policies of the PRC government, could also materially affect our liquidity and
access to capital and our ability to operate our business. Substantially all of our assets are located in China and substantially all of our
revenues are derived from our operations in China. Accordingly, our business, financial condition, operating results and prospects are
subject, to a significant extent, to economic, political and legal developments in China.
34
Uncertainties with respect to the PRC legal system could limit the protections available to you and us.
The PRC legal system is a civil law system based on written statutes. Unlike in the common law system, prior court decisions
may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly
enhanced the protections afforded to various forms of foreign investments in China. We conduct substantially all of our business
through our subsidiary and consolidated affiliates and their subsidiaries established in China. However, since the PRC legal system
continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involve uncertainties, which may limit legal protections available to us. For example, we may have to
resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since
PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms,
it may be more difficult to evaluate the outcome of Chinese administrative and court proceedings and the level of legal protection we
enjoy in China than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have
entered into with our employees, business partners, customers and suppliers. In addition, such uncertainties, including the inability to
enforce our contracts, could materially and adversely affect our business and operations. Uncertainties due to evolving laws and
regulations could also impede the ability of a China-based issuer, such as our company, to obtain or maintain permits or licenses
required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material
sanctions or penalties on us. Furthermore, intellectual property rights and confidentiality protections in China may not be as effective
as in the United States or other countries. In addition, if China adopts more stringent standards with respect to environmental
protection or corporate social responsibilities, we may incur increased compliance cost or become subject to additional restrictions in
our operations. Accordingly, we cannot predict the effect of future developments in the PRC legal system, including the promulgation
of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national
laws. For instance, on March 15, 2019, the National People’s Congress promulgated the FIL, which took effect on January 1, 2020,
and the government authorities may promulgate other implementation rules subsequently. See “Item 4. Information on the
Company—B. Business Overview—Regulatory Matters—Foreign Investment Law.” Substantial uncertainties still exist with respect
to the interpretation and implementation of these new laws. As a result, we may not be aware of how it may impact the viability of our
current corporate structure, corporate governance and business operations. These uncertainties could limit the legal protections
available to us and other foreign investors. In addition, any litigation in China may be protracted and result in substantial costs and
diversion of our resources and management attention.
Fluctuations in exchange rates of the Renminbi could materially affect our reported operating results.
The exchange rates between the Renminbi and the U.S. dollar, Euro and other foreign currencies is affected by, among other
things, changes in China’s political and economic conditions. On July 21, 2005, the PRC government changed its policy of pegging
the value of the Renminbi to the U.S. dollar. In 2018, the RMB depreciated approximately 5.7% against the U.S. dollar; in 2019, the
RMB depreciated approximately 1.3% against the U.S. dollar; and in 2020, the RMB appreciated approximately 6.3% against the U.S.
dollar. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB
and the U.S. dollar in the future. It remains unclear what further fluctuations may occur or what impact this will have on our results of
operations.
As we may rely on dividends and other fees paid to us by our subsidiary and affiliated consolidated entities in China, any
significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues, earnings and financial position,
and the value of, and any dividends payable on, our ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we will
receive from any offshore financing that we may undertake in the future into Renminbi for our operations, appreciation of the
Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary
shares or ADSs or for other business purposes or commercial reasons, appreciation of the U.S. dollar against the Renminbi would
have a negative effect on the U.S. dollar amount available to us. We recorded foreign exchange gain of RMB6.8 million, RMB7.9
million and RMB5.5 million (US$0.8 million) in 2018, 2019 and 2020, respectively, primarily due to the RMB fluctuation against the
U.S. dollar. Our operating results are sensitive to changes in exchange rates of the Renminbi. Future fluctuations that are adverse to us
could have a material adverse effect on our results of operation, financial condition or liquidity.
The ability of U.S. authorities to bring actions for violations of U.S. securities law and regulations against us, our directors,
executive officers or the expert named in this annual report may be limited and therefore you may not be afforded the same
protection as provided to investors in U.S. domestic companies.
The SEC, U.S. Department of Justice (“DOJ”) and other authorities often have substantial difficulties in bringing and
enforcing actions against non-U.S. companies such as us, and non-U.S. persons, such as our directors and executive officers in China.
Due to jurisdictional limitations, matters of comity and various other factors, the SEC, DOJ and other U.S. authorities may be limited
in their ability to pursue bad actors, including in instances of fraud, in emerging markets such as China. We conduct substantially all
of our operations in China and substantially all of our assets are located in China. In addition, a majority of our directors and executive
35
officers reside within China. There are significant legal and other obstacles for U.S. authorities to obtain information needed for
investigations or litigation against us or our directors, executive officers or other gatekeepers in case we or any of these individuals
engage in fraud or other wrongdoing. In addition, local authorities in China may be constrained in their ability to assist U.S.
authorities and overseas investors more generally. As a result, if we have any material disclosure violation or if our directors,
executive officers or other gatekeepers commit any fraud or other financial misconduct, the U.S. authorities may not be able to
conduct effective investigations or bring and enforce actions against us, our directors, executive officers or other gatekeepers.
Therefore, you may not be able to enjoy the same protection provided by various U.S. authorities as it is provided to investors in U.S.
domestic companies.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in
China, based on United States or other foreign laws, against us, our directors, executive officers or the experts named in this
annual report and therefore you may not be able to enjoy the protection of such laws in an effective manner.
We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, a
majority of our directors and executive officers reside within China. As a result, it may not be possible to effect service of process
within the United States or elsewhere outside China upon us, our directors and executive officers, including with respect to matters
arising under U.S. federal securities laws or applicable state securities laws. Even if you obtain a judgment against us, our directors,
executive officers or the expert named in this annual report in a U.S. court or other court outside China, you may not be able to
enforce such judgment against us or them in China. China does not have treaties providing for the reciprocal recognition and
enforcement of judgments of courts in the United States, the United Kingdom, Japan or most other western countries. Therefore,
recognition and enforcement in China of judgments of a court in any of these jurisdictions may be difficult or impossible. In addition,
you may not be able to bring original actions in China based on the U.S. or other foreign laws against us, our directors, executive
officers or the expert named in this annual report either. As a result, shareholder claims that are common in the U.S., including class
action securities law and fraud claims, are difficult or impossible to pursue as a matter of law and practicality in China. For example,
in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation
outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory
cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision
and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States have not been efficient
in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became
effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities
within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities,
no organization or individual may provide the documents and materials relating to securities business activities to overseas parties.
While detailed interpretation of or implementation rules under Article 177 of the PRC Securities Law is not yet available, the inability
for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase
difficulties faced by investors in protecting your interests. If an investor is unable to bring a U.S. claim or collect on a U.S. judgment,
the investor may have to rely on legal claims and remedies available in China or other overseas jurisdictions where a China-based
issuer, such as our company, may maintain assets. The claims and remedies available in these jurisdictions are often significantly
different from those available in the United States and difficult to pursue. Therefore, you may not be able to effectively enjoy the
protection offered by the U.S. laws and regulations that intend to protect public investors.
PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using
the net proceeds from any offshore financing that we may undertake in the future to make loans or additional capital contributions
to our PRC subsidiaries and affiliated consolidated entities.
In utilizing the net proceeds from our initial public offering, as an offshore holding company of our PRC subsidiaries and
affiliated consolidated entities, we may make loans to our PRC subsidiaries and affiliated consolidated entities, or we may make
additional capital contributions to our PRC subsidiaries. Any loans to our subsidiary or affiliated consolidated entities in China are
subject to PRC regulations, registrations and/or approvals. For example, if we provide loans to our PRC subsidiaries, the total amount
of such loans may not exceed the statutory limit, i.e., the difference between its total amount of investment and its registered capital,
or certain amount calculated based on elements including capital or net assets and the cross-border financing leverage ratio (“Macro-
prudential Management Mode”) under relevant PRC laws and the loans must be registered with the local counterpart of the State
Administration of Foreign Exchange, or SAFE, and such loans need to be registered with the SAFE or filed with SAFE in its
information system. We may also provide loans to our affiliated consolidated entities under the Macro-prudential Management Mode.
According to the Circular of the People’s Bank of China and the State Administration of Foreign Exchange on Adjusting the Macro-
prudent Adjustment Parameter for Cross-border Financing issued on March 11, 2020, the limit for the total amount of foreign debt
under the Macro-prudential Management Mode is increased to two and a half times from two times of their respective net assets.
Moreover, any medium or long-term loan to be provided by us to our consolidated affiliated entities or other domestic PRC entities
must also be registered with the National Development and Reform Commission or NDRC. We may also determine to finance our
PRC subsidiaries by means of capital contributions. These capital contributions shall go through record-filing procedures from
competent administration for market regulation. Because the affiliated consolidated entities are domestic PRC enterprises, we are not
likely to finance their activities by means of capital contributions due to regulatory issues relating to foreign investment in domestic
PRC enterprises, as well as the licensing and other regulatory issues.
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In addition, on March 30, 2015, SAFE issued the Circular on the Management Concerning the Reform of the Payment and
Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 19, which became effective on June 1,
2015. Pursuant to SAFE Circular 19, up to 100% of foreign currency capital of foreign-invested enterprise may be converted into
RMB capital according to the actual operation of the enterprise within the business scope at its will and the RMB capital converted
from foreign currency registered capital of a foreign-invested enterprise may be used for equity investments within the PRC provided
that such usage shall fall into the scope of business of the foreign-invested enterprise, which will be regarded as the reinvestment of
foreign-invested enterprise. SAFE promulgated the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade
and Investment on October 23, 2019, or SAFE Circular 28, pursuant to which all foreign-invested enterprises can make equity
investments in the PRC with their capital funds in accordance with the law. As the SAFE Circular 28 is new and the relevant
government authorities have broad discretion in interpreting the regulation, it is unclear whether SAFE will permit such capital funds
to be used for equity investments in the PRC in actual practice.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by
offshore holding companies, we cannot assure you that we can obtain the required government registrations or record-filings on a
timely basis, if at all, with respect to future loans or capital contributions by us to our PRC subsidiaries or any of the affiliated
consolidated entities. If we fail to receive such registrations or record-filings, our ability to use the net proceeds from our initial public
offering and to fund our operations in China would be negatively affected which would adversely and materially affect our liquidity
and our ability to expand our business.
If the PRC government finds that our PRC beneficial owners are subject to the SAFE registration requirement under SAFE
Circular 37 and the relevant implementing rules and our PRC beneficial owners fail to comply with such registration
requirements, such PRC beneficial owners may be subject to personal liability, our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries may be limited, our PRC subsidiaries’ ability to distribute profits to us may be limited, or our
business may be otherwise materially and adversely affected.
On July 4, 2014, SAFE issued the Circular on Several Issues Concerning Foreign Exchange Administration of Domestic
Residents Engaging in Overseas Investment, Financing and Round-Trip Investment via Special Purpose Vehicles, or SAFE Circular
37, which became effective on the same date. SAFE Circular 37 and its detailed guidelines require PRC residents to register with the
local branch of SAFE before contributing their legally owned onshore or offshore assets or equity interests into any special purpose
vehicle, or SPV, directly established, or indirectly controlled, by them for the purpose of investment or financing; SAFE Circular 37
further requires that when there is (i) any change to the basic information of the SPV, such as any change relating to its individual
PRC resident shareholders, name or operation period; or (ii) any material change, such as increase or decrease in the share capital held
by its individual PRC resident shareholders, a share transfer or exchange of the shares in the SPV, or a merger or split of the SPV, the
PRC resident must register such changes with the local branch of SAFE on a timely basis. See “Item 4. Information on the
Company—B. Business Overview—Regulatory Matters—Regulation of Foreign Exchange Registration of Offshore Investment by
PRC Residents.”
Based on the opinion of our PRC counsel, Zhong Lun Law Firm, we understand that the aforesaid registration requirement
under SAFE Circular 37 and the relevant implementing rules do not apply to our PRC subsidiaries or our PRC resident beneficial
owners due to the following reasons: (i) our company was incorporated and controlled by Phoenix TV, a Hong Kong listed company,
rather than any PRC residents defined under SAFE Circular 37; (ii) none of the former or current shareholders of our PRC affiliated
consolidated entities established or acquired interest in our company by injecting the assets of, or equity interests in, our affiliated
consolidated entities; and (iii) before the public listing of our ADSs, all of our PRC resident beneficial owners obtained interest in our
company through exercise of options granted to them under our employee share option plan. However, we cannot assure you that the
PRC government would hold the same opinion as us, and the relevant government authorities have broad discretion in interpreting
these rules and regulations. If SAFE or any of its local branches requires our PRC resident beneficial owners to register their interest
in our company pursuant to SAFE Circular 37 and the related implementing rules, we will request our PRC resident beneficial owners
to make the necessary registration, filings and amendments as required. However, we cannot provide any assurances that these PRC
resident beneficial owners will apply for and complete any applicable registrations, filing and amendments. The failure or inability of
such PRC resident beneficial owners to do so may subject our PRC subsidiaries to fines or legal sanctions, restrictions on our cross-
border investment activities or our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign-exchange-dominated loans
from, our company, or prevent us from making distributions or paying dividends. As a result, our business operations and our ability
to make distributions to you could be materially and adversely affected.
Failure to comply with PRC regulations regarding the registration requirements for stock incentive plans may subject the plan
participants or us to fines and other legal or administrative sanctions.
Under the applicable PRC regulations, “domestic individuals” (including both PRC residents and non-PRC residents who
reside in the PRC for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of
international organizations) who participate in employee stock plans or stock option plans of an overseas publicly-listed company are
required to register with SAFE and complete certain other procedures. If a domestic individual participates in any stock incentive plan
of an overseas listed company, a qualified PRC domestic agent, which can be the PRC subsidiaries of such overseas listed company,
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shall, among other things, file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with respect
to such stock incentive plan, and obtain approval for an annual allowance with respect to the foreign exchange conversion in
connection with the stock purchase or stock option exercise. Such PRC individuals’ foreign exchange income received from the sale
of stocks and dividends distributed by the overseas listed company and any other income shall be fully remitted into a collective
foreign currency account in the PRC opened and managed by the PRC domestic agent before distribution to such individuals. See
“Item 4. Information on the Company—B. Business Overview—Regulatory Matters—SAFE Regulation of Stock Incentive Plan.” We
and our employees who are “domestic individuals” participating in stock incentive plans are subject to these regulations. Our share
incentive plans had been registered with SAFE when we became a public company listed on the New York Stock Exchange. We
cannot assure you, however, that we will be able to complete relevant registration for new employees who participate in our share
incentive plans in the future, in a timely manner or at all. If we or such employees fail to comply with these regulations, we or such
employees may be subject to fines and other legal or administrative sanctions.
The approval of the China Securities Regulatory Commission, or the CSRC, may have been required in connection with our initial
public offering. Our failure to obtain this approval, if required, could have a material adverse effect on our business, operating
results, reputation and trading price of our ADSs.
According to the 2006 M&A Rules, an offshore special purpose vehicle, or SPV, refers to an overseas company controlled
directly or indirectly by domestic companies or individuals for purposes of overseas listing of equity interests in domestic companies
(defined as enterprises in the PRC other than foreign invested enterprises). If an SPV purchases, for the purpose of overseas listing and
by means of paying consideration in shares of such SPV, domestic interests held by PRC domestic companies or individuals
controlling such SPV, then the overseas listing by the SPV must obtain the approval of the CSRC. However, the applicability of the
2006 M&A Rules with respect to CSRC approval is unclear. The CSRC currently has not issued any definitive rule concerning
whether offerings like the offering contemplated by our company are subject to the 2006 M&A Rules and related clarifications.
Our PRC counsel, Zhong Lun Law Firm, has advised us that the 2006 M&A Rules do not require that we obtain prior CSRC
approval for the listing and trading of our ADSs on the New York Stock Exchange, given that:
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the CSRC approval requirement applies to SPVs that acquired equity interests in PRC companies through share
exchanges and seek overseas listing;
Fenghuang On-line and Qieyiyou were incorporated indirectly by Phoenix TV, a Hong Kong-listed company, rather than
an SPV as defined under the 2006 M&A Rules; and
Fenghuang On-line and Qieyiyou were incorporated as a wholly foreign-owned enterprise by means of direct investment
rather than by merger or acquisition by our company of the equity interests or assets of any “domestic company” as
defined under the 2006 M&A Rules, and no provision in the 2006 M&A Rules classifies the contractual arrangements
between Fenghuang On-line and Qieyiyou and each of the affiliated consolidated entities as a type of acquisition
transaction falling under the 2006 M&A Rules.
Our PRC counsel has further advised us that there are uncertainties regarding the interpretation and application of relevant
PRC laws, regulations and rules. If the CSRC subsequently determines that its prior approval is required, we may face regulatory
actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties
on our operations, limit our operating privileges, delay or restrict sending the proceeds from our initial public offering into China, or
take other actions that could have a material adverse effect on our business, financial condition, operating results, reputation and
prospects, as well as the trading price of our ADSs.
We cannot predict when the CSRC may promulgate additional rules or other guidance, if at all. Implementing rules or
guidance, to the extent issued, may fail to resolve current ambiguities under this new PRC regulation. Uncertainties and/or negative
publicity regarding this new PRC regulation could have a material adverse effect on the trading price of our ADSs.
The approval of MOFCOM may be required in connection with the establishment of our contractual arrangements with the
affiliated consolidated entities. Our failure to obtain this approval, if required, could have a material adverse effect on our
business, operating results, reputation and trading price of our ADSs.
The 2006 M&A Rules also provide that approval by MOFCOM is required prior to a foreign company acquiring a PRC
domestic company where the foreign company and the domestic company have the same de facto controlling person(s) that are PRC
domestic individual(s) or enterprise(s). The applicability of the 2006 M&A Rules with respect to MOFCOM’s approval is unclear.
Our PRC legal counsel has advised us that an approval from MOFCOM is not required under 2006 M&A Rules for our
contractual arrangements among Fenghuang On-line, Qieyiyou and each of the affiliated consolidated entities, based on their
understanding of the current PRC laws, rules and regulations, given that Fenghuang On-line was incorporated as a wholly foreign-
owned enterprise by means of direct investment rather than by merger or acquisition by our company of the equity interests or assets
38
of any “domestic company” as defined under the 2006 M&A Rules, and no provision in the 2006 M&A Rules classifies the
contractual arrangements between Fenghuang On-line, Qieyiyou and each of the respective affiliated consolidated entities as a type of
acquisition transaction falling under the 2006 M&A Rules.
However, if MOFCOM subsequently determines that its prior approval was required for our contractual arrangements with
the affiliated consolidated entities, we may face regulatory actions or other sanctions from MOFCOM or other PRC regulatory
agencies. These regulatory agencies may impose fines and penalties on us and the affiliated consolidated entities, which require us to
restructure our ownership structure or operations, limit our operations, delay or restrict sending the net proceeds from our initial public
offering into China, or take other actions. These regulatory actions could have a material adverse effect on our business, financial
condition, operating results, reputation and prospects, as well as the trading price of our ADSs.
Governmental control of currency conversion may affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the
remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure,
our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency
may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or
otherwise satisfy their foreign currency-denominated obligations. Under existing PRC foreign exchange regulations, payments of
current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made
in foreign currencies without prior approval from the SAFE by complying with certain procedural requirements. However, approval
from the SAFE or its local branch is required where Renminbi is to be converted into foreign currency and remitted out of China to
pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its
discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system
prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign
currencies to our shareholders, including holders of our ADSs.
Dividends we receive from our PRC subsidiaries located in the PRC may be subject to PRC withholding tax.
The CIT Law provides that a maximum income tax rate of 20% may be applicable to dividends payable to non-PRC investors
that are “non-resident enterprises”, to the extent such dividends are derived from sources within the PRC, and the State Council of the
PRC has reduced such rate to 10% through the implementation regulations. We are a Cayman Islands holding company and
substantially all of our income may be derived from dividends we receive from our subsidiary located in the PRC. Thus, dividends
from our subsidiary in China may be subject to the 10% income tax if we are considered as a “non-resident enterprise” under the CIT
Law. If we are required under the CIT Law to pay income tax for any dividends we receive from our subsidiary in China, it would
materially and adversely affect the amount of dividends, if any, we may pay to our shareholders and ADS holders.
We may be deemed a PRC resident enterprise under the CIT Law and be subject to the PRC taxation on our worldwide income.
The CIT Law also provides that enterprises established outside of China whose “de facto management bodies” are located in
China are considered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax rate as to their
worldwide income. Under the implementation regulations for the CIT Law issued by the PRC State Council, “de facto management
body” is defined as a body that has material and overall management and control over the manufacturing and business operations,
personnel and human resources, finances and treasury, and acquisition and disposal of properties and other assets of an enterprise.
Although substantially all of our PRC operational entities’ management is currently based in the PRC, it is unclear whether PRC tax
authorities would treat us as a PRC resident enterprise. Despite the present uncertainties as a result of limited guidance from PRC tax
authorities on the issue, we do not believe that our legal entities organized outside of the PRC should be treated as residents under the
CIT Law. If we are treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at
the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income and operating
results.
Dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary shares may become subject to taxes
under PRC tax laws.
Under the CIT Law and implementation regulations issued by the State Council, PRC withholding tax at the rate of 10% is
applicable to dividends payable to investors that are “non-resident enterprises”, which do not have an establishment or place of
business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with
the establishment or place of business, to the extent such dividends have their sources within the PRC. Similarly, any gain realized on
the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived
from sources within the PRC. The implementation regulations of the CIT Law set forth that, (i) if the enterprise that distributes
dividends is domiciled in the PRC, or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC,
then such dividends or capital gains are treated as China-sourced income. It is not clear how “domicile” may be interpreted under the
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CIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered a PRC tax
resident enterprise for tax purposes, the dividends we pay to our non-PRC enterprise investors with respect to our ordinary shares or
ADSs, or the gain our non-PRC enterprise investors may realize from the transfer of our ordinary shares or ADSs, may be treated as
income derived from sources within the PRC and be subject to PRC withholding tax. In addition, it is unclear whether our non-PRC
individual investors would be subject to any PRC tax in the event we are deemed a “PRC resident enterprise”. If any PRC tax were to
apply to such dividends or gains of non-PRC individual investors, it would generally apply at a tax rate of 20%. Furthermore, it is
unclear in these circumstances whether holders of our ordinary shares or ADSs would be able to claim the benefit of income tax
treaties entered into between China and other countries or regions. If we are required under the PRC law to withhold PRC income tax
on dividends payable to our non-PRC investors, or if you are required to pay PRC income tax on the transfer of our ordinary shares or
ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected.
We may be required to register our operating offices not located at our residence addresses as branch companies under PRC law.
Under PRC law, a company setting up premises outside its resident address for business operations must register such
operating offices with the relevant local industry and commerce bureau at the place where such premises are located as branch
companies and shall obtain business licenses for such branches. Our affiliated consolidated entities and their respective subsidiaries
have operations at locations other than their respective resident addresses. If the PRC regulatory authorities determine that we are in
violation of relevant laws and regulations, we may be subject to relevant penalties, including fines, confiscation of income, and
suspension of operation. If we are subject to these penalties, our business, operating results, financial condition and prospects could be
materially and adversely affected.
We could be adversely affected by political tensions between the United States and China.
Political tensions between the United States and China have escalated in recent years due to, among other things, the trade
war between the two countries since 2018, the COVID-19 outbreak, the PRC National People’s Congress’ passage of Hong Kong
national security legislation, the imposition of U.S. sanctions on certain Chinese officials from China’s central government and the
Hong Kong Special Administrative Region by the U.S. government, and the imposition of sanctions on certain individuals from the
U.S. by the Chinese government, various executive orders issued by former U.S. President Donald J. Trump such as the one issued in
August 2020 that prohibits certain transactions with ByteDance Ltd., Tencent Holdings Ltd. and the respective subsidiaries of such
companies, the executive order issued in November 2020 that prohibits U.S. persons from transacting publicly traded securities of
certain “Communist Chinese military companies” named in such executive order, as well as the executive order issued in January
2021 that prohibits such transactions as are identified by the U.S. Secretary of Commerce with certain “Chinese connected software
applications”, including Alipay and WeChat Pay, as well as the Rules on Counteracting Unjustified Extra-territorial Application of
Foreign Legislation and Other Measures promulgated by China’s Ministry of Commerce, or MOFCOM, on January 9, 2021 which
will apply to Chinese individuals or entities that are purportedly barred by a foreign country’s law from dealing with nationals or
entities of a third country. Rising political tensions between China and the U.S. could reduce levels of trades, investments,
technological exchanges and other economic activities between the two major economies, which would have a material adverse effect
on global economic conditions and the stability of global financial markets. The measures taken by the U.S. and Chinese governments
may have the effect of restricting our ability to transact or otherwise do business with entities within or outside of China and may
cause investors to lose confidence in Chinese companies and counterparties, including us. If we were unable to conduct our business
as it is currently conducted as a result of such regulatory changes, our business, results of operations and financial condition would be
materially and adversely affected.
Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting
or restricting China-based companies from accessing U.S. capital markets, and delisting China-based companies from U.S. national
securities exchanges. In January 2021, after reversing its own delisting decision, the NYSE ultimately resolved to delist China Mobile,
China Unicom and China Telecom in compliance with the executive order issued in November 2020, after receiving additional
guidance from the U.S. Department of Treasury and its Office of Foreign Assets Control. These delistings have introduced greater
confusion and uncertainty about the status and prospects of Chinese companies listed on the U.S. stock exchanges. If any further such
deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance of China-
based issuers listed in the United States such as us, and we cannot assure you that we will always be able to maintain the listing of our
ADSs on a national stock exchange in the U.S. such as the NYSE or the Nasdaq Stock Market or that you will always be allowed to
trade our shares or ADSs.
The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting
Oversight Board and, as such, our investors are deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit report included in our annual report filed with the
SEC, as auditors of companies that are traded publicly in the U.S. and a firm registered with the U.S. Public Company Accounting
Oversight Board, or the PCAOB, is required by the laws of the U.S. to undergo regular inspections by the PCAOB to assess its
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compliance with the laws of the U.S. and professional standards. According to Article 177 of the PRC Securities Law which became
effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities
within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities,
no organization or individual may provide the documents and materials relating to securities business activities to overseas parties.
Because our auditors are located in the People’s Republic of China, a jurisdiction where the PCAOB is currently unable to conduct
inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.
On May 24, 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation
with the CSRC and the Ministry of Finance, which establishes a cooperative framework between the parties for the production and
exchange of audit documents relevant to investigations in the United States and China. PCAOB continues to be in discussions with the
CSRC and the Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit
Chinese companies that trade on U.S. exchanges. On December 7, 2018, the SEC and the PCAOB issued a joint statement
highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies
with significant operations in China. The joint statement reflects the U.S. regulators’ heightened interest in this issue. In a statement
issued on December 9, 2019, the SEC reiterated concerns over the inability of the PCAOB to conduct inspections of the audit firm
work papers with respect to U.S.-listed companies that have operations in China, and emphasized the importance of audit quality in
emerging markets, such as China. On April 21, 2020, the SEC and the PCAOB issued a new joint statement, reminding the investors
that in investing in companies that are based in or have substantial operations in many emerging markets, including China, there is
substantially greater risk that disclosures will be incomplete or misleading, and there is also a greater risk of fraud. In the event of
investor harm, there is substantially less ability to bring and enforce SEC, DOJ and other U.S. regulatory actions, in comparison to
U.S. domestic companies, and the joint statement reinforced past SEC and PCAOB statements on matters including the difficulty to
inspect audit work papers in China and its potential harm to investors.
Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit
procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.
The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our
auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB
inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our consolidated
financial statements.
Due to the enactment of the Holding Foreign Companies Accountable Act, or the HFCA Act, we may not be able to maintain our
listing on the NYSE or the trading of our ADSs in any U.S. market.
In December 2020, the United States enacted the Holding Foreign Companies Accountable Act, or the HFCA Act, which
includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect
or investigate because of restrictions imposed by non-U.S. authorities in the auditor’s local jurisdiction. The HFCA Act also requires
public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain additional
disclosures on foreign ownership and control of such issuers in their SEC filings. Furthermore, the HFCA Act amends the Sarbanes-
Oxley Act of 2002 to require the SEC to prohibit securities of any U.S. listed companies from being traded on any of the U.S. national
securities exchanges, such as NYSE and Nasdaq Stock Market, or in the U.S. “over-the-counter” markets, if the auditor of the U.S.
listed companies’ financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law
becomes effective.
While the SEC has not yet identified a list of issuers whose auditors are not subject to PCAOB inspections, the first such list
could be released in early 2022. On March 24, 2021, the SEC announced the adoption of interim final amendments to implement the
submission and disclosure requirements of the HFCA Act. In the announcement, the SEC clarifies that before any issuer will have to
comply with the interim final amendments, the SEC must implement a process for identifying covered issuers. The announcement also
states that the SEC staff is actively assessing how best to implement the other requirements of the HFCA Act, including the
identification process and the trading prohibition requirements. Enactment of the HFCA Act and other efforts to increase the U.S.
regulatory access to audit information could cause investor uncertainty as to China-based issuers’ ability to maintain their listings on
the U.S. national securities exchanges, including us, and the market price of the ADSs could be adversely affected. We cannot assure
you that we will not be identified by the SEC as an issuer whose audit report is prepared by auditors that the PCAOB is unable to
inspect or investigate. We cannot assure you that, once we have a “non-inspection” year, we will be able to take remedial measures in
a timely manner, and as a result, and we cannot assure you that we will always be able to maintain the listing of our ADSs on a
national stock exchange in the U.S., such as the NYSE or the Nasdaq Stock Market, or that you will always be allowed to trade our
shares or ADSs. If we were subject to the trading prohibitions of the HFCA Act, the market price and liquidity of our ADSs will be
materially and adversely affected.
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Proceedings instituted by the SEC against certain PRC-based accounting firms, including our independent registered public
accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the
Exchange Act.
In December 2012, the SEC instituted administrative proceedings against the Big Four PRC-based accounting firms,
including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s
rules and regulations thereunder by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based
companies that are publicly traded in the United States.
On January 22, 2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each
of the firms had violated the SEC’s rules of practice by failing to produce audit papers and other documents to the SEC. The initial
decision censured each of the firms and barred them from practicing before the SEC for a period of six months.
On February 6, 2015, the four China-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle
the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required
the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC.
Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissed
with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. While we cannot predict if
the SEC will further challenge the four China-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory
requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as suspensions, if
the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC
requirements could be impacted. A determination that we have not timely filed financial statements in compliance with the SEC
requirements could ultimately lead to the delisting of our ADSs from the New York Stock Exchange or the termination of the
registration of our ADSs and Class A ordinary shares under the Securities Exchange Act of 1934, or both, which would substantially
reduce or effectively terminate the trading of our ADSs in the United States.
Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the
viability of our current corporate structure, corporate governance and business operations.
On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law or the FIL, which took effect
on January 1, 2020, and replaced the existing laws regulating foreign investment in China, namely, the PRC Equity Joint Venture
Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, or Old FIE Laws, together with their
implementation rules and ancillary regulations. See “Item 4. Information on the Company—B. Business Overview—Regulation—
Regulation on Foreign Investment.” Meanwhile, the Implementation Rules to the Foreign Investment Law came into effect as of
January 1, 2020, which clarified and elaborated the relevant provisions of the Foreign Investment Law. However, uncertainties still
exist in relation to interpretation and implementation of the FIL, especially in regard to, including, among other things, the nature of
variable interest entities contractual arrangements and specific rules regulating the organization form of foreign-invested enterprises
within the five-year transition period. While FIL does not define contractual arrangements as a form of foreign investment explicitly,
however, it has a catch-all provision under definition of “foreign investment” that includes investments made by foreign investors in
the PRC through other means as provided by laws, administrative regulations or the State Council, we cannot assure you that future
laws and regulations will not provide for contractual arrangements as a form of foreign investment. Therefore, there can be no
assurance that our control over our VIEs through contractual arrangements will not be deemed as foreign investment in the future. In
the event that any possible implementing regulations of the FIL, any other future laws, administrative regulations or provisions deem
contractual arrangements as a way of foreign investment, or if any of our operations through contractual arrangements is classified in
the “restricted” or “prohibited” industry in the future “negative list” under the FIL, our contractual arrangements may be deemed as
invalid and illegal, and we may be required to unwind the variable interest entity contractual arrangements and/or dispose of any
affected business. Also, if future laws, administrative regulations or provisions mandate further actions to be taken with respect to
existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely
manner, or at all. Furthermore, under the FIL, foreign investors or the foreign investment enterprise should be imposed legal liabilities
for failing to report investment information in accordance with the requirements. In addition, the FIL provides that foreign invested
enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate
governance within a five-year transition period, which means that we may be required to adjust the structure and corporate governance
of certain of our PRC subsidiaries in such transition period. Failure to take timely and appropriate measures to cope with any of these
or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate
governance and business operations.
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Risks Relating to Our ADSs
The market price for our ADSs may be volatile which could result in a loss to you.
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including
the following:
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announcements by us or our competitors or other internet companies of competitive developments;
changes in the market valuations or the operating performance of other internet companies;
regulatory developments in China affecting us, our clients or our competitors;
announcements regarding litigation or administrative proceedings involving us;
actual or anticipated fluctuations in our quarterly operating results;
changes in financial estimates by securities research analysts;
addition or departure of our executive officers;
public perception or negative news about our products or services;
release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs;
sales or perceived sales of additional ordinary shares or ADSs; and
fluctuations of exchange rates between RMB and the U.S. dollar. In addition, the securities market has from time to time
experienced significant price and volume fluctuations that are not related to the operating performance of particular
companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.
Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the
market price of our ADSs to decline. As of March 31, 2021, we had 582,324,325 ordinary shares outstanding, including 317,325,360
Class B ordinary shares and 264,998,965 Class A ordinary shares part of which are represented by 32,692,364 ADSs. All ADSs sold
in our initial public offering are freely transferable without restriction or additional registration under the Securities Act of 1933, as
amended, or the Securities Act. The remaining ordinary shares outstanding are available for sale upon the expiration of any relevant
lock-up periods, subject to volume and other restrictions that may be applicable under Rule 144 and Rule 701 under the Securities Act.
In addition, ordinary shares that certain option holders will receive when they exercise their share options will not be available for sale
until the expiration of any relevant lock-up periods, subject to volume and other restrictions that may be applicable under Rule 144
and Rule 701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant
shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.
Our dual-class ordinary share structure with different voting rights could discourage others from pursuing any change of control
transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
We have Class A ordinary shares and Class B ordinary shares, which are all at par value of US$0.01 each. Holders of Class A
ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to 1.3 votes per share. Phoenix
TV (BVI), which is wholly owned by Phoenix TV, holds Class B ordinary shares, each of which is convertible into one Class A
ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any
circumstances. Due to the disparate voting rights attached to these two classes, Phoenix TV (BVI) has significant voting rights over
matters requiring shareholder approval, including the election and removal of directors and certain corporate transactions, such as
mergers, consolidations and other business combinations. This concentrated control could discourage others from pursuing any
potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as
beneficial.
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Anti-takeover provisions in our articles of association may discourage a third party from offering to acquire our company, which
could limit your opportunity to sell your ADSs at a premium.
Our currently effective, second amended and restated articles of association include provisions that could limit the ability of
others to acquire control of us, modify our structure or cause us to engage in change of control transactions. These provisions could
have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by
discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.
For example, our board of directors have the authority, without further action by our shareholders, to issue preference shares
in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms
of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares.
Preference shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of
management more difficult. In addition, if our board of directors issues preference shares, the market price of our ordinary shares may
fall and the voting and other rights of the holders of our ordinary shares may be adversely affected.
As a foreign private issuer, we are permitted to, and we may, rely on exemptions from certain NYSE corporate governance
standards applicable to U.S. issuers. This may afford less protection to holders of our ordinary shares and ADSs.
The NYSE Listed Company Manual in general require listed companies to have, among other things, a majority of its board
be independent, an audit committee consisting of a minimum of three members and a nominating and corporate governance committee
consisting solely of independent directors. As a foreign private issuer, we are permitted to follow, and we follow, certain home
country corporate governance practices instead of the above requirements of the NYSE Listed Company Manual. The corporate
governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent
directors or the implementation of an audit committee or nominating and corporate governance committee. We rely upon the relevant
home country exemption and exemptions afforded to controlled companies in lieu of certain corporate governance practices, such as
having less than a majority of the board be independent and establishing an audit committee consisting of two independent directors.
As a result, the level of independent oversight over management of our company may afford less protection to holders of our ordinary
shares and ADSs.
As a foreign private issuer, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to
some extent, are more lenient and less frequent than those of a U.S. issuer.
As a foreign private issuer, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic
issuers, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a
security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock
ownership and trading activities and liability for insiders who profit from trades made in a short period of time, and (iii) the
rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and
other specified information, quarterly certifications by the principal executive and financial officers, or current reports on Form 8-K,
upon the occurrence of specified significant events. In addition, the executive compensation disclosure requirements to which we are
subject under Form 20-F are less rigorous than those required of U.S. issuers under Form 10-K. Furthermore, foreign private issuers
are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers
are required to file their annual report on Form 10-K within 60 to 90 days after the end of each fiscal year. Foreign private issuers are
also exempt from the Regulation FD, aimed at preventing issuers from making selective disclosures of material information. Although
we intend to make quarterly reports available to our shareholders in a timely manner and are required under the Exchange Act to
provide current reports on Form 6-K, you may not have the same protections afforded to stockholders of companies that are not
foreign private issuers.
We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under
Cayman Islands law than under U.S. law, you may have less protection of your shareholder rights than you would under U.S. law.
Our corporate affairs are governed by our amended and restated memorandum of association and second amended and
restated articles of association, the Cayman Islands Companies Act (as amended) and the common law of the Cayman Islands. The
rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our
directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law
of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English
common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and
the fiduciary responsibilities of our directors under Cayman Islands law may be narrower in scope or less developed than they would
be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less
developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed
and judicially interpreted bodies of corporate law than the Cayman Islands. Furthermore, Cayman Islands companies may not have
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standing to initiate a shareholder derivative action in a federal court of the United States. As a result, public shareholders may have
more difficulties in protecting their interests in the face of actions taken by management, members of the board of directors or
controlling shareholders than they would as shareholders of a Delaware company.
Legislation enacted in the Cayman Islands and the British Virgin Islands as to economic substance may affect our corporate
structure and cause us to incur additional compliance costs.
Each of our company and its subsidiary, Fread Limited, is an exempted company incorporated in the Cayman Islands.
Pursuant to the International Tax Cooperation (Economic Substance) Act (2021 Revision) of the Cayman Islands, or the “Cayman ES
Act”, that came into force on January 1, 2019, a “relevant entity” engaged in “relevant activities” is required to satisfy the economic
substance test set out in the Cayman ES Act. A “relevant entity” includes, amongst others, an exempted company incorporated in the
Cayman Islands (such as our company and Fread Limited) and does not include an entity that is tax resident outside the Cayman
Islands. Based on the current interpretation of the Cayman ES Act, we believe that our company and Fread Limited are each a pure
equity holding company since we and Fread Limited only hold equity participation in other entities and only earn dividends and
capital gains. Accordingly, for so long as our company and Fread Limited are each a “pure equity holding company”, we and Fread
Limited are only subject to minimum substance requirements in accordance with the Cayman ES Act.
One of our subsidiaries, or the BVI Subsidiary, is a business company incorporated under the laws of the British Virgin
Islands, or BVI, prior to January 1, 2019. Pursuant to the Economic Substance (Companies and Limited Partnerships) Act, 2018 of the
British Virgin Islands, or the “BVI ES Act”, that came into force on January 1, 2019, a “legal entity” which carries on a “relevant
activity” is required to satisfy the economic substance test set out in the BVI ES Act. A “legal entity” (which based on the current
interpretation of the BVI ES Act, includes a business company incorporated in the British Virgin Islands but does not include an entity
that is resident for tax purposes in a jurisdiction outside the British Virgin Islands which is not on Annex 1 to the EU list of non-
cooperative jurisdictions for tax purposes) carrying on any “relevant activity” is required to satisfy the economic substance test as set
out in the BVI ES Act. “Relevant activities” include any of the following activities: banking business, insurance business, fund
management business, finance and leasing business, distribution and service centre business, shipping business, holding business,
intellectual property business and headquarters business. To the extent that a “legal entity” carries on no relevant activity other than
holding equity participations in other entities and earning dividends and capital gains, it will be subject to reduced economic substance
requirements in accordance with the BVI ES Act.
As there are still uncertainties regarding the interpretation and implementation of the Cayman ES Act and the BVI ES Act, it
is not possible at this stage to be definitive as to the extent of substance which our company, Fread Limited or the BVI Subsidiary will
be required to have in the Cayman Islands or BVI respectively.
We will make all endeavors to ensure our company, Fread Limited and the BVI Subsidiary comply with the economic
substance requirements under the relevant legislation. However, in doing so, our company, Fread Limited and the BVI Subsidiary may
incur additional compliance costs (such as payment of fees for attending to annual filings with the relevant governmental authorities);
and/or if our company, Fread Limited or the BVI Subsidiary fail to satisfy the economic substance test set out in the Cayman ES Act
or the BVI ES Act (as the case may be), we, Fread Limited and the BVI Subsidiary may initially be subject to penalties in accordance
with the Cayman ES Act and the BVI ES Act respectively.
Judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Substantially all
of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of
countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a
result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for
you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities
laws against us and our officers and directors. Moreover, there is uncertainty as to whether the courts of the Cayman Islands or the
PRC would recognize or enforce judgments of United States courts against us or such persons predicated upon the civil liability
provisions of the securities laws of the United States or any state. In addition, there is uncertainty as to whether such Cayman Islands
or PRC courts would be competent to hear original actions brought in the Cayman Islands or the PRC against us or such persons
predicated upon the securities laws of the United States or any state.
Holders of ADSs must act through the depositary to exercise their rights as shareholders of our company.
Holders of our ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to
the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under our second amended
and restated articles of association, the minimum notice period required to convene a general meeting is 10 days. When a general
meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares
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to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send
voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the
depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in
time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be
responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such
vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you
requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.
The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote
at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.
Under the deposit agreement for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares
underlying your ADSs at shareholders’ meetings if you do not vote, unless:
• we have failed to timely provide the depositary with our notice of meeting and related voting materials;
• we have instructed the depositary that we do not wish a discretionary proxy to be given;
• we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or
•
a matter to be voted on at the meeting would have a material adverse impact on shareholders.
The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted,
absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company.
Holders of our ordinary shares are not subject to this discretionary proxy.
You may be subject to limitations on transfers of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time
or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse
to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if
we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or
under any provision of the deposit agreement, or for any other reason.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not
receive cash dividends or other distributions if it is impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot
make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the
Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary will
not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the
distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a
registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared
effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may
be unable to participate in our rights offerings and may experience dilution in your holdings.
In addition, the depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our
ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to
the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is impractical to
make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute
certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases,
the depositary may decide not to distribute such property and you will not receive any such distribution.
ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of the Company
Phoenix TV registered the domain name phoenixtv.com for its corporate website in 1998. Tianying Jiuzhou began operating
this website after its establishment in April 2000. As part of the reorganization before its initial public offering, in September 1999,
Phoenix TV incorporated Phoenix Satellite Television Information Limited in the British Virgin Islands to be the holding company of
its new media business.
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In November 2005, Mr. Shuang Liu, a vice president of Phoenix TV, was appointed to lead Phoenix TV’s new media
business. Upon his appointment, Mr. Liu began implementing his vision to transform the business from a mere corporate website of
Phoenix TV into a new media company capitalizing on the future of new media convergence. Yifeng Lianhe was established in
June 2006 to provide new media mobile services in China. In July 2007, Tianying Jiuzhou registered the domain name ifeng.com and
redirected the traffic of phoenixtv.com and phoenixtv.com.cn to ifeng.com.
On November 22, 2007, Phoenix New Media Limited, an exempted limited liability company, was incorporated in the
Cayman Islands as a subsidiary of Phoenix TV to be the holding company for its new media business. In May 2008, Phoenix Satellite
Television (B.V.I.) Holding Limited transferred the sole outstanding share of Phoenix Satellite Television Information Limited to us in
exchange for 319,999,999 ordinary shares of our company.
Fenghuang On-line was established in December 2005. On December 31, 2009, Fenghuang On-line entered into a series of
contractual arrangements with each of Tianying Jiuzhou and Yifeng Lianhe and their respective shareholders to govern our
relationships with Tianying Jiuzhou and Yifeng Lianhe, at which time we became operational in our current corporate structure.
During the first quarter of 2021, Fenghuang On-line terminated the contractual agreements with Yifeng Lianhe and then entered into a
series of new contractual arrangements with Fenghuang Ronghe. Shareholders of Yifeng Lianhe transferred all of their equity interests
in Yifeng Lianhe to Fenghuang Ronghe, as a result of which Yifeng Lianhe became a wholly owned subsidiary of Fenghuang Ronghe.
The contractual arrangements with Tianying Jiuzhou and Fenghuang Ronghe and their respective shareholders allow us to effectively
control Tianying Jiuzhou and Fenghuang Ronghe (and indirectly control their respectively subsidiaries such as Yifeng Lianhe) and to
derive substantially all of the economic benefits from them. See “—C. Organizational Structure — Contractual Arrangements with
Our Affiliated Consolidated Entities.”
On May 12, 2011, our ADSs began trading on the New York Stock Exchange under the ticker symbol “FENG.” We closed
our initial public offering on May 17, 2011 and the underwriters subsequently exercised their over-allotment option on June 8, 2011.
We issued and sold a total of 13,415,125 ADSs in these transactions, representing 107,321,000 Class A ordinary shares in the form of
ADSs, raising US$137.2 million in proceeds to us before expenses but after underwriting discounts and commissions.
We hold 50% of the equity interests in Tianbo. Before April 2019, as we had significant influence over financial and
operating decision-making, we accounted for the 50% equity interest by using the equity method of accounting. On April 1, 2019, we
obtained control over Tianbo and consolidated Tianbo starting from April 1, 2019 as we and other shareholders of Tianbo agreed to
make certain revisions to the articles of association of Tianbo, which granted us the voting power to decide Tianbo’s significant
financial and operating decisions at both the shareholder level and the board level, to accelerate the development of its real estate
vertical and to further bolster the development of our real estate vertical and to create more synergies on Tianbo’s new business, with
the equity interest in Tianbo of 50% unchanged. At the same time, we agreed with other shareholders of Tianbo and would provide
free advertising resources to Tianbo as consideration to gain control over Tianbo. See “—C. Organizational Structure” for more
details.
Our principal executive offices are located at Sinolight Plaza, Floor 16, No. 4 Qiyang Road, Wangjing, Chaoyang District,
Beijing 100102, People’s Republic of China. Our telephone number at this address is +(86) 10 6067 6000. Our registered office in the
Cayman Islands is located at the offices of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box
2681, Grand Cayman, KY1-1111, Cayman Islands.
B.
Business Overview
We are a leading new media company providing premium content on an integrated Internet platform, including PC and
mobile, in China. Having originated from a leading global Chinese language TV network based in Hong Kong, Phoenix TV, we
enable consumers to access professional news and other quality information and UGC, on the Internet and through their PCs and
mobile devices. We also transmit our UGC and in-house produced content to TV viewers primarily through Phoenix TV. Our PC
channel includes major verticals such as news, finance, video, automobile, technology, entertainment, military, real estate, fashion and
sport. Our mobile channel includes our mobile news application, mobile video application, mobile digital reading applications and
mobile Internet websites. We also act as a unique and quality content provider for multiple third-party channel. The appeal of our
brand is enhanced by its affiliation with the “Phoenix” (“鳳凰”) brand of Phoenix TV.
According to iResearch, our number of PC monthly unique visitors was 112 million in December 2020 and we have ranked
second among all Internet portals in China in terms of monthly unique visitors in December 2020. We earn revenues from advertising
and paid services, which accounted for 92.1% and 7.9% of our total revenues, respectively, in 2020.
We recognize revenues from our advertising services on a net basis, after deducting the agency service fees we pay to
advertising agencies and the value-added tax, or VAT, and the cultural development fee. We provide advertising services through PC
channel and mobile channel, which accounted for 29.6% and 70.4% of our net advertising revenues, respectively, in 2020.We see
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mobile devices as the primary gateway for news and other media content consumption going forward. In recent years, we have taken
steps to optimize our business model by shifting our revenue mix towards our mobile channels. By continuing to strengthen our core
competencies of content production capability, dedication to serious journalism and cutting-edge technology, we believe that we will
be better positioned to capitalize on emerging opportunities as increasing numbers of consumers in China use Internet-enabled mobile
devices to consume news and other media content.
We offer a wide variety of paid services primarily through our mobile channel and operations with the telecom operators. Our
paid services revenues were primarily generated from (i) paid contents, which includes digital reading, audio books, paid videos, and
other content-related sales activities, (ii) games, which includes web-based games and mobile games, (iii) MVAS, and (iv) others.
Prior to 2019, our paid services revenues were primarily generated from (i) digital entertainment, which included digital reading and
MVAS, and (ii) games and others, which included web-based games, mobile games, content sales, and other online and mobile paid
services through our own platforms. For comparison purposes, the revenues from paid services for the year ended December 31 2018
have been retrospectively re-classified. We derived 48.2%, 0.2%, 13.7% and 37.9% of our paid services revenues, respectively, from
our paid contents, games, MVAS, and others in 2020. Our paid services revenues decreased from RMB133.0 million in 2019 to
RMB95.8 million (US$14.7 million) in 2020, mainly caused by a 35.1% decrease in the revenues generated from paid contents, which
was primarily attributable to the tightened rules and regulations on digital reading in China and in line with the broader market
conditions reflecting the trend towards free online reading.
Our Relationship with Phoenix TV
We are a subsidiary of Phoenix TV, a leading Hong Kong-based satellite TV network broadcasting Chinese language content
globally and into China. Phoenix TV indirectly owned 54.5% of our ordinary shares and 60.9% of the voting power of our ordinary
shares as of March 31, 2021.
We entered into several sets of trademark and program content licensing agreements with Phoenix TV or certain of its
subsidiaries in the past and continue to use certain copyrighted content and trademarks provided by Phoenix TV Group. Currently,
under the New Trademark License Agreements, we have the right to use certain trademarks containing the double-phoenix logo and
the Chinese or English words of “Phoenix New Media” or “ifeng” which helps to affiliate us with the brand of Phoenix TV Group and
helps to enhance our own brand. In addition, under the 2020 Program Resource License and Cooperation Agreement, we also have the
right to continue to use Phoenix TV Group’s copyrighted video content on our websites and our mobile applications.
We have a mutually beneficial relationship with Phoenix TV. We and Phoenix TV share a common vision of the convergence
of traditional and new media channels, and work together to realize this vision. Pursuant to the Program License Agreements, Phoenix
TV Group agreed to grant Tianying Jiuzhou, Yifeng Lianhe and Fengyu Network the license to use Phoenix TV Group’s copyrighted
content from three television channels of Phoenix TV Group for our various media services in China (excluding Hong Kong, Macau
and Taiwan). After the Program License Agreements expired in May 2019, Phoenix TV Group adjusted the scope of license granted to
Tianying Jiuzhou and Yifeng Lianhe according to the 2020 Program Resource License and Cooperation Agreement. We believe that
our and Phoenix TV’s active promotion of one another’s brands on our respective Internet-enabled and TV platforms helps to grow
our combined audience synergistically.
On February 17, 2014, our Chief Executive Officer, Mr. Shuang Liu, was also promoted to the position of Chief Operating
Officer of Phoenix TV. The key initiative for his position at Phoenix TV is to accelerate the convergence of TV, PC and mobile
platforms of the two companies. As the Chief Operating Officer of Phoenix TV, Mr. Liu is tasked with strategizing, overseeing and
allocating resources to implement this convergence strategy. Through this appointment, both companies can more seamlessly expand
user reach on each of its media platforms, provide advertisers a one-stop shop solution, more effectively monetize the Phoenix brand
across all verticals, and achieve greater cost synergies.
For more information about the terms of the agreements with Phoenix TV and its subsidiaries, see “Item 7. Major
Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements and Transactions with Phoenix TV and
Certain of its Subsidiaries.” For more information about the risks associated with our relationship with Phoenix TV, see “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our Business and Industry—We may not be able to continue to receive the same
level of support from Phoenix TV Group in the future. We could lose our license and priority over any third party to use Phoenix TV
Group’s content and licensed trademarks, which would have an adverse effect on our paid services business, and would also
negatively affect our video advertising business. Together, these impacts could have an adverse effect on our business and operating
results” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—We may have conflicts of
interest with Phoenix TV and, because of Phoenix TV’s controlling beneficial ownership interest in our company, may not be able to
resolve such conflicts on terms favorable for us.”
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Our Content
We strive to deliver the most up-to-date, in-depth, exclusive and thought-provoking content to our users. Content selection,
editing and production are core focuses of our business. We obtain our content from four major sources: third-party professional
content, our original contents with intellectual property rights, or IP content, we-media content and online literature content. The
content we acquire covers a wide spectrum of user-targeted subjects, including news, current affairs, finance, technology, automobiles,
fashion and entertainment, among others. We believe that we have provided the earliest video and text media coverage among Chinese
media companies of certain major world events. We are uniquely positioned among our peers in China to be able to distribute our
content on TV. We feed a substantial amount of in-house produced content and UGC to a number of Phoenix TV’s regular prime-time
programs each day. We also provide our in-house produced content to domestic TV networks.
Third-Party Professional Content. We have entered into content licensing agreements with approximately 581 professional
content providers in aggregate. We obtain our print content from major Chinese print media and news wires. Our content sources
include companies such as China News Service, Xinhua News Agency and the Huanqiu.com, as well as China’s top image providers.
The video content we source from third parties is primarily comprised of news and documentaries, which cater to our users’
preferences. We obtain our third-party video content from major Chinese television broadcasters, such as Shenzhen Satellite TV,
Dongnan Satellite TV and Liaoning Satellite TV. The content that we source from professional third parties comprises the majority of
the content on our PC websites, mobile applications and mobile websites.
Original IP Content. We started to build our original IP contents since 2018. In terms of our IP strategy, we have pioneered
new programming formats through the combination of culture, interviews, cross-discipline, and reality shows. We frequently conduct
interviews with government officials, thought leaders, celebrities and other compelling public figures and we have provided coverage
on hundreds of conferences and forums. To engage a growing fan base, we transmit a considerable amount of our in-house produced
content to third-party internet video streaming platforms and to certain Chinese TV networks from time to time. A prime example is
our launch of the fourth season of Shede Wisdom People (“舍得智慧人物”), which generated encouraging results with the first
episode of the series immediately achieved a total of more than 100 million views and reaching the top of trending lists on different
social media platforms. Our investment in original IP content with intellectual property rights has not only inspired our users, but has
also generated substantial traffic and financial returns.
We-media Content. We-media content covers various verticals in the form of text, photos, videos, etc., adding an important
complementary component to the content we deliver.
Online Literature Content. We offer our users a full-fledged online reading experience by providing them a plenty of high-
quality literary contents such as science fiction, urban romantic fiction, mystery fiction, etc. Furthermore, we are cultivating these
content into online series, comic books, audiobooks and short-form videos to improve our user experience.
Content Editing and Production
Content editing and production are critical components of our content production process. We had a team of 376 editors as of
December 31, 2020 organized generally by interest-based vertical. We believe that we possess a strong ability to select and distill
compelling news stories and frame issues for our users in a distinctive way. Beyond distributing a large amount of news and
information in a timely manner, we provide independent social commentary and analyses. We not only edit our videos, primarily
consisting of news, documentaries and interviews into short clips but also organize our content by interest-based vertical and segment
it further by featured topic. To produce an engaging user experience, we actively combine text, image, video and live broadcasting
content and integrate interactive UGC.
Content Monitoring
We implement monitoring procedures for all of our published content to remove inappropriate or illegal content, including
but not limited to we-media and UGC from our discussion forum, comments postings and user survey services. As of December 31,
2020, our content screening team consists of four employees and more than 200 outsourced staff members who are responsible for
monitoring and preventing the public release of inappropriate illegal content. In addition to the staff of our content screening team, we
also take advantage of the assistance of AI technology to ensure the efficiency and safety for our content monitoring. Text, images and
video content are screened by our content screening team, which reviews the content on a 24-hour, 3-shift basis and employs
monitoring procedures, including (i) technology screening, where a text filtering system screens content based on pre-set key words
and identifies suspected information; and (ii) manual review, where the content that passes the technology screening is reviewed by
the content screening team and the flagged content identified by our technology is reviewed and confirmed before it can be released.
For technology screening, the machine recognizes the video and image content and we use an in-house developed identification
system in order to comply with PRC regulatory requirements regarding Internet content.
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Our Channels
We provide our content and services through three major channels, including our PC channel, our mobile channel and third-
party channel. We also transmit our content to TV viewers, primarily through Phoenix TV. Together, these channels form a converged
platform providing integrated text, image, video and live broadcasting content, and employing a variety of interactive formats to create
an extensive, personalized and hands-on experience for our users. We derive advertising revenues through our PC channel and mobile
channel. In addition, we generate paid services revenues through PC, mobile and third-party channel.
Our PC Channel
Our PC channel consists of our website at ifeng.com, which comprises our interest-based verticals and interactive services.
According to iResearch, our number of PC monthly unique visitors was 112 million in December 2020. We have ranked second
among all Internet portals in China in terms of monthly unique visitors in December 2020.
Interest-based Verticals. We currently provide over 44 interest-based verticals, each of which features integrated text, image,
video and live broadcasting content and embedded interactive services, such as user surveys and comment postings. Since ifeng.com
is one of multiple access points to our converged platforms, our users can also access a significant portion of our interest-based
verticals’ content through our mobile channel, and can view in-house produced content and UGC created on these verticals on
Phoenix TV’s regular programs. Our most popular verticals include:
•
•
•
•
•
News. Through our news vertical, ifeng News, users have easy access to breaking news coverage from multiple sources
and points of view. Our news vertical also features a large amount of in-depth special reports and embedded interactive
services. For our special reports, we not only have dedicated teams deliver in-depth analysis and reports, but also
integrated user surveys and comment postings into the featured websites.
Finance. Our finance vertical, ifeng Finance, provides up-to-date information about financial news, securities and
personal finance. We have formed relationships with individual industry leaders who contribute to our in-depth reports
and discussions we feature on our finance vertical. We also obtain independent finance content from Phoenix TV. Our
finance vertical also offers stock quotes from the major exchanges, as well as breaking news from individual listed
companies.
Video. Our v.ifeng.com vertical offers timely video-based coverage as well as customized news programs. In addition,
by leveraging the exclusive resources from Phoenix TV’s global journalism station, we are able to produce distinguished
and influential news through short videos. By optimizing our AI image recognition technology, we have enhanced our
ability to identify and restrict video content violating our standards, cultivated a proprietary supply of high-quality
content, and actively partnered with professional video content producers to provide users with more high-quality and
original short-form video content. Meanwhile, our live broadcasting vertical, FENG Live (“风直播”), offers live
broadcasting news and information to provide real-time professional reports of hit events, conferences and etc.
Automobiles. Our automobiles vertical, ifeng Auto, offers the latest automobile-related news and information to provide
car buyers and automobile enthusiasts with the most current information on automotive pricing, reviews and featured
guides.
Entertainment. Our entertainment vertical spans greater China and strives to cover entertainment news and developments
in China, Hong Kong, Taiwan and globally among the Chinese community. This vertical provides broad coverage of the
latest entertainment news, including movies, television programs, plays, operas, as well as popular and classical music. It
features our in-house produced video program of candid celebrity interviews.
• Military affairs. Our military affairs vertical provides updated information and commentary on military affairs and
defense matters to target a broad audience, which both includes military professionals and amateurs.
•
•
Real Estate. Based on the media characteristic of our company, the real estate vertical integrates massive resources of the
industry and make an objective and detailed interpretation to the real estate market. We provide real estate related
information including building details, the information of rental and purchasing of new residential property and second
housing, and residential ecological service. The main sections include house.ifeng.com, izhiliao.com, iqidian.com and
wenlv.house.ifeng.com. Fengcx.com is a full-fledged digital media platform that tracks the latest real estate financial
news in real time to provide valuable reference for buyers, investors and enterprises.
Fashion. Our fashion vertical provides coverage on fashion, beauty, weight loss, luxury goods, furniture, art and other
popular topics around the theme of refined lifestyle. It offers information on international fashion trends and new fashion
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concepts. Our fashion vertical covers a variety of luxury topics, including wines, cigars, high-end brand apparel and
accessories, as well as services aimed at the high net worth population. It also provides real-time coverage of major
world fashion events, bringing users the latest information on styles and trends. We organize our Fashion Award Gala in
Beijing every year, with the participation of the most popular celebrities and fashion KOLs, the events received positive
feedback, further demonstrating our unparalleled brand influence.
•
Sports. Our sports vertical offers multimedia news and information on a wide range of sporting events, and broadcasts
both live and recorded domestic and international sports matches.
• We-media. Our We-media vertical, Dafenghao (“大风号”), offers various we-media content.
• History. Our history vertical provides content about Chinese and international history. We investigate relatively
unexplored historical turning points and events and provide in-depth analyses of historical figures and events.
•
•
Technology. Our technology vertical provides content relates to real-time reports of relevant hot topics in the TMT
industry. In addition, the remarkable content in our technology vertical is Phoenix Lab (“凰家评测”), whose video
series is designed to offer reviews of products and services that are both trustworthy and entertaining in the form of
short-form videos, thus providing unbiased purchasing advice to China’s rising middle-class.
PC Digital Reading. Our PC digital reading service provides fee-based Internet literatures from writers and digital
format books licensed from third-party publishers to customers on our PC platforms, including Fread.com, an
independent domain launched by Fread Limited in September 2018. Revenues generated from digital reading are
recorded in paid contents revenues under paid services revenues.
Interactive Services. Our interactive services aim at turning our PC websites, mobile applications and mobile websites into an
active venue for social networking and community interaction. These services allow our users to interact with the content we provide,
opening up avenues for lively exchange of information. Our comment posting services are available on both our PC and mobile
channels. By furnishing an engaging user experience across PC and mobile channels, we believe that community-based interactive
services increase user loyalty and stickiness. We currently offer the following interactive services:
• User surveys. Our user surveys allow users to express their opinions on topics featured on our PC and mobile channels,
view up-to-date opinion polls of users generally and compare their views with those of our user community at large. We
offer opinion surveys on major featured topics on most of ifeng.com and v.ifeng.com. Our survey results also frequently
appear on Phoenix TV’s programs.
•
Comment posting. Our comment posting feature allows registered users to post their reactions to and thoughts on our
articles and videos and browse the input of other members of the ifeng.com community. Our comment postings also
frequently appear on Phoenix TV’s programs.
Our Mobile Channel
Our mobile channel includes (i) ifeng news application, (ii) ifeng video application, (iii) mobile Internet websites i.ifeng.com
(“mobile websites”), and (iv) digital reading applications.
•
•
ifeng News (formerly named “Phoenix News”). We offer a wide range of mobile applications for different mobile
devices. Ifeng news application is our flagship mobile product, which provides newsfeeds and other contents in the form
of text, image, live broadcasting and video.
ifeng Video (formerly named “Phoenix Mobile Station”). Ifeng video application provides video news, live broadcasting,
and Phoenix TV programs content, etc.
• Mobile websites. Our i.ifeng.com website is designed and tailored to the preferences of our mobile users on mobile
browser and web-based pages. As part of our converged platform, i.ifeng.com allows our users to access quality
convergence content while they are on-the-go. Similar to ifeng.com, our i.ifeng.com features an array of interest-based
and interactive verticals, as well as a mobile video site for watching free mobile VOD.
• Digital reading applications. Our digital reading applications, such as Fanyue Novel (“翻阅小说”) provide fee-based
Internet literatures from writers and digital format books licensed from third-party publishers to customers on our mobile
platform. By offering Fanyue Novel, our users are able to enjoy a full-fledged online reading experience and enable us to
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lay a solid foundation for building our own closed-loop IP ecosystem. Revenues generated from digital reading are
recorded in paid contents revenues under paid services revenues.
Third-Party Channel
In addition to our own channels, we have opened public accounts on popular social media in China including but not limited
to WeChat, Weibo, Douyin, Kuaishou and Bilibili to distribute content in certain verticals such as product reviews, finance,
technology, fashion and entertainment.
We also rely on Telecom Operators’ platforms, or MVAS, Internet search engines and navigation sites to provide quality
content for our high-end users. As a prime example of our converged platforms, the Telecom Operators’ platforms, or MVAS consist
mainly of the following product lines: wireless value-added services, or WVAS, mobile newspaper service and mobile video service
delivered through the Telecom Operators’ platforms.
Our Sources of Revenues
Advertising Services
We provide advertising services primarily through our ifeng.com, our mobile Internet websites i.ifeng.com and our mobile
applications in our mobile channel. Our advertising team consists of direct sales, agency sales, advertising technology and products
support, customer support, advertising design and production, resource management, advertising strategy and sales promotion and
other functions.
As is typical in China’s online advertising industry, we primarily enter into advertising service contracts through third-party
advertising agencies. We mainly have three types of pricing models, consisting of the Cost Per Day (“CPD”) model, the Cost Per
Impression (“CPM”) model, and the Cost Per Click (“CPC”) model. In 2020, our advertising services are primarily on our mobile
channel, and we expect our advertising services on mobile will continue to increase going forward. In addition, together with Phoenix
TV, we provide bundled new media and TV advertising solutions to certain of Phoenix TV’s advertisers.
We strive to provide our advertisers with high-quality customer service. Our experienced sales professionals help advertisers
to analyze their target audiences and create innovative campaign strategies and designs. We provide a variety of advertising solutions,
including online advertisements, online video advertisements, user activities, live promotions and cross media public relations
campaigns. We have an advertising tracking system, which records and maintains the traffic statistics and other data that can be used
to measure the effectiveness of advertisements. After the release of a customer’s advertising campaign, we furnish them with a report
on the campaign’s effectiveness either prepared in-house or by an independent research firm.
We have a diverse advertising client base, including both Chinese and international brand advertisers. Our top ten advertisers
accounted for 37.5% of our total gross advertising revenues in 2020. Our advertisers generally are in the real estate, automobile, e-
commerce, financial services, food & beverages, Internet services, entertainment and tourism services, communication services, retail
services, IT products, cosmetic products, luxury brands, airline, health care and education industries.
Paid Services
The following table sets forth our paid services offerings on telecom operators’ platforms and our own platforms and the
percentage contribution of our various paid services to our paid services revenues and our total revenues in 2020.
Paid Services Offerings
Paid contents
Digital reading, audio books, paid videos, and other content-related sales activities
Games
Web-based games and mobile games
MVAS
Mobile value-added services delivered through telecom operators’ platforms, or MVAS
Others
E-commerce and online real estate related services, etc.
Our Advertising Execution Team
% of Paid
Service Revenues
% of Total Revenues
48.2%
0.2%
13.7%
37.9%
3.8%
0.0%
1.1%
3.0%
We have a dedicated team to manage the advertising execution which includes a series of review procedures on our
advertising material before we display such material on our platforms interfaces. This team checks advertisements to ensure that they
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do not contain any racial, violent, pornographic or other inappropriate content. This team also verifies that advertisers have provided
relevant government approvals if their advertisements are subject to special government requirements.
Marketing and Promotion
We employ a variety of traditional and online marketing programs and promotional activities to build our brand as part of our
overall marketing strategy. We focus on building brand awareness and growing our user base through proactive public relations and
innovative and interactive marketing activities and events. In May 2020, we organized the ifeng Finance Virtual Summit, which was
the first large-scale finance event held in China since the outbreak of COVID-19. Users throughout the country were highly
appreciative of the deep financial and economic insights unveiled during this event. The event related coverage generated 22.9 million
views on our ifeng News, and at the same time, the event’s trending topics also recorded around 170 million views on other social
media platforms.
We believe that our distinguished content and high-quality services lead to strong word-of-mouth promotion, which drives
consumer awareness of our brand in China. In addition, our engagement in philanthropic activities, such as our Annual Forever
Happiness Charity Gala (“美丽童行”), helps associate our brand with social responsibility. In December 2020, we hosted the 2020
Forever Happiness Charity Gala in cooperation with China Charities Aid Foundation for Children and several other charity
organizations. This charity event raising over RMB10 million in donations for children in need. During the last 14 years, we have
organized the Annual Forever Happiness Charity Gala in eight different cities across three continents to raise over RMB227 million.
Seasonality
Seasonal fluctuations and industry cyclicality have affected, and are likely to continue to affect our business. We generally
generate less revenue from advertising sales and paid services revenues during national holidays in China, in particular during the
Chinese New Year holidays in the first quarter of each year. We typically generate higher net advertising revenues in the fourth
quarter due to greater advertising spending by our advertisers near the end of each calendar year when they spend the remaining
portions of their annual budgets. In addition, advertising spending in China has historically been cyclical, reflecting overall economic
conditions as well as the budgeting and buying patterns of our advertisers. We expect that the seasonal fluctuations and cyclicality to
cause our quarterly and annual operating results to fluctuate. See “Item 3. Key Information—D. Risk Factors — Risks Relating to Our
Business and Industry—Our quarterly revenues and operating results may fluctuate, which makes our operating results difficult to
predict and may cause our quarterly operating results to fall short of expectations.”
Research and Development
In 2020, we continued to improve our advertising solution products as well as focus on improving our convergence model
across PC, mobile and TV in order to provide our users easier access to our premium content through any device. In particular, we
continued to introduce and improve our mobile applications and strengthened commercial products in certain of our verticals. For
example, we internally developed an analytic platforms named Fengyan (“凤眼”) to track and analyze certain real-time user behavior
data. Through Fengyan we can better understand user’s profile and reading preference, and provide reference data for future content
production and performance advertising solution. We also have an in-house Data Management Platform to better analyze and manage
advertising data and help improve the targeting accuracy of advertisements. Another platform we launched in 2017 is Fengyu (“凤
羽”). Fengyu is a customizable and self-service marketing solution that operates under a bidding system. Customers are able to target
users based on gender, age, geographic location, interests, device type, etc. Customers can place performance-based ads directly by
themselves using our self-service advertising system. We launched Fengyi (“凤翼”) in 2018, another customizable marketing
solution, catering to premium advertising demands. Following the success of these two platforms, we decided to develop Fengfei (“凤
飞”) in 2020, an advertising platform that we built based on in-app advertisement solutions. The platform enables mobile application
developers with less traffic to access our commercial resources, advertising data, and service capabilities through a set of advertising
monetization solutions. In 2018, 2019 and 2020, our total technology and product development expenses, including related share-
based compensation, were RMB204.7 million, RMB216.7 million and RMB172.0 million (US$26.4 million), respectively.
Infrastructure and Technology
Our technology platforms have been designed for reliability, speed, scalability and flexibility and are administered by our in-
house technology department. We have access to a network of approximately 3,300 self-owned and leased servers across China
mainland and Hong Kong with power supply and power generator backup. We have developed our server operations based on Linux
and other open source software, which has allowed us to lower software related investment and enhance our network reliability.
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Content Management Technology. We have internally developed a leading new media content management system, which
fully integrates our PC and mobile channels. We have also developed a new consolidated system, CMPP (Content Management
Programmable Platforms), for content management and delivery, which focuses on mobile websites and mobile applications.
Integration with Phoenix TV. The integration of our and Phoenix TV’s content management systems allows us to directly
access Phoenix TV’s programs digitally, in addition to our access via satellite signal, and to expedite the transmission of our content to
Phoenix TV.
Data Analysis Technology. Based on commercial big data, we developed a data analytical system which has successfully
helped build a comprehensive analytical chain of big data and helping us achieve our goals of making precise and efficient
commercial strategy decisions. This system delivers comprehensive and consultative data ranging from distribution channel, content
to manpower. We can access advertising exposure data as well as clicks and its corresponding costs on all business platforms, such as
our PC websites, mobile applications and mobile websites. In addition, this system possesses flexible mechanics for organizing and
analyzing data, with relatively lower cost.
Cloud Computing. We have built a distributed file system, which provides file access services to our content management
system, and is anticipated to become a streaming media service and core storage system for each of our CDN nodes. We have
commenced our distributed computing platforms project, which provide large-scale computer capacity support for our raw access log
and transcoding computing-intensive applications. We have also deployed an open source virtualization cluster to integrate multiple
small applications, which significantly reduced our IT costs. To upgrade our system infrastructure and lower our bandwidth costs, we
increasingly use cloud computing system in 2020.
Intelligent Recommender System (IRS). Our technical department developed a real-time, personalized recommender system,
which produce a list of contents through algorithm-based system and expert system, to predict contents that the user may have an
interest in, and to recommend additional items with similar properties. Powered by cutting-edge algorithm technology, we are able to
provide useful and relative news and information to our users, and also well-equipped to provide enhanced advertising solutions that
target users based on their exhibited preferences.
Competition
We operate in the market of PC and mobile Internet content and services, especially in newsfeed sector in China. The industry
is highly competitive and rapidly changing due to the growing market and technological developments. Our ability to compete
successfully depends on many factors, including the quality and relevance of our content, the demographic composition of our users,
brand recognition and reputation, user experience, the robustness of our technology platforms, our ability to provide innovative
advertising services to our customers and our relationships with our advertisers.
While we believe that our integrated platforms business model and targeted user base is unique, on the whole, from other
companies in China, we compete with other content and service providers in each of our individual channels for user traffic,
advertising revenues and fee-based services. On Internet content and service provision, we compete primarily with Baidu Inc,
NetEase, Inc., Sina Corporation, Sohu.com Limited and Tencent Technology Limited. Besides, especially among mobile newsfeed
sector, we primarily compete against ByteDance (Jinri Toutiao) and Qutoutiao. In terms of video content, we compete with a number
of online video companies, including ByteDance (Douyin), Kuaishou, Youku Tudou, iQIYI and Tencent video.
We also compete with traditional advertising media, such as television, radio, print media, as well as billboards and other
forms of outdoor media. We expect large companies’ proportionate spending on new media advertising of their advertising budgets
relative to traditional media advertising to continue increase in the future.
Intellectual Property
We rely on a combination of trademark, copyright and trade secret protection laws in China and other jurisdictions, as well as
confidentiality procedures and contractual provisions to protect our intellectual property and our brand. We also enter into
confidentiality, non-compete and invention assignment agreements with our employees and consultants and nondisclosure agreements
with selected third parties. We had 276 PRC software registrations and owned 57 domain names, including ifeng.com, as of March 31,
2021.
We have also designed proprietary logos for use in the respective businesses of Tianying Jiuzhou and Yifeng Lianhe. As of
March 31, 2021, Tianying Jiuzhou owned 471 PRC registered trademarks, six of which were transferred from Phoenix Satellite
Trademark Limited, and Yifeng Lianhe owned 35 PRC registered trademarks. Tianying Jiuzhou and Yifeng Lianhe continue to use
certain of Phoenix TV’s logos that are licensed from Phoenix Satellite Television Trademark Limited. For information about the risks
related to our use of licensed trademarks and our plans to remedy such risks, see “Item 3. Key Information—D. Risk Factors—Risks
Relating to Our Business and Industry—Our affiliated consolidated entities and their respective shareholders do not own all the
trademarks used in their value-added telecommunications services, which may subject them to revocation of their licenses or other
penalties or sanctions.”
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Employees
We had approximately 1,447, 1,689 and 1,305 employees as of December 31, 2018, 2019 and 2020, respectively. The table
below sets forth the number of employees categorized by function as of December 31, 2020:
Function
Management and administration
Content development
Mobile products and services
Technology and product development
Sales and marketing
Total
Number of Employees
210
376
70
269
380
1,305
As of December 31, 2020, we had 992, 48 and 65 employees located in Beijing, Shanghai and Guangzhou, respectively, and
200 employees located in other locations in China. Currently we do not have any employees located outside of China.
Since our inception, we have not experienced any strikes or other disruptions of employment. We believe our relationships
with our employees are good.
The remuneration package of our employees includes salary, bonus, share-based compensation and other cash benefits. In
accordance with applicable regulations in China, we participate in a pension contribution plan, a medical insurance plan, an
unemployment insurance plan, a personal injury insurance plan, maternity insurance and a housing reserve fund for the benefit of all
of our employees.
Facilities
Our executive office is located at Sinolight Plaza, Floor 16, No. 4 Qiyang Road, Wangjing, Chaoyang District, Beijing
100102, People’s Republic of China. We maintain a number of offices in Beijing, Shanghai and Guangzhou under leases with terms
ranging from one to five years. As of December 31, 2020, we leased an aggregate of 16,876 square meters of office space in Beijing
and 6,412 square meters of office space in other regions in China for use as office space for our employees.
We believe that our leased facilities are adequate to meet our needs for the foreseeable future, and that we will be able to
obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansions.
Legal and Administrative Proceedings
From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of business. We are
currently a party to certain legal proceedings and claims which in the opinion of our management, adequate provisions have been
recorded to cover the probable loss of those that can be reasonably estimated, while other claims are considered would not have
material adverse effect, individually or in the aggregate, on our financial position, results of operations or cash flows. From January 1,
2020 to March 31, 2021, we have been subject to 223 cases in the PRC, 178 of which have been concluded. The aggregate amount of
damages awards and settlements paid by us was RMB3.4 million. Government authorities may also impose administrative penalties
on us if they find that we have infringed third parties’ intellectual property rights.
In November 2016, China Youth Book Inc. and Dewey Press LLC filed a claim against Tianying Jiuzhou and our company
for intellectual property infringement of such work based on the above-mentioned finding of the National Copyright Bureau, and the
related claim for damage was approximately RMB235.8 million, even though the actual income we generated from such work was
less than RMB1,500. This claim was withdrawn by the plaintiffs in January 2018. In April 2018, we received notices from the local
court that the plaintiffs have filed a lawsuit against us again for the same claim, with the related claim for damages reduced to
approximately RMB99.8 million. In April 2020, we received the judgment from the local court which ordered us to pay the plaintiffs a
total of approximately RMB1.0 million as economic compensation and reimbursement of the plaintiff’s reasonable expenses. After the
plaintiff filed an appeal against the judgment made by the local court, the appellate court made the final judgment in December 2020
and upheld the local court’s decision. Tianying Jiuzhou has subsequently paid a total of approximately RMB1.0 million in damages to
the plaintiff and fulfilled its obligation under the judgment. Nevertheless, the plaintiff could still apply for a retrial under PRC civil
procedures, and as of the date of this annual report, the time limit for an application for a retrial has not expired yet and we cannot
assure you that the plaintiffs will not make such application.
Litigation is subject to inherent uncertainties and our view of these matters may change in the future. There exists the
possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the
unfavorable outcome occurs, and potentially in future periods.
Regulatory Matters
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The following is a summary of the most significant PRC laws and regulations that affect our business activities in China or
our shareholders’ rights to receive dividends and other distributions from us.
Foreign Investment Law
Investment activities in the PRC by foreign investors are principally governed by the Catalogue of Industries for Encouraging
Foreign Investment, or the Encouraging Catalogue, and the Special Management Measures (Negative List) for the Access of Foreign
Investment, or the Negative List, both of which were promulgated and are amended from time to time by the MOFCOM, and the
NDRC. The Encouraging Catalogue and the Negative List lay out the basic framework for foreign investment in China, classifying
businesses into three categories with regard to foreign investment: “encourage”, “restricted” and “prohibited”. Industries not listed in
the Encouraging Catalogue and the Negative List are generally deemed as falling into a fourth category “permitted” unless specifically
restricted by other PRC laws.
On June 23, 2020, MOFCOM and the NDRC released the Special Management Measures (Negative List) for the Access of
Foreign Investment 2020 Version), which became effective on July 23, 2020, to replace the previous Negative List. On December 27,
2020, the MOFCOM and the NDRC released the Catalog of Industries for Encouraging Foreign Investment (2020 Version), which
became effective on January 27, 2021, to replace the previous Encouraging Catalogue.
On March 15, 2019, the National People’s Congress promulgated the FIL, which came into effect on January 1, 2020 and the
FIL replaced the Old FIE Laws. The FIL, by means of legislation, establishes the basic framework for the access, promotion,
protection and administration of foreign investment in view of investment protection and fair competition.
According to the FIL, foreign investment shall enjoy pre-entry national treatment, except for those foreign invested entities
that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list”. The FIL provides that foreign invested
entities operating in foreign “restricted” or “prohibited” industries will require entry clearance and other approvals. In addition, the
FIL does not comment on the concept of “de facto control” or contractual arrangements with variable interest entities, however, it has
a catch-all provision under definition of “foreign investment” to include investments made by foreign investors in China through
means stipulated by laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves
leeway for future laws, administrative regulations or provisions to provide for contractual arrangements as a form of foreign
investment. See “Item 3. Key Information—D. Risk Factors— Uncertainties with respect to the PRC legal system and changes in laws
and regulations in China could adversely affect us.”
The FIL also provides several protective rules and principles for foreign investors and their investments in the PRC,
including, among others, that local governments shall abide by their commitments to the foreign investors; foreign-invested
enterprises are allowed to issue stocks and corporate bonds; except for special circumstances, in which case statutory procedures shall
be followed and fair and reasonable compensation shall be made in a timely manner, expropriate or requisition the investment of
foreign investors is prohibited; mandatory technology transfer is prohibited, allows foreign investors’ funds to be freely transferred out
and into the territory of PRC, which run through the entire lifecycle from the entry to the exit of foreign investment, and provide an
all-around and multi-angle system to guarantee fair competition of foreign-invested enterprises in the market economy. In addition,
foreign investors or the foreign investment enterprise should be imposed legal liabilities for failing to report investment information in
accordance with the requirements. Furthermore, the FIL provides that foreign invested enterprises established according to the existing
laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of
the FIL, which means that foreign invested enterprises may be required to adjust the structure and corporate governance in accordance
with the current PRC Company Law and other laws and regulations governing the corporate governance.
On December 26, 2019, the State Council promulgated the Implementation Rules to the Foreign Investment Law, which
became effective on January 1, 2020. The implementation rules further clarified that the state encourages and promotes foreign
investment, protects the lawful rights and interests of foreign investors, regulates foreign investment administration, continues to
optimize foreign investment environment, and advances a higher-level opening.
On December 30, 2019, the MOFCOM and SAMR, jointly promulgated the Measures for Information Reporting on Foreign
Investment, which became effective on January 1, 2020. Pursuant to the Measures for Information Reporting on Foreign Investment,
where a foreign investor carries out investment activities in China directly or indirectly, the foreign investor or the foreign-invested
enterprise shall submit the investment information to the competent commerce department.
On December 19, 2020, the MOFCOM and the NDRC, jointly promulgated the Measures for the Security Review of Foreign
Investments, which took effect on January 18, 2021. Pursuant to the measures, for foreign investments which affect or may affect
national security, security review shall be conducted in accordance with the provisions of the measures. The State establishes a
working mechanism for the security review of foreign investments (the “Working Mechanism”) to be responsible for organizing,
coordinating and guiding the security review of foreign investments. For foreign investments related to important cultural products
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and services, important information technology and internet products and services, etc., the foreign investors who obtains the actual
controlling stake in the investee enterprise or relevant parties in the PRC shall declare to the office of the Working Mechanism prior to
implementation of the investments.
Regulation of Telecommunications and Internet Information Services
The telecommunications industry, including the Internet sector, is highly regulated in the PRC. Regulations issued or
implemented by the State Council, the Ministry of Industry and Information Technology, or MIIT (formerly the Ministry of
Information Industry, or MII), and other relevant government authorities cover many aspects of operation of telecommunications and
Internet information services, including entry into the telecommunications industry, the scope of permissible business activities,
licenses and permits for various business activities and foreign investment.
The principal regulations governing the telecommunications and Internet information services we provide in the PRC include:
Telecommunications Regulations (2016, revised), or the Telecom Regulations. The Telecom Regulations categorize all
telecommunications businesses in the PRC as either basic or value-added. Value-added telecommunications services are defined as
telecommunications and information services provided through public network infrastructures. The currently effective “Catalog of
Telecommunications Business”, an attachment to the Telecom Regulations, categorizes various types of telecommunications and
telecommunications-related activities into basic or value-added telecommunications services, according to which, Internet information
services, or ICP services, are classified as value-added telecommunications businesses. Under the Telecom Regulations, commercial
operators of value-added telecommunications services must first obtain an operating license for value-added telecommunications
services, or the ICP License, from MIIT or its provincial level counterparts.
Administrative Measures on Internet Information Services (2011, revised), or the Internet Measures. According to the Internet
Measures, a commercial ICP service operator must obtain an ICP License from MIIT or its provincial level counterparts before
engaging in any commercial ICP service in PRC. When the ICP service involves areas of news, publication, education, medicine,
health, pharmaceuticals, medical equipment and other industry and, if required by relevant laws and regulations, prior approval from
the respective regulatory authorities must be obtained prior to applying for the ICP License. Moreover, an ICP service operator must
display its ICP License number in a conspicuous location on its websites.
Administrative Measures for Telecommunications Business Operating License (2017, revised), or the Telecom License
Measures. Pursuant to the Telecom License Measures, an ICP service operator conducting business within a single province must
apply for the ICP License from MIIT’s applicable provincial level counterpart, while that providing ICP services across provinces
must apply for Trans-regional ICP License directly from MIIT. The appendix to the ICP License should detail the permitted activities
to be conducted by the ICP service operator. An approved ICP service operator must conduct its business in accordance with the
specifications recorded on its ICP License. The ICP License is subject to annual report, an ICP service operator shall report certain
information to the issuing authorities through the Administrative Platforms in the first quarter every year, such information includes
the business performance of the telecommunications business in the previous year; the actual progress in network building-up,
business development, turnover of staff and institutional restructuring; the service quality; the actual implementation of the network
and information security guarantee systems and measures; the actual implementation of the relevant provisions of MIIT and other
information required to be reported to the issuing authorities. An ICP service operator shall be responsible for the authenticity of the
information in the annual report.
Regulations for Administration of Foreign-Invested Telecommunications Enterprises (2016, revised), or the FITE
Regulations. Under the FITE Regulations, a foreign entity is prohibited from owning more than 50% of the total equity interests in any
value-added telecommunications service business in the PRC and the major foreign investor in any value-added telecommunications
service business in the PRC shall have a good track record in such industry.
Notice on Strengthening the Administration of Foreign Investment in Value-added Telecommunications Services (2006), or
the MIIT 2006 Notice. Under the MIIT 2006 Notice, a domestic PRC company that holds an ICP License is prohibited from leasing,
transferring or selling the ICP License to foreign investors in any form, and from providing any assistance, including providing
resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in the PRC. Further,
the domain names and registered trademarks used by an operating company providing value-added telecommunications service must
be legally owned by such company and/or its shareholders. In addition, such company’s operation premises and equipment should
comply with its approved ICP License, and such company should establish and improve its internal Internet and information security
policies and standards and emergency management procedures. After the promulgation of the MIIT 2006 Notice in July 2006, the
MIIT issued a subsequent notice in October 2006, or the MIIT October Notice, urging value-added telecommunication service
operators to conduct self-examination regarding any noncompliance with the MIIT 2006 Notice prior to November 1, 2006.
We have designed proprietary logos for use in the respective businesses of Tianying Jiuzhou and Yifeng Lianhe. As of
March 31, 2021, Tianying Jiuzhou owned 471 PRC registered trademarks, six of which were transferred to it from Phoenix Satellite
Trademark Limited, and Yifeng Lianhe owned 35 PRC registered trademarks. Tianying Jiuzhou and Yifeng Lianhe continue to use
57
certain of Phoenix TV’s logos that are licensed from Phoenix Satellite Television Trademark Limited. Therefore, we are currently not
in compliance with the MIIT 2006 Notice.
All “ifeng” related trademarks used by our company have been transferred to Tianying Jiuzhou and Yifeng Lianhe. In
addition, we will continue to examine the possibility of the transferring to our affiliated consolidated entities or their respective
subsidiaries all or part of the ownership of additional licensed logos currently used by them in a manner that would meet the
requirements of PRC trademark regulations in due course in the future. For information about the risks related to our use of licensed
trademarks, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Our affiliated
consolidated entities and their respective shareholders do not own all the trademarks used in their value-added telecommunications
services, which may subject them to revocation of their licenses or other penalties or sanctions.”
Measures for the Administration of Commercial Websites Filings for Record (2004) was promulgated by Beijing
Administration of Industry and Commerce on October 1, 2004. Under these measures, commercial websites operated by ICP service
operators registered in Beijing must: (i) file with the Beijing Administration of Industry and Commerce and obtain electronic
registration marks, and (ii) place the registration marks on their websites’ homepages.
In order to comply with these PRC laws and regulations, we operate our commercial websites through Tianying Jiuzhou, one
of our PRC affiliated consolidated entities. Tianying Jiuzhou holds an ICP License and owns the material domain names for our value-
added telecommunications business. In addition, Tianying Jiuzhou completed the necessary filing with the relevant Administration of
Industry and Commerce to obtain the electronic registration mark for our websites and has placed the registration mark on the
websites homepage. Tianying Jiuzhou has completed all necessary registrations and approvals for its use of such material domain
names.
Under various laws and regulations governing ICP services, ICP services operators are required to monitor their websites.
They may not produce, duplicate, post or disseminate any content that falls within the prohibited categories and must remove any such
content from their websites, including any content that:
•
•
•
•
•
•
•
•
•
opposes the fundamental principles determined in the PRC’s Constitution;
compromises state security, divulges state secrets, subverts state power or damages national unity;
harms the dignity or interests of the State;
incites ethnic hatred or racial discrimination or damages inter-ethnic unity;
sabotages the PRC’s religious policy or propagates heretical teachings or feudal superstitions;
disseminates rumors, disturbs social order or disrupts social stability;
propagates obscenity, pornography, gambling, violence, murder or fear or incites the commission of crimes;
insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or
includes other content prohibited by laws or administrative regulations.
The PRC government may shut down the websites of ICP License holders that violate any of the above restrictions and
requirements, revoke their ICP Licenses or impose other penalties pursuant to applicable law.
In order to comply with these PRC laws and regulations, we have adopted internal procedures to monitor content displayed on
our PC websites, mobile applications and mobile websites. However, because the definition and interpretation of prohibited content is
in many cases vague and subjective, it is not always possible to determine or predict what content might be prohibited under existing
restrictions or restrictions that might be imposed in the future and we may be subject to penalties for such content. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our Business and Industry—The Chinese government may prevent us from
advertising or distributing content, including UGC, that it believes is inappropriate and we may be subject to penalties for such content
or we may have to interrupt or stop the operation of our PC websites, mobile applications and mobile websites.”
Regulation of Online Transmission of Audio-Visual Programs
On July 6, 2004, SARFT promulgated the Measures for the Administration of Publication of Audio-Visual Programs through
the Internet or Other Information Networks, or the 2004 Internet A/V Measures, which was revised on August 28, 2015. The 2004
Internet A/V Measures apply to activities relating to the opening, broadcasting, integration, transmission or download of audio-visual
programs via the Internet or other information networks. An applicant who engages in the business of transmitting audio-visual
programs must obtain a license from SAPPRFT in accordance with its category of business, including receiving terminals,
transmission networks and other items. Foreign-invested enterprises are not allowed to engage in the above business. Pursuant to the
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Certain Decisions on the Entry of the Non-State-owned Capital into the Cultural Industry, and the Several Opinions on Canvassing
Foreign Investment into the Cultural Sector promulgated in 2005 non-State-owned capital and foreign investors are not allowed to
conduct the business of transmitting audio-visual programs via an information network.
On December 20, 2007, SARFT and MII jointly promulgated the Administrative Provisions on Internet Audio-visual
Program Service, or the Audio-visual Program Provisions, which came into effect on January 31, 2008 and was revised on August 28,
2015. The Audio-Visual Program Provisions apply to the provision of audio-visual program services to the public via the Internet
(including mobile network) in China. Providers of Internet audio-visual program services are required to obtain a License for Online
Transmission of Audio-Visual Programs issued by SAPPRFT or complete certain registration procedures with SAPPRFT. Providers
of Internet audio-visual program services are generally required to be either State-owned or State-controlled by the PRC government,
and the business to be carried out by such providers must satisfy the overall planning and guidance catalog for Internet audio-visual
program service determined by SAPPRFT. In a press conference jointly held by SARFT and MII to answer questions with respect to
the Audio-Visual Program Provisions in February 2008, SARFT and MII clarified that providers of Internet audio-visual program
services who engaged in such services prior to the promulgation of the Audio-Visual Program Provisions are eligible to register their
business and continue their operation of Internet audio-visual program services so long as such providers have not been in violation of
laws and regulations.
On May 21, 2008, SARFT issued a Notice on Relevant Issues Concerning Application and Approval of Licenses for Online
Transmission of Audio-Visual Programs, which was revised on August 28, 2015. The notice sets forth detailed provisions concerning
the application and approval process for the License for Online Transmission of Audio-Visual Programs. The notice also states that
providers of Internet audio-visual program services who engaged in such services prior to the promulgation of the Audio-Visual
Program Provisions are eligible to apply for the license as long as their violation of the laws and regulations is minor and can be
rectified in a timely manner and they have no records of violation during the three months prior to the promulgation of the Audio-
Visual Program Provisions.
On December 28, 2007, SARFT issued the Notice on Strengthening the Administration of TV Dramas and Films Transmitted
via the Internet, or the Notice on Dramas and Films. According to this notice, if audio-visual programs published to the public through
an information network fall under the film and drama category, the requirements of the Permit for Issuance of TV Dramas, Permit for
Public Projection of Films, Permit for Issuance of Cartoons or academic literature movies and Permit for Public Projection of
Academic Literature Movies and TV Plays will apply accordingly. In addition, providers of such services should obtain prior consents
from copyright owners of all such audio-visual programs.
Further, on March 30, 2009, SARFT issued the Notice on Strengthening the Administration of the Content of Internet
Audiovisual Programs, or the Notice on Content of A/V Programs, which reiterates the requirement of obtaining the relevant permit
for publishing audio-visual programs to the public through an information network, and prohibits certain types of Internet audio-visual
programs from containing violence, pornography, gambling, terrorism, superstitious or other hazardous contents.
On April 25, 2016, SAPPRFT issued the 2016 A/V Provisions, which replaced 2004 Internet A/V Measures. Pursuant to these
provisions, “audio-visual program services through private network and targeted communication” refer to radio and TV program and
other audio-visual program services to a targeted audience with TV, and all types of handheld electronic equipment, etc., as terminal
recipients, and through setting up virtual private network through local area networks and Internet or with Internet and other
information networks as targeted transmission channels, including the provision of contents, integrated broadcast control, transmission
and distribution, and other activities conducted by such forms as Internet protocol television (IPTV), private network mobile TV, and
Internet TV. Any provider who engages in aforesaid service must obtain a license from SAPPRFT. Wholly foreign-owned enterprises,
Sino-foreign joint ventures and Sino-foreign cooperative enterprises are not allowed to engage in the above business.
On March 10, 2017, SAPPRFT issued the Internet Audio-visual Program Services Categories (Provisional), or the
Provisional Categories, which classifies Internet audio-visual programs into four categories.
In addition, on November 18, 2019, the State Internet Information Office, MTC and the State Administration of Radio and
Television jointly promulgated the Notice on Promulgation of the Administrative Provisions on Online Audio and Video Information
Services to further strengthen the supervision and management of network audio-visual information services, pursuant to which the
online audio and video information service providers shall establish and improve their systems in respect of user registration,
information release review, information security management, emergency response, protection of intellectual property rights and
mechanisms to refute rumors.
In order to comply with these laws and regulations, Tianying Jiuzhou submitted an application to SAPPRFT for the License
for the Online Transmission of Audio-Visual Programs. However, we have not been granted such license as to the date of this annual
report and cannot assure you that we may be able to obtain one. See “Item 3. Key Information—D. Risk Factors—Risks Relating to
Our Business and Industry—Our lack of an Internet audio-visual program transmission license has exposed, and may continue to
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expose, us to administrative sanctions, including the banning of our paid mobile video services and video advertising services, which
would materially and adversely affect our business and results of operation.”
Regulation of Foreign Television Programs and Satellite Channels
Broadcast of foreign television programs is strictly regulated by NRTA (formerly the SAPPRFT). On August 11, 1997, the
State Council promulgated the Administrative Regulations on Television and Radio, which was last revised on November 29, 2020,
under which any foreign television drama or other foreign television program to be broadcast by television or radio stations is subject
to the prior inspection and approval by SAPPRFT or its authorized entities. On June 18, 2004, SARFT promulgated the Administrative
Measures on the Landing of Foreign Satellite Television Channels, which was revised on October 29, 2020, pursuant to which foreign
satellite televisions channels can only be broadcast in three-star (or above) hotels for foreigners or departments exclusively for the
residence of foreigners or other specific areas, and prior broadcasting approval for such limited landing must be obtained from
SAPPRFT.
In addition, on September 23, 2004, SARFT promulgated the Administrative Regulations on the Introduction and
Broadcasting of Foreign Television Programs, pursuant to which only organizations designated by SAPPRFT are qualified to apply to
SAPPRFT or its authorized entities for introduction or broadcasting of foreign television dramas or foreign television programs.
Approval of such application is subject to the general plan of SAPPRFT and the content of such foreign television dramas or programs
may not in any way threaten the national security or violate any laws or regulations.
The 2004 Internet A/V Measures explicitly prohibit Internet service providers from broadcasting any foreign television or
radio program over an information network and state that any violation may result in warnings, monetary penalties or, in severe cases,
criminal liabilities. On November 19, 2009, SARFT issued a notice to extend the prohibition to broadcasting foreign television
programs via mobile phones. However, pursuant to several notices issued by SARFT, such as the Notice on Dramas and Films and the
Notice on Content of A/V Programs referenced above under “Regulation of Online Transmission of Audio-visual Programs”, foreign
audio-visual programs may be published to the public through the Internet, provided that such foreign audio-visual programs comply
with the regulations on administration of radios, films and television, and that the relevant permits required by PRC laws and
regulations, such as the Permit for Issuance of TV Dramas, Permit for Public Projection of Films, Permit for Issuance of Cartoons or
academic literature movies and Permit for Public Projection of Academic Literature Movies and TV Plays, have been obtained for
such foreign audio-visual programs. The promulgation of the Notice on Dramas and Films and the Notice on Content of A/V
Programs implies that the absolute restriction against broadcasting foreign television or radio programs on the Internet as set forth in
the 2004 Internet A/V Measures has been lifted.
On April 25, 2016, SAPPRFT issued the 2016 A/V Provisions, which replaced the 2004 Internet A/V Measures. The 2016
A/V Provisions does not explicitly regulate whether broadcasting foreign television program is permitted.
Some of the video, image and text contents on our PC websites, mobile applications and mobile websites are foreign content
and we currently do not have any approval from SAPPRFT for introducing and broadcasting foreign TV content into China and
cannot assure you that we may be able to obtain such approval if required to do so. See “Item 3. Key Information—D. Risk Factors—
Risks Relating to Our Business and Industry—Failure to obtain NRTA’s approval for introducing and broadcasting foreign television
programs could have a material adverse effect on our ability to conduct our business.”
Regulation of the Production of Radio and Television Programs
On July 19, 2004, SARFT promulgated the Regulations on the Administration of Production and Operation of Radio and
Television Programs, or the Radio and TV Programs Regulations, which came into effect as of August 20, 2004 and was last revised
on October 29, 2020. Under the Radio and TV Programs Regulations, any entities that engage in the production of radio and television
programs are required to apply for a license from SAPPRFT or its provincial branches. Entities with the Permit for Production and
Operation of Radio and TV Programs must conduct their business operations in strict compliance with the approved scope of
production and operation. Furthermore, entities other than radio and TV stations are strictly prohibited from producing radio and TV
programs covering contemporary political news or similar subjects and columns.
Tianying Jiuzhou has been granted a Permit for Production and Operation of Radio and TV Programs, with a permitted scope
including the production of animations, featured shows and entertainment programs.
Regulation of Online Cultural Activities and Internet Music
The MCT promulgated the new Provisional Measures on Administration of Internet Culture on February 17, 2011, or the
Internet Culture Measures, which became effective as of April 1, 2011 and was further amended on December 15, 2017 and the Notice
on Issues Relating to Implementing the Newly Amended Provisional Measures on Administration of Internet Culture on March 18,
2011, replacing the relevant regulations promulgated in 2003. The Internet Culture Measures apply to entities that engage in activities
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related to “online cultural products”. “Online cultural products” are classified as cultural products produced, disseminated and
circulated via the Internet that include: (i) online cultural products specifically produced for the Internet, such as online music
entertainment, network games, network performance programs, online performing arts, online artworks and online animation features
and cartoons; and (ii) online cultural products that are converted from music entertainment, games, performance programs, performing
arts, artworks and animation features and cartoons and disseminated via the Internet. Pursuant to the Internet Culture Measures, an
entity that intends to commercially engage in any of the following types of activities are required to obtain an Online Culture
Operating Permit from the applicable provincial level culture administrative authority:
•
•
•
the production, duplication, import, distribution or broadcasting of online cultural products;
the publication of online cultural products on the Internet or transmission of online cultural products via an information
network, such as the Internet and mobile networks, to a computer, fixed-line or mobile phones, television sets or gaming
consoles for the purpose of browsing, reviewing, using or downloading such products by online users; or
exhibitions or contests related to online cultural products.
The Administration Rules of Publication of Electronic Publication Rules, or the Electronic Publication Rules, regulate the
production, publishing and importation of electronic publication in the PRC and outline a licensing system for business operations
involving electronic publishing. If a PRC company is contractually authorized to publish foreign electronic publications, it must obtain
the approval of, and register the copyright license contract with, SAPPRFT.
On February 4, 2016, the SAPPRFT and the MIIT jointly issued the Administrative Measures on Network Publication
Service, which took effect in March 2016 and replaced the Tentative Administrative Measures on Internet Publication. Pursuant to the
Administrative Measures on Network Publication Service, Internet publishers must be approved by and obtain a Network Publication
Service License from SAPPRFT in order to provide network publication services.
On December 2, 2016, the MCT issued the Administrative Measures for Business Activities of Online Performances, which
became effective on January 1, 2017. According to these measures, an operator of online performances shall apply for Online Culture
Operating Permit with the competent provincial administrative cultural department, and the business scope indicated on the Online
Culture Operating Permit shall clearly include online performances. In addition, an operator of online performances shall present the
number of its Online Culture Operating Permit in a prominent position on the homepage of its websites.
On November 20, 2006, the MCT issued Several Suggestions on the Development and Administration of the Internet Music,
or the Suggestions, which became effective on November 20, 2006. The Suggestions, among other things, reiterate the requirement for
Internet service providers to obtain an Online Culture Operating Permit to operate any business involving Internet music products. In
addition, foreign investors are prohibited from operating Internet culture businesses. However, the laws and regulations on Internet
music products are still evolving, and there have not been any provisions stipulating whether or how music videos will be regulated by
the Suggestions.
On August 18, 2009, the MCT issued the Notice on Strengthening and Improving the Content Review of Online Music.
According to this notice, only “Internet culture operating entities” approved by the MCT may engage in the production, release,
dissemination (including providing direct links to music products) and importation of online music products. Online music content
shall be reviewed by or filed with the MCT. Internet culture operating entities should establish a strict system for self-monitoring
online music content and set up a special department in charge of such monitoring.
Tianying Jiuzhou provides Internet music products on our PC websites, mobile applications and mobile websites. As of the
date of this annual report, Tianying Jiuzhou has been granted an Online Culture Operating Permit with a permitted scope including the
operation of online music, art and entertainment products, online game products (including virtual currencies for online games), art
products, play performance, animation products and organization of exhibition or race of the online cultural products. However, the
Online Culture Operating Permit does not cover the operation of online performances. Tianying Jiuzhou has also obtained a Network
Publication Service License from SAPPRFT with respect to the distribution of published books and periodicals via Internet (including
the mobile Internet), and the publication of online and mobile games.
In addition, to comply with the laws and regulations on the content requirements of Internet music products, our content
examination team reviews the content of online music products provided on our PC websites, mobile applications and mobile
websites.
Regulation of Internet News Dissemination
Pursuant to the Provisional Regulations for the Administration of Internet Websites Engaging in News Publication Services,
promulgated by the State Council Information Office, or the SCIO, and MII, which became effective as of November 6, 2000 websites
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established by non-news organizations may publish news released by certain official news agencies but may not publish news
generated by themselves or news sourced elsewhere. In order to disseminate news, such websites must satisfy the relevant
requirements set forth in the applicable regulations and have acquired approval from SCIO after securing permission from the news
office of the provincial-level government. In addition, websites intending to publish news released by the aforementioned news
agencies must enter into agreements with the respective organizations, and file copies of such agreements with the news office of the
provincial-level government.
On November 4, 2016, the State Internet Information Office issued the Provisions on the Administration of Online Live-
streaming Services, which became effective on December 1, 2016. According to these provisions, online live-streaming service
providers shall obtain an Internet news license, and carry out Internet news information services within the permissible scope of the
license; those who provide online performances, Internet video and audio programs and other online live-streaming services shall also
obtain relevant licenses as required by laws and regulations. Online live-streaming service providers shall examine and verify the real
identity information of online live-streaming service publishers and establish platforms for reviewing live-streaming content, exercise
oversight over Internet news information live-streams and its interactive content following the principle of examination first and
issuance later. In addition, online live-streaming service providers shall strengthen real-time management of live interactions and
equip corresponding administrative staff.
On May 2, 2017, the CAC issued the Provisions on Administration over the Internet News Information Services, which
became effective on June 1, 2017 and replaced the Provisions for the Administration of Internet News Information Services,
promulgated by the SCIO, and MII, which became effective as of September 25, 2005. In addition, CAC issued the Implementing
Rules for the Administration of the Licensing for Internet News Information Services on May 22, 2017, which became effective as of
June 1, 2017. According to these regulations, Internet news information services are divided into three categories: collecting, editing
and releasing Internet news information service; reposting Internet news information and providing platforms to disseminate such
news information. Anyone who intends to provide the public with news information services on the Internet via Internet websites,
applications, forums, blogs, micro-blogs, official accounts, instant messaging tools, network-based broadcast, etc. shall obtain an
Internet news license, and is forbidden to carry out any activities concerning Internet news information services without the permit or
beyond the permitted scope. Where such an applicant is an entity other than a news entity, or a party whose entity-in-charge is a news
publicity department, the application shall first be subject to preliminary examination by the applicable cyberspace administrator at the
provincial level, and thereafter be examined and approved by the CAC. No organization may establish the Internet news information
service entity in the form of a Sino-foreign equity joint venture, Sino-foreign cooperative joint venture or wholly foreign-invested
enterprise. When an Internet news information service entity cooperates with a Sino-foreign equity joint venture, Sino-foreign
cooperative joint venture or wholly foreign-invested enterprise, such cooperation shall be submitted to the CAC for security
assessment. In addition, an Internet news information service provider shall request its users to submit their real identification
information in accordance with the provisions of the Cyber Security Law, provided that it provides such users with a platform to
disseminate news information on the Internet. Where any user refuses to provide its real identification information, the Internet news
information service provider is not allowed to provide it with relevant services.
In order to comply with these laws and regulations, we submitted an application to CAC for the Internet news license and we
have been trying our best to obtain the license. However, we have not been granted such license as of the date of this annual report and
cannot assure you that we may be able to obtain one. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our
Business and Industry—Our lack of an Internet news license may expose us to administrative sanctions, including an order to cease
our Internet information services that provide political news or to cease the Internet access services provided by third parties to us.”
Regulation of Publication Operation
On March 25, 2011, GAPP and MOFCOM jointly issued the Administrative Measures for the Publication Market, or the
Publication Market Measures (2011 Version), pursuant to which any entity or individual engaging in the wholesale or retail of books,
newspaper, magazines, electronic publications and audio and video products must obtain an approval from the relevant press and
publication administrative authority and receive a Publication Operation Permit. An enterprise that has obtained a Publication
Operation Permit is not required to obtain any special permission if it utilizes the Internet and other information networks to sell such
publications, but must file with the relevant press and publication administrative authority within 15 days following its
commencement of operations on the Internet. Foreign investors may engage in the distribution of audio and video products in China
only in the form of contractual joint ventures between foreign and Chinese investors. Due to these measures, we engage in retail of
books, newspaper, magazines, electronic publications and audio and video products through Tianying Jiuzhou and wholesale and
retail of books, newspaper, magazines and electronic publications through Yifeng Lianhe. Each of Tianying Jiuzhou and Yifeng
Lianhe has obtained a Publication Operation Permit.
On May 31, 2016, SAPPRFT and MOFCOM jointly promulgated the Administrative Measures for the Publication Market
(2016 Version), or Publication Market Measures (2016 Version), which replaced the Publication Market Measures (2011 Version).
According to the Publication Market Measures (2016 Version), entities and individuals engaged in the wholesale or retail of
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publications shall carry out the relevant activities on the strength of an operation permit for publications. Where an entity or individual
is engaged in the distribution of publications via the Internet or other information networks, it or he/she shall obtain the operation
permit for publications; where an entity or individual that has obtained the operation permit for publications is engaged in the
distribution of publications via the Internet or other information networks within the approved business scope, it or he/she shall go
through the record-filing formalities with the publication administrative department that granted approval within 15 days after
launching the online distribution business. Pursuant to the Publication Market (2016 Version), foreign-invested enterprises are allowed
to engage in the distribution of publications.
Regulation of Network Publication
NPPA (formerly the SAPPRFT) is the government agency regulating publishing activities in the PRC. In February 2016, the
SAPPRFT and the MIIT jointly issued the Administrative Measures on Network Publication Service, which took effect in March 2016
and replaced the Tentative Administration Measures on Internet Publication. The Administrative Measures on Network Publication
Service further strengthen and expand supervision over and management of network publication services, and require Internet
publishers to be approved by and obtain a Network Publication Service License from SAPPRFT. Pursuant to the Administrative
Measures on Network Publication Service, “network publication services” refers to activities including providing network
publications to the public through information network, and “network publications” refers to digitalized works with publishing
features such as editing, producing and processing. The Administrative Measures on Network Publication Service also detailed
qualifications and application procedures for obtaining a Network Publication Service License.
Regulation of Short Message Services
MII issued the Notice on Certain Issues Regarding Standardizing Short Message Services on April 15, 2004, specifying that
only those information service providers holding the relevant license can provide short message services in the PRC. Such notice also
specifies that information service providers shall examine the contents of short messages and automatically record and keep for five
months the time of sending and receiving the short messages, the mobile numbers or codes of the sending terminal and receiving
terminal of the short messages.
MIIT issued the Administrative Provisions on Short Message Services for Communication on May 19, 2015, which became
effective on June 30, 2015. According to such provisions, an entity shall obtain relevant telecommunications business license (“the
relevant licenses”) to engage in short message service.
In order to comply with these laws and regulations, Tianying Jiuzhou and Yifeng Lianhe have obtained the relevant licenses,
for provision of information via mobile networks. In addition, we have certain personnel to examine and screen on contents of short
messages and keep the relevant records as required by the law.
Regulation of Telecommunications Networks Code Number Resources
On January 29, 2003, MII issued the Administrative Measures on Telecommunications Networks Code Number Resources, or
the Code Number Measures, which was revised on September 23, 2014, to regulate code numbers, including those of mobile
communications networks. According to such administrative measures, entities which apply for code numbers to be used in a trans-
provincial range shall apply to MIIT, and entities which apply for code numbers to be used within provincial-level administrative
regions shall apply to MIIT at the provincial level. Such administrative measures also specify the qualification requirements for code
number applicants, required application materials and the application procedures.
In June 2006, MII issued the Administrative Measures on Application, Distribution, Usage and Withdrawal of SMS Services
Access Codes. According to such administrative measures, the administration and usage of services relating to SMS short codes shall
comply with the Code Number Measures. Such administrative measures also specify that operators who provide services relating to
SMS short codes across provinces or in the territory of the whole country shall file with the relevant provincial-level counterparts of
MII.
Each of Tianying Jiuzhou and Yifeng Lianhe has been granted the code numbers to be used in a trans-provincial range and
has completed the filing in all of the provinces in the PRC.
Regulation of Certain Internet Content
Internet Medicine Information
The Administration Measures on Internet Medicine Information Service issued by the State Food and Drug Administration, or
the SFDA, and related implementing rules and notices govern the classification, application, approval, contents, qualifications and
requirements for Internet medicine information services. An ICP service operator that provides information regarding medicine or
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medical equipment must obtain an Internet Medicine Information Service Qualification Certificate from the applicable provincial level
counterpart of SFDA.
Certain of our advertising services contain drug-related information. As of the date of this annual report, YiFeng Lianhe has
obtained an Internet Medicine Information Service Qualification Certificate from Beijing Municipal Medical Products Administrative.
However, Tianying Jiuzhou does not have such qualification certificate. We cannot assure you that Tianying Jiuzhou may be able to
obtain it. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Failure to obtain certain
permits for our advertising services that contain drug-related information would subject us to penalties.”
Regulation of Internet Privacy
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits the
infringement of such rights. In recent years, PRC government authorities have passed regulations on Internet use to protect personal
information from unauthorized disclosure. The Internet Measures prohibit an ICP service operator from insulting or slandering a third
party or infringing upon the lawful rights and interests of a third party. The regulations also authorize the relevant telecommunications
authorities to order ICP service operators to rectify unauthorized disclosures. ICP service operators are subject to legal liability if
unauthorized disclosure results in damages or losses to users. The PRC government, however, has the power and authority to order
ICP service operators to turn over personal information if an Internet user posts any prohibited content or engages in illegal activities
on the Internet. Pursuant to the Information Protection Decision issued by the Standing Committee of the National People’s Congress
of the PRC and the Order for the Protection of Telecommunication and Internet User Personal Information issued by MIIT on
July 16, 2013, or the Order, any collection and use of user personal information shall be subject to the consent of the user, abide by the
principles of legality, rationality and necessity and be within the specified purposes, methods and scope. The Information Protection
Decision and the Order further state that Internet service providers and other enterprises and institutions must keep users’ personal
information that is gathered in the course of their business activities confidential and are further prohibited from divulging, tampering
or destroying of any such information, or selling or providing such information to other parties. Any violations of the Information
Protection Decision or the Order may subject such companies to penalties such as warnings, fines, confiscation of its unlawful
income, revocation of licenses, cancellation of filings, shutdown of their websites or even criminal liabilities.
On May 28, 2020, the National People’s Congress approved the Civil Code of the PRC, or the Civil Code, which came into
effect on January 1, 2021. Pursuant to the Civil Code, the personal information of a natural person shall be protected by the law. Any
organization or individual that needs to obtain personal information of others shall obtain such information legally and ensure the
safety of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase
or sell, provide or make public personal information of others.
In October 2020, the Standing Committee of the National People’s Congress released the Draft Personal Information
Protection Law. The Draft Personal Information Protection Law provides the basic regime for personal information protection,
including without limitation, stipulating an expanded definition of “personal information”, providing a long-arm jurisdiction in cross-
border scenarios, emphasizing individual rights, and prohibiting rampant infringement of personal information, such as stealing,
selling, or secretly collecting personal information.
Our platforms are open to Internet users for uploading text and images. As a result, content posted by our users may expose us
to allegations by third parties of invasion of privacy. Though our users agree not to use our services in a way that is illegal, given the
volume of content uploaded, it is not possible to identify and remove all potentially infringing content uploaded by our users and we
may therefore be subject to litigations or claims in connection with invasion of user privacy.
Regulation of Advertising Business
The State Administration for Market Regulation, or SAMR, is the government agency responsible for regulating advertising
activities in the PRC.
According to PRC Advertisement Law and relevant rules and regulations, companies that engage in advertising activities must
obtain from SAMR or its local branches a business license which specifically includes advertising within its business scope. PRC
advertising laws and regulations set forth certain content requirements for advertisements in the PRC including, among other things,
prohibitions on false or misleading content, superlative wording, socially destabilizing content or content involving obscenities,
superstition, violence, discrimination or infringement of the public interest. Advertisers, advertising agencies, and advertising
distributors are required to ensure that the content of the advertisements they prepare or distribute is true and in full compliance with
applicable law. In providing advertising services, advertising operators and advertising distributors must review the supporting
documents provided by advertisers for their advertisements and verify that the content of the advertisements complies with applicable
PRC laws and regulations. Prior to distributing advertisements that are subject to government censorship and approval, advertising
distributors are obligated to verify that such censorship has been performed and approval has been obtained. The release or delivery of
advertisements through the Internet shall not impair the normal use of the users. Advertisements released in pop-up forms on a
webpage and other forms shall indicate the close flag in prominent manner and ensure one-key close. Violation of these regulations
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may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and
orders to eliminate the effect of illegal advertisement. In circumstances involving serious violations, SAIC or its local branches may
revoke violators’ licenses or permits for their advertising business operations.
On July 4, 2016, SAIC issued the Interim Measures for the Administration of Internet Advertising to regulate Internet
advertising activities, which became effect on September 1, 2016. According to these measures, no advertisement of any medical
treatment, medicines, foods for special medical purpose, medical apparatuses, pesticides, veterinary medicines, dietary supplement or
other special commodities or services which are subject to examination by an advertising examination authority as stipulated by laws
and regulations shall be published unless it has passed such examination. In addition, no entity or individual may publish any
advertisement of prescription drugs or tobacco by means of the Internet. An Internet advertisement shall be identifiable and clearly
identified as an “advertisement” so that consumers will know that it is an advertisement. Paid search advertisements shall be clearly
distinguished from natural search results. In addition, the following violations shall be forbidden in Internet advertising activities:
providing or using any application programs or hardware to intercept, filter, cover, fast forward or otherwise restrict any authorized
advertisement of other persons; using network pathways, network equipment or applications to disrupt the normal data transmission of
advertisements, alter or block authorized advertisements of other persons or load advertisements without authorization; or using false
statistical data, transmission effect or Internet medium prices to induce incorrect quotations, seek undue interests or damage the
interests of other persons. Internet advertisement publishers shall verify related supporting documents, check the contents of the
advertisement and be prohibited from publishing any advertisement with nonconforming contents or without all the necessary
certification documents. Internet information service providers that are not involved in Internet advertising business activities but
simply provide information services shall stop any attempt to publish an advertisement through their information services when they
know, or should reasonably know, that such advertisement is illegal.
On December 24, 2019, SAMR issued the Interim Measures for the Censorship of Advertisements on Drugs, Medical
Devices, Dietary Supplements and Formula Foods for Special Medical Purpose, which came into effect on March 1, 2020. The
Interim Measures respectively regulated the content of advertisement on drugs, medical devices, dietary supplements and formula
foods for special medical purpose, and reiterated the advertisements on aforementioned special products shall be true and legal
without any false or misleading information. In addition, the Interim Measures stipulated the SAMR is responsible for organizing and
guiding the censorship of the advertisement on drugs and other aforementioned special products, no advertisement on drugs or other
aforementioned special products may be allowed to be published without undergoing censorship.
Pursuant to the PRC Anti-Unfair Competition Law promulgated by the Standing Committee of the National People’s
Congress on September 2, 1993 and amended on November 4, 2017 and April 23, 2019, respectively, a business operator that engage
in production and business activities by taking advantage of the network shall abide all the provisions under Anti-unfair Competition
Law, and shall not engage in any false or misleading publicity for its products. Violation of these provisions may subject the relevant
business operators to various penalties, including an order from the competent governmental authorities to cease its illegal acts and
impose a fine, or in case of a severe violation, revocation of business licenses.
Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease
dissemination of the advertisements and orders to eliminate the effect of illegal advertisement. In circumstances involving serious
violations, SAIC or its local branches may revoke violators’ licenses or permits for their advertising business operations.
In order to comply with these laws and regulations, our advertising contracts require that all advertising agencies or
advertisers that contract with us must examine the advertising content provided to us to ensure that such content are truthful, accurate
and in full compliance with PRC laws and regulations. In addition, we have established a task force to review all advertising materials
to ensure the content does not violate relevant laws and regulations before displaying such advertisements, and we also request
relevant advertiser to provide proof of governmental approval if an advertisement is subject to special government review.
Regulation of Anti-Monopoly
On August 30, 2007, the Standing Committee of the National People’s Congress of the PRC adopted the PRC Anti-Monopoly
Law (“AML”), which took effect on August 1, 2008. Pursuant to the AML, monopolistic conduct, including entering into
monopolistic agreements, abuses of dominant market position, and concentrations of undertakings that have the effect of eliminating
or restricting competition, is prohibited. To further implement the AML and clarify certain issues, the State Council, the MOFCOM,
the NDRC, and the SAMR issued several regulations and rules, including the Provisions on Thresholds for Prior Notification of
Concentrations of Undertakings issued by the State Council on August 3, 2008 and amended on September 18, 2018, the Interim
Regulations on the Prohibition of Monopolistic Agreements issued by the SAMR on June 26, 2019, the Interim Regulations on the
Prohibition of Conduct Constituting an Abuse of a Dominant Market Position issued by the SAMR on June 26, 2019, the Declaration
Rules for Concentrations of Undertakings issued by the MOFCOM on January 5, 2009, amended on June 6, 2014, and re-issued by
the SAMR on September 29, 2018, the Assessment Rules for Concentration of Undertakings issued by the MOFCOM on
November 24, 2009, the Provisional Measures on the Investigation and Handling of Concentrations Between Business Operators
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which Were Not Notified in Accordance with the Law issued by the MOFCOM on December 30, 2011, and the Interim Provisions on
Reviewing Concentration of Undertakings issued by the SAMR on October 23, 2020.
Regulation of Information Security and Censorship
Applicable PRC laws and regulations specifically prohibit the use of Internet infrastructure where it may breach public
security, distribute content harmful to the stability of society or disclose state secrets. It is mandatory for Internet companies in the
PRC to complete security filing procedures and regularly update information security and censorship systems for their websites with
the local public security bureau. In addition, the newly amended Law on Preservation of State Secrets, which became effective on
October 1, 2010, provides that whenever an Internet service provider detects any leakage of state secrets in the distribution of online
information, it should stop the distribution of such information and report such violation to the state security and public security
authorities. Upon request of state security, public security or state secrecy authorities, the Internet service provider must delete any
contents on its websites that may lead to disclosure of state secrets. Failure to do so on a timely and adequate manner may subject the
Internet service provider to liability and certain penalties enforced by the State Security Bureau, the Ministry of Public Security and/or
MIIT or their respective local counterparts.
On June 28, 2016, the State Internet Information Office issued the Administrative Provisions on Mobile Internet Applications
Information Services, which became effect on August 1, 2016, to further strengthen administration over mobile Internet applications
information services. Pursuant to these provisions, owners or operators of mobile Internet applications that provide information
services shall fulfill their information security management responsibilities strictly and perform their obligations listed as below:
•
•
•
•
•
•
certify the identification information of registered users including their mobile telephone number based information
under the principle of a real name backstage, and a freely-chosen name on stage;
establish and perfect the mechanism for protecting users’ information, and follow the principle of legality, rightfulness
and necessity, indicate expressly the purpose, method and scope of collection and use and obtain the consents of users
while collecting and using users’ personal information;
establish and perfect the mechanism for verifying and managing information contents, and in terms of any information
content released that violates laws or regulations, take such measures as warning, restricting functions, suspending
updates and closing accounts as the case may be, keep relevant records and report the same to relevant competent
departments;
safeguard users’ right to know and to make choices when users are installing or using such applications, and refrain from
starting such functions as collecting the information of users’ location, accessing users’ contacts, turning on users’
camera and recording sound, or any other function irrelevant to the services, nor forcefully install any other irrelevant
application, for so long as users are not notified of the same clearly and do not give their consent;
respect and protect intellectual property and refrain from producing or releasing any application that infringes others’
intellectual property; and
record the users’ log information and keep the same for 60 days.
On November 7, 2016, the Standing Committee of the National People’s Congress promulgated the Cyber Security Law to
preserve cyberspace security and order. Pursuant to Cyber Security Law, network operators shall strictly keep confidential users’
personal information that they have collected, and establish and improve systems to protect users’ information. To collect and use
personal information, network operators shall follow the principles of legitimacy, rightfulness and necessity, disclose their rules of
data collection and use, clearly express the purposes, means and scope of collecting and using information, and obtain the consent of
persons whose data is gathered. Network operators shall not gather personal information unrelated to the services they provide.
Network operators shall not divulge, distort or damage the personal information they have collected, and shall not provide the personal
information to others without the consent of the persons whose data is collected, except under circumstance where the information has
been processed and cannot be recovered and thus it is impossible to match such information with specific persons. In addition,
network operators shall perform the following security obligations according to the requirements of the classified protection system
for cyber security to ensure that the network is free from interference, damage or unauthorized access, and prevent network data from
being divulged, stolen or falsified:
•
formulate internal security management systems and operating instructions, determine the persons responsible for cyber
security, and fulfill the responsibilities of cyber security protection;
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•
•
•
take technological measures to prevent computer viruses, network attacks, network intrusions and other actions
endangering cyber security;
take technological measures to monitor and record the network operation status and cyber security incidents, and
preserve relevant web logs for no less than six months according to the provisions; and
take measures such as data classification, as well as back-up and encryption of important data.
Violation of these laws and provisions may result in penalties, including fines, confiscation of illegal income. In
circumstances involving serious violations, the competent telecommunication department, public security departments and other
relevant authorities may order the network operators to suspend relevant business, stop the business for rectification or close down the
websites, or revoke violators’ licenses or permits for their business operations.
On August 25, 2017, the CAC promulgated the Administrative Provisions on Internet Follow-up Comment Services, which
became effective on October 1, 2017, pursuant to which Internet follow-up comment services refers to the services of publishing
transcripts, symbols, expressions, pictures, audio and video and other information offered by Internet websites, applications,
interactive communication platforms and other types of communication platforms with news and public opinion property and social
mobilization function by way of post, reply, message, bullet screen and using other means. The Internet follow-up comment service
providers shall strictly assume the primary responsibilities and discharge the following obligations according to the law:
•
•
•
•
•
•
verify the real identity information of registered users following the principle of using real name at foreground and
volunteering to do so at background and forbid the provision of Internet follow-up comment services for users whose
real identity information is not verified;
establish and improve a user information protection system;
establish a system of reviewing at first and then publishing comments if the service providers offer Internet follow-up
comment services to news information;
establish and improve an Internet follow-up comment review and administration, real-time check, emergency response
and other information security administration systems, timely identify and process illicit information and submit a report
to the relevant competent authorities;
develop Internet follow-up comment information protection and administration technologies, timely identify security
flaws and loopholes and other risks existing in Internet follow-up comment services, take remedial measures and submit
a report to the relevant competent authorities; and
build a reviewing and editing team in line with service scale and improve the professionalism of editors.
In addition, on August 25, 2017, the CAC promulgated the Administrative Provisions on Internet Forum and Community
Services, which became effective on October 1, 2017, pursuant to which the Internet forum and community service providers shall
assume the primary responsibility for establishing and improving the information check and verification, public information real-time
check, emergency response and personal information protection and other information security administration systems, institute safe
and controllable preventative measures, employ professionals in line with their service scale, and provide necessary technical support
for the relevant departments in performing duties according to the law. The Internet forum and community service providers shall not
use Internet forum and community services to publish or disseminate information banned by laws, regulations and the relevant
provisions of the state. Where the Internet forum and community service providers identify any aforementioned information, they
shall cease the transmission of such information forthwith, take deletion and other handling measures, retain the relevant records and
timely submit a report to the CAC or its local counterparts.
On November 28, 2019, the Secretary Bureau of the CAC, the General Office of the MIIT, the General Office of the Ministry
of Public Security and the General Office of the SAMR promulgated the Identification Method of Illegal Collection and Use of
Personal Information Through App, which provides guidance for the regulatory authorities to identify the illegal collection and use of
personal information through mobile apps, and for the app operators to conduct self-examination and self-correction and for other
participants to voluntarily monitor compliance.
On April 13, 2020, the CAC, NDRC and several other administrations jointly promulgated the Measures for Cybersecurity
Censorship, or the Censorship Measures, which became effective on June 1, 2020. The Censorship Measures establish the basic
framework for national security reviews of network products and services, and provide the principle provisions for undertaking cyber
security reviews. Pursuant to the Censorship Measures, any purchase of network products and services by critical information
infrastructure operators, which affects or may affect state security, shall be subject to cybersecurity censorship fields.
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On July 22, 2020, MIIT issued the Notice on Carrying out Special Rectification Actions in Depth against the Infringement
upon Users' Rights and Interests by Apps, the tasks of which includes rectification of (i) illegally processing personal information of
users by the APP and the SDK; (ii) setting up obstacles and frequently harassing users; (iii) cheating and misleading users; (iv)
inadequate implementation of application distribution platforms’ responsibilities.
On January 22, 2021, the CAC released the Administrative Provisions on the Information Services Provided Through Official
Accounts of Internet Users, or the Administrative Provisions, which became effective on February 22, 2021. The Administrative
Provisions aim to regulate the activities providing and using Internet official accounts to engage in Information publishing services
within the territory of the PRC.
To comply with these laws and regulations, we have completed the mandatory security filing procedures with the local public
security authorities, and regularly updated the information security and content-filtering systems with newly issued content restrictions
as required by the relevant laws and regulations. In addition, we have obtained the consents from the users to collect and use their
personal information as required by the relevant laws and regulations in all material respect. However, not all of our users have
registered their real names by using valid identity documents, we may be ordered to effect rectification by the relevant competent
authorities; where we fail to effect rectification or if the circumstances are serious, a fine of no less than RMB50,000 but no more than
RMB500,000 may be imposed, and the relevant competent authorities may order us to suspend operation, stop doing business for
internal rectification, close down the website, or may revoke relevant business permits or business licenses; and a fine of no less than
RMB10,000 but no more than RMB100,000 may be imposed on the persons directly in charge and other directly responsible persons.
Regulation of Internet Copyrights
In order to address copyright issues relating to the Internet, in December 2012, the PRC Supreme People’s Court adopted the
Provisions on Certain Issues Concerning the Applicable Laws in the Trial of Civil Cases Involving Disputes over Infringement of the
Right of Dissemination through Information Networks, or the Provisions, which provides that the courts will require ICP service
providers to remove not only links or content that have been specifically mentioned in the notices of infringement from right holders,
but also links or content they “should have known” to contain infringing content. The Provisions further provide that where an ICP
service provider has directly obtained economic benefits from any content made available by an Internet user, it has a higher duty of
care with respect to Internet users’ infringement of third-party copyrights.
The Standing Committee of National People’s Congress issued the Copyright Law of the PRC, or the Copyright Law, in 1990
and amended it in 2001, 2010 and 2020, respectively. The latest amended Copyright Law will take effect on June 1, 2021, pursuant to
which, relevant provisions on copyright protection in cyberspace have been further improved, the description of “cinematographic
works or works created using methods similar to film making” are revised as “audio-visual works”. According to the Copyright Law,
an infringer may be subject to various consequences, which include stopping the infringement, eliminating the damages, apologizing
to the copyright owners and compensating the loss of copyright owners, etc. Besides, the Copyright Law further provides that the
infringer shall make compensation the on the basis of the actual loss suffered by the copyright owner or the illegal income received by
the infringer, where the owner’s actual loss or the infringer’s illegal income is difficult to determine, the compensation shall be
referred to the royalties. For deliberate infringement upon copyright and related rights, which constituted severe nature, compensation
may be paid ranging from one time to five times the amount determined by the aforesaid methods. Where the owner’s actual loss, the
infringer’s illegal or the royalties is difficult to determine, the people’s court shall, on the basis of the seriousness of the infringement,
decide the amount of compensation which consists of the reasonable expenses paid by the copyright owner for right protection ranging
from RMB500 to RMB500,000.
Under the applicable laws and regulations, where a copyright holder finds that any content communicated through the Internet
infringes upon its copyright and sends a notice to the ICP service operator, the ICP service operator shall immediately take measures
to remove the relevant content. Such ICP service operator is also required to retain all infringement notices for six months and to
record the content, display time and IP addresses and the domain names related to the infringement for 60 days. Where an ICP service
operator removes relevant content of an Internet content provider according to the notice of a copyright holder, the Internet content
provider may deliver a counter-notice to both the ICP service operator and the copyright holder, stating that the removed contents do
not infringe upon the copyright of other parties. After the delivery of such counter-notice, the ICP service operator may immediately
reinstate the removed contents and shall not bear administrative legal liability for such reinstatement. Where an ICP service operator is
clearly aware of the infringement by an Internet content provider of another’s copyright through the Internet, or, although not being
aware of such activity, fails to take measures to remove relevant contents upon receipt of the copyright owner’s notice, and as a result,
damages public interests, the ICP service operator could be subject to an order to stop the tortious act and other administrative
penalties such as confiscation of illegal income and fines. Where there is no evidence to indicate that an ICP service operator is clearly
aware of the facts of tort, or the ICP service operator has taken measures to remove relevant contents upon receipt of the copyright
owner’s notice, the ICP service provider shall not bear the relevant administrative legal liabilities.
Our content licensors and users have entered into agreements with us in which they make an undertaking not to provide or
upload any contents that may have infringed on the copyright of any third parties. However, we cannot ensure you that our content
licensors or users who upload contents to our PC websites, mobile applications and mobile websites will not infringe on the copyright
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of any third parties and we could delete any infringed contents in a time manner or at all. We may be consequently subject to
copyright infringement claims arising thereof. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and
Industry—We have been and expect we will continue to be exposed to intellectual property infringement and other claims, including
claims based on content posted on our PC websites, mobile applications and mobile websites, which could be time-consuming and
costly to defend and may result in substantial damage awards and/or court orders that may prevent us from continuing to provide
certain of our existing services.”
Regulation of Employment
The Labor Law of the PRC, effective on 1 January 1995 and subsequently amended on 27 August 2009 and 29 December
2018, the Employment Contract Law of the PRC, effective on 1 January 2008 and subsequently amended on 28 December 2012 and
the Implementing Regulations of the Labor Contract Law of the PRC, effective on 18 September 2008, provide requirements
concerning employment contracts between an employer and its employees. If an employer fails to enter into a written employment
contract with an employee within one year from the date on which the employment relationship is established, the employer must
rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s
salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to
the day prior to the execution of the written employment contract. The Labor Contract Law of the PRC and its implementation rules
also require compensation to be paid upon certain terminations, which significantly affects the cost of reducing workforce for
employers. In addition, if an employer intends to enforce a non-compete provision in an employment contract or non-competition
agreement with an employee, it has to compensate the employee on a monthly basis during the term of the restriction period after the
termination or expiry of the labor contract. Employers in most cases are also required to provide severance payment to their
employees after their employment relationships are terminated.
Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including
social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury
insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to
certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to
time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, an employer
that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be
subject to a late fee. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated
deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on
Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the
noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court
for compulsory enforcement.
Regulation of Foreign Exchange Control and Administration
Under the Foreign Exchange Administration Rules, Renminbi is convertible for current account items, including the
distribution of dividends, interest payments, trade and service-related foreign exchange transactions. As for capital account items, such
as direct investments, loans, security investments and the repatriation of investment returns, however, the conversion of foreign
currency is still subject to the approval of, or registration with, SAFE or its competent local branches. SAFE approval is not necessary
for the conversion of Renminbi for foreign currency payments for current account items except as otherwise explicitly provided by
laws and regulations. Under the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange, enterprises may only
buy, sell or remit foreign currencies at banks that are authorized to conduct foreign exchange business after the enterprise provides
valid commercial documents and relevant supporting documents and, in the case of certain capital account transactions, after obtaining
approval from SAFE or its competent local branches. If we provide loans to any of our PRC subsidiaries, the total amount of such
loans may not exceed the difference between its total investment as approved by the foreign investment authorities and its registered
capital at the time of the provision of such loans. Such loans need to be registered with the SAFE, which usually takes no more than
20 working days to complete. The cost of completing such registration is minimal. Capital investments by enterprises outside of the
PRC are subject to further limitations, which include approvals by MOFCOM, SAFE and NDRC, or their respective competent local
branches.
On August 29, 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the
Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142.
Pursuant to SAFE Circular 142, Renminbi capital obtained from settlement of the foreign currency capital of a foreign-invested
enterprise must be used within the business scope as approved by the applicable government authority and unless otherwise
specifically provided by law, such Renminbi capital cannot be used for domestic equity investments. In addition, SAFE strengthened
its oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital of a foreign-invested
company. As a result, the use of such Renminbi capital may not be altered without the SAFE’s approval, and such Renminbi capital
may not be used to repay Renminbi loans if the relevant loan proceeds have not been used. As to the latest development, on March 30,
2015, SAFE issued the Circular on the Management Concerning the Reform of the Payment and Settlement of Foreign Currency
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Capital of Foreign-Invested Enterprises, or SAFE Circular 19, which became effective on June 1, 2015 and replaced SAFE Circular
142. Pursuant to SAFE Circular 19, up to 100% of foreign currency capital of foreign-invested enterprise may be converted into RMB
capital according to the actual operation of the enterprise within the business scope at its will and the RMB capital converted from
foreign currency registered capital of a foreign-invested enterprise may be used for equity investments within the PRC. However,
under SAFE Circular 19, RMB capital converted from foreign currency registered capital of a foreign-invested company still may not
in any case be used to advance the RMB entrusted loan or repay RMB loans if the proceeds of such loans have not been used.
On November 19, 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange
Administration Policies on Foreign Direct Investment, or SAFE Circular 59, which became effective on December 17, 2012. SAFE
Circular 59 substantially amends and simplifies the current foreign exchange procedure. The major developments under SAFE
Circular 59 are that the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts,
foreign exchange capital accounts and guarantee accounts, no longer requires the approval of SAFE. Furthermore, multiple capital
accounts for the same entity may be opened in different provinces, which was not possible before the issuance of SAFE Circular 59.
The reinvestment of lawful incomes, such as profit and proceeds of equity transfer, capital reduction, liquidation and early repatriation
of investment, by foreign investors in the PRC and the purchase and remittance of foreign exchange as a result of capital reduction,
liquidation, early repatriation or share transfer in a foreign-invested enterprise no longer requires SAFE approval.
On May 10, 2013, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange
Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents, which specifies that the
administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of
registration. Institutions and individuals shall register with SAFE and/or its branches for their direct investment in the PRC. Banks
shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by
SAFE and its branches.
On February 13, 2015, SAFE issued the Circular on Further Simplifying and Improving the Foreign Exchange
Administration Policies on Direct Investments, or SAFE Circular 13, pursuant to which the administrative examination and approval
procedures with SAFE or its local branches relating to the foreign exchange registration approval for domestic direct investments as
well as overseas direct investments have been cancelled, and qualified banks are delegated the power to directly conduct such foreign
exchange registrations under the supervision of SAFE or its local branches. SAFE Circular 13 took effect on June 1, 2015.
On April 26, 2016, SAFE issued the Circular of the State Administration of Foreign Exchange on Further Promoting Trade
and Investment Facility and Improving the Examination and Verification of the Authenticity, pursuant to which when handling the
remittance of profits exceeding the equivalent of US$50,000 abroad for a domestic institution, a bank shall examine, according to the
principle of transaction authenticity, the profit distribution resolution of the board of directors (or the profit distribution resolution of
all partners) that is related to this remittance of profits abroad, the original of its tax record-filing form and the financial statements in
proof of the profits involved in this remittance.
On June 9, 2016, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming and Regulating
Policies on the Control over Foreign Exchange Settlement of Capital Accounts, to promote nationwide the reform of control
approaches to foreign exchange settlement of foreign debts of enterprises and in the meantime to unify and regulate control over
discretionary settlement and payment of foreign exchange receipts under capital accounts. Pursuant to this circular, domestic
enterprises (including foreign-invested enterprises) may go through foreign exchange settlement formalities for their foreign debts at
their discretion. In addition, domestic institutions may, at their discretion, settle up to 100% of foreign exchange receipts under capital
accounts for the time being.
On October 23, 2019, SAFE issued the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade and
Investment, or SAFE Circular 28, pursuant to which all foreign-invested enterprises can make domestic equity investments with their
capital funds in accordance with the law.
Regulation of Foreign Exchange Registration of Offshore Investment by PRC Residents
On July 4, 2014, SAFE issued the Circular on Several Issues Concerning Foreign Exchange Administration of Domestic
Residents Engaging in Overseas Investment, Financing and Round-Trip Investment via Special Purpose Vehicles, or SAFE Circular
37, which became effective on the same date. SAFE Circular 37 and its detailed guidelines require PRC residents to register with the
local branch of SAFE before contributing their legally owned onshore or offshore assets or equity interests into any special purpose
vehicle, or SPV, directly established, or indirectly controlled, by them for the purpose of investment or financing; and when there is
(i) any change to the basic information of the SPV, such as any change relating to its individual PRC resident shareholders, name or
operation period or (ii) any material change, such as increase or decrease in the share capital held by its individual PRC resident
shareholders, a share transfer or exchange of the shares in the SPV, or a merger or split of the SPV, the PRC resident must register
such changes with the local branch of SAFE on a timely basis. According to the relevant SAFE rules, failure to comply with the
registration procedures set forth in SAFE Circular 37 may result in restrictions being imposed on the foreign exchange activities of the
relevant onshore companies of SPVs, including the payment of dividends and other distributions to its offshore parent or affiliate and
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the capital inflow from such offshore entity, and may also subject the relevant PRC residents and onshore companies to penalties
under PRC foreign exchange administration regulations. Further, failure to comply with various SAFE registration requirements
described above would result in administrative penalties or even criminal liabilities under PRC laws. On February 13, 2015, SAFE
issued SAFE Circular 13, which is the Circular on Further Simplifying and Improving the Foreign Exchange Administration Policies
on Direct Investments. Under SAFE Circular 13, qualified banks are delegated the power to register all PRC residents’ investments in
SPVs pursuant to SAFE Circular 37, saving for supplementary registration application made by PRC residents who failed to comply
with SAFE Circular 37, which shall still fall into the jurisdiction of the local branch of SAFE. SAFE Circular 13 took effect on June 1,
2015.
We understand that the aforesaid registration requirement under SAFE Circular 37, SAFE Circular 13 and the relevant
implementing rules do not apply to our PRC subsidiaries or our PRC resident beneficial owners due to the following reasons: (i) our
company was incorporated and controlled by Phoenix TV, a Hong Kong listed company, rather than any PRC residents defined under
SAFE Circular 37, (ii) none of the former or current shareholders of our PRC affiliated consolidated entities established or acquired
interest in our company by injecting the assets of, or equity interests in, our affiliated consolidated entities, and (iii) before the public
listing of our ADSs all of our PRC resident beneficial owners obtained interest in our company through exercise of options granted to
them under our share incentive plan. However, we cannot assure you that SAFE or its local branch would hold the same opinion with
us and the relevant government authorities have broad discretion in interpreting these rules and regulations. See “Item 3. Key
Information—D. Risk Factors—Risk Relating to Doing Business in China—If the PRC government finds that our PRC beneficial
owners are subject to the SAFE registration requirement under SAFE Circular 37 and the relevant implementing rules and our PRC
beneficial owners fail to comply with such registration requirements, such PRC beneficial owners may be subject to personal liability,
our ability to acquire PRC companies or to inject capital into our PRC subsidiaries may be limited, our PRC subsidiaries’ ability to
distribute profits to us may be limited, or our business may be otherwise materially and adversely affected.”
SAFE Regulation of Stock Incentive Plan
On December 25, 2006, the People’s Bank of China promulgated the Administrative Measures for Individual Foreign
Exchange. On January 5, 2007, SAFE issued the Implementation Rules of the Administrative Measures for Individual Foreign
Exchange, or the Individual Foreign Exchange Rules, which, among other things, specifies the approval requirements for a “domestic
individual’s” (including both PRC residents and non-PRC residents who reside in the PRC for a continuous period of not less than one
year, excluding the foreign diplomatic personnel and representatives of international organizations) participation in employee stock
plans or stock option plans of an overseas publicly listed company. On February 15, 2012, SAFE issued the Notices on Issues
concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas
Publicly-Listed Company, or the Stock Incentive Plan Rules, which terminated the Processing Guidance on Foreign Exchange
Administration of Domestic Individuals Participating in the Employee Stock Ownership Plans or Stock Option Plans of Overseas-
Listed Companies issued by SAFE on March 28, 2007. According to the Stock Incentive Plan Rules, if a domestic individual
participates in any stock incentive plan of an overseas listed company, a qualified PRC domestic agent, which can be the PRC
subsidiaries of such overseas listed company, shall, among other things, file, on behalf of such individual, an application with SAFE to
conduct the SAFE registration with respect to such stock incentive plan, and obtain approval for an annual allowance with respect to
the purchase of foreign exchange in connection with the stock purchase or stock option exercise. Such PRC individuals’ foreign
exchange income received from the sale of stocks and dividends distributed by the overseas listed company and any other income
shall be fully remitted into a collective foreign currency account in the PRC opened and managed by the PRC domestic agent before
distribution to such individuals.
Our employees who are “domestic individuals” and have been granted share options, or PRC optionees are subject to the
Stock Incentive Plan Rules. Our stock incentive plan has been registered with SAFE when we listed in New York Stock Exchange,
however, we cannot assure you that we will be able to complete relevant registration for other employees who participate such stock
incentive plan in the future, in a timely manner or at all. If we or our PRC optionees fail to comply with the Individual Foreign
Exchange Rules and the Stock Incentive Plan Rules, we and/or our PRC optionees may be subject to fines and other legal sanctions.
We may also face regulatory uncertainties that could restrict our ability to adopt additional option plans for our directors and
employees under PRC law. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Failure to
comply with PRC regulations regarding the registration requirements for stock incentive plans may subject the plan participants or us
to fines and other legal or administrative sanctions.”
Regulation of Dividend Distributions
Enterprises in the PRC may pay dividends only out of their accumulated profits, if any, as determined in accordance with
PRC accounting standards and regulations. In addition, a PRC enterprise is required to set aside at least 10% of its after-tax profit
based on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reaches 50% of its
registered capital. These reserve funds, however, may not be distributed as cash dividends. Under the CIT Law and its implementation
rules, dividends payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be
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subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that
provides for a lower withholding tax rate.
Regulation of Overseas Listings
On August 8, 2006, six PRC regulatory agencies, namely, MOFCOM, the State Assets Supervision and Administration
Commission, the State Administration for Taxation, SAIC, CSRC and SAFE, jointly adopted the 2006 M&A Rules, which became
effective on September 8, 2006 and were amended in June 22, 2009. The 2006 M&A Rules purport, among other things, to require
that offshore special purpose vehicles, or SPVs, that are controlled by PRC companies or individuals and that have been formed for
overseas listing purposes through acquisitions of PRC domestic interest held by such PRC companies or individuals, to obtain the
approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC
published a notice on its official websites specifying documents and materials required to be submitted to it by SPVs seeking CSRC
approval of their overseas listings. While the application of the 2006 M&A Rules remains unclear, our PRC counsel has advised us
that based on its understanding of the current PRC laws, rules and regulations and the 2006 M&A Rules, prior approval from the
CSRC is not required under the 2006 M&A Rules for the listing and trading of our ADSs on the NYSE because we have not acquired
any equity interest or assets of a PRC domestic company owned by PRC companies or individuals, as defined under the 2006 M&A
Rules, that are our beneficial owners after the effective date of the 2006 M&A Rules.
However, our PRC counsel has further advised us uncertainties still exist as to how the 2006 M&A Rules will be interpreted
and implemented and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations
and interpretations in any form relating to the 2006 M&A Rules. If the CSRC or another PRC regulatory agency subsequently
determines that prior CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other PRC
regulatory agencies. These regulatory agencies may impose fines and penalties on our operations, limit our operating privileges, delay
or restrict the repatriation of the proceeds from our initial public offering into the PRC or payment or distribution of dividends by our
PRC subsidiaries, or take other actions that could materially adversely affect our business, financial condition, operating results,
reputation and prospects, as well as the trading price of our ADSs. If the CSRC later requires that we obtain its approval for our initial
public offering, we may be unable to obtain a waiver of CSRC approval requirements, if and when procedures are established to
obtain such a waiver. Any uncertainties or negative publicity regarding CSRC approval requirements could have a material adverse
effect on the trading price of our ADSs.
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C. Organizational Structure
Our Corporate Structure
The following diagram illustrates our corporate structure as of the date of this annual report, including our subsidiaries,
affiliated consolidated entities and their subsidiaries which are significant subsidiaries as defined in rule 1-02(w) of Regulation S-X:
Aligned with our business strategies, we have made the following investments in subsidiaries, affiliates and other business
alliance partners in various Internet-related businesses.
In March 2014, the IDG-Accel Funds acquired US$3.0 million convertible preferred shares of Phoenix FM, previously a
subsidiary of us, to accelerate development of the ifeng application business. Despite holding 71.8% of the equity interest in Phoenix
FM at the time, we accounted for our investment in Phoenix FM as an equity method investment since we did not control Phoenix FM
due to substantive participating rights that had been provided to the IDG-Accel Funds. We had fully written down the entire
investment in Phoenix FM in 2015. In April 2020, IDG-Accel Funds transferred all of its investment in Phoenix FM to us and Phoenix
FM became a wholly owned subsidiary of us.
As of December 31, 2019, we had loan receivable of approximately RMB9.8 million due from FM Beijing, which had been
fully impaired in 2015. In April 2020, through a series of debt restructuring transactions, we acquired 19.99% of the equity interest in
FM Beijing. In August 2020, we acquired 6.04% equity interest in Humanistic Intelligence through a share exchange transaction
related to FM Beijing, and recognized a gain of RMB6.0 million (US$0.9 million) from the transaction, which was included in the
income/(loss) from equity method investments, net of impairment item in the consolidated statements of comprehensive income/(loss)
of 2020. As the investment in Humanistic Intelligence is redeemable at the option of us, it is not considered in-substance common
stock but considered debt securities. Our investment in Humanistic Intelligence is classified as available-for-sale debt investments and
reported at fair value. As of December 31, 2020, the fair value of investment in Humanistic Intelligence was RMB6.0 million (US$0.9
million).
In 2014 and 2015, we entered into a series of transactions and acquired Particle’s convertible redeemable preferred shares and
ordinary shares. Particle operates Yidian, a personalized news and life-style information application in China that allows users to
define and explore desired content on their mobile devices. In January and April 2016, we granted two unsecured short-term
convertible loans to Particle with an aggregate principal amount of US$20.0 million, and we converted the principal amounts of these
loans and all accrued interests with a total amount of US$20.7 million into Series D1 convertible redeemable preferred shares of
Particle in December 2016.
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In March 2019, we entered into a share purchase agreement with Run Liang Tai, to sell 32% equity interest of Particle on an
as-if converted basis to Run Liang Tai and its designated entities, or the Proposed Buyers, for a total consideration of US$448 million
in cash. On July 23, 2019, we entered into a supplemental agreement with Run Liang Tai, or the Particle Supplemental Agreement, to
increase the number of shares to be transferred to the Proposed Buyers after we had a dispute with Run Liang Tai regarding the
satisfaction of certain closing conditions under the original share purchase agreement. According to the Particle Supplemental
Agreement, we agreed to increase the number of shares of Particle to be transferred to the Proposed Buyers from 199,866,509 shares
to 212,358,165 shares while the total purchase price will remain unchanged at US$448 million. In addition, we agreed that the
Proposed Buyers may pay the purchase price in several installments and deliver the preferred shares of Particle to the Proposed Buyers
in batches. We completed delivery of the first batch of Particle shares to the Proposed Buyers pursuant to the Particle Supplemental
Agreement and received consideration of US$200 million for such shares and recognized a gain on disposal of available-for-sale debt
investments of RMB1,001.2 million in the consolidated statements of comprehensive income/(loss) in 2019, and we have received a
further deposit of US$50 million for the second batch preferred shares of Particle to be delivered to the Proposed Buyers in or before
August 2020. On January 20, 2020, we entered into the Co-Sale Agreement with the Long De Entities. Pursuant to the Co-Sale
Agreement, the Long De Entities will sell the Long De Sale Shares to the Proposed Buyers and the number of Particle shares to be
sold by us will be reduced accordingly. In August 2020, we signed a new share purchase agreement, or the New SPA, with Run Liang
Tai. Under the New SPA, the rights and obligations of both the Proposed Buyers and us with respect to the second batch of shares
under the previous agreements were terminated, and instead, we agreed to sell a total of 140,248,775 shares of Particle to the Proposed
Buyers at a total purchase price of US$150 million. On August 10, 2020, the Proposed Buyers paid approximately US$99.3 million to
us under the New SPA, which represents the difference between the total purchase price and the US$50 million deposit already paid
by the Proposed Buyers to us under the previous agreements plus certain other accrued interests. The transaction was closed on
October 19, 2020 and we recognized a gain on disposal of available-for-sale debt investments of RMB477.3 million (US$73.1
million) in the consolidated statements of comprehensive income/(loss) in 2020. As of the date of this annual report, we held
Series D1 convertible redeemable preferred shares of Particle, which had been accounted for as available-for-sale debt investments,
representing an aggregate of approximately 0.66% equity interest in Particle on an as-if converted basis (which reflected the
completion of the issuance of additional shares under Particle’s share incentive plan). The fair value of our available-for-sale debt
investments in Particle was RMB30.7 million (US$4.7 million) as of December 31, 2020.
In December 2018, we acquired a 25.5% equity interest in Yitian Xindong, for an aggregate purchase price of RMB144.1
million. Telling Telecommunication Co., Ltd., or Telling Telecom, concurrently transferred another 25.5% of its equity interests in
Yintian Xindong to Shenzhen Bingruixin Technology Co., Ltd., or Bingruixin, a third party, which then granted an option to us that
allowed us to acquire a 25.5% equity interest from Bingruixin for RMB144.1 million. Bingruixin also entrusted the voting rights of
such 25.5% equity interest to us, as a result of which we started to consolidate Yitian Xindong in our financial statements from
December 28, 2018. We exercised the call option granted by Bingruixin on March 1, 2019 and acquired another 25.5% equity interest
in Yitian Xindong. In May 2020, we entered into agreements with Shenzhen Shenghuayu Energy Conservation Service Co., Ltd., or
Shenzhen Shenghuayu, Yitian Xindong and its management, and the other shareholder of Yitian Xindong. Pursuant to the agreements,
we sold all of our equity interests in Yitian Xindong, as well as our rights to receive the contingent returnable consideration under the
price adjustment mechanisms in connection with our original investment, to Shenzhen Shenghuayu for a total price of RMB313.6
million in cash. The disposal of Yitian Xindong was qualified for reporting as a “discontinued operation” in our financial statements.
See “Item 5. Operating and Financial Review and Prospects — Overview” for further details on the relevant accounting treatment.
We hold 50% of the equity interests in Tianbo. Before April 2019, as we had significant influence over financial and
operating decision-making, we accounted for the 50% equity interest by using the equity method of accounting. On April 1, 2019, we
obtained control over Tianbo and consolidated Tianbo starting from April 1, 2019 as we and other shareholders of Tianbo agreed to
make certain revisions to the articles of association of Tianbo, which granted us the voting power to decide Tianbo’s significant
financial and operating decisions at both the shareholder level and the board level, to accelerate the development of our real estate
vertical and to further bolster the development of our real estate vertical and to create more synergies on Tianbo’s new business, with
the equity interest in Tianbo of 50% unchanged. At the same time, we agreed with other shareholders of Tianbo and would provide
free advertising resources to Tianbo as consideration to gain control over Tianbo. Tianbo is principally engaged in operation of the
real estate vertical and sales of real estate advertisements for us.
In January 2015, we established a subsidiary, Meowpaw. Meowpaw is engaged in creating intellectual properties, related
games, books, movies and animations, etc. In July 2020, we, through one of our subsidiaries, Meowpaw and the non-controlling
shareholder of Meowpaw entered into a share transfer agreement. According to such agreement, the non-controlling shareholder sold
the 25% of Meowpaw’s equity interest it then held to us at a nominal consideration and Meowpaw has become a 100% owned
subsidiary of us.
In November 2018, we acquired a 10% equity interest in Yitong Technology, by investing in newly issued shares of Yitong
Technology with a total consideration of RMB13.0 million. Yitong Technology mainly engages in big data application development
and operation in China. As our equity investment in Yitong Technology has preferred liquidation rights, it is not considered as in-
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substance common stock, and should be measured at fair value, with changes in the fair value recognized through net income/(loss).
As the investments in Yitong Technology lack readily determinable fair values, we elect to use the measurement alternative defined as
cost, less impairments, adjusted by observable price changes in orderly transactions for the identical or a similar investment of the
same issuer. As of December 31, 2020, the carrying value of our equity investment in Yitong Technology was RMB13.0 million
(US$2.0 million).
In January 2020, we and an independent third party proposed to jointly operate advertising business. One of our wholly-
owned subsidiaries, Fengqingyang, formerly known as Beijing Youjiuzhou Technology Co., Ltd., underwent an increase in share
capital and as a result, we and the third-party hold 60% and 40% of the equity interest in Fengqingyang, respectively. We continue to
consolidate Fengqingyang.
In May 2020, our board of directors approved an investment program in selected venture capital funds, according to which,
we signed the relevant agreements in relation to a total amount of RMB90.0 million investments and acquired partnership interests in
three funds. As of December 31, 2020, we made a total of RMB72.0 million (US$11.0 million) investments in these three funds.
Investments in two of such funds with total considerations of RMB60.0 million (US$9.2 million) were accounted for under equity
method as significant influence could be imposed by us, and the investment in the other fund of RMB12.0 million (US$1.8 million)
was accounted for using the net asset value as a practical expedient under ASC 820. The carrying value of investments in the three
funds as of December 31, 2020 were RMB71.8 million (US$11.0 million). As of March 31, 2021, we have already made investments
in these three funds with a total amount of RMB81.0 million (US$12.4 million).
In December 2020, we acquired, through Tianying Jiuzhou, approximately 3.7773% partnership interests in Kesheng Jiada
with a consideration of RMB10.0 million (US$1.5 million), representing 1.0% indirect equity interests in 4K Garden, a company that
focuses on developing 4K ultra HD content ecosystem and related technology and 5G+ ultra HD application technology platform.
Kesheng Jiada is a special purpose vehicle that holds equity interests in 4K Garden. As the investments in Kesheng Jiada lack readily
determinable fair values, we elect to use the measurement alternative defined as cost, less impairments, adjusted by observable price
changes in orderly transactions for the identical or a similar investment of the same issuer. As of December 31, 2020, the carrying
value of the equity investment was RMB10.0 million (US$1.5 million). In January 2021, we acquired additional 1.8886% partnership
interests in Kesheng Jiada, representing 0.5% indirect equity interests in 4K Garden, with a consideration of RMB5.0 million (US$0.8
million).
In addition, we previously invested in several other businesses. After considering the operating results of these entities and the
likelihood of recovering value from such investments, our equity interests in these businesses have been fully impaired and we have
fully written off our entire investments in these entities.
Contractual Arrangements with Our Affiliated Consolidated Entities
Foreign investment in the Internet and mobile services industries is currently prohibited or restricted in China. As a Cayman
Islands company, we do not qualify to conduct these businesses under PRC regulations. See “—B. Business Overview—Regulatory
Matters.” As a result, our business in China is operated through contractual arrangements with our affiliated consolidated entities.
We do not have any equity interests in Tianying Jiuzhou, Fenghuang Ronghe, or Chenhuan or their subsidiaries. However, as
a result of these contractual arrangements, we are the primary beneficiary of each of Tianying Jiuzhou, Fenghuang Ronghe and
Chenhuan (including their respective subsidiaries) and account for them as our affiliated consolidated entities under U.S. GAAP.
Outstanding equity interests in Tianying Jiuzhou are held by Haiyan Qiao and Ximin Gao. Outstanding equity interests in Fenghuang
Ronghe are held by Ming Zou and Xiaojia Wang. Outstanding equity interests in Chenhuan are held by Haipeng Wu and Yansheng
He. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—The shareholders of our affiliated
consolidated entities may have potential conflicts of interest with us.”
We have consolidated the financial results of each of Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan and their
subsidiaries in our consolidated financial statements in accordance with U.S. GAAP. In 2020, Tianying Jiuzhou and its subsidiaries
accounted for 39.0% of our total revenues, Fenghuang Ronghe and its subsidiaries accounted for 1.3% of our total revenues, and
Chenhuan and its subsidiaries accounted for 3.4% of our total revenues.
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Overview of the Contractual Arrangements
The contractual arrangements among Fenghuang On-line, Qieyiyou, the affiliated consolidated entities and the shareholders
of the affiliated consolidated entities enable us to:
•
•
•
receive substantially all of the economic benefits from Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan and their
subsidiaries in consideration for the technical and consulting services provided and intellectual property rights licensed
by Fenghuang On-line and Qieyiyou;
exercise effective control over Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan and their subsidiaries; and
have an exclusive option to purchase all of the equity interests in Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan
when and to the extent permitted under PRC laws.
Agreements that Transfer Economic Benefits to Us
Exclusive Technical Consulting and Service Agreements. Under the exclusive technical consulting and service agreements
between Fenghuang On-line and each of Tianying Jiuzhou and Fenghuang Ronghe, or the Fenghuang On-line Technical Service
Agreements, Fenghuang On-line has the exclusive right to provide designated technical and consulting services to the affiliated
consolidated entities, including developing and upgrading various software, developing system technology, maintaining operational
hardware and providing various training and consulting services, among other services. Third parties may only be engaged to provide
the designated services to the affiliated consolidated entities under limited circumstances that are within the control of Fenghuang On-
line.
The Fenghuang On-line Technical Service Agreements also transfer all of the economic benefit of intellectual property
created by the relevant affiliated consolidated entities to Fenghuang On-line. To the extent that the relevant affiliated consolidated
entities jointly develop business-related technologies with Fenghuang On-line or are entrusted by Fenghuang On-line to develop
business-related technologies, the ownership and patent application rights for such technologies are vested in Fenghuang On-line. To
extent that the relevant affiliated consolidated entities develop business-related technologies independently, the relevant affiliated
consolidated entities are required to promptly notify Fenghuang On-line of such technologies, and Fenghuang On-line has the right to
purchase each such technology for RMB1 or the minimum purchase price permitted by then applicable law, or otherwise has priority
rights with respect to any transfer or license of such technologies. In addition, Fenghuang On-line controls the patent applications of
any business-related technologies created by the relevant affiliated consolidated entities.
The term of each Fenghuang On-line Technical Service Agreements is indefinite unless terminated by Fenghuang On-line by
providing prior written notice to the relevant affiliated consolidated entity. The Fenghuang On-line Technical Service Agreements
provide that the relevant affiliated consolidated entities cannot terminate such agreements under any circumstances or on any ground
unless otherwise provided for by law.
The Fenghuang On-line Technical Service Agreements provide that any disputes shall be resolved by the parties through
negotiation, and if the parties cannot reach an agreement within thirty days, the dispute shall be submitted to the China International
Economic and Trade Arbitration Commission in Beijing. The arbitral awards shall be final and binding upon both parties.
On January 13, 2014, Qieyiyou, Chenhuan and each of the shareholders of Chenhuan entered into an exclusive technical
consulting and service agreement, or Qieyiyou Technical Service Agreements (collectively with Fenghuang On-line Technical Service
Agreements as the Technical Service Agreements). The Qieyiyou Technical Service Agreements contains terms substantially similar
to the Fenghuang On-line Technical Service Agreements described above.
Pursuant to the Technical Service Agreements, the affiliated consolidated entities have each agreed to pay to Fenghuang On-
line or Qieyiyou an amount equal to a certain percentage of their respective annual revenues, plus a special service fee for certain
services rendered by Fenghuang On-line or Qieyiyou at the request of the relevant affiliated consolidated entity. However, the
Technical Service Agreements also provide that notwithstanding such agreement as to payment, the actual amount of the service fee
may be adjusted upon mutual agreement of the parties. Historically, the affiliated consolidated entities have deducted relevant costs
and expenses from the amount that is subject to the service fee payment. In 2018, 2019 and 2020, the affiliated consolidated entities
transferred technical service fees of RMB60.5 million, RMB34.0 million and RMB2.8 million (US$0.4 million), respectively, to
Fenghuang On-line and Qieyiyou and their subsidiaries.
Agreements that Provide Us with Effective Control and Grant Fenghuang On-line and Qieyiyou an Exclusive Option to Purchase
all of the Equity Interests in the Respective Affiliated Consolidated Entities When and to the Extent Permitted Under PRC Laws
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Voting Right Entrustment Agreements. Each of the Tianying Jiuzhou and Fenghuang Ronghe, their respective shareholders
and Fenghuang On-line have entered into a voting right entrustment agreement. Pursuant to the voting right entrustment agreements
the shareholders of each relevant affiliated consolidated entity have granted a person designated by Fenghuang On-line, or the trustee,
the right to exercise their rights as shareholders, including all voting rights, as well as rights to attend and propose the convening of
shareholder meetings. Under the voting right entrustment agreements, the respective trustees have the right to access all information
regarding the relevant affiliated consolidated entity’s operation, business, clients, finances and employees, as well as their financial,
business and corporate documentation.
The term of each voting right entrustment agreement is indefinite unless both parties agree to terminate the agreement in
writing, or unless Fenghuang On-line decides in its discretion to terminate the relevant agreement after the relevant affiliated
consolidated entity or one of its shareholders breaches the agreement and such breach is not remedied within ten days of receipt of
written notice. The voting right entrustment agreements provide that the relevant affiliated consolidated entities cannot terminate such
agreements under any circumstances or on any ground unless otherwise provided for by law.
The voting right entrustment agreements provide that any disputes shall be resolved by the parties through negotiation, and if
the parties cannot reach an agreement within thirty days, the dispute shall be submitted to the China International Economic and Trade
Arbitration Commission in Beijing. The arbitral awards shall be final and binding upon both parties.
On January 13, 2014, Qieyiyou, Chenhuan and each of the shareholders of Chenhuan entered into a voting right entrustment
agreement. The voting right entrustment agreement contains terms substantially similar to the voting right entrustment agreement
relating to Fenghuang On-line described above.
Exclusive Equity Option Agreements. Each of the Tianying Jiuzhou and Fenghuang Ronghe, their respective shareholders and
Fenghuang On-line have entered into an exclusive equity option agreement, or equity option agreement, pursuant to which Fenghuang
On-line has an irrevocable, unconditional and exclusive option to purchase, or to designate other persons to purchase from the
shareholders, to the extent permitted by applicable PRC laws, rules and regulations, all of the equity interests in the affiliated
consolidated entities. Fenghuang On-line may acquire all of the equity interests in the relevant affiliated entity through one purchase
or a series of purchases, the timing, manner and frequency of which are in Fenghuang On-line’s discretion. The purchase price for the
entire equity interest is to be calculated based on the paid-up amount of the relevant equity interest or the minimum price permitted by
applicable PRC laws, rules and regulations. In addition, the amount borrowed by the respective shareholders from Fenghuang On-line
for making the capital contributions to the relevant affiliated consolidated entities under the loan agreements, as described in “—Loan
Agreements,” shall offset the purchase price paid for any transfer of equity interests from the respective shareholders to Fenghuang
On-line or be immediately repaid by such shareholders in accordance with the terms of the loan agreement.
Under the equity option agreements, the shareholders have agreed that, without Fenghuang On-line’s written consent, they
will not take certain actions, including transferring any of their equity interests in the relevant affiliated consolidated entities,
disposing or causing the relevant affiliated consolidated entities’ management to dispose of any of the entities’ tangible or intangible
assets, terminating any material agreement to which the relevant affiliated consolidated entities are party, appointing or removing any
of the relevant affiliated consolidated entities’ directors, supervisors or management members, causing or endorsing the declaration or
actual distribution of any profit, bonus, dividends or interests of the relevant affiliated consolidated entities, or causing or endorsing
any lending or borrowing or provision of any guarantee or creation of any other security interest other than in the normal course of
business, among other actions.
The term of each equity option agreement will expire when all of the equity interests in the relevant affiliated consolidated
entities have been duly transferred to Fenghuang On-line or its designated representative. In addition, the equity option agreements
provide that neither of the relevant affiliated consolidated entities nor their shareholders may terminate such agreements under any
circumstances or on any ground.
The equity option agreements provide that any disputes shall be resolved by the parties through negotiation, and if the parties
cannot reach an agreement within thirty days, the dispute shall be submitted to the China International Economic and Trade
Arbitration Commission in Beijing. The arbitral awards shall be final and binding upon both parties.
On January 13, 2014, Qieyiyou, Chenhuan and each of the shareholders of Chenhuan entered into an exclusive equity option
agreement. The exclusive equity option agreement contains terms substantially similar to the exclusive equity option agreement
relating to Fenghuang On-line described above.
Loan Agreements. Pursuant to the loan agreements among Fenghuang On-line and the respective shareholders of Tianying
Jiuzhou and Fenghuang Ronghe, Fenghuang On-line granted interest-free loans to the shareholders of the relevant affiliated
consolidated entities in an amount equal to their respective paid-in capital contribution in the relevant affiliated consolidated entities.
The loans can be repaid only with proceeds from the sale of all of the respective shareholder’s equity interests in the applicable
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affiliated consolidated entity to Fenghuang On-line or its designated representatives pursuant to the applicable equity option
agreement.
The term of each loan is ten years from the execution of the applicable loan agreement, and may be extended upon mutual
agreement of the parties. On December 31, 2019, Fenghuang On-line and the shareholders of Tianying Jiuzhou entered into a
supplemental agreement to extend the loan for a term of ten years upon expiration of the original loan agreement on the same day.
Any disputes shall be resolved by the parties through negotiation, and if the parties cannot reach an agreement within thirty days, the
dispute shall be submitted to the China International Economic and Trade Arbitration Commission in Beijing. The arbitral awards
shall be final and binding upon both parties.
On January 13, 2015, Qieyiyou and the shareholders of Chenhuan entered into a loan agreement. The loan agreement contains
terms substantially similar to the loan agreement relating to Fenghuang On-line described above.
Business Management Agreement. Pursuant to the business management agreement entered into by and among Chenhuan, its
respective shareholders and Qieyiyou, Qieyiyou agrees to be the guarantor of Chenhuan in contracts, agreements or transactions
entered into between Chenhuan and any third party in connection with Chenhuan’s business and operations, to provide full guarantees
for the performance of such contracts, agreements or transactions by Chenhuan. As counter-guarantee, Chenhuan agrees to pledge the
accounts receivable in its operations and all of its assets to Qieyiyou. In addition, Qieyiyou has the exclusive right to nominate
directors, general manager and other senior management of Chenhuan.
Equity Pledge Agreements. Each of Tianying Jiuzhou and Fenghuang Ronghe, their respective shareholders and Fenghuang
On-line, have entered into an equity pledge agreement. Under the equity pledge agreements, the shareholders have pledged their
respective equity interests in the relevant affiliated consolidated entities to Fenghuang On-line to secure the performance of the
obligations of the relevant affiliated consolidated entities and the shareholders under the applicable technical service agreements,
voting right entrustment agreements, equity option agreements and loan agreements, including, among others, the payment of the
service fees, the entrustment of the shareholders’ voting rights in the affiliated consolidated entities, the conditional transfer of the
shareholders’ equity interests in the affiliated consolidated entities and the repayment of the shareholder loans with proceeds from the
transfer of the shareholders’ equity interests, respectively. In addition, the shareholders of Chenhuan and Qieyiyou have also entered
into an equity pledge agreement, or Qieyiyou Equity Pledge Agreement, which is substantially similar to the equity pledge agreements
of Tianying Jiuzhou and Yifeng Lianhe except that the amount of such guarantee under the Qieyiyou Equity Pledge Agreement is
limited to an amount equal to the shareholders’ respective capital contribution in the Chenhuan, and the scope of such guarantee is
extended to cover the obligations of Chenhuan under the business management agreement, the Qieyiyou Equity Pledge Agreement
contains terms substantially similar to the equity pledge agreement relating to Fenghuang On-line.
The term of each equity pledge agreement will expire when the secured obligations have been fully performed or released.
Any disputes shall be resolved by the parties through negotiation, and if the parties cannot reach an agreement within thirty days, the
dispute shall be submitted to the China International Economic and Trade Arbitration Commission in Beijing. The arbitral awards
shall be final and binding upon both parties.
We have been advised by our PRC legal counsel, Zhong Lun Law Firm, that our organizational structure in China (including
our corporate structure and our contractual arrangements with our affiliated consolidated entities) complies with all applicable PRC
laws, rules and regulations, and does not violate, breach, contravene or otherwise conflict with any applicable PRC laws, rules or
regulations. However, there are uncertainties regarding the interpretation and application of the relevant PRC laws, rules and
regulations. Accordingly, there can be no assurance that the PRC regulatory authorities will not take a view that is contrary to the
opinion of our PRC legal counsel. Our PRC legal counsel has further advised that if a PRC government authority determines that our
corporate structure, the contractual arrangements or the reorganization to establish our current corporate structure violates any
applicable PRC laws, rules or regulations, the contractual arrangements will become invalid or unenforceable, and we could be subject
to severe penalties and required to obtain additional governmental approvals from the PRC regulatory authorities. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our Corporate Structure—If the PRC government finds that the agreements that
establish the structure for operating our businesses in China do not comply with PRC governmental restrictions on foreign investment
in Internet businesses, or if these regulations or the interpretation of existing regulations change in the future, we would be subject to
severe penalties or be forced to relinquish our interests in those operations” and “Item 3. Key Information—D. Risk Factors—Risks
Relating to Doing Business in China—Uncertainties with respect to the PRC legal system could limit the protections available to you
and us.”
Our Relationship with Phoenix TV
We are currently a subsidiary of Phoenix TV, the leading Hong Kong-based satellite TV network broadcasting Chinese
language content globally and into China. Phoenix TV owned 54.5% of our outstanding ordinary shares and 60.9% of the voting
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power of our ordinary shares as of March 31, 2021. Phoenix TV first reported its new media business as one of its business segments
in its annual report submitted to the Hong Kong Stock Exchange for the year ended December 31, 2007.
In addition, we entered into several sets of trademark and program content licensing agreements with Phoenix TV or certain
of its subsidiaries in the past and continue to use certain copyrighted content and trademarks provided by Phoenix TV Group. See
“Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreements and Transactions with
Phoenix TV and Certain of its Subsidiaries.”
We have a mutually beneficial relationship with Phoenix TV. We and Phoenix TV share a common vision of the convergence
of traditional and new media channels, and work together to realize this vision. Phoenix TV enables us to display our proprietary
content on its TV programs. We believe that our and Phoenix TV’s active promotion of one another’s brands on our respective
Internet-enabled and TV platforms helps to grow our combined audience synergistically.
On February 17, 2014, our Chief Executive Officer Mr. Shuang Liu was also promoted to the position of Chief Operating
Officer of Phoenix TV. The key initiative for his new position at Phoenix TV is to accelerate the convergence of TV, Internet and
mobile platforms of the two companies. As the Chief Operating Officer of Phoenix TV, Mr. Liu is tasked with strategizing, overseeing
and allocating resources to implement this convergence strategy. Through this appointment, both companies can more seamlessly
expand user reach on each of its media platforms, provide advertisers a one-stop shop solution, more effectively monetize the Phoenix
brand across all verticals, and achieve greater cost synergies.
Although we believe that our interests and those of Phoenix TV are mostly aligned because Phoenix TV will continue to
consolidate our financial results as long as Phoenix TV maintains a majority voting interest in our company, there may be conflicts of
interest between our company and Phoenix TV from time to time. We may not be able to resolve any potential conflicts, and even if
we do so, the resolution may be less favorable to us than if we were dealing with a non-controlling shareholder. For more information
about our potential conflicts of interest with Phoenix TV, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our
Corporate Structure—We may have conflicts of interest with Phoenix TV and, because of Phoenix TV’s controlling beneficial
ownership interest in our company, may not be able to resolve such conflicts on terms favorable for us.”
Subsidiaries of Phoenix New Media Limited
An exhibit containing a list of our significant subsidiaries has been filed with this annual report.
D.
Property, Plants and Equipment
Please refer to “B. Business Overview—Facilities” for a discussion of our property, plants and equipment.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Unless otherwise stated, the discussion and analysis of our financial condition and results of operation in this section apply to
our financial information as prepared according to U.S. GAAP. You should read the following discussion and analysis of our financial
condition and operating results in conjunction with our consolidated financial statements and the related notes included elsewhere in
this annual report. The following discussion contains forward-looking statements based upon current expectations that involve risks
and uncertainties. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-
looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors.”
Overview
We are a leading new media company providing premium content on an integrated Internet platform, including PC and
mobile, in China. Having originated from a leading global Chinese language TV network based in Hong Kong, Phoenix TV, we
enable consumers to access professional news and other quality information and UGC, on the Internet and through their PCs and
mobile devices. We also transmit our UGC and in-house produced content to TV viewers primarily through Phoenix TV. Our PC
channel includes major verticals such as news, finance, video, automobile, technology, entertainment, military, real estate, fashion and
sport. Our mobile channel includes our mobile news application, mobile video application, mobile digital reading applications and
mobile Internet websites. We also act as a unique and quality content provider for multiple third-party channel. The appeal of our
brand is enhanced by its affiliation with the “Phoenix” (“鳳凰”) brand of Phoenix TV.
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According to iResearch, our number of PC monthly unique visitors was 112 million in December 2020 and we have ranked
second among all Internet portals in China in terms of monthly unique visitors in December 2020. We earn revenues from advertising
and paid services, which accounted for 92.1% and 7.9% of our total revenues, respectively, in 2020.
We recognize revenues from our advertising services on a net basis, after deducting the agency service fees we pay to
advertising agencies and the VAT and the cultural development fee. We provide advertising services through PC channel and mobile
channel, which accounted for 29.6% and 70.4% of our net advertising revenues, respectively, in 2020. We see mobile devices as the
primary gateway for news and other media content consumption going forward. In recent years, we have taken steps to optimize our
business model by shifting our revenue mix towards our mobile channels. By continuing to strengthen our core competencies of
content production capability, dedication to serious journalism and cutting-edge technology, we believe that we will be better
positioned to capitalize on emerging opportunities as increasing numbers of consumers in China use Internet-enabled mobile devices
to consume news and other media content.
We offer a wide variety of paid services primarily through our mobile channel and operations with the telecom operators. Our
paid services revenues were primarily generated from (i) paid contents, which includes digital reading, audio books, paid videos, and
other content-related sales activities, (ii) games, which includes web-based games and mobile games, (iii) MVAS, and (iv) others.
Prior to 2019, our paid services revenues were primarily generated from (i) digital entertainment, which included digital reading and
MVAS, and (ii) games and others, which included web-based games, mobile games, content sales, and other online and mobile paid
services through our own platforms. For comparison purposes, the revenues from paid services for the year ended December 31, 2018
have been retrospectively re-classified. We derived 48.2%, 0.2%, 13.7% and 37.9% of our paid services revenues, respectively, from
our paid contents, games, MVAS, and others in 2020. Our paid services revenues decreased from RMB133.0 million in 2019 to
RMB95.8 million (US$14.7 million) in 2020, mainly caused by a 35.1% decrease in the revenues generated from paid contents, which
was primarily attributable to the tightened rules and regulations on digital reading in China and in line with the broader market
conditions reflecting the trend towards free online reading.
Our business and operating results are affected by general factors affecting China’s new media industry, which include
China’s overall economic growth, per capita disposable income, the trend of media convergence, growth of new media and its
popularity as an advertising medium, growth of Internet (including mobile Internet) penetration, adoption of paid services, including
3G /4G mobile services, and smart phones. Unfavorable changes in any of these general industry conditions could negatively affect
demand for our services and negatively and materially affect our operating results.
Our business, operating results, financial condition and future growth are more directly affected by company specific factors
and trends, including:
•
•
•
•
our ability to maintain and expand our target user base;
our ability to provide effective advertising services and enhance our pricing power;
our ability to grow our paid services on both mobile operators’ platforms and our own platforms; and
our ability to procure and produce content in a cost-effective manner.
Critical Accounting Policies
The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our
consolidated financial statements and other disclosures included in this annual report. When reviewing our financial statements, you
should consider (i) our selection of critical accounting policies, (ii) judgment and other uncertainties affecting the application of such
policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the financial statements of us, our subsidiaries, our affiliated consolidated
entities, and the subsidiaries of our affiliated consolidated entities. The consolidated financial statements have been prepared in
accordance with U.S. GAAP and on a going concern basis. All significant transactions and balances among us, our subsidiaries, our
affiliated consolidated entities and the subsidiaries of our affiliated consolidated entities have been eliminated upon consolidation. We
consolidate our affiliated consolidated entities and the subsidiaries of our affiliated consolidated entities as required by Accounting
Standards Codification, or ASC, 810 Consolidation, because Fenghuang On-line and Qieyiyou hold all the variable interests of our
affiliated consolidated entities and have been determined to be the primary beneficiaries of our affiliated consolidated entities.
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Business combinations and non-controlling interests
We account for our business combinations using the acquisition method of accounting in accordance with ASC 805 Business
Combinations. The cost of an acquisition is measured as the aggregate of the acquisition date fair value of the assets transferred to the
sellers and liabilities incurred by us and equity instruments issued as well as the contingent considerations as of the acquisition date.
Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or
assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling
interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any
previously held equity interests in the acquiree over (ii) the fair value of the identifiable tangible and intangible net assets of the
acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognized directly in the consolidated statements of comprehensive income/(loss). During the measurement period,
which can be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with
the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets
acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of
comprehensive income/(loss).
In a business combination achieved in stages, we re-measure the previously held equity interests in the acquiree immediately
before obtaining control at its acquisition date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated
statements of comprehensive income/(loss).
When there is a change in ownership interests or a change in contractual arrangements that results in a loss of control of a
subsidiary, we deconsolidate the subsidiary from the date control is lost. Any retained non-controlling investment in the former
subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.
For our non-wholly owned subsidiaries, a non-controlling interest is recognized to reflect portion of equity that is not
attributable, directly or indirectly, to us. When the non-controlling interest is contingently redeemable upon the occurrence of a
conditional event, which is not solely within the control of us, the non-controlling interest is classified as mezzanine equity.
Transactions with changes in our ownership interest while we retain our controlling financial interest in our subsidiary shall be
accounted for as equity transactions. Therefore, no gain or loss shall be recognized in the consolidated statements of comprehensive
income/(loss). The carrying amount of the non-controlling interest shall be adjusted to reflect the change in our ownership interest in
the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the
noncontrolling interest is adjusted shall be recognized in equity attributable to us. Consolidated net income/(loss) in the consolidated
statements of comprehensive income/(loss) includes net income (loss) attributable to non-controlling interests. The cumulative results
of operations attributable to non-controlling interests, along with adjustments for share-based compensation expense arising from
outstanding share-based awards relating to subsidiaries’ shares, are also recorded as non-controlling interests in our consolidated
balance sheets. Cash flows related to transactions with non-controlling interests are presented under financing activities in the
consolidated statements of cash flows.
Discontinued operations
A component of a reporting entity or a group of components of a reporting entity that are disposed of or meet the criteria to be
classified as held for sale should be reported in discontinued operations if the disposal represents a strategic shift that has (or will
have) a major effect on an entity’s operations and financial results. Discontinued operations are reported when a component of an
entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or
(2) has a major impact on an entity’s financial results and operations. In the statement of financial position, the assets and liabilities of
the discontinued operation are presented separately in the asset and liability sections, respectively, of the statement of financial
position and prior periods are presented on a comparative basis. In the consolidated statements of comprehensive income, results from
discontinued operations are reported separately from the income and expenses from continuing operations and prior periods are
presented on a comparative basis. Cash flows for discontinued operations are presented separately in the consolidated statements of
cash flows. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses
arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the
disposal of the discontinued operations.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair
value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
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Level 1— Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2— Include other inputs that are directly or indirectly observable in the marketplace
Level 3— Unobservable inputs which are supported by little or no market activity
U.S. GAAP describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach;
(2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market
transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future
amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about
those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. In some
circumstances, a combined approach of the aforementioned three approaches may be used to measure the fair values.
In accordance with ASC 820, we measure term deposits and short term investments, restricted cash, available-for-sale debt
investments, and forward contract at fair value on a recurring basis.
The fair values of the investments in Particle were determined based on the scenario analysis, the weighted average valuation
results derived from both the discounted cash flow model and the market approach, and the probability of each scenario as of
December 31, 2018. As we have completed delivery of the first batch of 94,802,752 preferred shares of Particle to the Proposed
Buyers in 2019, the fair values of the investments in Particle as of December 31, 2019 were determined based on a valuation technique
under the market approach, known as guideline company method, where financial ratios of comparable companies were analyzed to
determine the value of Particle, as well as using observable transactions of Particle’s shares. In August 2020, we acquired 4,584,209
series D1 preferred shares of Particle from Run Liang Tai, which were previously pledged to us to secure the repayment of an interest-
free loan with the principal of approximately US$9.7 million granted by us to Run Liang Tai. As we have completed delivery of the
rest of 140,248,775 preferred shares of Particle in 2020, we only hold 4,584,209 series D1 preferred shares of Particle as of December
31, 2020. The fair values of the investments in Particle as of December 31, 2020 were determined based on a valuation technique
under the market approach, known as guideline company method, where financial ratios of comparable companies were analyzed to
determine the value of Particle. We classify the valuation techniques that use unobservable inputs as Level 3 of fair value
measurements.
The key inputs used in available-for-sale debt investments valuation as of December 31, 2018, 2019 and 2020 were as
follows:
Discount rate
Lack of marketability discount (“DLOM”)
Volatility
Revenue growth rate
Terminal growth rate
Control premium
Probability of each scenario
As of December 31,
2018
Under the Status
Quo Scenario*
Under the Trade
Sale Scenario**
22.5%
20%
44.5%
17%
15%
44.8%
3.7%-75.8%
3.7%-75.8%
3%
N/A
60%
3%
30%
40%
2019
N/A
5%
45.7%
N/A
N/A
N/A
N/A
2020
N/A
25%
55.3%
N/A
N/A
N/A
N/A
Note:
*
**
Under the status quo scenario, we would not close the transaction contemplated under the LOI, and we would keep holding the
investments of convertible redeemable preferred shares in Particle and maintain the status quo.
Under the trade sale scenario, we would close the transaction contemplated under the LOI, and we would go through trade sales
on the investments of convertible redeemable preferred shares in Particle.
Our non-financial long-lived assets, such as intangible assets, goodwill and fixed assets, would be measured at fair value only
if they are determined to be impaired on an other-than-temporary basis. We use a combination of valuation methodologies, including
market and income approaches based on our best estimate to determine the fair value of these non-financial assets. Inputs used in these
methodologies primarily include future cash flows, discount rate, expected volatility and the selection of comparable companies
operating in similar businesses.
For equity investments without readily determinable fair values accounted for under the measurement alternative, when there
are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are re-
measured to fair value. The non-recurring fair value measurements to the carrying amount of an investment usually requires us to
estimate a price adjustment for the different rights and obligations between a similar instrument of the same issuer with an observable
price change in an orderly transaction and the investment held by us. These non-recurring fair value measurements are measured as of
the observable transaction dates. The valuation methodologies involved require us to use the observable transaction price at the
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transaction date and other unobservable inputs (level 3) such as volatility of comparable companies and probability of exit events as it
relates to liquidation and redemption preferences.
Accounts receivable, notes receivable, amounts due from related parties, prepayments and other current assets, accounts
payable, amounts due to related parties, salary and welfare payable, accrued expense, and other current liabilities are financial assets
or liabilities with carrying values that approximate fair value due to their short term nature.
Expected credit loss
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326), and issued subsequent
amendments to the initial guidance, transitional guidance and other interpretive guidance between November 2018 and March 2020
within ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03. ASU 2016-13 introduces new
guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to
estimate credit losses on certain types of financial instruments, including accounts receivable and notes receivable, held-to-maturity
debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt
securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a
credit loss. Further, the new guidance indicates that entities may not use the length of time a security has been in an unrealized loss
position as a factor in concluding whether a credit loss exists. The allowance for accounts receivable is our estimate of credit losses
based on historical collection activity, current business environment and forecasts of future macroeconomic conditions that may affect
the customers’ ability of payment. We estimated the allowance by segmenting accounts receivable into groups based on certain credit
risk characteristics, and determining an expected loss rate for each group based on historical loss experience adjusted for judgments
about the effects of relevant observable data including default rates, lifetime for debt recovery, current and future economic
conditions.
We adopted ASU 2016-13 beginning from January 1, 2020 on a modified retrospective basis and there was no material
impact on the balance sheets and the consolidated statements of comprehensive income/(loss) as a result of adopting the new standard.
Available-for-sale debt investments
In accordance with ASC 320 Investments-Debt and Equity Securities, we classify the investments in debt securities as “held-
to-maturity”, “trading” or “available-for-sale”. The securities that we have positive intent and ability to hold to maturity are classified
as held-to-maturity securities. The securities that are bought and held principally for the purpose of selling them in the near term are
classified as trading securities. Investments that have readily determinable fair values not classified as trading or as held-to-maturity
are classified as available-for-sale debt investments. Available-for-sale debt investments are reported at fair value, which is estimated
by management after considering an independent appraisal performed by a reputable appraisal firm, with unrealized gains and losses,
if any, recorded in the accumulated other comprehensive loss or income in shareholder’s equity. The tax effects of the unrealized gains
and losses of the available-for-sale debt investments should be recorded net against the pre-tax changes in other comprehensive
income. An impairment loss on the available-for-sale debt investments would be recognized in the consolidated statements of
comprehensive income/(loss) when the decline in value is determined to be other-than-temporary. Investments with maturities of
greater than 12 months are recorded in non-current assets.
Goodwill
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible
assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment on an annual
basis, or more frequently if events or changes in circumstances indicate that it might be impaired.
We adopted ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, and in accordance with the FASB, pursuant to which we have the option to choose whether we will apply a qualitative
assessment first and then a quantitative assessment, if necessary, or to apply a quantitative assessment directly. For reporting units
applying a qualitative assessment first, we start the goodwill impairment test by assessing qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is more likely than not that the fair
value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is
required. The quantitative impairment test consists of a comparison of the fair value of the reporting unit with its carrying value,
including goodwill. If the carrying value of each reporting unit, including goodwill, exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess, but limited to the total amount of goodwill allocated to that reporting unit.
Application of a goodwill impairment test requires significant management judgment, including the identification of reporting
units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each
reporting unit. We estimate fair value using the income approach. The judgment in estimating the fair value of reporting units includes
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revenue growth rates and appropriate discount rates and other assumptions. Changes in these estimates and assumptions could
materially affect the determination of fair value for each reporting unit.
Intangible Assets, Net
Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either
the “contractual-legal” or “separability” criterion. Intangible assets mainly consist of computer software purchased from unrelated
third parties, operating rights for licensed games, licensed copyrights of reading content, audio content, trademark and an Internet
domain name. Intangible assets are stated at cost less impairment and accumulated amortization, which is computed using the straight-
line method over the estimated useful lives of the assets. Separately identifiable intangible assets that have determinable lives continue
to be amortized over their estimated useful lives using the straight-line method as follows:
Computer software
Licensed copyrights of reading content
Trademark and Domain name
Audio content
License and licensed games
Estimated Useful Lives
5 years
Lesser of the licensed period or 5 years
10 years
Lesser of the licensed period or 5 years
Estimated life cycle
We amortize the licensed copyrights in “cost of revenues” on a straight-line basis.
We performed intangible assets impairment assessment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Recoverability is measured through the use of an undiscounted future cash flow
model when an indication of impairment is determined to exist. If an asset is determined to be not recoverable, its carrying amount is
reduced to the estimated fair value determined using a discounted cash flow model. Our impairment tests included significant
assumptions relating to revenue growth and timing of projected future cash flows.
Revenue Recognition
According to ASC 606, revenue is recognized when control of the promised services is transferred to the customers, in an
amount that reflects the consideration we expect to be entitled to in exchange for those services. The recognition of revenues involves
certain management judgments, including the estimation of the fair value of the noncash transaction, estimated lives of virtual items
purchased by game players, and volume sales rebates. We do not believe that significant management judgments are involved in
revenue recognition, but the amount and timing of our revenues could be different for any period if management made different
judgments or utilized different estimates.
We adopt the five-step model for recognizing revenue from contracts with customers:
Step 1: Identify the contract(s) with a customer,
Step 2: Identify the performance obligations in the contract,
Step 3: Determine the transaction price,
Step 4: Allocate the transaction price to the performance obligations in the contract,
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
We evaluate if we are a principal or an agent in a transaction to determine whether revenue should be recorded on a gross or
net basis. We are acting as the principal if we obtain control over the goods and services before they are transferred to customers.
When we are primarily obligated in a transaction, are generally subject to inventory risk, have latitude in establishing prices, or have
several but not all of these indicators, we act as the principal and revenue is recorded on a gross basis. When we are not primarily
obligated in a transaction, do not generally bear the inventory risk and do not have the ability to establish the price, we act as the agent
and revenue is recorded on a net basis.
(i)
Net Advertising Revenues
Advertising revenues are derived principally from advertising contracts with customers where the advertisers pay to place
their advertisements on our ifeng.com, mobile Internet websites i.ifeng.com and our mobile applications in different formats over a
particular period of time. Such formats generally include but are not limited to banners, newsfeed, text-links, videos, logos, buttons
and rich media. Our performance obligations are to place the customers’ advertisements on different spots, in different formats and at
different times.
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Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to
each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices of each
distinct performance obligation based on the prices charged to customers when sold on a standalone basis. Where standalone selling
price is not directly observable, we generally estimate selling prices based on the publicly published advertising rate card, times the
relevant discount rates, taking into considerations of the historical trend, the pricing of advertising areas sold with similar popularities,
advertisements with similar formats and quoted prices from competitors, and other relevant market conditions. We recognize revenue
on the satisfied performance obligations and defer the recognition of revenue for the estimated value of the undelivered elements until
the remaining performance obligations have been satisfied. When all of the elements within an arrangement are delivered uniformly
over the agreement period, the revenues are recognized on a straight-line basis over the contract period.
Currently the advertising business has three main types of pricing models, consisting of the Cost Per Day (“CPD”) model, the
Cost Per Impression (“CPM”) model, and the Cost Per Click (“CPC”) model.
CPD model. Under the CPD model, a contract is signed to establish a fixed price for the advertising services to be provided
over a period of time. Given the advertisers benefit from the displayed advertising evenly, we recognize revenue on a straight-line
basis over the period of display, provided all revenue recognition criteria have been met.
CPM model. Under the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the
advertiser. A qualifying display is defined as the appearance of an advertisement, where the advertisement meets criteria specified in
the contract. Given that the fees are priced consistently throughout the contract and the unit prices are consistent with our pricing
practices with similar customers, we recognize revenue based on the fixed unit prices and the number of qualifying displays upon
occurrence of display, provided and all revenue recognition criteria have been met.
CPC model. Under the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser
and the unit price for each click is auction-based. We charge advertisers on a per-click basis, when the users click on the
advertisements. Given that the fees are priced consistently throughout the contract and the unit prices are consistent with our pricing
practices with similar customers, we recognize revenue based on qualifying clicks and the unit price upon the occurrence of a click,
provided all revenue recognition criteria have been met.
Certain customers may receive sales rebates, which are accounted for as variable consideration. We estimate annual expected
revenue volume of each individual agent with reference to their historical results. The sales rebate will reduce revenues recognized.
We recognize revenue for the amount of fees we receive from our advertisers, after deducting sales rebates and net of value-added tax,
or VAT, and related surcharges. We believe that there will not be significant changes to our estimates of variable consideration.
We enter into contracts with certain customers involving consideration in a form other than cash. The noncash consideration
(or promise of noncash consideration) shall be measured at fair value. If we cannot reasonably estimate the fair value of the noncash
consideration, we shall measure the consideration indirectly by reference to the standalone selling price of the goods or services
promised to the customer (or class of customer) in exchange for the consideration. We recognize revenue from noncash transactions
involving exchanging advertising services for advertisement, content, technical, application pre-installation services and others.
(ii)
Paid Services Revenues
Prior to 2019, paid services revenues comprised of (i) revenues from digital entertainment, which included MVAS and digital
reading, and (ii) revenues from games and others, which included web-based games, mobile games, content sales, and other online and
mobile paid services through our own platforms.
Beginning from January 1, 2019, paid services revenues have been re-classified and now comprised of (i) revenues from paid
contents, which includes digital reading, audio books, paid videos, and other content-related sales activities, (ii) revenues from games,
which includes web-based games and mobile games, (iii) revenues from MVAS, and (iv) revenues from others. For comparison
purposes, the revenues from paid services for the year ended December 31, 2018 have been retrospectively re-classified.
Paid contents
Paid contents revenues mainly comprised of revenues generated from digital reading, audio books, paid videos, and other
content-related sales activities.
Digital reading
Digital reading revenues are derived from providing fee-based internet literatures from writers and digital format books
licensed from third-party publishers to customers both on our PC and mobile platforms and on third-party platforms. Digital reading
revenues generated from our PC and mobile platforms are recorded on a gross basis and recognized evenly over the subscription
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period, or in the period in which a pay-per-view service is provided, as we are responsible for providing the desired services to the
customers and have primary responsibility and broad discretion to establish price, therefore we are considered the primary obligor in
these transactions. Digital reading revenues generated from third-party platforms are recorded on a net basis.
Audio books
Audio books revenues are derived from the sale of copyright of audio books to third parties, and licensing audio books to
third parties.
With respect to the sale of copyright of audio books, we are determined to be the primary obligor and accordingly, we record
revenues on a gross basis. With respect to the revenues that derived from licensing audio books to third parties, we evaluated and
determined that we are not the primary obligor in the service rendered to the end users and accordingly, we record our revenues based
on the portion of the sharing of revenues that derives from the third parties. We recognize revenue on the satisfied performance
obligations and defers the recognition of revenue for the estimated value of the undelivered elements until the remaining performance
obligations have been satisfied.
Paid videos
We generate revenues from licensing video to third parties. For such content licensing transactions, we earn up-front fixed-
amount license fees or revenue sharing fees based on pre-agreed percentage. We view the third parties as customers and recognizes
revenues on a net basis during the licensing periods, provided that no significant obligation remains, collection of the receivables is
reasonably assured and the amounts can be accurately estimated.
Games
Games include web-based games and mobile games. Revenues from these services are recognized over the periods in which
the services are performed, provided that no significant obligations remain, collection of the receivables is reasonably assured and the
amounts can be accurately estimated.
MVAS
MVAS revenues are mainly derived from providing mobile phone users with WVAS through telecom operators’ platforms,
mobile newspaper services and mobile video services. Revenues from MVAS are charged on a monthly or per-usage basis, and are
recognized in the period in which the service is performed, provided that no significant obligation remains, collection of the
receivables is reasonably assured and the amounts can be accurately estimated. Most revenues from mobile newspaper services,
mobile video services and most WVAS are recorded on a net basis as we are acting as an agent of operators in these transactions.
Others
Other paid service revenues mainly comprise of revenues generated from E-commerce services and online real estate related
services. Revenues are recognized in the period in which the service is performed, provided that no significant obligation remains,
collection of the receivables is reasonably assured and the amounts can be accurately estimated.
For certain E-commerce services, we charge commission fees to third-party merchants for participating in our online
marketplace, where we generally are acting as an agent and our performance obligation is to arrange for the provision of the specified
goods or services by those third-party merchants. Upon successful sales, we charge the third-party merchants a negotiated amount or a
fixed rate commission fee based on the sales amount. Commission fee revenues are recognized on a net basis at the point of delivery
of products, net of return allowances. For some E-commerce services, we recognize revenues from certain online retail business on a
gross basis as we are acting as a principal in these transactions and are responsible for fulfilling the promise to provide the specified
goods.
Operating leases and adoption of ASU 2016-02
On February 25, 2016, the FASB issued ASU 2016-02 Leases (Topic 842), which supersedes the lease accounting guidance
under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use
assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising
from leasing arrangements.
We applied ASU 2016-02 beginning from January 1, 2019 and elected to apply practical expedients permitted under the
transition method that allow us to use the beginning of the period of adoption as the date of initial application, to not recognize lease
assets and lease liabilities for leases with a term of twelve months or less, and to not reassess lease classification, treatment of initial
86
direct costs, or whether an existing or expired contract contains a lease. We used modified retrospective method and did not recast the
prior comparative periods. Under the new lease standard, we determine if an arrangement is or contains a lease at inception. Right-of-
use assets and liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the
lease terms. We consider only payments that are fixed and determinable at the time of lease commencement.
As a result of the adoption, we recorded a right-of-use asset of approximately RMB99.5 million and a lease liability of
approximately RMB99.5 million upon the adoption of ASU 2016-02 on January 1, 2019, primarily related to our leased office space.
The adoption had no material impact on our consolidated statements of comprehensive income/(loss) for the year ended December 31,
2019 or the opening balances of retained earnings as of January 1, 2019.
Share-based Compensation
We have share incentive plans for the granting of share-based awards, such as share options and restricted shares. We
measure the cost of employee services received in exchange for share-based compensation at the grant date fair value of the award.
We recognize the share-based compensation as costs or expenses in our consolidated statements of comprehensive income/(loss), net
of estimated forfeitures, on a graded-vesting basis over the vesting term of the awards.
We recognize compensation cost for awards with performance conditions if and when we conclude that it is probable that the
performance condition will be achieved and should reassess the probability of vesting at each reporting period for awards with
performance conditions and adjust compensation cost based on our probability assessment. We recognize a cumulative catch-up
adjustment for changes in our probability assessment in subsequent reporting periods.
The share-based awards to nonemployees are accounted for based on the fair value of the consideration received or the fair
value of the award issued, whichever is more reliably measurable. Share-based compensation expense for share options granted to
non-employees is measured at fair value at the earlier of the performance commitment date or the date service is completed and
recognized over the period during which the service is provided. We apply the guidance in ASU 2018-07 Compensation— Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting to account for share options granted to
non-employees based on the grant date fair value beginning from January 1, 2019.
Cancellation of an award accompanied by the concurrent grant of a replacement award is accounted for as a modification of
the terms of the cancelled award, or modification awards. The share-based compensation cost associated with the modification awards
are recognized if either the original vesting condition or the new vesting condition has been achieved. Such compensation costs cannot
be less than the grant-date fair value of the original award. The incremental compensation cost is measured as the excess of the fair
value of the replacement award over the fair value of the cancelled award at the cancellation date. Therefore, in relation to the
modification awards, we recognize share-based compensation over the vesting periods of the new awards, which comprises, (1) the
amortization of the incremental portion of share-based compensation over the remaining vesting term and (2) any unrecognized
compensation cost of original award, using either the original term or the new term, whichever is higher for each reporting period.
We use the Black-Scholes option pricing model to determine the fair value of share options based on the fair value of
underlying ordinary shares at the grant date. The assumptions used in calculating the fair value of share options represent
management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. The fair
values of the options during 2018, 2019 and 2020 used the following assumptions.
Expected volatility rate
Expected dividend yield
Expected term (years)
Risk-free interest rate (per annum)
2018
56.76%-57.10%
—
2.50-6.16
0.91%-2.09%
For the Years Ended December 31,
2019
55.92%-77.98%
—
1.00-6.16
2.33%-3.12%
2020
58.59%-74.15%
—
0.50-6.16
1.14%-2.37%
Expected Volatility. We estimated the expected volatility at the date of grant based on the average annualized standard
deviation of the share prices of comparable listed companies.
Expected Dividend Yield. The Black-Scholes option pricing model calls for a single expected dividend yield as an input. We
have not declared or paid any regular cash dividends on our capital stock, and we do not anticipate any regular dividend payments on
our ordinary shares in the foreseeable future.
Expected Term. We estimated the expected term based on the vesting schedule and the exercise period of the options.
Risk-Free Interest Rate. We estimated the risk-free interest rate used in the Black-Scholes option pricing model based on the
derived market yield of the U.S. Treasury securities with an estimated country-risk differential as of the valuation date.
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We determined the fair value of restricted share and restricted share units based on the fair value of the underlying ordinary
shares at the grant date and considered the dilutive effect of restricted share and restricted share units.
Forfeiture rates are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from initial estimates. We use historical data to estimate pre-vesting option and restricted share units forfeitures and record share-
based compensation only for those awards that are expected to vest.
Income Taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and
expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax
jurisdictions. Deferred income taxes are provided using an asset and liability method. Under this method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an
asset or liability is the amount attributed to that asset or liability for tax purpose. The effect on deferred taxes of a change in tax rates is
recognized in our consolidated statements of comprehensive income/(loss) in the period of change. A valuation allowance is provided
to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets
will not be realized.
In order to assess uncertain tax positions, we apply a more likely than not threshold and a two-step approach for the tax
position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be
sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon settlement. We did not have significant unrecognized uncertain tax
positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of and for the years ended
December 31, 2018, 2019 and 2020.
We recognized gain on disposal of available-for-sale debt investments of RMB1,001.2 million and RMB477.3 million
(US$73.1 million) in the consolidated statements of comprehensive income/(loss) for the years ended December 31, 2019 and 2020,
respectively, which were not subject to any corporate income or capital gains taxes under the current laws of the Cayman Islands.
Description of Key Statement of Comprehensive Income/(Loss) Items
Revenues
The following table sets forth the principal components of our total revenues by amount and by percentage of total revenues
for the years presented.
Revenues:
Net advertising revenues
Paid services revenues
Total revenues
For the Years Ended December 31,
2018
2019
RMB
%
RMB
%
RMB
(In thousands except percentages)
2020
US$
%
1,198,150
178,131
1,376,281
87.1
12.9
100.0
1,194,761
133,020
1,327,781
90.0
10.0
100.0
1,113,017
95,828
1,208,845
170,577
14,686
185,263
92.1
7.9
100.0
We derive our revenues from advertising services and paid services.
Advertising Services. Our net advertising revenues accounted for 87.1%, 90.0% and 92.1% of our total revenues in 2018,
2019 and 2020, respectively. We generate our net advertising revenues from payments made by advertisers to place their
advertisements on our ifeng.com, mobile Internet websites i.ifeng.com and our mobile applications in different formats over a
particular period of time. Such formats generally include but are not limited to banners, newsfeed, videos, text-links, logos, buttons
and rich media.
Advertisers purchase our advertising services primarily through third-party advertising agencies. Currently the advertising
business has three main types of pricing models, consisting of the CPD model, the CPM model, and the CPC model. We recognize
advertising revenues on a net basis after deducting service fees earned by advertising agencies and the VAT and the cultural
development fee.
88
We also earn advertising revenues from related parties, including Phoenix TV, for joint TV and online advertising solutions
which we provide together with Phoenix TV to certain Phoenix TV advertising customers, China Mobile Communication Corporation,
or China Mobile, and our investees for online advertising services. We also record these revenues as net advertising revenues earned
from related parties. Our net advertising revenues earned from related parties accounted for 3.5%, 4.2% and 3.4% of our net
advertising revenues in 2018, 2019 and 2020, respectively.
Paid Services. Our paid services revenues contributed 12.9%, 10.0% and 7.9% of our total revenues in 2018, 2019 and 2020,
respectively. The following table sets forth our paid services offerings and their respective contributions to our paid services revenues
and total revenues in 2018, 2019 and 2020, respectively.
Paid Services Revenues*
Paid contents
Games
MVAS
Others
For the Years Ended December 31,
% of Paid Services Revenues
2019
2018
2020
% of Total Revenues
2019
2018
2020
52.8
8.3
30.9
8.0
53.5
10.4
13.9
22.2
48.2
0.2
13.7
37.9
6.8
1.1
4.0
1.0
5.3
1.1
1.4
2.2
3.8
0.0
1.1
3.0
Note:
*
Prior to 2019, paid services revenues comprised of (i) revenues from digital entertainment, which included MVAS and digital
reading, and (ii) revenues from games and others, which included web-based games, mobile games, content sales, and other
online and mobile paid services through our own platforms. Beginning from January 1, 2019, paid services revenues have been
re-classified and now comprised of (i) revenues from paid contents, which includes digital reading, audio books, paid videos,
and other content-related sales activities, (ii) revenues from games, which includes web-based games and mobile games,
(iii) revenues from MVAS, and (iv) revenues from others. For comparison purposes, the revenues from paid services for the
year ended December 31, 2018 have been retrospectively re-classified.
These revenues were recorded either on gross or net basis depending on the nature of the services that we provided to the
customers.
Our paid services revenues generated from China Mobile, a related party, accounted for 48.5%, 45.5% and 31.8% of our paid
services revenues in 2018, 2019 and 2020, respectively. We generated paid services revenues of RMB86.4 million, RMB60.5 million
and RMB30.5 million (US$4.7 million) from providing services to customers of China Mobile and collecting fees through
arrangements with China Mobile in 2018, 2019 and 2020, respectively. The decrease in paid services revenues with China Mobile was
primarily due to a decrease in the MVAS revenues mainly resulting from the decline in users’ demand for services provided through
telecom operators in China. We derived paid services revenues of RMB9.2 million, nil and nil for the years ended December 31, 2018,
2019 and 2020, respectively, from fixed fees from China Mobile for our mobile newspaper service.
Sales Taxes and Related Surcharges and Other Surcharges. We are subject to VAT and related surcharges on the revenues
earned for services provided in the PRC. The primary applicable rate of VAT is 6.0% for the years ended December 31, 2018, 2019
and 2020. We are also subject to a cultural development fee on the provision of advertising services in the PRC. The applicable tax
rate decreased from 3% of the net advertising revenues before July 1, 2019 to 1.5% of the net advertising revenues since July 1, 2019.
The VAT and the cultural development fee are recorded as a reduction item of revenues in the consolidated statements of
comprehensive income/(loss). Other surcharges mainly comprised of urban maintenance and construction tax and education
surcharges. The urban maintenance and construction tax are charged at 7%, 5% or 1% of the amount of VAT actually paid depending
on where the taxpayer is located. Education surcharges are charged at 3% of the amount of VAT actually paid and local education
surcharges are charged at 2% or 1% of the amount of VAT actually paid depending on where the taxpayer is located. The urban
maintenance and construction tax, education surcharges and local education surcharges are recorded in the cost of revenues in the
consolidated statements of comprehensive income/(loss).
Cost of Revenues
Our cost of revenues consists primarily of (1) revenue sharing fees, including service fees retained by mobile
telecommunications operators, and revenue sharing fees paid to our channel and content partners, (2) content and operational costs,
including personnel-related cost associated with content production and certain advertisement sales support personnel, content
procurement costs to third-party professional media companies and to Phoenix TV Group, direct costs related to in-house content
production, channel testing costs, rental cost, depreciation and amortization, the urban maintenance and construction tax, education
surcharges and local education surcharges, and other miscellaneous costs, and (3) bandwidth costs. The decrease in cost of revenues
from 2019 to 2020 was primarily attributable to our strict cost control measures taken to enhance our operating efficiency in 2020. The
following table sets forth the components of our cost of revenues by amount and by percentage of total revenues for the years
indicated.
89
Cost of revenues:
Revenue sharing fees
Content and operational costs
Bandwidth costs
Total cost of revenues
For the Years Ended December 31,
2018
2019
RMB
%
RMB
%
RMB
(In thousands except percentages)
2020
US$
%
47,262
491,476
57,105
595,843
3.4
35.8
4.1
43.3
25,157
603,573
54,600
683,330
1.9
45.5
4.1
51.5
19,550
482,641
57,095
559,286
2,996
73,968
8,750
85,714
1.6
40.0
4.7
46.3
Revenue Sharing Fees. We share the revenues generated from these services with the mobile operators through whose
networks and/or service platforms we offer our services to our users, and record the revenue sharing fee as cost of revenues. We also
share the revenues generated from our paid services with channel partners through whose platforms we market and distribute our
services and with certain content providers, as applicable. The percentage allocations for our revenue sharing are determined with the
relevant parties and vary by service.
Content and Operational Costs. Our content costs consist of (i) personnel-related costs which include share-based
compensation associated with content production and advertising sales support staff, (ii) payments we make to third-party professional
media companies, (iii) revenue sharing fees we pay to Phoenix TV Group for sales of its video content, (iv) the license fees we pay to
Phoenix TV Group for the use of its content, (v) production costs related to our in-house produced content, (vi) the urban maintenance
and construction tax, education surcharges and local education surcharges, and (vii) operational costs which consist of channel testing
costs, event costs incurred in connection with advertising revenue-generating activities, rental costs, depreciation and amortization
costs, and other miscellaneous costs.
Bandwidth Costs. Bandwidth costs are the fees we pay to mobile operators and other service providers for
telecommunications services and for hosting our servers at their Internet data centers.
For more information about such taxes, surcharges and fees, see “—Taxation.” For more information about risks related to
potential changes in the taxes applicable to us, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and
Industry—The discontinuation of any of the preferential tax treatments available to us in China could materially and adversely affect
our operating results and financial condition.”
Operating Expenses
Our operating expenses consist of sales and marketing expenses, general and administrative expenses and technology and
product development expenses, and include allocations of expenses from Phoenix TV and impairment of goodwill. Share-based
compensation is included in our operating expenses as they are incurred. The decrease in operating expenses from 2019 to 2020 was
primarily attributable to the decreases in both our traffic acquisition expenses and the personnel-related expenses as a result of the
strict cost control measures taken by us to enhance our operating efficiency in 2020.
The following table sets forth our operating expenses, divided into their major categories, by amount and by percentage of
total revenues for the years indicated.
Operating expenses:
Sales and marketing expenses
General and administrative expenses
Technology and product development
expenses
Impairment of goodwill
Total operating expenses
For the Years Ended December 31,
2018
2019
RMB
%
RMB
%
RMB
(In thousands except percentages)
2020
US$
%
536,980
162,424
204,723
—
904,127
39.0
11.8
14.9
0.0
65.7
541,772
242,047
216,741
—
1,000,560
40.8
18.2
279,429
277,931
42,824
42,595
16.3
171,989
26,358
0.0
75.3
22,786
752,135
3,492
115,269
23.1
23.0
14.2
1.9
62.2
Sales and Marketing Expenses. Our sales and marketing expenses consist primarily of sales and marketing personnel-related
expenses, including sales commissions, advertising and promotion expenses including traffic acquisition expenses, rental expenses,
and depreciation and amortization expenses.
General and Administrative Expenses. Our general and administrative expenses primarily consist of personnel-related
expenses for management and administrative staff, professional service expenses, bad debt provision, rental expenses, and
depreciation and amortization expenses.
90
Technology and Product Development Expenses. Our technology and product development expenses mainly consist of
personnel-related expenses associated with the development and maintenance of, and enhancement to our PC websites, mobile
applications and mobile websites, expenses associated with new technology and product development and enhancement, rental
expenses, and depreciation and amortization expenses.
Impairment of goodwill. We recognized an impairment of goodwill of RMB22.8 million (US$3.5 million) for the reporting
unit of Tianbo in 2020, mainly caused by the negative impact on Tianbo from both the COVID-19 outbreak in 2020 and the tightened
rules and regulations on real estate market in China as well as intensified industry competition. The impairment loss of goodwill was
determined by quantitatively comparing the fair value of the Tianbo reporting unit to its carrying amounts, with the fair value of the
Tianbo reporting unit determined based on the discounted cash flows of Tianbo.
Share-based Compensation
We measure the cost of employee services received in exchange for share-based compensation at the grant date fair value of
the award. We recognize share-based compensation, net of forfeitures, on a graded-vesting basis over the vesting term of the award.
We adopt the Black-Scholes option pricing model to determine the fair value of stock options, and determine the fair value of
restricted share and restricted share units based on the fair value of the underlying ordinary shares at the grant date considering the
dilutive effect of restricted share and restricted share units. We account for share-based compensation using an estimated forfeiture
rate at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based
compensation is recorded net of estimated forfeitures such that expenses are recorded only for share-based awards that are expected to
vest.
Related Party Transactions
In 2018, 2019 and 2020, we have entered into transactions with our related parties, including Phoenix TV, China Mobile, and
certain investees, that impacted our net advertising revenues, paid services revenues, cost of revenues, sales and marketing expenses
and general and administrative expenses. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party
Transactions.” The following table sets forth the significant transactions with our related parties.
Transactions with the non-US listed part of Phoenix TV Group :
Content provided by Phoenix TV Group
Advertising and promotion expenses charged by Phoenix TV Group
Corporate administrative expenses and trademark license fees charged
by Phoenix TV Group
Project cost charged by Phoenix TV Group
Revenues earned from Phoenix TV Group
Transactions with China Mobile:
Advertising revenues earned from China Mobile
Paid services revenues earned from and through China Mobile
Revenue sharing fees and bandwidth cost charged by China Mobile
Transactions with Investees :
Advertising revenues earned from Tianbo
Advances provided to Tianbo
Revenues earned from other investee
Loans repaid by Particle
Related interest income including the effect of foreign exchange arising
from convertible loans to Particle
Corporate administrative expenses charged by Particle
Sales of assets to Particle at carrying value
Other income earned from Particle
Advertising revenues earned from Fengyi Technology
Revenue sharing fees charged by investees
Advertising and promotion expenses charged by Fengyi Technology
Other Income, net
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
US$
(In thousands)
(12,398)
(4,258)
(7,918)
(1,763)
14,354
27,532
86,352
(15,929)
193
10,721
181
(84,083)
8,993
(82)
(413)
—
—
(77)
—
(11,302)
(4,157)
(7,045)
(1,148)
15,705
23,256
60,484
(13,999)
16
247
315
—
—
—
—
1,990
12,612
(62)
—
(2,595)
(2,549)
(5,039)
(487)
10,635
23,747
30,486
(6,487)
—
—
—
—
—
—
—
—
3,721
—
(142)
(398)
(391)
(772)
(75)
1,630
3,639
4,672
(994)
—
—
—
—
—
—
—
—
570
—
(22)
Our other income, net generally reflects gain on disposal of available-for-sale debt investments, gain on disposal of
convertible loans due from a related party, government subsidies, net interest income, foreign currency exchange gain or loss,
income/(loss) from equity method investments, net of impairment, changes in fair value of forward contract in relation to disposal of
91
investments in Particle, changes in fair value of loan related to co-sale of Particle shares, impairment of available-for-sale debt
investments and others, net.
For more information about the gain on disposal of available-for-sale debt investments, see “Note 9 Available-for-sale Debt
Investments” of our audited consolidated financial statements included at the end of this annual report.
Taxation
We are incorporated in the Cayman Islands. Under the current relevant laws of the Cayman Islands, corporate income, capital
gains or other direct taxes are not imposed on corporations in the Cayman Islands. In addition, dividend payments are not subject to
withholding taxes in the Cayman Islands. We recognized gain on disposal of available-for-sale debt investments of RMB1,001.2
million and RMB477.3 million (US$73.1 million) in the consolidated statements of comprehensive income/(loss) for the years ended
December 31, 2019 and 2020, respectively, which was not subject to any corporate income or capital gains taxes under the current
laws of the Cayman Islands.
Our subsidiaries incorporated in the British Virgin Islands are exempted from income tax on their foreign-derived income and
are not subject to withholding taxes. Our subsidiaries in Hong Kong are subject to 16.5% Hong Kong profit tax on their taxable
income generated from operations in Hong Kong. On April 1, 2018, a two-tiered profits tax regime was introduced. The profits tax
rate for the first HK $2 million of profits of corporations is lowered to 8.25%, while profits above that amount continue to be subject
to the tax rate of 16.5%.
Each of our PRC subsidiaries and our affiliated consolidated entities are obligated to pay income tax in the PRC. The CIT
Law generally applies an income tax rate of 25% to all enterprises, but grants preferential tax treatment to High and New Technology
Enterprises (“HNTEs”) and Software Enterprises. Under these preferential tax treatments, HNTEs are entitled to an income tax rate of
15%, subject to a requirement that they re-apply for HNTE status every three years and Software Enterprises are entitled to an income
tax exemption for two years beginning from its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three
years.
Fenghuang On-line was qualified as an HNTE in 2017 and 2020, respectively, and therefore, Fenghuang On-line was subject
to a 15% income tax rate for the years from 2018 to 2020.
Tianying Jiuzhou was qualified as an HNTE in 2017 and 2020, respectively, and therefore, Tianying Jiuzhou was subject to a
15% income tax rate from 2018 to 2020.
In 2017 and 2020, Fenghuang Yutian was qualified as an HNTE, respectively, and therefore, Fenghuang Yutian was subject
to a 15% income tax rate from 2018 to 2020.
In 2016, Fenghuang Borui was qualified as a Software Enterprise. As 2016 was the first year Fenghuang Borui generated
taxable profit, it was exempted from income taxes for the years 2016 and 2017, and was subject to a 12.5% income tax rate from 2018
to 2020.
All our other PRC subsidiaries and affiliated consolidated entities were subject to a 25% income tax rate for all the years
presented.
Under the CIT Law, dividends paid from our PRC subsidiaries are subject to a withholding tax at 10%. This dividend
withholding tax, however, will only be levied on our PRC subsidiaries in respect of profits earned in 2008 onwards. Profits distributed
after January 1, 2008 but related to financial results generated for the year ended December 31, 2007 and prior years will not be
subject to dividend withholding tax. The dividend withholding tax rate can be lower than 10% subject to tax treaties between China
and foreign countries or regions.
The CIT Law also provides that an enterprise established under the laws of foreign countries or regions but whose “de facto
management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the
PRC income tax at the rate of 25% for its global income. On April 22, 2009, the SAT issued a circular, known as Circular 82, which
provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is
incorporated offshore is located in China. Under Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a
PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be
subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of
the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters
are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books
and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of
92
voting board members or senior executives habitually reside in the PRC. We and our offshore subsidiaries have never been treated as
resident enterprises for PRC tax purposes.
We are subject to VAT and related surcharges on the revenues earned for services provided in the PRC. The primary
applicable rate of VAT is 6.0% for the years ended December 31, 2018, 2019 and 2020. We are also subject to a cultural development
fee on the provision of advertising services in the PRC. The applicable tax rate decreased from 3% of the net advertising revenues
before July 1, 2019 to 1.5% of the net advertising revenues since July 1, 2019. The VAT and the cultural development fee are
recorded as a reduction item of revenues in the consolidated statements of comprehensive income/(loss). Other surcharges mainly
comprised of urban maintenance and construction tax and education surcharges. The urban maintenance and construction tax are
charged at 7%, 5% or 1% of the amount of VAT actually paid depending on where the taxpayer is located. Education surcharges are
charged at 3% of the amount of VAT actually paid and local education surcharges are charged at 2% or 1% of the amount of VAT
actually paid depending on where the taxpayer is located. The urban maintenance and construction tax, education surcharges and local
education surcharges are recorded in the cost of revenues in the consolidated statements of comprehensive income/(loss). For more
information about risks related to potential changes in the taxes applicable to us, see “Item 3. Key Information — D. Risk Factors —
Risks Relating to Our Business and Industry — The discontinuation of any of the preferential tax treatments available to us in China
could materially and adversely affect our operating results and financial condition.”
93
A.
Results of Operations
Selected Consolidated Financial Information
We sold all of our investment in Yitian Xindong, on May 18, 2020 and the disposal of Yitian Xindong was qualified for
reporting as a “discontinued operation” in our financial statements. See “Item 4. Information on the Company — C. Organizational
Structure — Our Corporate Structure” for further details. Accordingly, the historical financial results of Yitian Xindong for the
periods from 2018 to 2020 are reflected in our audited consolidated financial statements included in this annual report as discontinued
operations, and historical results discussed elsewhere in this annual report exclude such results unless they are expressly included.
The following table sets forth the selected consolidated statements of comprehensive income/(loss) data by amount and by
percentage of total revenues for the years indicated. This information should be read together with our consolidated financial
statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative
of the results you may expect for future periods.
Consolidated Statements of Comprehensive
Income/(Loss) Data
Revenues:
Net advertising revenues
Paid services revenues
Total revenues
Cost of revenues (1)
Gross profit
Operating expenses (1) :
Sales and marketing expenses
General and administrative expenses
Technology and product development expenses
Impairment of goodwill
Total operating expenses
Loss from operations
Other income, net*
(Loss)/income from continuing operations before
income taxes
Income tax expense
Net (loss)/income from continuing operations
Net (loss)/income from discontinued operations, net
of income taxes
Net (loss)/income
Net loss/(income) from continuing operations
attributable to noncontrolling interests
Net loss from discontinued operations attributable to
noncontrolling interests
Net loss attributable to noncontrolling interests
Net (loss)/income from continuing operations
attributable to Phoenix New Media Limited
Net (loss)/income from discontinued operations
attributable to Phoenix New Media Limited
Net (loss)/income attributable to Phoenix New
Media Limited
Net (loss)/income
Other comprehensive income/(loss), net of tax: fair
value remeasurement for available-for-sale
investments
Other comprehensive loss, net of tax: reclassification
adjustment for disposal of available-for-sale
debt investments
Other comprehensive income/(loss), net of tax:
foreign currency translation adjustment
Comprehensive income/(loss)
Comprehensive loss attributable to noncontrolling
interests
Comprehensive income/(loss) attributable to
Phoenix New Media Limited
For the Years Ended December 31,
2018
2019
RMB
%
RMB
%
RMB
(In thousands, except for percentages)
2020
US$
%
1,198,150
178,131
1,376,281
(595,843)
780,438
(536,980)
(162,424)
(204,723)
—
(904,127)
(123,689)
78,510
87.1 1,194,761
12.9
133,020
100.0 1,327,781
(683,330)
(43.3)
644,451
56.7
90.0 1,113,017
95,828
10.0
100.0 1,208,845
(559,286)
(51.5)
649,559
48.5
(39.0)
(11.8)
(14.9)
—
(541,772)
(242,047)
(216,741)
—
(65.7) (1,000,560)
(9.0)
(356,109)
5.7 1,047,819
(40.8)
(18.2)
(16.3)
—
(75.3)
(26.8)
78.9
(279,429)
(277,931)
(171,989)
(22,786)
(752,135)
(102,576)
549,198
170,577
14,686
185,263
(85,714)
99,549
(42,824)
(42,595)
(26,358)
(3,492)
(115,269)
(15,720)
84,168
(45,179)
(3.3)
691,710
52.1
446,622
68,448
(20,119)
(65,298)
(1.5)
(4.8)
(21,950)
669,760
(1.7)
50.4
(18,977)
427,645
(2,909)
65,539
(314)
(0.0)
54,242
4.1
(62,366)
(9,558)
(65,612)
(4.8)
724,002
54.5
365,279
55,981
2,156
0.2
(5,564)
(0.4)
(9,669)
(1,482)
234
2,390
0.0
9,391
0.7
24,759
3,795
0.2
3,827
0.3
15,090
2,313
92.1
7.9
100.0
(46.3)
53.7
(23.1)
(23.0)
(14.2)
(1.9)
(62.2)
(8.5)
45.4
36.9
(1.6)
35.3
(5.2)
30.1
(0.8)
2.0
1.2
(63,142)
(4.6)
664,196
50.0
417,976
64,058
34.5
(80)
(0.0)
63,633
4.8
(37,607)
(5,764)
(3.2)
(63,222)
(4.6)
727,829
54.8
380,369
58,294
(65,612)
(4.8)
724,002
54.5
365,279
55,981
31.3
30.1
566,320
41.1 1,188,762
89.5
(887,248)
(135,977)
(73.4)
—
0.0 (1,008,795)
(76.0)
(491,197)
(75,279)
(40.6)
51,794
3.8
37,483
2.8
(55,577)
(8,517)
(4.6)
552,502
40.1
941,452
70.8 (1,068,743)
(163,792)
(88.5)
2,390
0.2
3,827
0.3
15,090
2,313
1.2
554,892
40.3
945,279
71.1 (1,053,653)
(161,479)
(87.3)
94
Non-GAAP gross profit (2)
Non-GAAP loss from operations (2)
Non-GAAP adjusted net loss from continuing
operations attributable to Phoenix New Media
Limited (3)
For the Years Ended December 31,
2018
2019
RMB
%
RMB
%
RMB
(In thousands, except for percentages)
2020
US$
%
784,188
(109,700)
57.0
(8.0)
649,624
(344,250)
48.9
(25.9)
652,172
(70,407)
99,949
(10,790)
(54,505)
(4.0)
(326,120)
(24.6)
(33,650)
(5,157)
53.9
(5.8)
(2.8)
Notes:
*
Other income, net generally reflects net interest income, foreign currency exchange gain or loss, income/(loss) from equity
method investments, net of impairments, gain on disposal of convertible loans due from a related party, gain on disposal of
available-for-sale debt investments, changes in fair value of forward contract in relation to disposal of investments in Particle,
changes in fair value of loan related to co-sale of Particle shares, impairment of available-for-sale debt investments and others,
net.
(1)
Includes share-based compensation as follows:
Allocation of share-based compensation:
Cost of revenues
Sales and marketing expenses
General and administrative expenses
Technology and product development expenses
Total share-based compensation included in cost of revenues and
operating expenses
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
3,750
2,360
5,072
2,807
13,989
(In thousands)
5,173
1,402
4,041
1,243
11,859
2,613
1,764
3,648
1,358
9,383
400
270
560
208
1,438
(2) Non-GAAP gross profit and non-GAAP income or loss from operations are both non-GAAP financial measures. Non-GAAP
gross profit is gross profit excluding share-based compensation. Non-GAAP income or loss from operations is income or loss
from operations excluding share-based compensation and impairment of goodwill.
(3) We define non-GAAP adjusted net income or loss from continuing operations attributable to Phoenix New Media Limited as net
income or loss from continuing operations attributable to Phoenix New Media Limited excluding share-based compensation,
impairment of goodwill, income or loss from equity method investments, net of impairments, changes in fair value of forward
contract in relation to disposal of investments in Particle, changes in fair value of loan related to co-sale of Particle shares,
impairment of available-for-sale debt investments and gain on disposal of available-for-sale debt investments.
We believe the separate analysis and exclusion of the following non-GAAP to GAAP reconciling items add clarity to the
constituent parts of our performances. We review non-GAAP gross profit, non-GAAP income or loss from operations and non-GAAP
adjusted net income or loss from continuing operations attributable to Phoenix New Media Limited together with gross profit, income
or loss from operations and net income or loss from continuing operations attributable to Phoenix New Media Limited to obtain a
better understanding of our operating performance. We use these non-GAAP financial measures for planning and forecasting and
measuring results against the forecast. Using these non-GAAP financial measures to evaluate our business may assist us and our
investors in assessing our relative performance against our competitors and ultimately monitoring our capacity to generate returns for
our investors. We also believe it is useful supplemental information for investors and analysts to assess our operating performance
without the effect of items like share-based compensation, income or loss from equity method investments, net of impairments, which
have been and will continue to be significant recurring items, and without the effect of impairment of goodwill, gain on disposal of
available-for-sale debt investments, changes in fair value of loan related to co-sale of Particle shares, impairment of available-for-sale
debt investments and changes in fair value of forward contract in relation to disposal of investments in Particle, which have been
significant and one-time items. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One
of the limitations of using non-GAAP financial measures is that they do not include all items that impact our gross profit, income or
loss from operations and net income or loss from continuing operations attributable to Phoenix New Media Limited for the period. In
addition, because non-GAAP financial measures are not calculated in the same manner by all companies, they may not be comparable
to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP
financial measures in isolation from or as an alternative to the financial measures prepared in accordance with U.S. GAAP.
95
Our non-GAAP gross profit, non-GAAP income or loss from operations and non-GAAP adjusted net income or loss from
continuing operations attributable to Phoenix New Media Limited are calculated as follows for the years presented:
Gross Profit
Excluding:
Share-based compensation
Non-GAAP gross profit
Loss from operations
Excluding:
Share-based compensation
Impairment of goodwill
Non-GAAP loss from operations
Net (loss)/income from continuing operations attributable to Phoenix
New Media Limited
Excluding:
Share-based compensation
(Income)/loss from equity method investments, net of impairments
Impairment of goodwill
Gain on disposal of available-for-sale debt investments
Changes in fair value of forward contract in relation to disposal of
investments in Particle
Changes in fair value of loan related to co-sale of Particle shares
Impairment of available-for-sale debt investments
Loss attributable to noncontrolling interest related to impairment of
goodwill
Accrued withholding taxes of gain on disposal of available-for-sale
debt investments*
Non-GAAP adjusted net loss from continuing operations attributable
to Phoenix New Media Limited
Note:
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
780,438
3,750
784,188
(In thousands)
644,451
5,173
649,624
649,559
2,613
652,172
99,549
400
99,949
(123,689)
(356,109)
(102,576)
(15,720)
13,989
—
(109,700)
11,859
—
(344,250)
9,383
22,786
(70,407)
1,438
3,492
(10,790)
(63,142)
664,196
417,976
64,058
13,989
(5,352)
—
—
—
—
—
—
—
11,859
3,447
—
(1,143,755)
(4,441)
—
—
—
9,383
(5,598)
22,786
(573,860)
(16,085)
24,535
2,000
(11,393)
142,574
96,606
(54,505)
(326,120)
(33,650)
1,438
(858)
3,492
(87,949)
(2,465)
3,760
307
(1,746)
14,806
(5,157)
* The gain on disposal of available-for-sale debt investments had been net of accrued PRC withholding tax, which was calculated
based on 10% of the gain recognized from the disposal of available-for-sale debt investments in Particle, with any relevant tax
adjustments if applicable, as regulated by the Public Notice on Several Issues regarding Enterprise Income Tax for Indirect Property
Transfer by Non-resident Enterprises, or SAT Circular 7, issued on February 3, 2015, and the Public Notice Regarding Issues
Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Public Notice 37, issued on October 17, 2017.
The accrued withholding tax may vary with the actual withholding tax to be paid in the future. The difference between the currently
calculated withholding tax and the actual withholding tax to be paid will be recognized as gain or loss on disposal of available-for-sale
debt investments in the period when we actually settle the withholding tax with the tax authorities in PRC.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenues. Our total revenues decreased by 9.0% to RMB1.21 billion (US$185.3 million) in 2020 from RMB1.33 billion in
2019, primarily attributable to decrease in online advertising demand as our customers in certain industries were negatively impacted
by COVID-19. Net advertising revenues (net of advertising agency service fees and sales taxes and related surcharges) decreased by
6.8% to RMB1.11 billion (US$170.6 million) in 2020 from RMB1.19 billion in 2019, primarily attributable to decrease in online
advertising demand as our customers in certain industries were negatively impacted by COVID-19. Paid service revenues decreased
by 28.0% to RMB95.8 million (US$14.7 million) in 2020 from RMB133.0 million in 2019, primarily attributable to the tightened
rules and regulations on digital reading in China and in line with the broader market conditions reflecting the trend towards free online
reading.
Cost of Revenues. Our cost of revenues for the year ended December 31, 2020 was RMB559.3 million (US$85.7 million),
which represented a decrease of 18.2% from RMB683.3 million for the year ended December 31, 2019, primarily attributable to our
strict cost control measures taken to enhance our operating efficiency in 2020. Cost of revenues as a percentage of our revenues
decreased from 51.5% in 2019 to 46.3% in 2020.
•
Revenue sharing fees. Our revenue sharing fees for the years ended December 31, 2019 and 2020 were RMB25.2 million
and RMB19.6 million (US$3.0 million), respectively, mainly attributable to the decrease in the revenue sharing fees paid
96
to mobile telecommunications operators in line with the decrease in MVAS revenues, partially offset by the increase in
the revenue sharing fees paid to channel partners.
Content and operational costs. Our content and operational costs for the years ended December 31, 2019 and 2020 were
RMB603.6 million and RMB482.6 million (US$74.0 million), respectively. The decrease in content and operational costs
from 2019 to 2020 was primarily attributable to our strict cost control measures taken to enhance our operating efficiency
in 2020.
Bandwidth costs. Our bandwidth costs increased slightly from RMB54.6 million in 2019 to RMB57.1 million (US$8.7
million) in 2020.
•
•
Share-based compensation. Our share-based compensation allocated to cost of revenues as part of content and operational
costs above, decrease from RMB5.2 million in 2019 to RMB2.6 million (US$0.4 million) in 2020. The decrease was mainly due to the
fact that we recognized share-based compensation, net of estimated forfeitures, on a graded-vesting basis over the vesting term of the
awards, which caused less share-based compensation recognized in 2020 for share options granted prior to 2020.
As a result of the foregoing, our gross profit increased slightly from RMB644.5 million in 2019 to RMB649.6 million
(US$99.5 million) in 2020. Our gross margin increased from 48.5% in 2019 to 53.7% in 2020.
Operating Expenses. Our operating expenses decreased by 24.8% from RMB1,000.6 million in 2019 to RMB752.1 million
(US$115.3 million) in 2020, primarily due to the decreases in both traffic acquisition expenses and the personnel-related expenses as a
result of the strict cost control measures taken by us to enhance our operating efficiency in 2020. Our operating expenses as a
percentage of revenues decreased from 75.3% in 2019 to 62.2% in 2020.
•
•
•
•
•
Sales and marketing expenses. Our sales and marketing expenses decreased by 48.4% from RMB541.8 million in
2019 to RMB279.4 million (US$42.8 million) in 2020. This decrease was mainly due to the decreases in both traffic
acquisition expenses and the personnel-related expenses as a result of the strict cost control measures taken by us to
enhance our operating efficiency in 2020.
General and administrative expenses. Our general and administrative expenses increased by 14.8% from RMB242.0
million in 2019 to RMB277.9 million (US$42.6 million) in 2020. This increase was mainly caused by the increase in
the allowance for credit losses due to the negative impact of the COVID-19 on the customers’ ability of payment,
which was partially offset by our effective cost control efforts.
Technology and product development expenses. Our technology and product development expenses decreased by
20.6% from RMB216.7 million in 2019 to RMB172.0 million (US$26.4 million) in 2020 mainly caused by the strict
cost control measures taken by us to enhance our operating efficiency in 2020.
Impairment of goodwill. We recognized an impairment of goodwill of RMB22.8 million (US$3.5 million) for the
Tianbo reporting unit in 2020, mainly caused by the negative impact on Tianbo from both the COVID-19 outbreak in
2020 and the tightening of rules and regulations on real estate market in China as well as intensified industry
competition. The impairment loss of goodwill was determined by quantitatively comparing the fair value of the Tianbo
reporting unit to its carrying amounts, with the fair value of the Tianbo reporting unit determined based on the
discounted cash flows of Tianbo.
Share-based compensation. Our share-based compensation allocated to each of the three categories of operating
expenses was RMB6.8 million (US$1.0 million) in 2020, almost same as RMB6.7 million in 2019.
Related Party Transactions
•
•
Our net advertising revenues from related parties decreased by 25.8% from RMB50.7 million in 2019 to RMB37.6
million (US$5.8 million) in 2020, which was primarily attributable to decrease in advertising revenues earned from
Henan Fengyi Feiyang Network Technology Limited, or Fengyi Technology, in which we hold 40% equity interest and
account for as available-for-sale debt investments.
Our paid service revenues from related parties decreased by 49.8% from RMB61.7 million in 2019 to RMB31.0
million (US$4.7 million) in 2020, which was primarily attributable to decrease in paid services revenues generated
from China Mobile.
97
•
•
Our cost of revenues due to transactions with related parties decreased by 63.9% from RMB26.5 million in 2019 to
RMB9.6 million (US$1.5 million) in 2020, which was primarily due to decrease in both revenues sharing payable to
China Mobile and content costs payable to Phoenix TV Group.
Our operating expenses due to transactions with related parties decreased by 30.9% from RMB11.2 million in 2019 to
RMB7.7 million (US$1.2 million) in 2020, which was mainly attributable to a decrease in trademark license fee
charged by Phoenix TV Group.
Other Income, Net. Our other income, net decreased from RMB1,047.8 million in 2019 to RMB549.2 million (US$84.2
million) in 2020. The decrease in other income, net in 2020 was mainly due to the decrease in gain on disposal of available-for-sale
debt investments from RMB1,001.2 million in 2019 to RMB477.3 million (US$73.1 million) in 2020, which represented the gain
from the disposal of our investments in Particle.
Income Tax Expense. Our income tax expense decreased from RMB22.0 million in 2019 to RMB19.0 million (US$2.9
million) in 2020. Our effective tax rate was 67.5% in 2020 as compared to negative 8.2% in 2019. The change in effective tax rate was
mainly due to the increase in the valuation allowance for the tax effect of operating loss recognized in 2020.
Net Income from Continuing Operations Attributable to Phoenix New Media Limited. As a result of the foregoing, net
income from continuing operations attributable to our company was RMB664.2 million in 2019 and net income from continuing
operations attributable to our company was RMB418.0 million (US$64.1 million) in 2020.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Revenues. Our total revenues decreased by 3.5% from RMB1.38 billion in 2018 to RMB1.33 billion in 2019. Net advertising
revenues (net of advertising agency service fees and sales taxes and related surcharges) remained almost same as 2018 with an amount
of RMB1.19 billion in 2019. Paid service revenues decreased by 25.3% from RMB178.1 million in 2018 to RMB133.0 million in
2019, primarily due to the decrease in revenues of MVAS mainly resulting from the decline in users’ demand for services provided
through telecom operators in China.
Cost of Revenues. Our cost of revenues for the year ended December 31, 2019 was RMB683.3 million, which represented an
increase of 14.7% from RMB595.8 million for the year ended December 31, 2018, primarily attributable to the increase in content and
operational costs as there were more internally-produced content costs incurred in 2019. Cost of revenues as a percentage of our
revenues increased from 43.3% in 2018 to 51.5% in 2019.
•
•
•
Revenue sharing fees. Our revenue sharing fees for the years ended December 31, 2018 and 2019 were RMB47.3 million
and RMB25.2 million, respectively, mainly caused by the decrease in the revenue sharing fees paid to telecom operators
in line with the decrease in MVAS revenues.
Content and operational costs. Our content and operational costs for the years ended December 31, 2018 and 2019 were
RMB491.5 million and RMB603.6 million, respectively. The increase in content and operational costs from 2018 to 2019
was primarily attributable to the more internally-produced content costs incurred in 2019.
Bandwidth costs. Our bandwidth costs decreased from RMB57.1 million in 2018 to RMB54.6 million in 2019.
Share-based compensation. Our share-based compensation allocated to cost of revenues as part of content and operational
costs above, increased from RMB3.7 million in 2018 to RMB5.2 million in 2019. The increase was mainly due to the restricted share
units granted to certain employees in 2019 under the restricted share unit scheme adopted in 2018 by Fread Limited.
As a result of the foregoing, our gross profit decreased by 17.4% from RMB780.4 million in 2018 to RMB644.5 million in
2019. Our gross margin decreased from 56.7% in 2018 to 48.5% in 2019.
Operating Expenses. Our operating expenses increased by 10.7% from RMB904.1 million in 2018 to RMB1,000.6 million in
2019, primarily due to the consolidation of operating expenses from Tianbo, the special cash compensation paid to our option holders
of RMB30.1 million recognized in 2019 and the increase in bad debt expenses. Our operating expenses as a percentage of revenues
increased from 65.7% in 2018 to 75.4% in 2019.
•
•
Sales and marketing expenses. Our sales and marketing expenses increased by 0.9% from RMB537.0 million in 2018 to
RMB541.8 million in 2019.
General and administrative expenses. Our general and administrative expenses increased by 49.0% from RMB162.4
million in 2018 to RMB242.0 million in 2019. This increase was mainly due to the consolidation of Tianbo and the
increase in bad debt expenses of accounts receivable.
98
•
•
•
•
•
•
Technology and product development expenses. Our technology and product development expenses increased by 5.9%
from RMB204.7 million in 2018 to RMB216.7 million in 2019.
Share-based compensation. Our share-based compensation allocated to each of the three categories of operating expenses
decreased from RMB10.2 million in 2018 to RMB6.7 million in 2019.
Related Party Transactions
Our net advertising revenues from related parties increased by 22.2% from RMB41.5 million in 2018 to RMB50.7 million
in 2019, which was primarily attributable to increase in advertising revenues earned from Fengyi Technology.
Our paid service revenues from related parties decreased by 29.2% from RMB87.1 million in 2018 to RMB61.7 million in
2019, which was primarily attributable to decrease in paid services revenues generated from China Mobile.
Our cost of revenues due to transactions with related parties decreased by 12.1% from RMB30.2 million in 2018 to
RMB26.5 million in 2019, which was primarily due to decrease in revenues sharing and bandwidth cost payable to China
Mobile.
Our operating expenses due to transactions with related parties decreased by 8.6% from RMB12.3 million in 2018 to
RMB11.2 million in 2019, which was mainly attributable to a decrease in trademark license fee charged by Phoenix TV
Group.
Other Income, Net. Our other income, net increased from RMB78.5 million in 2018 to RMB1,047.8 million in 2019. The
increase in other income, net in 2019 was mainly due to the gain on disposal of available-for-sale debt investments recognized in 2019
of RMB1,001.2 million, which represented the gain from the disposal of part of our investments in Particle recorded as available-for
sale debt investments.
Income Tax Expense. Our income tax expense was RMB20.1 million in 2018 and RMB22.0 million in 2019. Our effective
tax rate was negative 8.2% in 2019 as compared to negative 47.2% in 2018. The change in effective tax rate was mainly due to the
increase in the valuation allowance for the tax effect of operating loss recognized in 2019, which was partially offset by the tax effect
of the permanent differences deriving from tax-deductible expenses of the research and development expenses.
Net Income/(loss) from Continuing Operations Attributable to Phoenix New Media Limited. As a result of the foregoing,
net loss from continuing operations attributable to our company was RMB63.1 million in 2018 and net income from continuing
operations attributable to our company was RMB664.2 million in 2019.
B. Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the years indicated:
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
(In thousands)
Net cash used in continuing operations
Net cash provided by discontinued operating activities
Net cash used in operating activities
Net cash (used in)/provided by continuing investing activities
Net cash (used in)/provided by discontinued investing activities
Net cash (used in)/provided by investing activities
Net cash used in continuing financing activities
Net cash used in discontinued financing activities
Net cash used in financing activities
Effect of exchange rate change on cash, cash equivalents and restricted
cash
Reclassification of cash, cash equivalents and restricted cash from
assets held for sale
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
(78,912)
2,088
(76,824)
(52,655)
(62,057)
(114,712)
(75,831)
—
(75,831)
(371,385)
41,080
(330,305)
1,540,746
(80,352)
1,460,394
(970,520)
(144,100)
(1,114,620)
(103,295)
186
(103,109)
480,466
265,753
746,219
(639,662)
—
(639,662)
11,477
(35,191)
(38,563)
(12,924)
(255,890)
699,562
430,748
(33,916)
(19,722)
430,748
377,110
46,840
(35,115)
377,110
388,835
(15,831)
29
(15,802)
73,635
40,728
114,363
(98,032)
—
(98,032)
(5,910)
7,179
(5,382)
57,795
59,592
As of December 31, 2020, we had RMB388.8 million (US$59.6 million) in cash, cash equivalents and restricted cash. Our
cash and cash equivalents consist of cash on hand and demand deposits, which are unrestricted as to withdrawal or use, and which
99
have original maturities of three months or less. Our restricted cash represents deposits placed in accounts co-managed with third
parties related to the real estate services, which are restricted to withdrawal or usage. We have not encountered any difficulties in
meeting our cash obligations to date. As of December 31, 2020, we also had RMB1.28 billion (US$196.2 million) in term deposits and
short term investments with maturities up to one year. We believe that our operating cash flows, existing cash balances and term
deposits and short term investments will be sufficient to meet our anticipated cash needs for the next twelve months from April 28,
2021.
We are a holding company, and we rely principally on dividends and other distributions from our subsidiaries in China for our
cash requirements. Current PRC regulations permit our subsidiaries to pay dividends to us only out of its accumulated profits, if any,
determined in accordance with Chinese accounting standards and regulations. Any limitations on the ability of our PRC subsidiaries to
transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial
to our business, pay dividends and otherwise fund and conduct our business.
Any earnings that our PRC subsidiaries distribute would be paid to our offshore intermediate holding company primarily
through dividends. To date, our PRC subsidiaries have not paid dividends to us. As a holding company, we have not required cash for
our operations outside of China and therefore our PRC subsidiaries have retained their earnings for the purpose of conducting our
business operations in China. As of December 31, 2018, 2019 and 2020, our PRC subsidiaries’ retained earnings were RMB1,038.3
million, RMB972.0 million and RMB1,015.3 million (US$155.6 million), respectively, and our PRC subsidiaries’ cash and cash
equivalents were RMB45.6 million, RMB125.4 million and RMB106.2 million (US$16.3 million), respectively.
Although we currently anticipate that we will be able to fund operations for at least the next twelve months with operating
cash flows, existing cash balances and term deposits and short-term investments, we may require additional cash resources due to
changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these
sources are insufficient to satisfy cash requirements, we may seek to sell additional equity or debt securities or to obtain additional
credit facilities. The sale of additional equity or equity-linked securities could result in additional dilution to shareholders. The
incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that
would restrict operations. Financing may not be available in amounts or on terms acceptable to us, if at all.
Operating Activities
In 2020, our net cash used in continuing operating activities were RMB103.3 million (US$15.8 million). This was primarily
due to our net income of RMB365.3 million, adjusted by (i) a non-operating gain on disposal of available-for-sale debt investments of
RMB477.2 million, (ii) partially offset by non-cash adjustments which primarily included provision for allowance for credit losses of
RMB75.8 million, amortization of the right-of-use assets of RMB40.0 million, depreciation and amortization expenses of RMB38.9
million, changes in fair value of loan related to co-sale of Particle shares of RMB24.5 million, impairment of goodwill of RMB22.8
million, impairment of intangible assets of RMB10.6 million and share-based compensation of RMB9.4 million. The decrease in cash
from $235.7 million in working capital items is also included in operating cash flow.
In 2019, our net cash used in continuing operating activities were RMB371.4 million. This was primarily due to our net
income of RMB724.0 million, adjusted by (i) a non-operating gain on disposal of available-for-sale debt investments of RMB1,001.2
million, (ii) partially offset by non-cash adjustments which primarily included depreciation and amortization expenses of RMB49.6
million, provision for allowance for credit losses of RMB40.0 million, amortization of the right-of-use assets of RMB33.8 million, and
share-based compensation of RMB11.9 million. The decrease in cash from $164.8 million in working capital items is also included in
operating cash flow.
In 2018, our net cash used in operating activities were RMB78.9 million. This was primarily due to our net loss of
RMB65.6 million, adjusted by (i) non-cash adjustments of gain on disposal of convertible loans due from a related party of RMB10.6
million, and foreign currency exchange gain of RMB6.8 million, (ii) partially offset by non-cash adjustments which primarily included
depreciation and amortization expenses of RMB32.5 million, provision for allowance for credit losses of RMB24.0 million, share-
based compensation of RMB14.0 million. The decrease in cash from $60.0 million in working capital items is also included in
operating cash flow.
Investing Activities
We had net cash provided by continuing investing activities of RMB480.5 million (US$73.6 million) for 2020. This was
primarily due to (i) the maturity of term deposits and short-term investments of RMB6.4 billion, and (ii) net proceeds from disposal of
available-for-sale debt investments of RMB695.9 million. These items were partially offset by (i) placement of term deposits and short
term investments of RMB6.5 billion, (ii) cash paid for equity investments in certain investees of RMB82.0 million, (iii) loans provided
to a third party related to co-sale of Particle shares of RMB68.9 million, and (iv) capital expenditures of RMB12.1 million as
described in “—Capital Expenditures”.
100
We had net cash provided by continuing investing activities of RMB1.54 billion for 2019. This was primarily due to (i) the
maturity of term deposits and short term investments of RMB8.8 billion, (ii) net proceeds from disposal of available-for-sale debt
investments of RMB1.4 billion, (iii) deposits received from the Proposed Buyers of Particle shares of RMB358.0 million, and (iv) net
cash acquired from acquisition of a subsidiary of RMB175.5 million. These items were partially offset by (i) placement of term
deposits and short term investments of RMB9.2 billion, and (ii) capital expenditures of RMB57.9 million as described in “—Capital
Expenditures”.
We had net cash used in continuing investing activities of RMB52.7 million for 2018. This was primarily due to (i) placement
of term deposits and short term investments of RMB3.4 billion, (ii) capital expenditures of RMB56.0 million as described in “—
Capital Expenditures”, (iii) loan provided to a related party of RMB10.0 million, partially offset by the maturity of term deposits and
short term investments of RMB3.2 billion, proceeds from disposal of convertible loans due from a related party of RMB112.0 million,
and loans repaid by a related party of RMB74.0 million.
Financing Activities
We had net cash used in continuing financing activities of RMB639.7 million (US$98.0 million) for 2020, mainly attributable
to the special cash dividends paid to shareholders of RMB645.2 million, partially offset by cash received from discounted of notes
receivable of RMB11.6 million.
We had net cash used in continuing financing activities of RMB970.5 million for 2019, mainly attributable to (i) the special
cash dividends paid to shareholders of RMB703.1 million, (ii) repayment of short-term bank loans of RMB267.9 million, partially
offset by proceeds from exercise of stock options RMB0.5 million.
We had net cash used in continuing financing activities of RMB75.8 million for 2018, mainly attributable to the repayment of
short-term bank loans of RMB330.0 million, partially offset by proceeds from short-term bank loans of RMB250.5 million and
proceeds from exercise of stock option of RMB3.7 million.
Capital Expenditures
We had capital expenditures of RMB56.0 million, RMB57.9 million and RMB12.1 million (US$1.9 million) in 2018, 2019
and 2020, respectively. The capital expenditures were mainly attributable to purchasing intangible assets, servers and network
equipment. We expect capital expenditures to increase to approximately RMB31.6 million in 2021. We plan to fund our capital
expenditures in 2021 with cash flows from our operations and remaining cash and cash equivalents as of December 31, 2020.
Recently Issued Accounting Standards
Simplifying the accounting for income taxes (Topic 740). In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. ASU No. 2019-12 removes certain exceptions to the general
principles in Topic 740 and provides for consistent application of and simplifies generally accepted accounting principles for other
areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. The method of adoption varies depending on the component of the new rule
that is being adopted. Early application is permitted. We do not expect to adopt ASU 2019-12 early and are currently evaluating the
impact of adopting this standard on our consolidated financial statements.
Investments—Equity securities (Topic 321), Investments—Equity method and joint ventures (Topic 323), and Derivatives and
hedging (Topic 815)—Clarifying the interactions between Topic 321, Topic 323, and Topic 815. In January 2020, the FASB issued
ASU No. 2020-01, Investments—Equity securities (Topic 321), Investments—Equity method and joint ventures (Topic 323), and
Derivatives and hedging (Topic 815)—Clarifying the interactions between Topic 321, Topic 323, and Topic 815. The amendments
clarify the interaction of the accounting for equity investments under Topic 321 and investments accounted for under the equity
method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic
815. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with
early adoption permitted. We do not expect to adopt ASU 2020-01 early and are currently evaluating the impact of adopting this
standard on our consolidated financial statements.
We do not expect that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a
material impact on the accompanying financial statements.
101
C.
Research and Development, Patents and Licenses, etc.
Product Development
See “Item 4. Information on the Company—B. Business Overview—Research and Development.”
Intellectual Property
See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D.
Trend Information
Please refer to “—A. Results of Operations” for a discussion of the most recent trends in our services, sales and marketing by
the end of 2020. In addition, please refer to discussions included in such Item for a discussion of known trends, uncertainties,
demands, commitments or events that we believe are reasonably likely to have a material effect on our net sales and operating
revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial
information to be not necessarily indicative of our future operating results or financial condition.
Since January 2020, COVID-19 has spread throughout China and other parts of the world. The pandemic has resulted in
quarantines, travel restrictions, and the temporary closure of stores and facilities in China and elsewhere. Substantially all of our
revenue and workforce are concentrated in China. Consequently, the COVID-19 outbreak has adversely affected and may continue to
adversely affect our business operations and our financial condition, operating results and cash flows for 2021, including but not
limited to negative impact to our total revenues and slower collection of receivables and potential additional allowance for credit
losses or impairment to our long-term assets. Because of the significant uncertainties surrounding the COVID-19 outbreak, the extent
of the business disruption and the related financial impact cannot be reasonably estimated at this time.
E. Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third
parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as
shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or
contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.
Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit
support to us or engages in leasing, hedging or research and development services with us.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2020.
Property management costs
Operating lease liabilities*
Bandwidth purchases
Cooperation with Phoenix TV Group
Content purchases
Property and equipment, and intangible assets
Equity investment
Others
Total
Total
2021
2022
2023
2024
2025 and Thereafte
r
Payments Due by Period
10,856
55,204
19,582
5,915
18,419
1,457
18,000
4,935
134,368
7,836
38,209
19,582
3,305
15,417
897
18,000
4,001
107,247
(RMB in thousands)
2,983
16,715
—
1,305
2,624
280
—
311
24,218
37
280
—
1,305
189
280
—
272
2,363
—
—
—
—
189
—
—
112
301
—
—
—
—
—
—
—
239
239
Note:
*
Operating lease liabilities represent our obligations for leasing office space, which include all future cash outflows under ASC
Topic 842, Leases. Please see “Operating leases and adoption of ASU 2016-02” under Note 2(y) to our audited consolidated
financial statements included at the end of this annual report.
As a result of our adoption of Accounting Standard Codification 740 Income Taxes, we recorded uncertain tax positions of
RMB28.2 million (US$4.3 million) as of December 31, 2020 and recognized it as long-term liabilities, as ASC 740 specifies that tax
positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. At this time, we are
102
unable to make a reasonable estimate on the timing of payments in individual years beyond 12 months due to uncertainties in the
timing. As a result, this amount is not included in the table above.
G.
Safe Harbor
This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements
other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those
expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “aim”, “anticipate”, “believe”, “estimate”,
“expect”, “intend”, “likely to”, “may”, “plan”, “will” or other similar expressions. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends that we believe may affect our financial
condition, operating results, business strategy and financial needs. These forward-looking statements include:
•
•
•
•
•
our growth strategies, including without limitation strategies to grow particular products or services;
our future business development, operating results and financial condition;
expected changes in our revenues, including in components of our total revenues, and cost or expense items;
our ability to continue and manage the expansion of our operations; and
changes in general economic and business conditions in China.
The forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date on
which the statements are made in this annual report on Form 20-F. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements
are made or to reflect the occurrence of unanticipated events. You should read this annual report on Form 20-F and the documents that
we reference in this annual report on Form 20-F and have filed as exhibits hereto with the understanding that our actual future results
may be materially different from what we expect. You should not rely upon forward-looking statements as predictions of future
events.
Other sections of this annual report on Form 20-F include additional factors that could adversely impact our business and
financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to
time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors
on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors as of the date of this annual report.
Directors and Executive Officers
Keung Chui
Shuang Liu
Daguang He
Ka Keung Yeung
Xiaoyan Chi
Carson Wen
Jerry Juying Zhang
Edward Lu
Chun Liu
Age
70
51
64
62
42
69
60
40
54
Position/Title
Chairman of the Board of Directors
Director, Chief Executive Officer
Director
Director
Director and Senior Vice President
Independent Director
Independent Director
Chief Financial Officer
Senior Vice President
Keung Chui has served as the chairman of our board of directors since the establishment of Phoenix New Media Limited in
November 2007. Mr. Chui has served as the deputy Chief Executive Officer in charge of administration of Phoenix Satellite
Television Company Limited since 1998. He served as vice chairman of the board of directors of Hong Kong Letian Development
Limited from 1993 to 1996. From 1980 to 1992, Mr. Chui worked at China Central People’s Radio Station, where he served as a
journalist, editor and senior editor. Mr. Chui has served as a director of Phoenix Satellite Television Company Limited since 1996 and
is a director of numerous subsidiaries of Phoenix TV.
Shuang Liu has served as our director and Chief Executive Officer since the establishment of Phoenix New Media Limited in
November 2007. Mr. Liu was also promoted to the position of Chief Operating Officer of Phoenix TV in February 2014. Mr. Liu has
been employed by Phoenix TV from 2001 to the present, and where he has served in various managing positions, including chief
director of business development and vice president in charge of investment, finance, investor relationships, legal affairs, public
affairs and development of content channels. Before joining Phoenix TV, Mr. Liu worked at Simpson Thacher & Bartlett LLP,
Milbank, Tweed, Hadley & McCloy LLP and Morrison & Foerster LLP from 1996 to 2001. Mr. Liu received a J.D. degree from Duke
University Law School, and a bachelor’s degree from University of International Business & Economic.
Daguang He is currently the Executive Vice President and Chief Innovation Officer of Phoenix TV Group. He is also a
member of the Board Risk Management Committee of Phoenix TV. Mr. He joined Phoenix TV in 2001, since then he served as the
Chief Financial Officer (mainland China) and vice president of Phoenix TV Group. He is currently responsible for Phoenix TV
Group’s daily operations and management of the various business units under Phoenix TV Group, formulating Phoenix TV Group’s
innovative transformation strategy, and completing the tasks as assigned by Phoenix TV Group’s CEO. Mr. He graduated from
Shaanxi Institute of Finance and Economics in 1983. Since his graduation, Mr. He worked for China International Water & Electric
Corporation as the deputy chief accountant and managing director. During such period, Mr. He was mainly responsible for business
and financial management in respect of investment and development projects in collaboration with various international financial
institutions.
Ka Keung Yeung has served as our director since May 2011. Mr. Yeung is the executive vice president, Chief Financial
Officer, qualified accountant and company secretary of Phoenix TV. Mr. Yeung joined Phoenix TV in March 1996 and has been in
charge of all of such company’s internal and external financial management and arrangements, as well as the supervision of
administration and personnel matters since that time. Mr. Yeung received a Bcom (Acc) degree from the University of Birmingham
and remained in the United Kingdom until 1992 after obtaining his qualification as a chartered accountant. Upon returning to Hong
Kong, he worked at Hutchison Telecommunications and Star Television Limited in the fields of finance and business development.
Mr. Yeung currently serves as an independent director for The9 Limited (NASDAQ: NCTY).
Xiaoyan Chi has served as our Senior Vice President since January 2018 and has served as our director since November 2019.
Ms. Chi joined our company in 2009 as part of our team providing branded advertising and marketing solutions to advertisers. Prior to
the promotion to the position of Senior Vice President, Ms. Chi served as Vice President in advertising since 2016. Ms. Chi has more
than 16 years of experience in media marketing and management. She is the co-founder of China Internet Advertising Summit and
Online Advertising Competition. She served as a final judgment committee member of Effie Awards of Greater China, visiting
professor of Communication University of China, vice president of Digital Marketing Committee of China Advertising Association of
Commerce and the special columnist of Digital Marketing Magazine. She has extensive experience in branded communications and
advertisement sales. Ms. Chi received an EMBA and a master’s degree from Peking University and a bachelor’s degree from Beijing
Technology and Business University.
Carson Wen has served as an independent director of our company since May 2011. Mr. Wen was formerly a Partner and then
an Of Counsel at Jones Day, and has more than 30 years of experience in business, corporate and securities law. Mr. Wen is currently
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a Senior Consultant of Siao, Wen and Leung, Solicitors & Notaries and the Chairman of BOA International Financial Group, Bank of
Asia (BVI) Limited and the Sancus Group of Companies. Mr. Wen is a Justice of the Peace of Hong Kong and was awarded the
Bronze Bauhinia Star by the Hong Kong government for his contribution to economic ties between Hong Kong, the PRC and the rest
of the world. He is a guest professor of the Law School of Sun Yat-Sen University (Zhongshan University) in Guangzhou, China, and
sits on the board of numerous organizations, including the China Africa Business Council (Hong Kong), and the Pacific Basin
Economic Council. He is a member of the Executive Council of the United Nation Economic and Social Commission for Asia and the
Pacific (UNESCAP) Sustainable Business Network and the former chairman of its Green Business Task Force. He was a deputy of the
National People’s Congress of the PRC. Mr. Wen holds a B.A. and M.A. degree in Law from Oxford University, where he was a
Younger Prizeman in law at Balliol College, and a B.A. in Economics from Columbia University. Mr. Wen currently serves as an
independent non-executive director of Winox Holdings Limited (HKEx: 6838).
Jerry Juying Zhang has served as an independent director of our company since May 2011. Mr. Zhang has been a managing
director of China Orient Asset Management (International) in Hong Kong since March 2015. He was a senior managing director of
CITIC Capital Holdings Limited between June 2009 and December 2014. Prior to joining CITIC Capital Holdings Limited,
Mr. Zhang was a managing director in the investment banking division of Deutsche Bank in Hong Kong from August 2006 to
June 2009. He served as a managing director and the head of investment banking of CITIC Capital Markets Holdings Limited in Hong
Kong from March 2003 to July 2006 and, prior to that time, as executive director in the communications, media and entertainment
group of the investment banking department of Goldman Sachs in Hong Kong from April 2001 to January 2003. Mr. Zhang held the
positions of associate, vice president and director at Salomon Smith Barney from August 1994 to March 2001. Prior to joining
Salomon Smith Barney, he served as accounting manager for Town & Country Homes in Chicago from January 1990 to
December 1993 and as accountant, audit senior and supervisor at Ernst & Young in Chicago and Hong Kong. Mr. Zhang held CPA
qualifications in China and the State of Kentucky, both of which he has surrendered voluntarily. He holds a Doctor of Business
Administration degree from City University of Hong Kong, an M.B.A. from the University of Chicago, an M.A. in Accounting from
the Ministry of Finance Graduate School in the PRC and a B.A. degree from Inner Mongolia University.
Edward (Xiaojing) Lu joined ifeng in 2009. Prior to the promotion, he has served in various managerial positions, including
executive assistant to the Chief Executive Officer and Vice President in charge of strategic investment and human resources, assisting
with the oversight and management of each of our business lines. He has accumulated extensive experience in capital raising and
investment management, and participated in the planning and execution of our first-round of capital raise as well as our initial public
offering. Prior to joining us, he was the director of business development at Ogilvy from 2007 to 2009. Prior to that, he worked in
strategic partnership department at Baidu from 2006 to 2007. Edward received an MBA from INSEAD, and a bachelor's degree from
Western University in Canada.
Chun Liu has served as our Senior Vice President since October 2018. Mr. Liu has participated in the production, distribution
and monetization of numerous television programs in the past, including one of the most influential live television interview programs,
A Date with Luyu (“鲁豫有约”), which has won multiple awards in the industry since its initial launch. During his tenure at Phoenix
Satellite Television Holdings Ltd. between 2000 and 2011, Mr. Liu served as the Executive Director of Phoenix Chinese TV.
Mr. Chun Liu holds a master’s degree from the Communication University of China.
B.
Compensation of Directors, Supervisors and Executive Directors
For the year ended December 31, 2020, we paid an aggregate of approximately US$3.9 million in cash to our executive
officers and directors.
Share Incentive Plans
In June 2008, we adopted the 2008 share option plan, in March 2011, we adopted the 2011 restricted share and restricted
share unit plan, and in June 2018, we adopted the 2018 share option scheme, together, the share incentive plans, to attract and retain
the best available personnel, provide additional incentives to our employees, directors and consultants, and promote the success of our
business. The share incentive plans provide for the grant of options, restricted shares and restricted share units, collectively referred to
as “awards”. We have already granted the full number of awards that were authorized under the 2011 restricted share and restricted
share unit plan. In June and August 2012, June 2014 and October 2016, the shareholders of each of Phoenix TV and our company
approved three refreshments of the total number of Class A ordinary shares, which may be issued upon exercise of all options to be
granted under the 2008 share option plan (excluding awards previously granted, outstanding, cancelled, lapsed or exercised). As of
March 31, 2021, no shares are available for grant of additional options under the 2008 share option plan, and a total of 1,361,405
Class A ordinary shares are available for grant of additional options under the 2018 share option scheme.
Plan Administration. Our compensation committee administers the share incentive plans and determines the participants to
receive awards, the type and number of awards to be granted, the terms and conditions of each award grant.
105
Award Agreements. Awards granted under the share incentive plans are evidenced by an award agreement that sets forth the
terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of
the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or
rescind the award.
Option Exercise. The term of awards granted under the share incentive plans may not exceed ten years from the date of grant.
Restricted Shares and Restricted Share Units. Restricted ordinary shares granted under the 2011 restricted share and
restricted share unit plan and Fread 2018 RSU scheme are subject to applicable vesting, transfer, forfeiture and other restrictions as set
forth in the plan and, as applicable, in the award agreements. Each restricted share unit is an unsecured promise of our company to
issue and delivery one ordinary share, or Fread Limited to issue and delivery one or more of its ordinary shares, on a specified date,
which unit is subject to applicable vesting, transfer, forfeiture and other restrictions as set forth in the plan and, as applicable, in the
award agreements.
Transfer Restrictions. The right of a grantee in an award granted under the share incentive plans and Fread 2018 RSU
scheme may not be transferred in any manner by the grantee other than by will or the laws of succession and, with limited exceptions,
may be exercised during the lifetime of the grantee only by the grantee.
Acceleration upon a Takeover Offer. If a takeover offer for our company, or Fread Limited as applicable, becomes
unconditional or is approved by the necessary number of shareholders, as the case may be, the vesting of the awards shall be
accelerated.
Termination and Amendment. The board of directors of our company and Fread Limited have the authority to amend or
terminate the share incentive plans and the Fread 2018 RSU scheme, respectively, subject to shareholder approval to the extent
necessary to comply with applicable law. In addition, shareholders of our company and Fread Limited may, by ordinary resolution,
terminate the share incentive plans and Fread 2018 RSU scheme, respectively, at any time.
Lapse of Awards. An award will lapse if the optionee ceases to be eligible by reasons of, among other things, (i) illness,
injury, disability or death; (ii) retirement; (iii) voluntary resignation; (iv) termination of employment for serious misconduct; and
(v) breach of contract.
We granted awards to our employees, directors and consultants under the share incentive plans in November 2008, July 2009,
September 2009, January 2010, July 2010, March 2011, March 2013, May 2013, October 2013, December 2013, March 2014,
June 2014, July 2014, October 2014, July 2015, October 2016, September 2017, November 2017, January 2018, April 2018,
July 2018, July 2019, and July 2020. As of December 31, 2020, Fread Limited granted 920,000 restricted share units to its employees
and director under the Fread 2018 RSU scheme.
With the approvals of the board of directors and shareholders of us and Phoenix TV, we implemented an option exchange
program from October 21, 2016 to November 1, 2016 whereby our directors, employees and consultants exchanged options to
purchase 21,011,951 Class A ordinary shares granted under the 2008 share option plan with various exercise prices greater than
US$0.4823 per share (or US$3.8587 per ADS) for new options granted under the same plan with a new exercise price of US$0.4823
per share and a new vesting schedule that generally adds 12 months to each original vesting date, and the new options would vest no
sooner than May 1, 2017.
106
As of March 31, 2021, options to purchase 51,394,112 Class A ordinary shares granted under the 2008 share option plan and
the 2018 share option scheme were outstanding. The table below sets forth the awards that we granted to our directors and executive
officers (including pursuant to the exchange program described above) and were outstanding as of March 31, 2021:
Class A
Ordinary Shares
Underlying
Outstanding
Awards
11,970,000
3,200,000
*
*
20,060,000
Exercise
Price or
Purchase Price
(US$/Share)
US$0.4657
US$0.4823
US$0.4836
US$0.1925
US$0.4459
US$0.4823
US$0.4734
US$0.4149
US$0.4836
US$0.1925
US$0.4836
US$0.1925
US$0.4836
US$0.1925
Date of
Grant
May 23, 2013
October 21, 2016
July 5, 2019
July 20,2020
March 15, 2013
October 21, 2016
October 17, 2016
September 14, 2017
July 5, 2019
July 20, 2020
July 5, 2019
July 20, 2020
July 5, 2019
July 20, 2020
Date of
Expiration
May 22, 2023
July 10, 2024
July 15, 2025
July 4, 2029
July 19,2030
March 14, 2023
July 10, 2024
July 15, 2025
October 16, 2026
September 13, 2027
July 4, 2029
July 19, 2030
July 4, 2029
July 19, 2030
July 4, 2029
July 19, 2030
Name
Shuang Liu
Xiaoyan Chi
Edward Lu
Chun Liu
Total
Note:
*
Less than 1% of our total outstanding Class A ordinary shares.
As of March 31, 2021, other employees and consultants in aggregate held awards entitling them to receive 31,334,112 Class A
ordinary shares, with exercise prices ranging from US$0 to US$0.7867 per Class A ordinary share.
C.
Board Practices
Board of Directors
Our board of directors currently consists of seven directors. Our directors are elected by the holders of our ordinary shares,
which will include holders of our Class A ordinary shares and Class B ordinary shares.
A director is not required to hold any shares in our company by way of qualification. Subject to any separate requirement for
audit committee approval and unless disqualified by the chairman of the meeting, a director may vote with respect to any contract,
proposed contract or arrangement in which he or she is interested provided they have disclosed such interest to the board. The board
may exercise all the powers of our company to borrow money, mortgage its undertaking, property and uncalled capital, and issue
debentures or other securities whenever money is borrowed or as security for any obligation of our company or of any third party.
Committees of the Board of Directors
We have established three committees under the board of directors: the audit committee, the compensation committee and the
corporate governance and nominating committee. We have adopted a charter for each of the three committees. Each committee’s
members and functions are described below.
Audit Committee. Our audit committee consists of Jerry Juying Zhang and Carson Wen. Our board of directors has
determined that each of Jerry Juying Zhang and Carson Wen satisfies the “independence” requirements of Rule 10A-3 under the
Securities Exchange Act of 1934, as amended, and Section 303A of the New York Stock Exchange Listed Company Manual, or the
NYSE Manual. Jerry Juying Zhang is the chairman of our audit committee and meets the criteria of an audit committee financial
expert as set forth under the applicable rules of the SEC. Our audit committee oversees our accounting and financial reporting
processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
•
•
selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by
the independent auditors;
reviewing with the independent auditors any audit problems or difficulties and management’s response;
107
•
•
•
•
•
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the
Securities Act;
discussing the annual audited financial statements with management and the independent auditors;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material
control deficiencies; annually reviewing and reassessing the adequacy of our audit committee charter;
meeting separately and periodically with management and the independent auditors; and
reporting regularly to our board of directors.
Compensation Committee. Our compensation committee consists of Shuang Liu, Daguang He, Jerry Juying Zhang and
Carson Wen. Our board of directors has determined that each of Jerry Juying Zhang and Carson Wen satisfies the “independence”
requirements of Section 303A of the NYSE Manual. Shuang Liu is the chairman of our compensation committee. Our compensation
committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to
our directors and executive officers. Our Chief Executive Officer may not be present at any committee meeting during which his
compensation is deliberated. The compensation committee is responsible for, among other things:
•
•
•
•
reviewing and recommending to the board with respect to the total compensation package for our four most senior
executives;
approving and overseeing the total compensation package for our executives other than the four most senior executives;
reviewing and recommending to the board with respect to the compensation of our directors; and
reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar
arrangements, annual bonuses, employee pension and welfare benefit plans.
Corporate Governance and Nominating Committee. Our corporate and nominating committee consists of Keung Chui,
Shuang Liu and Carson Wen. Our board of directors has determined that Carson Wen satisfies the “independence” requirements of
Section 303A of the NYSE Manual. Keung Chui is the chairman of our corporate governance and nominating committee. Our
corporate governance and nominating committee assists the board of directors in selecting individuals qualified to become our
directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is
responsible for, among other things:
•
•
•
•
•
selecting and recommending to the board nominees for election or re-election to the board, or for appointment to fill any
vacancy;
reviewing annually with the board the current composition of the board with regards to characteristics such as
independence, age, skills, experience and availability of service to us;
selecting and recommending to the board the names of directors to serve as members of the audit committee and the
compensation committee, as well as the corporate governance and nominating committee itself;
advising the board periodically with regards to significant developments in the law and practice of corporate governance
as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters
of corporate governance and on any remedial action to be taken; and
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness
of our procedures to ensure proper compliance.
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to act honestly, in good faith and with a view to our best
interests. Our directors also have a duty to exercise the skills they actually possess and such care and diligence that a reasonably
prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association, as amended and restated from time to time. Subject to laws, a
shareholder has the right to seek damages if a duty owed by our directors is breached.
108
The functions and powers of our board of directors include, among others:
convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
issuing authorized but unissued shares and redeem or purchase outstanding shares of our company;
declaring dividends and other distributions;
appointing officers and determining the term of office of officers;
exercising the borrowing powers of our company and mortgaging the property of our company; and
approving the transfer of shares of our company, including the registering of such shares in our share register.
•
•
•
•
•
•
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of the board of directors. According to our second amended and restated
articles of association, at each annual general meeting, one-third of the directors for the time being (or, if their number is not a
multiple of three, the number nearest to but not greater than one-third) shall retire from office by rotation provided that the chairman
of the board and/or the managing director of our company shall not, whilst holding such office, be subject to retirement by rotation or
be taken into account in determining the number of directors to retire in each year. A retiring director shall be eligible for re-election.
A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any
arrangement or composition with his creditors; or (ii) dies or is found by our company to be or becomes of unsound mind. No benefits
are payable to members of the board upon termination of their relationship with us.
D.
Employees
See “Item 4. Information on the Company—B. Business Overview—Employees.”
E.
Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under
the Exchange Act, of our ordinary shares, as of March 31, 2021:
•
•
each of our directors and executive officers; and
each person known to us to own beneficially more than 5% of each class of our ordinary shares.
The calculations in the tables below assume there are 264,998,965 Class A ordinary shares and 317,325,360 Class B ordinary
shares, outstanding as of March 31, 2021. Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and
Regulations under the Exchange Act. In computing the number of shares beneficially owned by a person and the percentage
ownership of that person, we have included shares that the person has the right to acquire within 60 days of March 31,2021, including
through the exercise of any option, the vesting of any contingently issuable share, restricted share, restricted share unit or the
conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other
person.
Class A ordinary shares
Keung Chui
Shuang Liu (2)
Daguang He
Ka Keung Yeung
Carson Wen
Jerry Juying Zhang
Edward Lu
Xiaoyan Chi
Chun Liu
All Directors and Executive Officers as a Group (3)
Principal Shareholders:
FIL Limited (4)
Notes:
*
Less than 1% of our total outstanding Class A ordinary shares.
109
Class A Ordinary Shares
Beneficially Owned
Number
% (1)
—
16,862,000
—
*
—
—
*
*
*
20,236,758
13,904,728
—
6.36
—
*
—
—
*
*
*
7.64
5.25
Percentages disclosed are with respect to Class A ordinary shares.
(1)
(2) Represents (i)10,062,000 Class A ordinary shares held by Mr. Shuang Liu and (ii) 6,800,000 Class A ordinary shares that Mr.
Liu has the right to receive upon the exercise of share options within 60 days of March 31, 2021.
(3) Represents 20,236,758 Class A ordinary shares, including 8,286,008 Class A ordinary shares in the form of ADSs.
(4)
Information is as of December 31, 2020, based on the Amendment No. 1 to Schedule 13G filed on February 7, 2020 by FIL
Limited, and consists of 13,904,728 Class A ordinary shares in the form of 1,738,091 ADSs. The principal business office of
FIL Limited is Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda.
Class B ordinary shares
Phoenix Satellite Television (B.V.I.) Holding Limited (2)
Class B Ordinary Shares
Beneficially Owned
Number
% (1)
317,325,360
100.0
Notes:
(1)
(2)
Percentages disclosed are with respect to Class B ordinary shares.
Information based on the Schedule 13G filed on February 14, 2012 on behalf of Phoenix Satellite Television Holdings Limited
and Phoenix Satellite Television (B.V.I.) Holding Limited. Represents 317,325,360 Class B ordinary shares. Phoenix Satellite
Television (B.V.I.) Holding Limited is controlled by Phoenix Media Investment (Holdings) Limited, formerly known as
Phoenix Satellite Television Holdings Limited, a public company listed on the Hong Kong Stock Exchange. The registered
office for Phoenix Media Investment (Holdings) Limited, is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman
KY1-1111, Cayman Islands.
As of March 31, 2021, 261,538,912 Class A ordinary shares or 98.7% of our outstanding Class A ordinary shares in the form
of ADSs are held by one record holder in the United States, JPMorgan Chase Bank, N.A. Because many of these shares are held by
brokers or other nominees, we cannot ascertain the exact number of beneficial shareholders with addresses in the United States.
Holders of Class A ordinary shares are entitled to one vote per share, while the holder of Class B ordinary shares are entitled
to 1.3 votes per share. Our major shareholders have the same voting rights as our other shareholders. We are not aware of any
arrangement that may, at a subsequent date, result in a change of control of our company.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership”
B.
Related Party Transactions
Our subsidiaries, consolidated affiliated entities, and the subsidiaries of the consolidated affiliated entities have engaged,
during the ordinary course of business, in a number of customary transactions with each other. All of these inter-company balances
have been eliminated in consolidation. We also engage in transactions with related parties, including Phoenix TV, China Mobile, and
certain investees. In accordance with our audit committee charter, all of our related party transactions described in this annual report
have been reviewed and approved by our audit committee.
Phoenix TV, through its wholly owned subsidiary, is our controlling shareholder, with beneficial ownership and voting power
of 54.5% and 60.9%, respectively, of our outstanding ordinary shares as of March 31, 2021. Phoenix TV has the power acting alone to
approve any action requiring a vote of the majority of our ordinary shares.
Transactions Related to Our Corporate Structure
To comply with the applicable PRC laws, rules and regulations, we conduct our operations in China through contractual
arrangements between our wholly owned PRC subsidiaries, Fenghuang On-line, Qieyiyou and our affiliated consolidated entities. See
“Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with Our Affiliated Consolidated
Entities.”
Agreements and Transactions with Phoenix TV and Certain of its Subsidiaries
Phoenix TV Cooperation Agreement and Phoenix TV Content License Agreements
Fenghuang On-line entered into a Content, Branding, Promotion and Technology Cooperation Agreement, or the Phoenix TV
Cooperation Agreement, with Phoenix TV on November 24, 2009, certain terms of which were amended pursuant to a supplemental
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agreement entered into by the parties on March 28, 2011. Pursuant to the Phoenix TV Cooperation Agreement, Phoenix TV agreed to
procure and procured its subsidiaries, Phoenix Satellite Television Company Limited and Phoenix Satellite Television Trademark
Limited, respectively, to enter into content license agreements, or the Content License Agreements, and trademark license agreements,
or the Old Trademark License Agreements, with Tianying Jiuzhou and Yifeng Lianhe. Fenghuang On-line agreed to provide Phoenix
TV with our proprietary text, image, sound and video content. In addition, Fenghuang On-line and Phoenix TV agreed to promote one
another’s brand and content on their respective new media and TV platforms. As compensation for the rights granted to Fenghuang
On-line under the agreement, Fenghuang On-line is obligated to pay Phoenix TV an annual service fee in the amount of RMB1.6
million for the first year of the agreement, which incrementally increases by 25% for each subsequent year of the agreement. The
annual service payment to Phoenix TV under the Phoenix TV Cooperation Agreement for 2016 before expiration of the agreement
was RMB2.5 million. Fenghuang On-line must also pay to Phoenix TV 50% of the after-tax revenues Tianying Jiuzhou earns from
sublicensing Phoenix TV’s video content to third parties. In the event that Phoenix TV’s indirect voting interest in Fenghuang On-line
falls to 50% or below, Phoenix TV has the right to amend the annual service fee, provided that it may not be raised to more than 500%
of the original annual service fee. If Phoenix TV’s beneficial ownership stake in us decreases to 35% or below, Phoenix TV has the
right to immediately terminate or renegotiate the Phoenix TV Cooperation Agreement.
Pursuant to the Phoenix TV Cooperation Agreement, Tianying Jiuzhou and Yifeng Lianhe each entered into a Content
License Agreement with Phoenix Satellite Television Company Limited on November 24, 2009. Pursuant to the Content License
Agreements, Phoenix TV granted each of Tianying Jiuzhou and Yifeng Lianhe an exclusive license to use its copyrighted text, images,
sound and videos on its Internet and mobile channels, as applicable, in China. Payments for the content license are made in accordance
with the payment provisions set forth in the Phoenix TV Cooperation Agreement. The Content License Agreements can be terminated
earlier (i) by the non-breaching party in the event of a breach and if the breach is not cured within ten business days after receipt of
notice of breach from the non-breaching party, (ii) in the event of bankruptcy or the cessation of business operations of either party, or
a change in the shareholder or equity structure of the relevant affiliated consolidated entity, other than in connection with the
contractual arrangements, (iii) if either party’s performance of its obligations is held unlawful under PRC law; or (iv) if an event
occurs that adversely affects the performance of either party of its respective obligations and upon written notice by the unaffected
party.
All of the above agreements expired on May 27, 2016 and were replaced by the Program License Agreements described
below.
Program License Agreements
As the Phoenix TV Cooperation Agreement and Phoenix TV Content License Agreements expired in May 2016, Phoenix
Satellite Television Company Limited, a wholly owned subsidiary of Phoenix TV, and each of Tianying Jiuzhou, Yifeng Lianhe, and
Fengyu Network entered into a Program Resource License Agreements and a Program Text/Graphics Resource License Agreements,
or the Program License Agreements, in May 2016. Under these agreements, Phoenix TV Group agreed to grant Tianying Jiuzhou,
Yifeng Lianhe and Fengyu Network the license with priority over any third party to broadcast Phoenix TV Group’s copyrighted video
content from three television channels of Phoenix TV Group on ifeng.com (our main Internet channel), i.ifeng.com (a mobile Internet
channel of ours), and ifeng News, ifeng Video and ifeng VIP (three mobile applications of ours) in China concurrently with such
content broadcasted on the three television channels of Phoenix TV Group, pursuant to the Program License Agreements; and Phoenix
TV Group agreed to grant Tianying Jiuzhou, Yifeng Lianhe and Fengyu Network a non-exclusive license to use Phoenix TV Group’s
copyrighted text and graphics on the same Internet and mobile channels for which Phoenix TV Group’s copyrighted video content
license, above, was granted. The fees payable to Phoenix TV Group by us for all content licenses described above will be RMB10.0
million for the first year of the agreements, which will incrementally increase by 15% for each subsequent year of the agreement.
Unlike the previous agreements, the Program License Agreements do not grant us the right to sublicense Phoenix TV Group’s
copyrighted content to third parties.
Each of the Program License Agreements has an initial term of three years and expired on May 26, 2019 and may be renewed
on an annual basis thereafter upon agreement of both parties. Each of the parties to the Program License Agreements has the right to
terminate the Program License Agreements before their expiration date by 6-month prior written notice to the other party. In addition,
each of the Program License Agreements can be terminated earlier (i) by the non-breaching party in the event of a breach and if the
breach is not cured within ten business days after receipt of notice of breach from the non-breaching party, (ii) in the event of
bankruptcy or the cessation of business operations of either party, or a change in the shareholder or equity structure of Tianying
Jiuzhou, Yifeng Lianhe or Fengyu Network, other than in connection with the contractual arrangements, (iii) by Phoenix Satellite
Television Company Limited in the event that our shareholders or ownership structure change so that the shares held by Phoenix TV
Group account for 50% or less of our actual total issued shares, or in the event that we lose control of Tianying Jiuzhou, Yifeng
Lianhe or Fengyu Network; or if Tianying Jiuzhou, Yifeng Lianhe or Fengyu Network, as applicable, ceases business operation; (iv) if
either party’s performance of its obligations is held unlawful under PRC law; or (v) if an event occurs that adversely affects the
performance by either party of its obligations and upon written notice by the unaffected party.
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After the expiration of the Program License Agreements in May 2019, Tianying Jiuzhou and Yifeng Lianhe each entered into
a supplemental agreement with Phoenix Satellite Television Company Limited to extend the term of the original Program License
Agreements to January 14, 2020. Subsequently, Tianying Jiuzhou and Yifeng Lianhe entered into a program resource license and
cooperation agreement with Phoenix Satellite Television Company Limited on January 15, 2020, or the 2020 Program Resource
License and Cooperation Agreement, to continue to use Phoenix TV Group’s copyrighted video content. The annual license fees
payable to Phoenix Satellite Television Company Limited under the 2020 Program Resource License and Cooperation Agreement are
RMB2.0 million plus 50% of the revenue generated from the use of the licensed program resource in excess of RMB2.0 million. The
2020 Program Resource License and Cooperation Agreement have a term of two years and may be extended prior to expiration.
Phoenix TV Trademark License Agreements
Pursuant to the Phoenix TV Cooperation Agreement, Tianying Jiuzhou and Yifeng Lianhe each entered into the Old
Trademark License Agreement with Phoenix Satellite Television Trademark Limited on November 24, 2009. Pursuant to the Old
Trademark License Agreements, Phoenix Satellite Television Trademark Limited granted Tianying Jiuzhou and Yifeng Lianhe non-
exclusive rights to use certain of its logos for the purpose of conducting Tianying Jiuzhou’s and Yifeng Lianhe’s respective
businesses. Tianying Jiuzhou may sub-license such trademarks to China Mobile, pursuant to the China Mobile Cooperation
Agreement, as described below. Tianying Jiuzhou is obligated to pay Phoenix Satellite Television Trademark Limited an annual
license fee of US$7,000, while Yifeng Lianhe is obligated to pay Phoenix Satellite Television Trademark Limited an annual license
fee of US$3,000, under the respective Old Trademark License Agreement. Phoenix Satellite Television Trademark Limited may in its
discretion waive such license fees.
On December 8, 2017, Tianying Jiuzhou and Yifeng Lianhe each entered into a new trademark license agreement, or the New
Trademark License Agreements, with Phoenix Satellite Television Trademark Limited to replace the Old Trademark License
Agreements. Under the New Trademark License Agreements, Phoenix Satellite Television Holdings Limited agreed to continue to
license to Tianying Jiuzhou and Yifeng Lianhe certain trademarks containing the double-phoenix logo and the Chinese or English
words of “Phoenix New Media” or “ifeng” for an initial term of three years, while Tianying Jiuzhou and Yifeng Lianhe are not
allowed to use the double-phoenix logo on a stand-alone basis. Tianying Jiuzhou and Yifeng Lianhe are also granted a one-year
license to continue to use the current marks of our two mobile applications which contain the Chinese words of “Phoenix News” and
“Phoenix Video” which will be automatically renewed upon its expiration unless Phoenix TV raises any objection. The annual license
fee payable to Phoenix Satellite Television Holdings Limited by each of Tianying Jiuzhou and Yifeng Lianhe will be the greater of
2% of the annual revenues of Tianying Jiuzhou or Yifeng Lianhe (as the case may be) or US$100,000 for each company, while the
annual fee under the Old Trademark License Agreements was US$10,000 in aggregate. On December 8, 2020, Tianying Jiuzhou and
Yifeng Lianhe each entered into an amendment to the New Trademark License Agreements, with Phoenix Satellite Television
Trademark Limited to renew such trademark license agreements.
Transactions with Phoenix TV and Certain of its Subsidiaries
Costs for content provided to us by Phoenix TV Group were RMB12.4 million, RMB11.3 million and RMB2.6 million
(US$0.4 million) in 2018, 2019 and 2020, respectively. We were charged by Phoenix TV Group for advertising and promotion
expenses of RMB4.3 million, RMB4.2 million and RMB2.5 million (US$0.4 million) in 2018, 2019 and 2020, respectively. We were
charged corporate administrative expenses by Phoenix TV Group in the total amounts of RMB2.2 million, RMB2.1 million and
RMB0.7 million (US$0.1 million) in 2018, 2019 and 2020, respectively. We were also charged Trademark license fee by Phoenix TV
Group with the total amounts of RMB5.8 million, RMB5.0 million and RMB4.4 million (US$0.7 million) in 2018, 2019 and 2020,
respectively.
We provide joint advertising services to Phoenix TV Group’s advertisers from which we earned revenues of RMB14.4
million, RMB15.7 million and RMB10.6 million (US$1.6 million) in 2018, 2019 and 2020, respectively.
As of December 31, 2018, 2019 and 2020, we had amounts due from Phoenix TV Group with the amounts of RMB10.5
million, RMB10.2 million and RMB11.4 million (US$1.7 million), respectively, and accounts due to Phoenix TV Group with the
amounts of RMB14.4 million, RMB24.6 million and RMB23.5 million (US$3.6 million), respectively.
Cooperation Agreement with China Mobile
China Mobile is a shareholder of our parent company, Phoenix TV. As of March 31, 2021, China Mobile held 19.7% of the
outstanding shares of Phoenix TV.
We obtained revenues for our paid services through China Mobile of RMB86.4 million, RMB60.5 million and RMB30.5
million (US$4.7 million) in 2018, 2019 and 2020, respectively. We earned revenues from China Mobile for advertising services
RMB27.5 million, RMB23.3 million and RMB23.7 million (US$3.6 million) in 2018, 2019 and 2020, respectively. We incurred
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revenue sharing and bandwidth costs in connection with MVAS provided through China Mobile’s platforms in the amounts of
RMB15.9 million, RMB14.0 million and RMB6.5 million (US$1.0 million) in 2018, 2019 and 2020, respectively.
As of December 31, 2018, 2019 and 2020, we had amounts due from China Mobile with the amounts of RMB59.9 million,
RMB43.1 million and RMB16.0 million (US$2.5 million), respectively, and accounts due to China Mobile with the amounts of
RMB0.6 million, RMB3.6 million and RMB3.8 million (US$0.6 million), respectively.
Convertible Loans and Loans Provided to Particle
In August 2016, we granted an unsecured short-term loan to Particle with a principal amount of US$14.8 million at an interest
rate of 4.35% per annum, whose term had been extended several times to twenty-four months after several extensions. Particle agreed
to grant us the right to convert, at our option, all or a portion of the principal amount of the loan granted to Particle in August 2016
(plus interests incurred as of the conversion) into Series D1 convertible redeemable preferred shares to be issued by Particle at a
conversion price of US$1.071803 per share before August 9, 2018. Our rights under the aforementioned convertible loan granted in
August 2016 were assigned to Long De, and Long De’s designated affiliate paid us approximately US$17.0 million for the assignment
in August 2018. In January 2017, we granted an unsecured short-term loan to Particle with a principal amount of RMB74.0 million at
an interest rate of 9% per annum, whose term had been extended to eighteen months. Particle was required to use the proceeds of the
loans for its working capital requirements in the ordinary course of its business. Particle repaid this loan in full to us in July 2018.
Advertisement Agreement with Tianbo
In 2013, Tianying Jiuzhou and Tianbo entered into an Agreement on Operation and Advertisement Agency for Real Estate
Channel and an Advertisement Source Purchase Agreement, or the Previous Tianbo Agreements, pursuant to which, Tianying Jiuzhou
granted Tianbo the exclusive right to operate our real estate channel (house.ifeng.com) and act as the exclusive agent for placement of
real estate advertisements on ifeng.com (“鳳凰網”). The Previous Tianbo Agreements expired on March 31, 2018 and in April 2018
we entered into a series of new agreements with Tianbo, or the New Tianbo Agreements, to continue the business cooperation with
Tianbo. Different from the Previous Tianbo Agreements, the New Tianbo Agreements granted Tianbo a non-exclusive right to operate
our real estate channel and act as the non-exclusive agent for placement of real estate advertisements on Internet. In May 2018, we
granted an unsecured short-term loan to Tianbo with a principal amount of approximately RMB10.0 million at an interest rate of 10%
per annum and with an initial term of twelve months. On April 1, 2019, we obtained control over Tianbo and consolidated Tianbo
starting from April 1, 2019 as we and other shareholders of Tianbo agreed to make certain revisions to the articles of association of
Tianbo, which granted us the voting power to decide Tianbo’s significant financial and operating decisions at both the shareholder
level and the board level, to accelerate the development of its real estate vertical and to further bolster the development of our real
estate vertical and to create more synergies on Tianbo’s new business, with the equity interest in Tianbo of 50% unchanged. At the
same time, we agreed with other shareholders of Tianbo and would provide free advertising resources to Tianbo as consideration to
gain control over Tianbo.
Other Transactions with Certain Directors and Affiliates
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors, Supervisors and Executive
Directors.”
Share Incentive Plans
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors, Supervisors and Executive
Directors—Share Incentive Plans.”
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
Please refer to Item 18 for a list of our annual consolidated financial statements filed as part of this annual report on Form 20-
F.
Legal Proceedings
See “Item 4. Information on the Company—B. Business Overview—Legal and Administrative Proceedings.”
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Dividend Policy and Distributions
Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to
pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions and other factors that our board of directors may deem relevant.
On November 14, 2019, our board of directors declared a special cash dividend of US$0.1714 per ordinary share, equivalent
to US$1.3712 per ADS, totaling approximately US$100 million. The special dividend was paid on December 13, 2019 to holders of
record of our ordinary shares at the close of business on November 29, 2019. On November 19, 2020, our board of directors declared
a special cash dividend of US$0.1714 per ordinary share, equivalent to US$1.3712 per ADS, totaling approximately US$100 million.
The special dividend was paid on December 22, 2020 to holders of record of our ordinary shares at the close of business on December
4, 2020.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China,
which in turn relies on the payments received from our affiliated consolidated entities in China pursuant to the contractual
arrangements that established our corporate structure. Current PRC laws, rules and regulations permit our PRC subsidiaries to pay
dividends to us only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations.
In addition, our subsidiaries in China are required to set aside a certain amount of their accumulated after-tax profits each year to fund
statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiaries in China incur debt on its own
behalf, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us.
If we pay any dividends, we will pay our ADS holders to the same extent as holders of our Class A ordinary shares, subject to
the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any,
will be paid in U.S. dollars.
B.
Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in
this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offer and listing details
Our ADSs, each representing eight of Class A ordinary shares, have been listed on the New York Stock Exchange since
May 12, 2011 under the symbol “FENG.”
B.
Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing eight of our ordinary shares, have been trading on the New York Stock Exchange since May 12,
2011 under the symbol “FENG.”
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B. Memorandum and Articles of Association
We incorporate by reference into this annual report the description of our amended and restated memorandum of association
and second amended and restated articles of association contained in our Form F-1 registration statement (File No. 333-173666), as
amended, initially filed with the Commission on April 21, 2011. Our shareholders adopted our amended and restated memorandum of
association and second amended and restated articles of association on April 21, 2011.
C. Material Contracts
In the past three fiscal years, we have not entered into any material contracts other than in the ordinary course of business or
other than those described elsewhere in this annual report.
D.
Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulation of Foreign Exchange
Control and Administration.”
E.
Taxation
Cayman Islands Taxation
Pursuant to section 6 of the Tax Concessions Act (1999 Revision) of the Cayman Islands, our company has obtained an
undertaking from the Governor-in-Cabinet (1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on
profits, income, gains or appreciation shall apply to our company or its operations; and (2) that the aforesaid tax or any tax in the
nature of estate duty or inheritance tax shall not be payable on or in respect of the shares, debentures or other obligations of our
company. The undertaking for our company is for a period of twenty years from December 4, 2007.
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations
and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company
levied by the Government of the Cayman Islands save for certain stamp duties which may be applicable, from time to time, on certain
instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are a party to a double tax
treaty entered into with the United Kingdom in 2010 but otherwise is not party to any double tax treaties.
No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold
interests in land in the Cayman Islands.
An exempted company shall make available at its registered office, in electronic form or any other medium, such register of
members, including any branch register of members, as may be required of it upon service of an order or notice by the Tax
Information Authority pursuant to the Tax Information Authority Act of the Cayman Islands.
People’s Republic of China Taxation
The CIT Law provides that enterprises established outside of China whose “de facto management bodies” are located in
China are considered “resident enterprises” of China. Under the implementation regulations for the CIT Law issued by the PRC State
Council, “de facto management body” is defined as a body that has material and overall management and control over the
manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposal of
properties and other assets of an enterprise. Despite the present uncertainties as a result of limited guidance from PRC tax authorities
on the issue, we do not believe that our legal entities organized outside of the PRC should be treated as residents under the CIT Law.
Under the CIT Law and implementation regulations issued by the State Council, PRC withholding tax at the rate of 10% is
applicable to dividends payable to investors that are “non-resident enterprises”, which do not have an establishment or place of
business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with
the establishment or place of business, to the extent such dividends have their sources within the PRC. Similarly, any gain realized on
the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived
from sources within the PRC. The implementation regulations of the CIT Law set forth that, (i) if the enterprise that distributes
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dividends is domiciled in the PRC, or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC,
then such dividends or capital gains are treated as China-sourced income. It is not clear how “domicile” may be interpreted under the
CIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered a PRC
“resident enterprise”, dividends we pay to our non-PRC enterprise investors with respect to our Class A ordinary shares or ADSs, or
the gain our non-PRC enterprise investors may realize from the transfer of our Class A ordinary shares or ADSs, may be treated as
income derived from sources within the PRC and be subject to PRC tax. In addition, it is unclear whether our non-PRC individual
investors would be subject to any PRC tax in the event we are deemed a “PRC resident enterprise”. If any PRC tax were to apply to
such dividends or gains of non-PRC individual investors, it would generally apply at a tax rate of 20%. Furthermore, it is unclear
whether, if we are considered a PRC “resident enterprise”, holders of our Class A ordinary shares or ADSs might be able to claim the
benefit of income tax treaties entered into between China and other countries or regions.
Material United States Federal Income Tax Consequences
The following summary describes material United States federal income tax consequences of the ownership and disposition
of our ADSs and Class A ordinary shares as of the date hereof. The discussion is applicable only to United States Holders (as defined
below) who hold our ADSs or Class A ordinary shares as capital assets (generally, property held for investment) under the United
States Internal Revenue Code of 1986, as amended (the “Code”). As used herein, the term “United States Holder” means a beneficial
owner of an ADS or Class A ordinary share that is for United States federal income tax purposes:
•
•
•
•
an individual who is a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to United States federal income taxation regardless of its source; or
a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States
persons have the authority to control all substantial decisions of the trust, or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a United States person.
This summary does not purport to be a detailed description of the United States federal income tax consequences applicable to
you if you are subject to special treatment under the United States federal income tax laws, such as:
•
•
•
•
•
•
•
•
•
•
•
•
•
a dealer in securities or currencies;
a financial institution;
a regulated investment company;
a real estate investment trust;
an insurance company;
a tax-exempt organization;
a person holding our ADSs or Class A ordinary shares as part of a hedging, integrated or conversion transaction, a
constructive sale or a straddle;
a trader in securities that has elected the mark-to-market method of accounting for your securities;
a person liable for alternative minimum tax;
a person who owns or is deemed to own 10% or more of our stock (by vote or value);
a partnership or other pass-through entity for United States federal income tax purposes;
a person required to accelerate the recognition of any item of gross income with respect to our ADSs or Class A ordinary
shares as a result of such income being recognized on an applicable financial statement; or
a person whose “functional currency” is not the United States dollar.
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The discussion below is based upon the provisions of the Code and United States Treasury regulations, rulings and judicial
decisions thereunder as of the date hereof. Such authorities may be replaced, revoked or modified so as to result in United States
federal income tax consequences different from those discussed below. In addition, this summary is based, in part, upon
representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be
performed in accordance with their terms.
This discussion does not consider the tax treatment of partnerships or other pass-through entities that hold our ADSs or
Class A ordinary shares, or of persons who hold our ADSs or Class A ordinary shares through such entities. If a partnership holds
ADSs or Class A ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities
of the partnership. If you are a partner of a partnership holding our ADSs or Class A ordinary shares, you should consult your tax
advisors.
This summary does not contain a detailed description of all the United States federal income tax consequences to you in light
of your particular circumstances and does not address the Medicare tax on net investment income, United States federal estate and gift
taxes or the effects of any state, local or non-United States tax laws.
If you are considering the purchase, ownership or disposition of our ADSs or Class A ordinary shares, you should consult your
own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well
as any consequences arising under other United States federal tax laws and the laws of any other taxing jurisdiction.
ADSs
If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying
Class A ordinary shares that are represented by such ADSs. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs
will not be subject to United States federal income tax.
Taxation of Dividends
Subject to the rules discussed under “—Passive Foreign Investment Company” below, the gross amount of distributions with
respect to our ADSs or Class A ordinary shares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as
dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income
tax principles. Such income (including withheld taxes) will be includable in your gross income as dividend income on the day actually
or constructively received by you, in the case of the Class A ordinary shares, or by the depositary, in the case of ADSs. Such dividends
will not be eligible for the dividends received deduction allowed to corporations under the Code.
With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be
subject to reduced rates of taxation. A non-United States corporation is treated as a qualified foreign corporation with respect to
dividends paid by that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities
market in the United States. U.S. Treasury Department guidance indicates that our ADSs (but not our Class A ordinary shares), which
are listed on the New York Stock Exchange, are readily tradable on an established securities market in the United States. Thus, we
believe that dividends we pay on our Class A ordinary shares that are represented by ADSs, but not on our Class A ordinary shares
that are not so represented, will meet such conditions required for the reduced tax rates. There can be no assurance that our ADSs will
be considered readily tradable on an established securities market in later years. A qualified foreign corporation also includes a foreign
corporation that is eligible for the benefits of certain income tax treaties with the United States. In the event that we are deemed to be a
PRC “resident enterprise” under the PRC tax law (see discussion under “Item 10. Additional Information—E. Taxation—People’s
Republic of China Taxation”), we may be eligible for the benefits of the income tax treaty between the United States and the PRC, and
if we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are
represented by ADSs, would be eligible for the reduced rates of taxation. Non-corporate United States Holders that do not meet a
minimum holding period requirement during which they are not protected from the risk of loss, or that elect to treat the dividend
income as “investment income” pursuant to Section 163(d)(4) of the Code, will not be eligible for the reduced rates of taxation
regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of
a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This
disallowance applies even if the minimum holding period has been met. Furthermore, non-corporate United States Holders will not be
eligible for reduced rates of taxation on any dividends received from us if we are a PFIC (as discussed below under “—Passive
Foreign Investment Company”) in the taxable year in which such dividends are paid or in the preceding taxable year (as we believe
there is a substantial risk of in 2020). You should consult your own tax advisors regarding the application of these rules given your
particular circumstances.
In the event that we are deemed to be a PRC “resident enterprise” under the PRC tax law, you may be subject to PRC
withholding taxes on dividends paid to you with respect to the ADSs or Class A ordinary shares. In that case, however, you may be
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able to obtain a reduced rate of PRC withholding taxes under the treaty between the United States and the PRC if certain requirements
are met. In addition, subject to certain conditions and limitations, PRC withholding taxes on dividends, if any, may be treated as
foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax
credit, dividends paid to you with respect to our ADSs or Class A ordinary shares will be treated as income from sources outside the
United States and will generally constitute passive category income. Furthermore, in certain circumstances, if you have held our ADSs
or Class A ordinary shares for less than a specified minimum period during which you are not protected from risk of loss, or are
obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for any PRC withholding taxes
imposed on dividends paid on our ADSs or Class A ordinary shares. The rules governing the foreign tax credit are complex. You are
urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year,
as determined under United States federal income tax principles, the distribution will be treated first as a tax-free return of your tax
basis in our ADSs or Class A ordinary shares held by you, and to the extent the amount of the distribution exceeds your tax basis, the
excess will be taxed as capital gain recognized on a sale or exchange. We do not expect to keep earnings and profits in accordance
with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a
dividend (as discussed above).
Passive Foreign Investment Company
In general, we will be a PFIC for any taxable year in which:
at least 75% of our gross income is passive income, or
at least 50% of the value (determined based on a quarterly average) of our assets is attributable to assets that produce or
are held for the production of passive income.
•
•
For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents
derived in the active conduct of a trade or business and not derived from a related person). If we own at least 25% (by value) of the
stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other
corporation’s assets and receiving our proportionate share of the other corporation’s income. However, it is not entirely clear how the
contractual arrangements between us and our affiliated consolidated entities will be treated for purposes of the PFIC rules. If it is
determined that we do not own the stock of our affiliated consolidated entities for United States federal income tax purposes (for
instance, because the relevant PRC authorities do not respect these arrangements), we are more likely to be treated as a PFIC.
Based upon the past and projected composition of our income and assets, and the valuation of our assets, including goodwill,
we believe there is a substantial risk that we will be classified as a PFIC for 2020, and we may be classified as a PFIC for future
taxable years. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of
our income and assets from time to time. Accordingly, it is possible that our status as a PFIC may change in any future taxable year
due to changes in our asset or income composition. In addition, the calculation of the value of our assets will be based, in part, on the
quarterly market value of our ADSs, which is subject to change.
The determination of our PFIC status is based on an annual analysis that includes ascertaining the fair market value of all of
our assets on a quarterly basis and the character of each item of income we earn. Because this involves extensive factual investigation
and cannot be completed until the close of a taxable year, there can be no assurance we will not be a PFIC for any future year.
If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares, you will be subject to
special tax rules discussed below for that year and for each subsequent year in which you hold the ADSs or Class A ordinary shares
(even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, you can avoid the continuing
impact of the PFIC rules by making a special election (a “Purging Election”) to recognize gain in the manner described below as if
your ADSs or Class A ordinary shares had been sold on the last day of the last taxable year during which we were a PFIC. In addition,
a new holding period would be deemed to begin for your ADSs or Class A ordinary shares for purposes of the PFIC rules. After the
Purging Election, your ADSs or Class A ordinary shares with respect to which the Purging Election was made will not be treated as
shares in a PFIC unless we subsequently become a PFIC. You are urged to consult your own tax advisor about the availability of this
election, and whether making the election would be advisable in your particular circumstances.
If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares and you do not make a
timely mark-to-market election, as described below, you will be subject to special tax rules with respect to any “excess distribution”
received and any gain realized from a sale or other disposition, including a pledge, of our ADSs or Class A ordinary shares.
Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of
the three preceding taxable years or your holding period for our ADSs or Class A ordinary shares will be treated as excess
distributions. Under these special tax rules:
•
the excess distribution or gain will be allocated ratably over your holding period for our ADSs or Class A ordinary shares,
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•
•
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a
PFIC, will be treated as ordinary income, and
the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year for individuals or
corporations, as applicable and the interest charge generally applicable to underpayments of tax will be imposed on the
resulting tax attributable to each such year.
In addition, non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received
from us (as described above under “—Taxation of Dividends”) if we are a PFIC in the taxable year in which such dividends are paid
or in the preceding taxable year. You will generally be required to file Internal Revenue Service Form 8621 if you hold our ADSs or
Class A ordinary shares in any year in which we are classified as a PFIC.
If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares and any of our non-United
States subsidiaries is also a PFIC, a United States Holder would be treated as owning a proportionate amount (by value) of the shares
of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application
of the PFIC rules to any of our subsidiaries.
In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, you may make an election to
include gain on the stock of a PFIC as ordinary income under a mark-to-market method, provided that such stock is regularly traded
on a qualified exchange. Under current law, the mark-to-market election may be available to holders of our ADSs because they are
listed on the New York Stock Exchange, which constitutes a qualified exchange, although there can be no assurance that our ADSs
will be “regularly traded” for purposes of the mark-to-market election. It should also be noted that only our ADSs and not our Class A
ordinary shares are listed on the New York Stock Exchange. Consequently, if you are a holder of our Class A ordinary shares that are
not represented by ADSs, you generally will not be eligible to make a mark-to-market election if we are a PFIC.
If you make an effective mark-to-market election, you will include in each taxable year that we are a PFIC, as ordinary
income, the excess of the fair market value of our ADSs held by you at the end of the year over your adjusted tax basis in our ADSs.
You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in our ADSs over their fair
market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-
market election. If you make an effective mark-to-market election, in each year that we are a PFIC, (i) any gain you recognize upon
the sale or other disposition of our ADSs will be treated as ordinary income and (ii) any loss will be treated as ordinary loss, but only
to the extent of the net amount previously included in income as a result of the mark-to-market election.
Your adjusted tax basis in our ADSs will be increased by the amount of any income inclusion and decreased by the amount of
any deductions under the mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for
which the election is made and all subsequent taxable years, unless our ADSs are no longer regularly traded on a qualified exchange
or the Internal Revenue Service consents to the revocation of the election. Because a mark-to-market election cannot be made for any
lower-tier PFICs that we may own, a United States Holder may continue to be subject to the PFIC rules with respect to such United
States Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal
income tax purposes.
You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the
election would be advisable in your particular circumstances.
Alternatively, you can sometimes avoid the rules described above with respect to the stock you own in a PFIC by electing to
treat such PFIC as a “qualified electing fund” under Section 1295 of the Code. However, this option is not available to you because we
do not intend to comply with the requirements necessary to permit you to make this election. You are urged to consult your tax
advisors concerning the United States federal income tax consequences of holding our ADSs or Class A ordinary shares if we are
considered a PFIC in any taxable year.
Taxation of Capital Gains
For United States federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable
disposition of our ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized for our ADSs or
Class A ordinary shares and your tax basis in such ADSs or Class A ordinary shares. Subject to the discussion under “—Passive
Foreign Investment Company” above, such gain or loss will generally be capital gain or loss. Capital gains of individuals derived with
respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is
subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss. Consequently,
you may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of our ADSs or Class A
ordinary shares unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived
from foreign sources. However, in the event that we are deemed to be a PRC “resident enterprise” under the PRC tax law and PRC tax
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is imposed on any gain from the sale, exchange or other taxable disposition of our ADSs or Class A ordinary shares, a United States
Holder eligible for the benefits of the income tax treaty between the United States and the PRC may be able to elect to treat such gain
as PRC-source income. You are urged to consult your tax advisors regarding the tax consequences if a foreign withholding tax is
imposed on a disposition of our ADSs or Class A ordinary shares, including the availability of the foreign tax credit under your
particular circumstances.
Information Reporting and Backup Withholding
Certain United States Holders may be required to submit to the Internal Revenue Service certain information with respect to
their beneficial ownership of our ADSs or Class A ordinary shares, unless such ADSs or Class A ordinary shares are held on their
behalf by a United States financial institution. Penalties may be imposed if a United States Holder is required to submit such
information to the Internal Revenue Service and fails to do so.
Moreover, information reporting will apply to dividends in respect of our ADSs or Class A ordinary shares and the proceeds
from the sale, exchange or other disposition of our ADSs or Class A ordinary shares that are paid to you within the United States (and
in certain cases, outside the United States), unless you are an exempt recipient. Backup withholding may apply to such payments if
you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest
income.
Backup withholding is not a tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against your United States federal income tax liability provided the required information is timely furnished to the Internal
Revenue Service. You should consult your tax advisors regarding the application of the United States information reporting and
backup withholding rules to your particular circumstances.
F.
Dividends and Paying Agents
On November 19, 2020, our board of directors declared a special cash dividend of US$0.1714 per ordinary share, equivalent
to US$1.3712 per ADS, totaling approximately US$100 million. The special dividend was payable on December 22, 2020 to holders
of record of our ordinary shares at the close of business on December 4, 2020. JPMorgan Chase Bank, N.A., or JP Morgan, as
depositary of the ADSs, paid a cash distribution of US$1.3512 per ADS to our ADS holders of record at the close of business on
December 4, 2020 after receipt of cash dividends on our ordinary shares and deduction of its fees and expenses. JP Morgan paid the
cash distribution to our ADS holders on December 22, 2020.
G.
Statement by Experts
Not applicable.
H. Documents on Display
We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this
annual report, we incorporate by reference certain information we filed with the SEC. This means that we can disclose important
information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is
considered to be part of this annual report.
You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices in New York, New York,
and Chicago, Illinois. You can also request copies of this annual report, including the exhibits incorporated by reference in this annual
report, upon payment of a duplicating fee, by writing to the SEC’s Public Reference Room for information.
The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who
file electronically with the SEC. The address of that websites is http://www.sec.gov. The information on that websites is not a part of
this annual report.
I.
Subsidiary Information
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Concentration risk
We have no customers with revenues or accounts receivable accounting for over 10% of our total revenues or total account
receivables, net and due from related parties, respectively.
Credit risk
Our credit risk arises from cash and cash equivalents, term deposits and short term investments and restricted cash, as well as
credit exposures to receivables due from our customers, related parties and other parties and available-for-sale debt securities.
We believe that there is no significant credit risk associated with cash and cash equivalents, term deposits and short term
investments and restricted cash which were held by reputable financial institutions in the jurisdictions where we are located. We
believe that we are not exposed to unusual risks as these financial institutions have high credit quality.
We have no significant concentrations of credit risk with respect to our customers and related parties and available-for-sale
debt securities. We assess the credit quality of, and set credit limits on our customers by taking into account their financial position,
the availability of guarantees from third parties, their credit history and other factors such as current market conditions.
Inflation Risk
In recent years, inflation has not had a material impact on our operating results. According to the National Bureau of Statistics
of China, the change in the Consumer Price Index in China was 2.1%, 2.9% and 2.5% in 2018, 2019 and 2020, respectively. Although
we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by
higher rates of inflation in China. We do not anticipate being exposed to material risks due to changes in market interest rates.
However, our future interest income may fall short of expectations due to changes in market interest rates.
Foreign Currency Risk
Substantially all our revenues and expenses are denominated in Renminbi. We have not had any material foreign exchange
gains or losses. Although in general, our exposure to foreign exchange risks should be limited, the value of your investment in our
ADSs will be affected by the foreign exchange rate between U.S. dollars relative to the Renminbi because the value of our business is
effectively denominated in Renminbi, while the ADSs are traded in U.S. dollars. Furthermore, a decline in the value of the Renminbi
could reduce the U.S. dollar equivalent of the value of the earnings from, and our investments in, our subsidiaries and PRC-
incorporated affiliates in China. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would
affect our reported financial results in U.S. dollar terms. As of December 31, 2020, we had RMB denominated cash and cash
equivalents, term deposits and short term investments and restricted cash, totaling RMB1.63 billion (US$250.0 million), and U.S.
dollar denominated cash and cash equivalents and term deposits totaling US$4.5 million. See “Item 3. Key Information—D. Risk
Factors—Risks Relating to Doing Business in China—Fluctuations in exchange rates of the Renminbi could materially affect our
reported operating results.”
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D.
American Depositary Shares
In July 2016, we appointed JPMorgan Chase Bank, N.A., or JPMorgan, as the successor depositary for our ADR program.
JPMorgan replaced Deutsche Bank Trust Company Americas, or Deutsche Bank, as depositary for our ADR program effective from
July 18, 2016. We entered into an amended and restated deposit agreement with JPMorgan, as depositary, and all holders from time to
time of our ADRs in July 2016 to amend and restate the previous deposit agreement with Deutsche Bank dated as of May 11, 2011.
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Fees and Charges
As an ADS holder, you will be required to pay the following service fees to JPMorgan as the depositary bank:
Service:
Issuance of ADSs, including issuances resulting from a distribution of shares or
Fee:
$5.00 for each 100 ADSs (or portion thereof) issued
rights or other property
Cancellation of ADSs, including in the case of termination of the deposit
$5.00 for each 100 ADSs (or portion thereof) cancelled
agreement
Distribution of cash dividends or other cash distributions
Up to $0.05 per ADS held
Distribution of ADSs pursuant to share dividends, free share distributions or
Up to $0.05 per ADS held
exercise of rights
Distribution of securities other than ADSs or rights to purchase ADSs or additional
A fee being in an amount equal to the fee for the execution and delivery of ADSs
ADSs
Depositary services
Transfer of ADRs
which would have been charged as a result of the deposit of such securities
An aggregate fee of U.S.$0.05 per ADS per calendar year (or portion thereof) for
services performed by the Depositary in administering the ADRs
$1.50 per certificate presented for transfer
As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain
taxes and governmental charges such as:
Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in
the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares).
•
•
•
•
•
•
Expenses incurred for converting foreign currency into U.S. dollars.
Expenses for cable, telex and fax transmissions and for delivery of securities.
Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or
withholding taxes (i.e., when ordinary shares are deposited or withdrawn from deposit).
Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory
requirements applicable to ordinary shares, deposited securities, ADSs and ADRs.
Any applicable fees and penalties thereon.
The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the
brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their
clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary
fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the
depositary bank to the holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a
portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the
depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs
registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices
to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary
bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in
DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs
in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse
the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the
ADS holder.
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The depositary has agreed to reimburse us for a portion of certain expenses we incur that are related to establishment and
maintenance of the ADR program, including investor relations expenses. There are limits on the amount of expenses for which the
depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary
collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of ADSs.
Neither the depositary nor we can determine the exact amount to be made available to us because (i) the number of ADSs that will be
issued and outstanding, (ii) the level of service fees to be charged to holders of ADSs and (iii) our reimbursable expenses related to the
program are not known at this time.
Payments by Depositary
As of March 31, 2021, we had received total payments of US$1.95 million from JPMorgan, the current depositary bank for
our ADR program for reimbursement of investor relations expenses and other program related expenses.
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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None of these events occurred in any of the years ended December 31, 2018, 2019 and 2020.
PART II
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A. Modifications of Rights
See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of
securities holders, which remain unchanged.
B.
Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2020, an evaluation has been carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Disclosure controls and procedures are designed to ensure that information required to
be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required
disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Disclosure controls and procedures are
designed to provide reasonable assurance of achieving their objectives. Based upon our evaluation, our management has concluded
that, as of December 31, 2020, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, for our company. Internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements in accordance with generally accepted accounting principles and includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and disposals of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with U.S. GAAP and that a company’s receipts and expenditures are
being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposal of our assets that could have a material effect on our
consolidated financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance
with respect to consolidated financial statements preparation and presentation and may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and
Exchange Commission, our management, including our Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of our internal control over financial reporting as of December 31, 2020 using the criteria set forth in the report “Internal
Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of
December 31, 2020.
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by
PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm, as stated in their report which appears on
page F-2 of this annual report on Form 20-F.
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Changes in Internal Control over Financial Reporting
We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance that our
books and records accurately reflect our transactions and that our established policies and procedures are followed. As required by
Rule 13a-15(d), under the Exchange Act, our management, including our Chief Executive Officer, president and our Chief Financial
Officer, has also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred
during the period covered by this report have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. There were no changes in our internal control over financial reporting that occurred during the year ended
December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Jerry Juying Zhang, who is an independent director, qualifies as an audit
committee financial expert as defined in Item 16A of the instruction to Form 20-F.
ITEM 16B.
CODE OF ETHICS
We have adopted a code of ethics which applies to our directors, employees, advisors and officers, including our Chief
Executive Officer and Chief Financial Officer. No changes have been made to the code of ethics since its adoption and no waivers
have been granted therefrom to our directors or employees. We have filed our code of business conduct and ethics as an exhibit to our
F-1 registration statement (File No. 333-173666), as amended, initially filed with the Commission on April 21, 2011, and a copy is
available to any shareholder upon request. This code of ethics is also available on our website at ir.ifeng.com.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PricewaterhouseCoopers Zhong Tian LLP has served as our independent public accountant for each of the fiscal years in the
three-year period ended December 31, 2020, for which audited financial statements appear in this annual report.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional
services rendered by PricewaterhouseCoopers Zhong Tian LLP, for the years indicated.
Audit Fees (1)
Tax Fees (2)
All Other Fees (3)
Total
For the Years Ended
December 31,
2019
2020
(In thousands of RMB)
8,190
—
17
8,207
8,505
—
17
8,522
Notes:
(1) Audit fees consist of fees associated with the annual audit, reviews of our quarterly financial statements and related statutory
and regulatory filings. For 2019 and 2020, the audit refers to financial audit and audit pursuant to Section 404 of the Sarbanes-
Oxley Act of 2002.
Tax fees include fees billed for tax compliance and tax advice services.
(2)
(3) All other fees comprise fees for all other services provided by PricewaterhouseCoopers Zhong Tian LLP, other than those
services covered in footnotes (1) to (2) above.
Pre-Approval Policies and Procedures
Our audit committee is responsible for the oversight of our independent accountants’ work. The policy of our audit committee
is to pre-approve all audit and non-audit services provided by PricewaterhouseCoopers Zhong Tian LLP, including audit services,
audit-related services, tax services and other services, as described above.
All audit and non-audit services performed by PricewaterhouseCoopers Zhong Tian LLP must be pre-approved by the Audit
Committee.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
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ITEM 16E.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G.
CORPORATE GOVERNANCE
We are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and our ADSs, each
representing eight ordinary shares, are listed on the New York Stock Exchange. Under Section 303A of the New York Stock
Exchange Listed Company Manual, New York Stock Exchange listed companies that are foreign private issuers are permitted to
follow home country practice in lieu of the corporate governance provisions specified by the New York Stock Exchange with limited
exceptions. The following summarizes some significant ways in which our corporate governance practices differ from those followed
by domestic companies under the listing standards of the New York Stock Exchange.
•
•
•
In respect of independent directors on our Board of Directors: Only two of our seven directors are independent directors.
As our home country practice does not require a majority of our Board of Directors to be independent, two of our seven
directors are independent.
In respect of composition of our audit committee: As our home country practice does not require us to have a minimum of
three members of our audit committee, our audit committee is comprised of two independent directors.
In respect of the oversight of our executive officer compensation and director nominations matters: As our home country
practice does not require independent director oversight of executive officer compensation and director nomination
matters, our compensation and corporate governance and nominating committees are not comprise solely of independent
directors.
ITEM 16H.
MINE SAFETY
Not applicable.
126
ITEM 17. FINANCIAL STATEMENTS
PART III
The Registrant has elected to provide the financial statements and related information specified in Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of Phoenix New Media Limited are included at the end of this annual report.
ITEM 19. EXHIBIT INDEX
Exhibit
Number
1.1
2.1
2.2
2.3
Description of Exhibits
Amended and Restated Memorandum of Association and Second Amended and Restated Articles of Association of the
Registrant (incorporated by reference Exhibit 3.2 to our Registration Statement on Form F-1 (File No. 333-173666), initially
filed with the Securities and Exchange Commission on April 21, 2011)
Registrant’s Specimen American Depositary Receipt (included in Exhibit 4.3) (incorporated by reference Exhibit (a) to our
Registration Statement on Form F-6 (File No. 333-212488) with respect to American depositary shares representing our
Class A ordinary shares, filed with the Securities and Exchange Commission on July 12, 2016)
Registrant’s Specimen Certificate for Class A ordinary shares (incorporated by reference Exhibit 4.2 to our Registration
Statement on Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21,
2011).
Form of Amended and Restated Deposit Agreement, among the Registrant, JPMorgan Chase Bank, N.A., as depositary, and
all holders from time to time of ADRs issued thereunder (incorporated by reference Exhibit (a) to our Registration
Statement on Form F-6 (File No. 333-212488) with respect to American depositary shares representing our Class A ordinary
shares, filed with the Securities and Exchange Commission on July 12, 2016).
2.4
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
4.1
4.2
4.3
4.4
4.5
4.6
Preferred Share Purchase Agreement, dated as of November 9, 2009, in respect of the sale of the Series A convertible
redeemable preferred shares of the Registrant (incorporated by reference Exhibit 4.4 to our Registration Statement on
Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Shareholders’ Agreement, dated as of November 24, 2009, by and among the Registrant and the other parties thereto
(incorporated by reference Exhibit 4.5 to our Registration Statement on Form F-1 (File No. 333-173666), initially filed with
the Securities and Exchange Commission on April 21, 2011).
Form of the Registrant’s Employment Agreements for its executive officers (incorporated by reference Exhibit 10.1 to our
Registration Statement on Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on
April 21, 2011).
Registrant’s 2008 Share Option Plan (incorporated by reference Exhibit 10.2 to our Registration Statement on Form F-1
(File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Registrant’s 2011 Restricted Share Unit and Restricted Share Plan (incorporated by reference Exhibit 10.3 to our
Registration Statement on Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on
April 21, 2011).
Form of Indemnification Agreement with the Registrant’s directors and officers (incorporated by reference Exhibit 10.4 to
our Registration Statement on Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission
on April 21, 2011).
127
4.7
4.8
Translation of the Exclusive Equity Option Agreement, dated as of December 31, 2009, between Fenghuang On-line and
Tianying Jiuzhou and its shareholders (incorporated by reference Exhibit 10.5 to our Registration Statement on Form F-1
(File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Exclusive Equity Option Agreement, dated as of December 31, 2009, between Fenghuang On-line and
Yifeng Lianhe and its shareholders (incorporated by reference Exhibit 10.6 to our Registration Statement on Form F-1 (File
No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
4.8A Translation of the Exclusive Equity Option Agreement, dated as of January 13, 2014, between Qieyiyou and Chenhuan.and
its shareholders (incorporated by reference Exhibit 4.8A to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
*4.8B
Translation of the Exclusive Equity Option Agreement, dated as of January 25, 2021, between Fenghuang On-line and
Fenghuang Ronghe and its shareholders.
4.9
4.10
Translation of the Equity Pledge Agreement, dated as of December 31, 2009, between Fenghuang On-line and Tianying
Jiuzhou and its shareholders (incorporated by reference Exhibit 10.7 to our Registration Statement on Form F-1 (File
No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Equity Pledge Agreement, dated as of December 31, 2009, between Fenghuang On-line and Yifeng
Lianhe and its shareholders(incorporated by reference Exhibit 10.8 to our Registration Statement on Form F-1 (File
No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
4.10A Translation of the Equity Pledge Agreement, dated as of January 13, 2014, between Fenghuang On-line and Chenhuan and
its shareholders (incorporated by reference Exhibit 4.10A to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
*4.10B Translation of the Equity Pledge Agreement, dated as of January 25, 2021, between Fenghuang On-line and Fenghuang
Ronghe and its shareholders.
4.11
4.12
Translation of the Exclusive Technical Consulting & Service Agreement, dated as of December 31, 2009, between
Fenghuang On-line and Tianying Jiuzhou (incorporated by reference Exhibit 10.9 to our Registration Statement on Form F-
1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Exclusive Technical Consulting & Service Agreement, dated as of December 31, 2009, between
Fenghuang On-line and Yifeng Lianhe (incorporated by reference Exhibit 10.10 to our Registration Statement on Form F-1
(File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
4.12A Translation of the Exclusive Technical Consulting & Service Agreement, dated as of January 13, 2014, between Qieyiyou
and Chenhuan.and its shareholders (incorporated by reference Exhibit 4.12A to our Annual Report on Form 20-F for the
Fiscal Year Ended December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission
on April 26, 2018).
4.12B Translation of the Business Management Agreement, dated as of January 13, 2014, between Qieyiyou and Chenhuan.and its
shareholders (incorporated by reference Exhibit 4.12B to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
*4.12C Translation of the Exclusive Technical Consulting & Service Agreement, dated as of January 25, 2021, between Fenghuang
On-line and Fenghuang Ronghe.
4.13
Translation of Loan Agreement, dated as of December 31, 2009, between Fenghuang On-line and the shareholders of
Tianying Jiuzhou (incorporated by reference Exhibit 10.11 to our Registration Statement on Form F-1 (File No. 333-
173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
4.13A Translation of Supplemental Agreement to the Loan Agreement, dated as of December 31, 2019, between Fenghuang On-
line and the shareholders of Tianying Jiuzhou.
128
4.14
Translation of the Loan Agreement, dated as of December 31, 2009, between Fenghuang On-line and the shareholders of
Yifeng Lianhe (incorporated by reference Exhibit 10.12 to our Registration Statement on Form F-1 (File No. 333-173666),
initially filed with the Securities and Exchange Commission on April 21, 2011).
4.14A Translation of the Loan Agreement, dated as of January 13, 2015, between Qieyiyou and shareholders of Chenhuan
(incorporated by reference Exhibit 4.14A to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2017
(File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
*4.14B Translation of the Loan Agreement, dated as of January 25, 2021, between Fenghuang On-line and the shareholders of
Fenghuang Ronghe.
4.15
4.16
Translation of the Voting Right Entrustment Agreement, dated as of December 31, 2009, between Fenghuang On-line and
shareholders of Tianying Jiuzhou (incorporated by reference Exhibit 10.13 to our Registration Statement on Form F-1 (File
No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Voting Right Entrustment Agreement, dated as of December 31, 2009, between Fenghuang On-line and
the shareholders of Yifeng Lianhe (incorporated by reference Exhibit 10.14 to our Registration Statement on Form F-1 (File
No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
4.16A Translation of the Voting Right Entrustment Agreement, dated as of January 13, 2014, between Qieyiyou and Chenhuan.and
its shareholders (incorporated by reference Exhibit 4.16A to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
*4.16B Translation of the Voting Right Entrustment Agreement, dated as of January 25, 2021, between Fenghuang On-line and the
shareholders of Fenghuang Ronghe.
4.17
4.18
4.19
4.20
4.21
4.22
4.23
Translation of the Content, Branding, Promotion and Technology Cooperation Agreement, dated November 24, 2009,
between Fenghuang On-line and Phoenix TV (incorporated by reference Exhibit 10.15 to our Registration Statement on
Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Supplemental Agreement to the Content, Branding, Promotion and Technology Cooperation Agreement,
dated March 28, 2011, between Fenghuang On-line and Phoenix TV (incorporated by reference Exhibit 10.16 to our
Registration Statement on Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on
April 21, 2011).
Translation of the Second Supplemental Agreement to the Content, Branding, Promotion and Technology Cooperation
Agreement, dated March 24, 2016, between Fenghuang On-line and Phoenix TV (incorporated by reference Exhibit 4.19 to
our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2015 (File No. 001-35158), initially filed with the
Securities and Exchange Commission on April 28, 2016).
Translation of the Program Content License Agreement, dated November 24, 2009, between Phoenix TV and Tianying
Jiuzhou (incorporated by reference Exhibit 10.17 to our Registration Statement on Form F-1 (File No. 333-173666), initially
filed with the Securities and Exchange Commission on April 21, 2011).
Schedule of Material Differences between the Program Content Agreements entered into between Tianying Jiuzhou and
Yifeng Lianhe, respectively, and Phoenix TV (incorporated by reference Exhibit 10.18 to our Registration Statement on
Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Confirmation Letter, dated April 14, 2011, among Tianying Jiuzhou, Yifeng Lianhe and Phoenix Satellite Television
Company Limited (incorporated by reference Exhibit 10.19 to our Registration Statement on Form F-1 (File No. 333-
173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Second Supplemental Agreement to the Program Content License Agreement, dated March 24, 2016,
between Phoenix TV, Tianying Jiuzhou and Yifeng Lianhe (incorporated by reference Exhibit 4.23 to our Annual Report on
Form 20-F for the Fiscal Year Ended December 31, 2015 (File No. 001-35158), initially filed with the Securities and
Exchange Commission on April 28, 2016).
129
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
Translation of the Trademark License Agreement, dated as of November 24, 2009, between Phoenix Satellite Television
Trademark Limited and Tianying Jiuzhou (incorporated by reference Exhibit 10.20 to our Registration Statement on
Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Schedule of material differences between the Trademark License Agreements entered into between Tianying Jiuzhou and
Yifeng Lianhe, respectively, and Phoenix Satellite Television Trademark Limited (incorporated by reference Exhibit 10.21
to our Registration Statement on Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange
Commission on April 21, 2011).
Confirmation Letter, dated April 14, 2011, among Tianying Jiuzhou, Yifeng Lianhe and Phoenix Satellite Television
Trademark Limited (incorporated by reference Exhibit 10.22 to our Registration Statement on Form F-1 (File No. 333-
173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Second Supplemental Agreement to the Trademark License Agreement, dated March 24, 2016, between
Phoenix TV, Tianying Jiuzhou and Yifeng Lianhe (incorporated by reference Exhibit 4.27 to our Annual Report on
Form 20-F for the Fiscal Year Ended December 31, 2015 (File No. 001-35158), initially filed with the Securities and
Exchange Commission on April 28, 2016).
Program Resource License Agreement between Phoenix Satellite Television Company Limited and Beijing Tianying
Jiuzhou Network Technology Co., Ltd., dated May 27, 2016 (incorporated by reference Exhibit 99.2 to our report on
Form 6-K (File No. 001-35158) filed with the Securities and Exchange Commission on May 27, 2016).
Program Text/Graphics Resource License Agreement between Phoenix Satellite Television Company Limited and Beijing
Tianying Jiuzhou Network Technology Co., Ltd., dated May 27, 2016 (incorporated by reference Exhibit 99.3 to our report
on Form 6-K (File No. 001-35158) filed with the Securities and Exchange Commission on May 27, 2016).
Program Resource License Agreement between Phoenix Satellite Television Company Limited and Yifeng Lianhe (Beijing)
Technology Co., Ltd., dated May 27, 2016 (incorporated by reference Exhibit 99.4 to our report on Form 6-K (File No. 001-
35158) filed with the Securities and Exchange Commission on May 27, 2016).
Program Text/Graphics Resource License Agreement between Phoenix Satellite Television Company Limited and Yifeng
Lianhe (Beijing) Technology Co., Ltd., dated May 27, 2016 (incorporated by reference Exhibit 99.5 to our report on
Form 6-K (File No. 001-35158) filed with the Securities and Exchange Commission on May 27, 2016).
Program Resource License Agreement between Phoenix Satellite Television Company Limited and Beijing Fenghuang
Interactive Entertainment Network Technology Co., Ltd., dated May 27, 2016 (incorporated by reference Exhibit 99.6 to our
report on Form 6-K (File No. 001-35158) filed with the Securities and Exchange Commission on May 27, 2016).
Program Text/Graphics Resource License Agreement between Phoenix Satellite Television Company Limited and Beijing
Fenghuang Interactive Entertainment Network Technology Co., Ltd., dated May 27, 2016 (incorporated by reference
Exhibit 99.7 to our report on Form 6-K (File No. 001-35158) filed with the Securities and Exchange Commission on
May 27, 2016).
The Third Supplemental Agreement to the Trademark License Agreement by and among Phoenix Satellite Television
Trademark Limited, Beijing Tianying Jiuzhou Network Technology Co., Ltd. and Yifeng Lianhe (Beijing) Technology
Co., Ltd., dated May 27, 2016 (incorporated by reference Exhibit 99.8 to our report on Form 6-K (File No. 001-35158) filed
with the Securities and Exchange Commission on May 27, 2016).
Translation of the Fourth Supplemental Agreement to the Trademark License Agreement by and among Phoenix Satellite
Television Trademark Limited, Beijing Tianying Jiuzhou Network Technology Co., Ltd. and Yifeng Lianhe (Beijing)
Technology Co., Ltd., dated September 29, 2017 (incorporated by reference Exhibit 99.2 to our report on Form 6-K (File
No. 001-35158) filed with the Securities and Exchange Commission on September 29, 2017).
4.36
Translation of the Trademark License Agreement, dated as of December 8, 2017, between Phoenix Satellite Television
Trademark Limited and Beijing Tianying Jiuzhou Network Technology Co., Ltd. (incorporated by reference Exhibit 99.2 to
our report on Form 6-K (File No. 001-35158) filed with the Securities and Exchange Commission on December 8, 2017).
130
4.37
4.38
4.39
4.40
4.41
4.42
4.43
4.44
4.45
4.46
Translation of the Trademark License Agreement, dated as of December 8, 2017, between Phoenix Satellite Television
Trademark Limited and Yifeng Lianhe (Beijing) Technology Co., Ltd. (incorporated by reference Exhibit 99.3 to our report
on Form 6-K (File No. 001-35158) filed with the Securities and Exchange Commission on December 8, 2017).
Loan Agreement Memorandum, dated as of January 3, 2011, between Phoenix Satellite Television Co., Ltd. and Phoenix
Satellite Television Information Limited (incorporated by reference Exhibit 10.23 to our Registration Statement on Form F-
1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Cooperation Agreement, dated as of December 29, 2009, between China Mobile Communications
Corporation and Tianying Jiuzhou (incorporated by reference Exhibit 10.24 to our Registration Statement on Form F-1 (File
No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Translation of the Cooperation Agreement, dated as of February 14, 2011, between China Mobile Communications
Corporation and Tianying Jiuzhou (incorporated by reference Exhibit 10.25 to our Registration Statement on Form F-1 (File
No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
Schedule of Material Differences between the Cooperation Agreement, dated as of February 14, 2011, between China
Mobile Communications Corporation and Beijing Tianying Jiuzhou Network Technology Co., Ltd. entered into in 2011,
filed as Exhibit 10.25 to the Registration Statement on Form F-1 (File No. 333-173666) (“Cooperation Agreement 2011”),
the Cooperation Agreement, dated as of June 20, 2014, between China Mobile Communications Corporation and Beijing
Tianying Jiuzhou Network Technology Co., Ltd. entered into in 2014 (“Cooperation Agreement 2014”), the Cooperation
Agreement, dated as of September 16, 2015, between China Mobile Communications Corporation and Beijing Tianying
Jiuzhou Network Technology Co., Ltd. entered into in 2015 (“Cooperation Agreement 2015”), the Cooperation Agreement,
dated as of January 16, 2017, between China Mobile Communications Corporation and Beijing Tianying Jiuzhou Network
Technology Co., Ltd. entered into in 2017 and as to 2016 and 2017 (“Cooperation Agreement 2016”), and the Cooperation
Agreement, dated as of October 18, 2017, between China Mobile Communications Corporation and Beijing Tianying
Jiuzhou Network Technology Co., Ltd. entered into in 2017 and as to 2017 and 2018 (“Cooperation Agreement 2017”)
(incorporated by reference Exhibit 4.41 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2017
(File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
Share Purchase Agreement, dated as of September 10, 2014, among Particle Inc., Particle (HK) Limited, Beijing Particle
Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., Zhaohui Zheng, Xuyang Ren, Xin Li,
Rongqing Lu, Shunwei TMT II Limited, Red Better Limited and our company (incorporated by reference Exhibit 4.29 to
our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2014 (File No. 001-35158), initially filed with the
Securities and Exchange Commission on April 30, 2015).
Share Purchase Agreement, dated as of November 7, 2014, among Zhaohui Zheng, Xin Li, Rongqing Lu, Tengteng Kong,
Weijian Lin, Kaifeng Xu, Miao Liu, Yuanyuan Wang, Xiaoxi Wu, Fubo Wang, Shi’an Peng, Sha Zhou, Qiyu Tan and our
company (incorporated by reference Exhibit 4.30 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2014 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 30, 2015).
Share Purchase Agreement, dated as of February 10, 2015, among Particle Inc., Particle (HK) Limited, Beijing Particle
Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., Zhaohui Zheng, Xuyang Ren, Xin Li,
Rongqing Lu, Shunwei TMT II Limited, Red Better Limited and our company (incorporated by reference Exhibit 4.31 to
our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2014 (File No. 001-35158), initially filed with the
Securities and Exchange Commission on April 30, 2015).
Share Purchase Agreement, dated as of February 10, 2015, among IDG Technology Venture Investment V, L.P., Yifang
Technology Group, Ltd. and our company (incorporated by reference Exhibit 4.32 to our Annual Report on Form 20-F for
the Fiscal Year Ended December 31, 2014 (File No. 001-35158), initially filed with the Securities and Exchange
Commission on April 30, 2015).
Loan Agreement, dated as of January 28, 2016, among Particle Inc., Particle (HK) Limited, Beijing Particle Information
Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and our company (incorporated by reference
Exhibit 4.36 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2015 (File No. 001-35158),
initially filed with the Securities and Exchange Commission on April 28, 2016).
131
4.47
4.48
4.49
4.50
4.51
4.52
4.53
4.54
4.55
4.56
4.57
Loan Agreement, dated as of April 5, 2016, among Particle Inc., Particle (HK) Limited, Beijing Particle Information
Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and our company (incorporated by reference
Exhibit 4.37 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2015 (File No. 001-35158),
initially filed with the Securities and Exchange Commission on April 28, 2016).
Loan Agreement, dated as of August 10, 2016, among Particle Inc., Particle (HK) Limited, Beijing Particle Information
Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and our company (incorporated by reference
Exhibit 4.45 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2016 (File No. 001-35158),
initially filed with the Securities and Exchange Commission on April 28, 2017).
Amendment No. 1 to Loan Agreement Dated as of August 10, 2016, dated as of January 20, 2017, among Particle Inc.,
Particle (HK) Limited, Beijing Particle Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and
our company (incorporated by reference Exhibit 4.46 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2016 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2017).
Loan Agreement, dated as of November 2, 2016, among Particle Inc., Particle (HK) Limited, Beijing Particle Information
Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and our company (incorporated by reference
Exhibit 4.47 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2016 (File No. 001-35158),
initially filed with the Securities and Exchange Commission on April 28, 2017).
Amendment No. 1 to Loan Agreement Dated as of November 2, 2016, dated as of January 20, 2017, among Particle Inc.,
Particle (HK) Limited, Beijing Particle Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and
our company (incorporated by reference Exhibit 4.48 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2016 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2017).
English Translation of the Loan Agreement, dated as of January 20, 2017, among Particle Inc., Particle (HK) Limited,
Beijing Particle Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and our company
(incorporated by reference Exhibit 4.49 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2016
(File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2017).
Amendment No. 2 to Loan Agreement Dated as of August 10, 2016, dated as of August 9, 2017, among Particle Inc.,
Particle (HK) Limited, Beijing Particle Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and
our company (incorporated by reference Exhibit 4.53 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
Amendment No. 3 to Loan Agreement Dated as of August 10, 2016, dated as of January 20, 2018, among Particle Inc.,
Particle (HK) Limited, Beijing Particle Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and
our company (incorporated by reference Exhibit 4.54 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
Amendment No. 1 to Loan Agreement Dated as of January 20, 2017, dated as of January 20, 2018, among Particle Inc.,
Particle (HK) Limited, Beijing Particle Information Technology Co., Ltd., Beijing Yidianwangju Technology Co., Ltd., and
our company (incorporated by reference Exhibit 4.55 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2017 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2018).
Loan assignment agreement among the Registrant, Particle Inc. and its subsidiaries and consolidated affiliated entity, and
Long De Cheng Zhang Culture Communication (Tianjin) Co., Ltd. dated April 2, 2018 (incorporated by reference
Exhibit 4.56 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2017 (File No. 001-35158),
initially filed with the Securities and Exchange Commission on April 26, 2018).
Translation of Equity Transfer and Equity Purchase Option Agreement, dated as of December 18, 2018, among Telling
Telecommunication Co., Ltd., Beijing Chenhuan Technology Co., Ltd., and Shenzhen Bingruixin Technology Co., Ltd.
(incorporated by reference Exhibit 4.57 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2018
(File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2019).
132
4.58
Translation of Equity Transfer Agreement, dated as of March 1, 2019, among Beijing Yitian Xindong Network Technology
Co., Ltd., Telling Telecommunication Co., Ltd., Shenzhen Bingruixin Technology Co., Ltd., and Beijing Chenhuan
Technology Co., Ltd. (incorporated by reference Exhibit 4.58 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2018 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2019).
4.59
Translation of Share Purchase Agreement, dated as of March 22, 2019, between Run Liang Tai Management Limited and
our Company (incorporated by reference Exhibit 4.59 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2018 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 26, 2019).
4.59A Translation of Supplemental Agreement, dated as of July 23, 2019, between Run Liang Tai Management Limited and our
Company (incorporated by reference Exhibit 4.59A to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2019 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2020).
4.59B
Translation of Co-Sale Agreement, dated as of January 20, 2020, among Long De Cheng Zhang (Tianjin) Investment
Management Center, Long De Holdings (Hong Kong) Co., Limited and our Company (incorporated by reference Exhibit
4.59B to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2019 (File No. 001-35158), initially
filed with the Securities and Exchange Commission on April 28, 2020).
*4.59C Translation of Share Purchase Agreement, dated as of August 7, 2020, between Run Liang Tai Management Limited and
our Company.
4.60
Fread Limited’s Restricted Share Unit Scheme adopted in March 2018 (incorporated by reference Exhibit 4.57 to our
Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2018 (File No. 001-35158), initially filed with the
Securities and Exchange Commission on April 26, 2019).
*4.61
*4.62
*4.63
*4.64
Translation of Equity Transfer Agreement, dated as of May 18, 2020, among Shenzhen Shenghuayu Energy Conservation
Service Co., Ltd., Beijing Yitian Xindong Network Technology Co., Ltd. and Chenhuan.
Translation of the Supplementary Agreement No.2 of the Trademark License Agreement, dated as of November 26, 2020,
between Phoenix Satellite Television Trademark Limited and Yifeng Lianhe (Beijing) Technology Co.,Ltd.
Translation of the Supplementary Agreement No.6 to the Trademark License Agreement, dated as of November 26, 2020,
between Phoenix Satellite Television Trademark Limited and Beijing Tianying Jiuzhou Network Technology Co.,Ltd.
Translation of the Termination Agreement, dated as of March 1,2021, between Fenghuang On-line and Yifeng Lianhe and
its shareholders.
*8.1
List of Subsidiaries
11.1
Code of Business conduct and Ethics of the Registrant (incorporated by reference Exhibit 99.1 to our Registration Statement
on Form F-1 (File No. 333-173666), initially filed with the Securities and Exchange Commission on April 21, 2011).
*12.1
Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*12.2
Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*13.1
*13.2
Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of our Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
*15.1
Consent of Independent Registered Public Accounting Firm
*15.2
Consent of Zhong Lun Law Firm
133
101.INS Inline XBRL Instance Document. *
101.SCH Inline XBRL Taxonomy Extension Schema Document. *
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document. *
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. *
*
Filed herewith
134
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Phoenix New Media Limited
By:
/s/ Edward Lu
Name: Edward Lu
Title: Chief Financial Officer
Date: April 28, 2021
135
Phoenix New Media Limited
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2020
Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2018, 2019 and 2020
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018, 2019 and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2019 and 2020
Notes to Consolidated Financial Statements
Page
F-2
F-5
F-6
F-8
F-9
F-11
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Phoenix New Media Limited
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Phoenix New Media Limited and its subsidiaries (the “Company”)
as of December 31, 2020 and 2019, and the related consolidated statements of comprehensive income /(loss), of shareholders’ equity
and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred
to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses
on certain financial instruments in 2020, the manner in which it accounts for leases in 2019, and the manner in which it accounts for
revenues from contracts with customers in 2018.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s
Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
F-2
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Intangible Assets Impairment Assessment
As described in Notes 2 and 9 to the consolidated financial statements, the Company’s net intangible assets were RMB12.4 million as
of December 31, 2020, which mainly consist of computer software, licensed copyrights of reading content, audio content, and trademark
and domain names. Management performed intangible assets impairment assessment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. Recoverability is measured through the use of an undiscounted future
cash flow model when an indication of impairment is determined to exist. If an asset is determined to be not recoverable, its carrying
amount is reduced to the estimated fair value determined using a discounted cash flow model. Management’s impairment tests included
significant assumptions relating to revenue growth and timing of projected future cash flows. The Company performed an impairment
test and recognized an impairment charge of RMB10.6 million on licensed copyrights of reading content and audio content for the year
ended December 31, 2020.
The principal considerations for our determination that performing procedures relating to the intangible assets impairment assessment
is a critical audit matter are the significant judgment by management in developing the assumptions used in the impairment assessment.
This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence obtained
relating to management’s significant assumptions, including revenue growth and timing of projected future cash flows.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls over the development of
significant assumptions used to estimate the fair value of intangible assets. These procedures also included, among others, (i) evaluating
the appropriateness of the model used in the impairment assessment; (ii) testing the completeness, accuracy, and relevance of underlying
data used in the model; and (iii) evaluating the reasonableness of management's significant assumptions used, including revenue growth
and timing of projected future cash flows by considering the historical performance of the asset group, relevant industry forecasts and
market development.
Allowance for Credit Losses on Accounts Receivable
As described in Notes 2 and 6 to the consolidated financial statements, as of December 31, 2020, the gross balance of accounts receivable
was RMB756.3 million, against which an allowance for credit losses of RMB189.5 million was provided. The allowance is
management’s estimate of expected credit losses based on historical collection activity, current business environment and forecasts of
future macroeconomic conditions that may affect the customers’ ability to pay. Management estimated the allowance by segmenting
accounts receivable into groups based on certain credit risk characteristics, and determining an expected loss rate for each group based
on historical loss experience adjusted for judgments about the effects of relevant observable data including default rates, lifetime for
debt recovery, current and future economic conditions.
The principal considerations for our determination that performing procedures relating to the allowance for credit losses on accounts
receivable is a critical audit matter are the significant judgment made by management in estimating the allowance for credit loss. This
in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence obtained
relating to management’s judgments about the effects of relevant observable data including default rates, lifetime for debt recovery,
current and future economic conditions. The audit effort also included the involvement of professionals with specialized skill and
knowledge to assist in performing these procedures and evaluating the model, methodology and management’s significant judgements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
estimate of the allowance for credit losses. These procedures also included, among others, (i) evaluating the appropriateness of the model
and methodology; (ii) testing the completeness, accuracy and relevance of underlying data used in the model; and (iii) evaluating the
reasonableness of significant judgments made by management, including default rates, lifetime for debt recovery, current and future
F-3
economic conditions. Professionals with specialized skill and knowledge were also used to assist in evaluating the appropriateness of
the model, methodology and management’s significant judgements.
/s/PricewaterhouseCoopers Zhong Tian LLP
PricewaterhouseCoopers Zhong Tian LLP
Beijing, the People’s Republic of China
April 28, 2021
We have served as the Company’s auditor since 2010.
F-4
Phoenix New Media Limited
Consolidated Balance Sheets
(Amounts in thousands, except for number of shares and per share data)
2019
RMB
As of December 31,
2020
RMB
2020
US$ (Note 2e)
ASSETS
Current assets:
Cash and cash equivalents
Term deposits and short term investments
Restricted cash
Accounts receivable, net
Amounts due from related parties
Prepayments and other current assets
Assets held for sale
Total current assets
Non-current assets:
Property and equipment, net
Intangible assets, net
Goodwill
Available-for-sale debt investments
Equity investments, net
Deferred income tax assets, net
Operating lease right-of-use assets, net
Other non-current assets
Assets held for sale
Total non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities (including amounts of the consolidated VIEs, excluding intercompany amounts,
without recourse to the Company of RMB611,670 and RMB493,389 (US$75,615) as of December
31, 2019 and 2020, respectively. Note 1) :
Accounts payable
Amounts due to related parties
Advances from customers
Taxes payable
Salary and welfare payable
Deposits in relation to disposal of investment in Particle
Accrued expenses and other current liabilities
Operating lease liabilities
Liabilities held for sale
Total current liabilities
Non-current liabilities (including amounts of the consolidated VIEs, excluding intercompany amounts,
without recourse to the Company of RMB52,087 and RMB43,190 (US$6,619) as of December 31,
2019 and 2020, respectively. Note 1) :
Deferred tax liabilities
Long-term liabilities
Operating lease liabilities
Liabilities held for sale
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 22)
Shareholders’ equity:
Phoenix New Media Limited shareholders’ equity:
310,876
1,271,889
66,234
609,627
56,653
57,391
184,032
2,556,702
97,357
13,633
22,786
2,014,537
13,237
73,688
84,550
19,859
429,468
2,769,115
5,325,817
249,018
34,155
46,172
287,765
157,784
355,212
274,122
37,874
63,341
1,505,443
192,142
27,612
49,929
5,676
275,359
1,780,802
357,796
1,280,033
31,039
675,616
32,587
42,846
—
2,419,917
62,649
12,396
—
36,662
94,821
86,867
49,487
9,753
—
352,635
2,772,552
221,203
34,420
38,835
402,610
156,599
—
172,376
36,370
—
1,062,413
1,312
28,182
16,672
—
46,166
1,108,579
Class A ordinary shares (US$0.01 par value, 680,000,000 shares authorized; 264,998,965 and
264,998,965 shares issued and outstanding as of December 31, 2019 and 2020, respectively)
Class B ordinary shares (US$0.01 par value, 320,000,000 shares authorized; 317,325,360 and
317,325,360 shares issued and outstanding as of December 31, 2019 and 2020, respectively)
Additional paid-in capital
Statutory reserves
Retained earnings/(accumulated deficits)
Accumulated other comprehensive income/(loss)
Total Phoenix New Media Limited shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
17,499
17,499
22,053
1,611,484
88,583
186,324
1,405,808
3,331,751
213,264
3,545,015
5,325,817
22,053
1,620,580
92,017
(88,191 )
(28,214 )
1,635,744
28,229
1,663,973
2,772,552
The accompanying notes are an integral part of these consolidated financial statements.
F-5
54,835
196,174
4,757
103,543
4,994
6,565
—
370,868
9,601
1,900
—
5,619
14,532
13,313
7,584
1,495
—
54,044
424,912
33,901
5,275
5,952
61,703
24,000
—
26,417
5,574
—
162,822
201
4,319
2,555
—
7,075
169,897
2,682
3,380
248,365
14,102
(13,516 )
(4,324 )
250,689
4,326
255,015
424,912
Phoenix New Media Limited
Consolidated Statements of Comprehensive Income/(Loss)
(Amounts in thousands, except for number of shares and per share (or ADS) data)
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
Revenues (1) :
Net advertising revenues
Paid services revenues
Total revenues
Cost of revenues (1)
Gross profit
Operating expenses (1) :
Sales and marketing expenses
General and administrative expenses
Technology and product development expenses
Impairment of goodwill
Total operating expenses
Loss from operations
Other income/(loss):
Interest income, net
Foreign currency exchange gain
Income/(loss) from equity method investments, net of
impairment
Impairment of available-for-sale debt investments
Gain on disposal of convertible loans due from a
related party
Gain on disposal of available-for-sale debt investments
Changes in fair value of loan related to co-sale of
Particle shares
Changes in fair value of forward contract in relation to
disposal of investments in Particle
Others, net
(Loss)/income before tax from continuing operations
Income tax expense
Net (loss)/income from continuing operations
Net (loss)/income from discontinued operations, net of
income taxes
Net (loss)/income
Net loss/(income) from continuing operations
attributable to noncontrolling interests
Net loss from discontinued operations attributable to
noncontrolling interests
Net loss attributable to noncontrolling interests
Net (loss)/income from continuing operations
attributable to Phoenix New Media Limited
Net (loss)/income from discontinued operations
attributable to Phoenix New Media Limited
Net (loss)/income attributable to Phoenix New Media
Limited
Net (loss)/income
Other comprehensive income/(loss) (net of tax of
RMB132,272, RMB196,617 and RMB(98,456)
(US$(15,089)) for the years ended December 31,
2018, 2019 and 2020, respectively): fair value
remeasurement for available-for-sale debt
investments
Other comprehensive loss (net of tax of nil,
RMB142,574 and RMB96,606 (US$14,806) for the
years ended December 31, 2018, 2019 and 2020,
respectively): reclassification adjustment for disposal
of available-for-sale debt investments
Other comprehensive income/(loss) (net of nil tax for
all years): foreign currency translation adjustment
Comprehensive income/(loss)
Comprehensive loss attributable to noncontrolling
interests
Comprehensive income/(loss) attributable to Phoenix
1,198,150
178,131
1,376,281
(595,843)
780,438
(536,980)
(162,424)
(204,723)
—
(904,127)
(123,689)
33,896
6,849
5,352
—
10,565
—
—
—
21,848
(45,179)
(20,119)
(65,298)
(314)
(65,612)
2,156
234
2,390
(63,142)
(80)
(63,222)
(65,612)
1,194,761
133,020
1,327,781
(683,330)
644,451
(541,772)
(242,047)
(216,741)
—
(1,000,560)
(356,109)
22,721
7,892
(3,447)
—
—
1,001,181
—
4,441
15,031
691,710
(21,950)
669,760
54,242
724,002
(5,564)
9,391
3,827
664,196
63,633
727,829
724,002
1,113,017
95,828
1,208,845
(559,286)
649,559
(279,429)
(277,931)
(171,989)
(22,786)
(752,135)
(102,576)
35,421
5,494
5,598
(2,000)
—
477,254
(24,535)
16,085
35,881
446,622
(18,977)
427,645
(62,366)
365,279
(9,669)
24,759
15,090
417,976
(37,607)
380,369
365,279
170,577
14,686
185,263
(85,714)
99,549
(42,824)
(42,595)
(26,358)
(3,492)
(115,269)
(15,720)
5,429
842
858
(307)
—
73,142
(3,760)
2,465
5,499
68,448
(2,909)
65,539
(9,558)
55,981
(1,482)
3,795
2,313
64,058
(5,764)
58,294
55,981
566,320
1,188,762
(887,248)
(135,977)
—
(1,008,795)
(491,197)
37,483
941,452
3,827
945,279
(55,577)
(1,068,743)
15,090
(1,053,653)
51,794
552,502
2,390
554,892
F-6
(75,279)
(8,517)
(163,792)
2,313
(161,479)
New Media Limited
Net (loss)/income attributable to Phoenix New Media
Limited
Basic net (loss)/income per Class A and Class B ordinary
share:
-Continuing operations
-Discontinued operations
Basic net (loss)/income per Class A and Class B ordinary
share
Diluted net (loss)/income per Class A and Class B
ordinary share:
-Continuing operations
-Discontinued operations
Diluted net (loss)/income per Class A and Class B
ordinary share
Basic (loss)/income per ADS (1 ADS represents 8 Class
A ordinary shares):
-Continuing operations
-Discontinued operations
Basic net (loss)/income per ADS (1 ADS represents 8
Class A ordinary shares)
Diluted net (loss)/income per ADS (1 ADS represents 8
Class A ordinary shares)：
-Continuing operations
-Discontinued operations
Diluted net (loss)/income per ADS (1 ADS represents 8
Class A ordinary shares)
Weighted average number of Class A and Class B ordinary
shares used in computing net (loss)/income per share:
Basic
Diluted
(63,222)
727,829
380,369
58,294
(0.11)
0.00
(0.11)
(0.11)
0.00
(0.11)
(0.87)
0.00
(0.87)
(0.87)
0.00
(0.87)
1.14
0.11
1.25
1.14
0.11
1.25
9.13
0.87
10.00
9.13
0.87
10.00
0.72
(0.07)
0.65
0.72
(0.07)
0.65
5.74
(0.51)
5.23
5.74
(0.51)
5.23
0.11
(0.01)
0.10
0.11
(0.01)
0.10
0.88
(0.08)
0.80
0.88
(0.08)
0.80
581,084,453
581,084,453
582,275,800
582,275,800
582,324,325
582,324,325
582,324,325
582,324,325
(1) Transactions with related parties included in revenues, cost of revenues and operating expenses are as follows (Note 23):
Net advertising revenues
Paid services revenues
Cost of revenues
Sales and marketing expenses
General and administrative expenses
41,482
87,131
(30,167)
(4,341)
(7,918)
50,700
61,690
(26,512)
(4,157)
(7,045)
37,639
30,950
(9,566)
(2,692)
(5,044)
5,768
4,743
(1,466)
(413)
(773)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Phoenix New Media Limited
Consolidated Statements of Shareholders’ Equity
(Amounts in thousands, except for number of shares)
Phoenix New Media Limited Shareholders’ Equity
Class A ordinary
shares
Class B ordinary
shares
Shares
Amount
RMB
reserves deficits)
RMB
260,001,486 17,180 317,325,360 22,053 1,587,575 81,237
—
RMB
229,250
—
13,989
paid-in Statutory
Amount
capital
RMB RMB
Shares
—
—
—
—
Additional
Noncontrollin
g
interests
RMB
Total
shareholders’
equity
RMB
570,244
—
(6,388) 2,501,151
13,989
—
Retained
earnings/
(accumulated
Accumulated
other
comprehensiv
e
income/(loss)
RMB
Balance as of January 1, 2018
Share-based compensation
Issuance of ordinary shares upon
settlement of share-based awards 4,823,106
—
307
—
—
—
—
—
3,024
—
—
6,383
—
(6,383)
—
—
—
—
3,331
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
566,320
—
566,320
—
—
51,794
—
—
319,412
51,794
319,412
Appropriation to statutory reserves
Fair value changes of available-
for-sale debt investments
Foreign currency translation
adjustment
Acquisition of a subsidiary
Cumulative effect of initially
applying ASC 606
—
Net loss
—
Balance as of December 31, 2018 264,824,592 17,487 317,325,360 22,053 1,604,588 87,620
—
Share-based compensation
Issuance of ordinary shares upon
—
—
—
—
—
—
—
—
—
—
8,041
—
—
—
—
(24)
(63,222)
159,621
—
—
—
1,188,358
—
—
(2,390)
(24)
(65,612)
310,634 3,390,361
20,221
12,180
settlement of share-based awards
Appropriation to statutory reserves
Fair value changes of available-
for-sale debt investments, net of
tax
Reclassification adjustment for
disposal of available-for-sale
debt investments, net of tax
Foreign currency translation
adjustment
Acquisition of a noncontrolling
174,373
—
12
—
—
—
—
—
499
—
—
963
—
(963)
—
—
—
—
511
—
—
—
—
—
—
—
—
1,188,762
— 1,188,762
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,008,795)
— (1,008,795)
—
37,483
—
37,483
interest in a subsidiary
—
Acquisition of a subsidiary
—
Dividends declared and paid
—
—
Net income
Balance as of December 31, 2019 264,998,965 17,499 317,325,360 22,053 1,611,484 88,583
—
Share-based compensation
Appropriation to statutory reserves
3,434
Fair value changes of available-
(1,644)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,096
—
—
—
—
—
—
—
—
—
—
—
(700,163)
727,829
186,324
—
(3,434)
—
—
—
—
1,405,808
—
—
(124,245)
18,522
—
(3,827)
(125,889)
18,522
(700,163)
724,002
213,264 3,545,015
9,383
—
287
—
—
—
—
—
—
—
—
(887,248)
—
(887,248)
for-sale debt investments, net of
tax
Reclassification adjustment for
disposal of available-for-sale
debt investments, net of tax
Foreign currency translation
adjustment
Capital contribution received from
noncontrolling shareholders
Disposal of a subsidiary
Dividends declared and paid
Net income
Cumulative effect of initially
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(491,197)
—
(491,197)
—
(55,577)
—
(55,577)
—
—
(653,501)
380,369
—
—
—
—
1,600
(169,339)
(442)
(15,090)
1,600
(169,339)
(653,943)
365,279
2,051
(88,191)
—
(28,214)
(2,051)
—
28,229 1,663,973
applying ASC 326
—
Balance as of December 31, 2020 264,998,965 17,499 317,325,360 22,053 1,620,580 92,017
—
—
—
—
—
Balance as of December 31, 2020
(in US$)
2,682
3,380 248,365 14,102
(13,516)
(4,324)
4,326
255,015
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Phoenix New Media Limited
Consolidated Statements of Cash Flows
(Amounts in thousands)
2018
RMB
For the Years Ended December 31,
2019
RMB
2020
RMB
2020
US$
(65,612)
314
724,002
(54,242)
365,279
62,366
55,981
9,558
13,989
11,859
9,383
1,438
Cash flows from operating activities:
Net (loss)/income
Net loss/(income) from discontinued operations, net of income taxes
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
Share-based compensation
Provision for allowance for doubtful accounts, including related
party amounts of RMB1,528, RMB(2,336) and RMB3,344
(US$512) for the years ended December 31, 2018, 2019 and
2020, respectively
Depreciation and amortization expense
Amortization of the right-of-use assets
Impairment of intangible assets
(Income)/loss from equity method investments, net of
impairment
Impairment of available-for-sale debt investments
Deferred tax expense/(benefit)
Gain on disposal of property and equipment
Gain on disposal of convertible loans due from a related party
Gain on disposal of available-for-sale debt investments
Impairment of goodwill
Changes in fair value of loan related to co-sale of Particle shares
Changes in fair value of forward contract in relation to disposal
of investments in Particle
Foreign currency exchange gain
Changes in operating assets and liabilities, net of effects of
acquisition:
Accounts receivable
Prepayments and other current assets
Amounts due from related parties
Other non-current assets
Accounts payable
Advances from customers
Salary and welfare payable
Taxes payable
Amounts due to related parties
Accrued expenses and other current liabilities
Long-term liabilities
Net cash used in continuing operating activities
Net cash provided by discontinued operating activities
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property and equipment and intangible assets
Placement of term deposits and short term investments
Maturity of term deposits and short term investments
Payment for the equity investment
Loans provided to a third party related to co-sale of Particle
shares
Loans provided to a related party
Loans repaid by a related party
Proceeds from disposal of convertible loans due from a related
party
Net proceeds from disposal of available-for-sale debt
investments
Deposits received from proposed buyers of investments in
Particle
Cash acquired from acquisition of a subsidiary, net of cash
acquired
Net cash (used in)/provided by continuing investing activities
Net cash (used in)/provided by discontinued investing activities
Net cash (used in)/provided by investing activities
75,840
38,930
39,981
10,572
(5,598)
2,000
(13,179)
(1,642)
—
(477,254)
22,786
24,535
(16,085)
(5,494)
(149,780)
15,576
20,721
10,106
(27,719)
(7,337)
(1,185)
20,778
265
(78,031)
(39,109)
(103,295)
186
(103,109)
(12,090)
(6,456,943)
6,404,429
(82,000)
(68,867)
—
—
—
11,623
5,966
6,127
1,620
(858)
307
(2,019)
(252)
—
(73,142)
3,492
3,760
(2,465)
(842)
(22,955)
2,387
3,176
1,549
(4,248)
(1,124)
(182)
3,184
41
(11,959)
(5,994)
(15,831)
29
(15,802)
(1,853)
(989,570)
981,522
(12,567)
(10,554)
—
—
—
23,999
32,233
—
—
(5,352)
—
300
(1,318)
(10,565)
—
—
—
—
(6,849)
(24,374)
(14,911)
31,697
(4,910)
(6,379)
(15,657)
(20,136)
7,914
2,578
(17,290)
1,417
(78,912)
2,088
(76,824)
39,952
49,556
33,809
—
3,447
—
(1,269)
(216)
—
(1,001,181)
—
—
(4,441)
(7,892)
(73,932)
38,364
36,911
(98)
(53,166)
(7,341)
15,691
15,735
15,437
(123,338)
(29,032)
(371,385)
41,080
(330,305)
(55,950)
(3,365,720)
3,199,558
(6,500)
(57,885)
(9,175,619)
8,844,241
(6,500)
—
—
—
—
—
(10,000)
74,000
111,957
—
—
—
(52,655)
(62,057)
(114,712)
F-9
1,403,046
695,937
106,657
357,974
—
175,489
1,540,746
(80,352)
1,460,394
—
480,466
265,753
746,219
—
—
73,635
40,728
114,363
Cash flows from financing activities:
Proceeds from exercise of stock options
Repayment of loan from a noncontrolling shareholder
Proceeds from short-term bank loans
Repayment of short-term bank loans
Dividends paid to shareholders
Cash received from discount of notes receivable
Capital injection from noncontrolling shareholders
Net cash used in continuing financing activities
Net cash used in discontinued financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Cash, cash equivalents and restricted cash of discontinued operations
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of the
year
Including:
Cash and cash equivalents at the beginning of the year
Restricted cash at the beginning of the year
Cash, cash equivalents and restricted cash at the end of the year
Including:
Cash and cash equivalents at the end of the year
Restricted cash at the end of the year
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes
Cash paid during the period for interest expenses
Supplemental disclosure of non-cash investing activities:
Acquisition of available-for-sale debt investments from pledge
of an interest-free loan
Acquisition of available-for-sale debt investments from a series
of debt restructuring transaction and share exchange
transaction
Acquisition of the investments included in amount due to
related parties
3,677
—
250,492
(330,000)
—
—
—
(75,831)
—
(75,831)
11,477
(12,924)
(255,890)
511
—
—
(267,886)
(703,145)
—
—
(970,520)
(144,100)
(1,114,620)
(35,191)
(33,916)
(19,722)
—
(7,630)
—
—
(645,244)
11,612
1,600
(639,662)
—
(639,662)
(38,563)
46,840
(35,115)
699,562
430,748
377,110
362,862
336,700
430,748
161,100
269,648
10,649
15,221
—
—
8,500
161,100
269,648
377,110
310,876
66,234
1,083
4,026
—
—
—
310,876
66,234
388,835
357,796
31,039
1,688
1,112
42,135
6,457
5,980
—
916
—
—
(1,169)
—
—
(98,888)
1,780
245
(98,032)
—
(98,032)
(5,911)
7,179
(5,382)
57,795
47,644
10,151
59,592
54,835
4,757
259
170
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Phoenix New Media Limited
Notes to Consolidated Financial Statements
1. Organization and Principal Activities
Phoenix New Media Limited (“PNM”, or the “Company”) was incorporated in the Cayman Islands on November 22, 2007 by
Phoenix Satellite Television (B.V.I.) Holding Limited (the “Parent”), a subsidiary of Phoenix Media Investment (Holdings) Limited
(“Phoenix TV”). Phoenix TV, its subsidiaries and variable interest entities (“VIEs”) excluding the Group are collectively referred to as
the Phoenix TV Group. As of December 31, 2020, the Company had fourteen subsidiaries, three VIEs and seventeen subsidiaries of
VIEs. The Company, its subsidiaries, VIEs and subsidiaries of the VIEs are hereinafter collectively referred to as the “Group”. The
Group generates revenues from providing advertising services and paid services, which include paid contents, MVAS, games and
others. While the Group’s VIEs hold certain licenses and approvals to operate Internet-related businesses in the People’s Republic of
China (“China” or the “PRC”), they are also in the process of applying for licenses for the operations of their businesses, including an
Internet audio-visual program transmission license and an Internet news license.
Major subsidiaries, VIEs and the subsidiaries of the VIEs as of December 31, 2020 are set out below:
Name
Direct subsidiaries:
Phoenix Satellite Television Information Limited
Phoenix New Media (Hong Kong) Company Limited
Phoenix New Media (Hong Kong) Information Technology Company Limited
Fread Limited
Indirect subsidiaries:
Fenghuang On-line (Beijing) Information Technology Co., Ltd. (“Fenghuang On-
line”)
Beijing Fenghuang Yutian Software Technology Co., Ltd. (“Fenghuang Yutian”)
Fenghuang Feiyang (Beijing) New Media Information Technology Co., Ltd.
(“Fenghuang Feiyang”)
I Game (Hong Kong) Company Limited
Beijing Fenghuang Borui Software Technology Co., Ltd. (“Fenghuang Borui”)
Qieyiyou (Beijing) Information Technology Co., Ltd. (“Qieyiyou”)
Tianjin Fengying Hongda Culture Communication Co., Ltd. (“Fengying Hongda”)
VIEs:
Beijing Tianying Jiuzhou Network Technology Co., Ltd. (“Tianying Jiuzhou”)
Yifeng Lianhe (Beijing) Technology Co., Ltd. (“Yifeng Lianhe”)
Beijing Chenhuan Technology Co., Ltd. (“Chenhuan”)
Subsidiaries of VIEs:
Beijing Tianying Chuangzhi Advertising Co., Ltd. (“Tianying Chuangzhi”)
Beijing Fengyu Network Technology Co., Ltd. (“Fengyu Network”)
Beijing Fenghuang Tianbo Network Technology Co., Ltd. (“Tianbo”)
Place of
Incorporation
Date of
Incorporation
British Virgin Islands
(“BVI”)
Hong Kong
Hong Kong
Cayman Island
September 1, 1999
February 24, 2011
April 22, 2014
May 20, 2014
PRC
PRC
PRC
Hong Kong
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
December 20, 2005
June 15, 2012
October 25, 2013
June 10, 2014
October 13, 2014
November 28, 2014
March 13, 2017
April 18, 2000
June 16, 2006
June 10, 2014
February 8, 2010
June 1, 2012
May 31, 2013
Percentage
of Direct or
Indirect
Economic
Ownership
Principal
Activity
100 % Investment holding
100 % Advertising
100 % Investment holding
100 % Investment holding
100 % Technical consulting
100 % Software development
100 % Advertising
100 % Paid services
100 % Software development
100 % Paid services
100 % Advertising
Advertising and paid
services
100 %
100 % Paid services
100 % Paid services
100 % Advertising
100 % Paid services
50 % Advertising
In order to comply with Chinese laws and regulations that prohibit or restrict foreign ownership of companies that operate
Internet content, advertising and game businesses, a series of agreements (the “Contractual Agreements”) were entered into among
Fenghuang On-line, Tianying Jiuzhou, Yifeng Lianhe and their legal shareholders in 2009, and among Qieyiyou, Chenhuan, and their
legal shareholders in 2015. Through the aforementioned activities, Tianying Jiuzhou, Yifeng Lianhe and Chenhuan, are considered as
VIEs in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Fenghuang On-line and
Qieyiyou are entitled to substantially all the economic risks and rewards associated with the VIEs, and are the primary beneficiaries of
the VIEs, respectively.
Voting Right Entrustment Agreements
Pursuant to the voting right entrustment agreements among the VIEs, their legal shareholders and Fenghuang On-line or
Qieyiyou, each legal shareholder of the VIEs agreed to grant a person designated by Fenghuang On-line or Qieyiyou the right to
exercise their rights as shareholders, including all voting rights, as well as rights to attend and propose the convening of shareholder
meetings. Unless otherwise required by law, the voting right entrustment agreements will remain in effect indefinitely unless both
parties agree to terminate the agreement in writing, or unless the Fenghuang On-line or Qieyiyou decide in their discretion to
terminate the relevant agreements.
F-11
Phoenix New Media Limited
Notes to Consolidated Financial Statements
1. Organization and Principal Activities (Continued)
Exclusive Equity Option Agreements
Under the exclusive equity option agreements among the VIEs, their legal shareholders and Fenghuang On-line or Qieyiyou,
legal shareholders of the VIEs irrevocably granted Fenghuang On-line or Qieyiyou or their designated person an irrevocable,
unconditional and exclusive option to purchase, to the extent permitted by applicable PRC laws, all of the equity interest in the VIEs
from the legal shareholders. The purchase price for the entire equity interest is to be calculated based on the paid-up amount of the
relevant equity interest or the minimum price permitted by applicable PRC laws. The exclusive equity option agreement will remain in
effect until all of the equity interest in the VIEs has been duly transferred to Fenghuang On-line or Qieyiyou or their designated
representatives.
Loan Agreements
Pursuant to the loan agreements among Fenghuang On-line or Qieyiyou, and legal shareholders of their VIEs, Fenghuang On-
line or Qieyiyou granted interest-free loans to the legal shareholders of the VIEs for an amount that is equal to their respective capital
contribution in the VIEs. The loans can be repaid only with proceeds from the sale of all of the respective shareholder’s equity interest
in the applicable VIE to Fenghuang On-line or Qieyiyou, or their designated representatives pursuant to the applicable exclusive
equity option agreement. The term of each loan is ten years, and may be extended upon mutual agreement of the parties. On December
31, 2019, Tianying Jiuzhou and Fenghuagn On-line entered into a supplemental agreement to extend the loan for a term of ten years
upon expiration of the original loan agreement on the same day.
Equity Pledge Agreements
Under the equity pledge agreement among the VIEs, their legal shareholders and Fenghuang On-line or Qieyiyou, the legal
shareholders of the VIEs have pledged their equity interests in the VIEs to Fenghuang On-line or Qieyiyou to secure the performance
of the obligations of the VIEs and their legal shareholders under the applicable exclusive technical licensing and services agreement,
voting right entrustment agreement, exclusive equity option agreement and loan agreement. The equity pledge agreements will remain
in effect until the secured obligations have been fully performed by the VIEs or released by Fenghuang On-line or Qieyiyou.
Exclusive Technical Licensing and Service Agreements
Under the exclusive technical licensing and service agreements between Fenghuang On-line or Qieyiyou and each of the
VIEs, Fenghuang On-line or Qieyiyou has the exclusive right to provide technical and consulting services to their respective VIEs.
The VIEs have agreed to pay a service fee to Fenghuang On-line or Qieyiyou equal to a certain percentage of their respective annual
revenues plus a special service fee for certain services rendered by Fenghuang On-line or Qieyiyou at the request of the VIEs. The
technical service agreements also transfer all of the economic benefit of intellectual property created by the VIEs to Fenghuang On-
line or Qieyiyou. Each exclusive technical services agreement will remain in effect indefinitely and can be terminated only by
Fenghuang On-line or Qieyiyou unless otherwise required by law.
The Group has evaluated the relationship among the Company, Fenghuang On-line or Qieyiyou and the VIEs in accordance
with U.S. GAAP. Pursuant to the voting right entrustment agreements, the Company has obtained power, as granted to the legal
shareholders by the applicable PRC law and under the articles of association of the VIEs, to direct all significant activities of the VIEs,
which include but are not limited to budgeting, financing, and making other strategic and operational decisions, and will significantly
impact the VIEs’ economic performance. Pursuant to the exclusive technical licensing and service agreements and other agreements,
the Company has the right to receive benefits of the VIEs in the form of technical service fees, which could potentially be significant
to the VIEs’ net income. In addition, the Company has the right to receive all the residual assets of the VIEs through exercise of the
exclusive equity option agreements. As a result, the Company, through Fenghuang On-line and Qieyiyou, is considered the primary
beneficiary of the VIEs and therefore includes the VIEs’ assets, liabilities and operating results in its consolidated financial statements.
F-12
Phoenix New Media Limited
Notes to Consolidated Financial Statements
1. Organization and Principal Activities (Continued)
As of December 31, 2019, the Group held 75% of Meowpaw’s shares, and the noncontrolling shareholder, who was an
individual, held the rest of 25%. Meowpaw’s share capital was not sufficient to support its operations and Meowpaw was thinly
capitalized by the Group, and thus the Group consolidated Meowpaw as a variable interest entity in accordance with ASC 810-10
Variable Interest Entities for the years ended December 31, 2018 and 2019. In 2020, the noncontrolling shareholder transferred the
25% equity interest of Meowpaw to the Group and Meowpaw has become the Group’s 100% owned subsidiary.
The Company has the power to direct the activities of all the VIEs, including the VIEs aforementioned in the Contractual
Agreements, and can freely have assets transferred out of all the VIEs without any restrictions. Only the registered capital and PRC
statutory reserves of the consolidated VIEs amounted to RMB33.2 million (US$5.1 million) as of December 31, 2020 can be used to
solely settle obligations of the VIEs and subsidiaries of the VIEs. As all the VIEs and subsidiaries of the VIEs are incorporated as
limited liability companies under the PRC Company Law, the creditors of the VIEs and subsidiaries of the VIEs do not have recourse
to the general credit of the Company. The amounts of the consolidated VIEs’ current liabilities without recourse to the Company
disclosed on the face of the consolidated balance sheets have excluded the amounts due to inter-company entities.
The following tables set forth the summarized assets, liabilities, results of operations and cash flows of the consolidated VIEs
(in thousands):
Current assets
Non-current assets
Assets held for sale
Total assets
Accounts payable
Amounts due to related parties
Amounts due to inter-company entities
Advances from customers
Taxes payable
Salary and welfare payable
Accrued expenses and other current liabilities
Current liabilities held for sale
Current liabilities
Non-current liabilities
Non-current liabilities held for sale
Total liabilities
Revenues
Net loss
Net cash provided by/(used in) operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) financing activities
2019
RMB
As of December 31,
2020
RMB
2020
US$
1,039,423
158,858
613,500
1,811,781
121,779
24,127
1,030,231
46,484
78,729
64,977
212,233
63,341
1,641,901
46,411
5,676
1,693,988
769,726
176,131
—
945,857
72,696
23,124
577,512
135,080
81,180
59,943
121,366
—
1,070,901
43,190
—
1,114,091
117,966
26,993
—
144,959
11,141
3,544
88,508
20,702
12,441
9,187
18,600
—
164,123
6,619
—
170,742
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
590,397
(111,833)
685,116
(177,123)
521,414
(52,834)
79,910
(8,097)
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
98,168
(102,133)
—
(268,996)
210,049
368,399
(27,767)
31,886
(376,195)
(4,255)
4,887
(57,654)
F-13
1. Organization and Principal Activities (Continued)
Phoenix New Media Limited
Notes to Consolidated Financial Statements
As of December 31, 2020, the total assets for the consolidated VIEs mainly comprised of cash and cash equivalents, term
deposits and short term investments, accounts receivable, prepayments and other current assets, amounts due from related parties,
amounts due from inter-company entities, intangible assets, and property and equipment. There was no pledge or collateralization of
these assets. Unrecognized revenue-producing assets that are held by the VIEs and subsidiaries of the VIEs comprise the Internet
Content Provision License, the Online Culture Operating Permit, the Internet Publication License, the Permit for Production and
Operation of Radio and TV Programs, the Value-added Telecommunications Business Operating License, trademark, and domain
name. Recognized revenue-producing assets that are held by the VIEs and subsidiaries of the VIEs mainly comprise of property and
equipment, licensed copyrights of reading content, and audio content. As of December 31, 2020, the total liabilities for the
consolidated VIEs mainly comprised accounts payable, amounts due to related parties, amounts due to inter-company entities,
advances from customers, salary and welfare payable, taxes payable, accrued expenses and other current liabilities and non-current
liabilities. The balances and transactions of the consolidated VIEs were reflected in the Company’s consolidated financial statements
with inter-company transactions eliminated.
It is possible that the Group’s operation of certain of its operations and businesses through VIEs could be found by PRC
authorities to be in violation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such
operations and businesses. For foreign investments related to important cultural products and services, important information
technology and internet products and services, etc., the foreign investors who obtains the actual controlling stake in the investee
enterprise or relevant parties in the PRC shall declare to the office of the Working Mechanism prior to implementation of the
investments.
2. Principal Accounting Policies
(a) Basis of presentation, principles of consolidation, and cost allocations
The consolidated financial statements include the financial statements of the Company, its subsidiaries, its VIEs and the
subsidiaries of the VIEs. The consolidated financial statements have been prepared in accordance with U.S. GAAP and on a going
concern basis. All significant transactions and balances among the Company, its subsidiaries, its VIEs and the subsidiaries of the VIEs
have been eliminated upon consolidation. The Company consolidates the VIEs as required by Accounting Standards Codification
(“ASC”) 810 Consolidation, because Fenghuang On-line and Qieyiyou hold all the variable interests of the VIEs and have been
determined to be the primary beneficiaries of the VIEs (see Note 1).
The Group and Phoenix TV Group have engaged in various mutual cooperation activities in content, branding, promotions,
technical support and corporate management. The Group and Phoenix TV Group entered into a Program Resource License
Agreements and a Program Text/Graphics Resource License Agreements, or the Agreements, effective as of May 27, 2016 and
expired on May 26, 2019, to grant the Group the license with priority over any third party to broadcast Phoenix TV Group’s
copyrighted video content from three television channels of Phoenix TV Group and a non-exclusive license to use Phoenix TV
Group’s copyrighted text and graphics. The fees payable to Phoenix TV Group by the Group are RMB10.0 million for the first year of
the Agreements, which would incrementally increase by 15% for each subsequent year of the Agreements. The Agreements do not
grant the Group the right to sublicense Phoenix TV Group’s copyrighted content to third parties. As such, the Group does not incur
revenue sharing fee to Phoenix TV Group accordingly. After the expiration of the Agreements in May 2019, the Group entered into a
supplemental agreement with Phoenix TV Group to extend the term of the Agreements to January 14, 2020. Subsequently, the Group
entered into a program resource license and cooperation agreement with Phoenix TV Group on January 15, 2020, or the 2020 Program
Resource License and Cooperation Agreement, to continue to use Phoenix TV Group’s copyrighted video content. The annual license
fees payable to Phoenix TV Group under the 2020 Program Resource License and Cooperation Agreement are RMB2.0 million plus
50% of the revenue generated from the use of the licensed program resource in excess of RMB2.0 million. The 2020 Program
Resource License and Cooperation Agreement have a term of two years and may be extended prior to expiration.
The Group and Phoenix TV Group entered into new trademark license agreements in December 2017, which became
effective on December 8, 2017 and will expire on December 7, 2020. In December 2020, the Group and Phoenix TV Group
successfully renewed the terms of the new trademark license agreements to December 2023. The new trademark license agreements
no longer allow the Group to use the double-phoenix logo of Phoenix TV Group on a stand-alone basis and the annual license fee
payable to Phoenix TV Group is the greater of 2% of the annual revenues of Tianying Jiuzhou and Yifeng Lianhe or US$100,000 for
each company.
F-14
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(a) Basis of presentation, principles of consolidation, and cost allocations (Continued)
Apart from the above cooperation agreements, Phoenix TV Group also paid certain expenses on behalf of the Group, such as
data line usage and other general and administrative expenses, which the Group needed to settle with Phoenix TV Group based on the
actual amount, and were recorded in the consolidated statements of comprehensive income/(loss). The Group also earned and recorded
advertising revenues from Phoenix TV Group by providing joint advertising campaign solutions together with Phoenix TV Group to
Phoenix TV Group’s advertisers or from providing the advertising and promotion services directly to Phoenix TV Group by entering
into advertising-for-advertising barter transactions.
(b) Use of estimates
The preparation of the Group’s consolidated financial statements in conformity with the U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ materially from such estimates. The Group bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of
assets and liabilities.
(c) Business combinations and noncontrolling interests
The Group accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805
Business Combinations. The cost of an acquisition is measured as the aggregate of the acquisition date fair value of the assets
transferred to the sellers and liabilities incurred by the Group and equity instruments issued as well as the contingent considerations as
of the acquisition date. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and
liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any
noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date
fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable tangible and intangible net
assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognized directly in the consolidated statements of comprehensive income/(loss). During the
measurement period, which can be up to one year from the acquisition date, the Group may record adjustments to the assets acquired
and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded
to the consolidated statements of comprehensive income/(loss).
In a business combination achieved in stages, the Group re-measures the previously held equity interest in the acquiree
immediately before obtaining control at its acquisition date fair value and the re-measurement gain or loss, if any, is recognized in the
consolidated statements of comprehensive income/(loss).
When there is a change in ownership interests or a change in contractual arrangements that results in a loss of control of a
subsidiary, the Group deconsolidates the subsidiary from the date control is lost. Any retained noncontrolling investment in the former
subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.
For the Group’s non-wholly owned subsidiaries, a noncontrolling interest is recognized to reflect portion of equity that is not
attributable, directly or indirectly, to the Group. When the noncontrolling interest is contingently redeemable upon the occurrence of a
conditional event, which is not solely within the control of the Group, the noncontrolling interest is classified as mezzanine equity.
Transactions with changes in the Group’s ownership interest while it retains its controlling financial interest in its subsidiary shall be
accounted for as equity transactions. Therefore, no gain or loss shall be recognized in the consolidated statements of comprehensive
income/(loss). The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the
subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling
interest is adjusted shall be recognized in equity attributable to the Group. Consolidated net income/(loss) in the consolidated
statements of comprehensive income/(loss) includes net income or loss attributable to noncontrolling interests. The cumulative results
of operations attributable to noncontrolling interests, along with adjustments for share-based compensation expense arising from
outstanding share-based awards relating to the subsidiaries’ shares, are also recorded as noncontrolling interests in the Group’s
consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in
the consolidated statements of cash flows.
F-15
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(d) Discontinued operations
A component of a reporting entity or a group of components of a reporting entity that are disposed of or meet the criteria to be
classified as held for sale should be reported in discontinued operations if the disposal represents a strategic shift that has (or will
have) a major effect on an entity’s operations and financial results. Discontinued operations are reported when a component of an
entity comprising operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity is classified as held for disposal or has been disposed of, if the component either (1) represents a strategic shift or
(2) has a major impact on an entity’s financial results and operations. In the statement of financial position, the assets and liabilities of
the discontinued operation are presented separately in the asset and liability sections, respectively, of the statement of financial
position and prior periods are presented on a comparative basis. In the consolidated statements of comprehensive income, results from
discontinued operations are reported separately from the income and expenses from continuing operations and prior periods are
presented on a comparative basis. Cash flows for discontinued operations are presented separately in the consolidated statements of
cash flows. In order to present the financial effects of the continuing operations and discontinued operations, revenues and expenses
arising from intra-group transactions are eliminated except for those revenues and expenses that are considered to continue after the
disposal of the discontinued operations.
(e) Foreign currency translation
The Group uses Renminbi (“RMB”) as its reporting currency. The Company’s operations in the PRC and other regions use
their respective currencies as their functional currencies. In the consolidated financial statements, the financial information of the
Company and its subsidiaries, which use U.S. dollars or Hong Kong dollars as their functional currency, have been translated into
RMB at the exchange rates quoted by the People’s Bank of China (the “PBOC”). Assets and liabilities are translated at the exchange
rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, expenses, gains, and losses
are translated using the average rate for the period. Translation adjustments arising from these are reported as foreign currency
translation adjustments and have been shown as a component of other comprehensive loss or income in the consolidated statements of
shareholders’ equity and the consolidated statements of comprehensive income/(loss).
Foreign currency transactions denominated in currencies other than functional currency are translated into the functional
currency using the exchange rates prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign
currencies on the balance sheet date are remeasured at the applicable rates of exchange in effect on that date. Foreign currency
exchange gain or loss resulting from the settlement of such transactions and from remeasurement at period-end is recognized in
foreign currency exchange gain or loss in the consolidated statements of comprehensive income/(loss).
(f) Convenience translation
Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the noon buying rate of
US$1.00 = RMB6.5250 on December 31, 2020 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No
representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.
(g) Fair value of financial instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair
value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1— Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2— Include other inputs that are directly or indirectly observable in the marketplace
Level 3— Unobservable inputs which are supported by little or no market activity
U.S. GAAP describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach;
(2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market
transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future
amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about
those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. In some
circumstances, a combined approach of the aforementioned three approaches may be used to measure the fair values.
F-16
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(g) Fair value of financial instruments(Continued)
The Group’s financial instruments include cash equivalents, term deposits, short term investments, restricted cash, accounts
receivable, amounts due from related parties, prepayments and other current assets, available-for-sale debt investments, equity
investments without readily determinable fair values, forward contract, accounts payable, amounts due to related parties, salary and
welfare payable, accrued expense and other current liabilities and other non-current assets. Refer to Note 20 for details.
(h) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits, time deposits and highly liquid investments placed with
banks or other financial institutions, which are unrestricted to withdrawal or use, and which have original maturities of three months or
less.
(i) Term deposits, short term investments
Term deposits represent term deposits placed with banks with original maturities of more than three months and up to one
year.
Short term investments represent investments in financial instruments with a variable interest rate indexed to performance of
underlying assets and investments that the Group has positive intent and ability to hold to maturity, all of which are with original
maturity of less than 12 months.
In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of
underlying assets, the Group elected the fair value method at the date of initial recognition and carried these investments at fair value.
Fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The Group classifies
the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see Note 20 for additional information.
(j) Restricted cash
Restricted cash represents deposits placed in accounts co-managed with third-parties related to the real estate services, which
are restricted to withdrawal or usage.
(k) Accounts receivable, net
Accounts receivable is the Group’s right to consideration that is unconditional, and the right to consideration is unconditional
if only the passage of time is required before payment of that consideration is due. The carrying value of accounts receivable is
reduced by an allowance that reflects the Group’s best estimate of the amounts that will not be collected.
Notes receivable mainly represents the Group’s commercial acceptance bills received from customers in exchange for goods
or services that it has transferred to customers. The carrying value of notes receivable is reduced by an allowance that reflects the
Group’s best estimate of the amounts that will not be collected. All notes receivable balances are included in and presented as
accounts receivable, net in the consolidated balance sheets.
The Group makes estimations of the collectability of accounts receivable and notes receivable. Accounts receivable and notes
receivable are measured at amortized cost and reported on the consolidated balance sheets at the outstanding principals adjusted for
any write-offs and any allowance for credit losses, since the Group adopted ASC 326 beginning from January 1, 2020. In determining
the amount of the allowance for credit losses, the Group considers historical collectability based on historical collection activity,
current business environment and forecasts of future macroeconomic conditions that may affect the customers’ ability of payment.
Refer to Note 6 for details.
F-17
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(l) Expected credit loss
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326), and issued subsequent
amendments to the initial guidance, transitional guidance and other interpretive guidance between November 2018 and March 2020
within ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03. ASU 2016-13 introduces new
guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to
estimate credit losses on certain types of financial instruments, including accounts receivable and notes receivable, held-to-maturity
debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt
securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a
credit loss. Further, the new guidance indicates that entities may not use the length of time a security has been in an unrealized loss
position as a factor in concluding whether a credit loss exists. The allowance for accounts receivable is the Group’s estimate of credit
losses based on historical collection activity, current business environment and forecasts of future macroeconomic conditions that may
affect the customers’ ability of payment. The Group estimated the allowance by segmenting accounts receivable into groups based on
certain credit risk characteristics, and determining an expected loss rate for each group based on historical loss experience adjusted for
judgments about the effects of relevant observable data including default rates, lifetime for debt recovery, current and future economic
conditions.
The Group adopted ASU 2016-13 beginning from January 1, 2020 on a modified retrospective basis and there was no
material impact on the balance sheets and the consolidated statements of comprehensive income/(loss) as a result of adopting the new
standard.
(m) Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are
depreciated over the following estimated useful lives on a straight-line basis:
Computers
Equipment, furniture and motor vehicles
Leasehold improvements
Estimated Useful Lives
3 years
5 years
Lesser of lease terms or the estimated useful lives of the assets
Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property and
equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the
consolidated statements of comprehensive income/(loss).
(n) Intangible assets, net
Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either
the “contractual-legal” or “separability” criterion. Intangible assets mainly consist of computer software purchased from unrelated
third parties, operating rights for licensed games, licensed copyrights of reading content, audio content, trademark and an Internet
domain name. Intangible assets are stated at cost less impairment and accumulated amortization, which is computed using the straight-
line method over the estimated useful lives of the assets. Separately identifiable intangible assets that have determinable lives continue
to be amortized over their estimated useful lives using the straight-line method as follows:
Computer software
Licensed copyrights of reading content
Trademark and Domain name
Audio content
License and licensed games
Estimated Useful Lives
5 years
Lesser of the licensed period or 5 years
10 years
Lesser of the licensed period or 5 years
Estimated life cycle
The Group amortizes the licensed copyrights in “cost of revenues” on a straight-line basis.
The Group performed intangible assets impairment assessment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Recoverability is measured through the use of an undiscounted future cash flow
model when an indication of impairment is determined to exist. If an asset is determined to be not recoverable, its carrying amount is
reduced to the estimated fair value determined using a discounted cash flow model. The Group’s impairment tests included significant
assumptions relating to revenue growth and timing of projected future cash flows.
F-18
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(o) Available-for-sale debt investments
In accordance with ASC 320 Investments-Debt and Equity Securities, the Group classifies the investments in debt securities
as “held-to-maturity”, “trading” or “available-for-sale”. The securities that the Group has positive intent and ability to hold to maturity
are classified as held-to-maturity securities. The securities that are bought and held principally for the purpose of selling them in the
near term are classified as trading securities. Investments that have readily determinable fair values not classified as trading or as held-
to-maturity are classified as available-for-sale debt investments. Available-for-sale debt investments are reported at fair value, which
is estimated by management after considering an independent appraisal performed by a reputable appraisal firm, with unrealized gains
and losses, if any, recorded in the accumulated other comprehensive loss or income in shareholder’s equity. The tax effects of the
unrealized gains and losses of the available-for-sale debt investments should be recorded net against the pre-tax changes in other
comprehensive income. An impairment loss on the available-for-sale debt investments would be recognized in the consolidated
statements of comprehensive income/(loss) when the decline in value is determined to be other-than-temporary. Investments with
maturities of greater than 12 months are recorded in non-current assets.
(p) Equity investments
Investments in common stock or in-substance common stock and limited-partnership investments in entities over which the
Group can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity
method of accounting in accordance with ASC 323 Investments-Equity Method and Joint Ventures. The Group adjusts the carrying
amount of equity method investment for its share of the income or losses of the investee and reports the recognized income or losses
in the consolidated statements of comprehensive income/(loss). The Group’s share of the income or losses of an investee are based on
the shares of common stock and in-substance common stock held by the Group.
The Group adopted ASU 2016-1 Recognition and Measurement of Financial Assets and Financial Liabilities, beginning from
January 1, 2018, and the cumulative effect of initially applying the guidance to the financial statements of prior periods at January 1,
2018 was not material. Prior to adopting ASU 2016-1, the Group accounted as cost method investments for its investments in
investees that do not have readily determinable fair value and over which the Group does not have significant influence, in accordance
with ASC 325-20, Investments-Other: Cost Method Investments. After the adoption of ASU 2016-1, the Group measures equity
investments, other than those accounted for under the equity method, at fair value through net income/(loss). For investments in equity
securities lacking of readily determinable fair values, the Group has elected to use the measurement alternative defined as cost, less
impairments, adjusted by observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Group accounts for investments in private equity funds using the Net Asset Value (“NAV”) as a practical expedient
under ASC 820 and are not categorized in the fair value hierarchy.
An impairment loss on the equity investments is recognized in the consolidated statements of comprehensive income/(loss)
when the decline in value is determined to be other-than-temporary.
(q) Goodwill
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible
assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment on an annual
basis, or more frequently if events or changes in circumstances indicate that it might be impaired.
The Group has adopted ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment since January 1, 2019, pursuant to which the Group has the option to choose whether it will apply a qualitative assessment
first and then a quantitative assessment, if necessary, or to apply a quantitative assessment directly. For reporting units applying a
qualitative assessment first, the Group starts the goodwill impairment test by assessing qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is more likely than not that the fair
value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is
required. The quantitative impairment test consists of a comparison of the fair value of the reporting unit with its carrying value,
including goodwill. If the carrying value of each reporting unit, including goodwill, exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess, but limited to the total amount of goodwill allocated to that reporting unit.
F-19
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(q) Goodwill (Continued)
Application of a goodwill impairment test requires significant management judgment, including the identification of reporting
units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each
reporting unit. The Group estimates fair value using the income approach. The judgment in estimating the fair value of reporting units
includes revenue growth rates and appropriate discount rates and other assumptions. Changes in these estimates and assumptions
could materially affect the determination of fair value for each reporting unit.
(r) Impairment of long-lived assets
Long-lived assets such as property and equipment and intangible assets are reviewed for impairment whenever events or
changes in the circumstances indicate that the carrying value of an asset may not be recoverable. When these events occur, the Group
assesses the recoverability of the long-lived assets by comparing the carrying amount to the estimated future undiscounted cash flows
associated from the use of the asset and its eventual disposition, and recognize an impairment of long-lived assets when the carrying
value of such assets exceeds the estimated future undiscounted cash flows such assets is expected to generate. If the Group identifies
an impairment, the Group reduces the carrying amount of the assets or asset group to its estimated fair value based on a discounted
cash flow approach or, when available and appropriate, to comparable market values.
(s) ASC 606 Revenue from Contracts with Customers
On January 1, 2018, the Group adopted ASC 606 Revenue from Contracts with Customers by applying the modified
retrospective method, and the financial statements of prior periods were not retrospectively adjusted and the cumulative effect of
initially applying the guidance at January 1, 2018, which was recorded as an adjustment to the balance of retained earnings and
advance from customers as of January 1, 2018, was not material. The main impact of applying the new accounting standard on the
Group’s financial results by applying the modified retrospective method mainly include, (1) the reclassification of sales taxes and
related surcharges from cost of revenues to a reduction of revenues, and (2) revenues and expenses from some advertising barter
transactions is recognized beginning from January 1, 2018 in accordance with the new guidance, as the provision of ASC 605
exempting some advertising-for-advertising barter transactions, for which the fair value of the advertising services surrendered or
received was not determinable, from being reported at fair value has been superseded.
In 2019, the Group re-classified paid services revenues (see Note 2(t)). For comparison purposes, the revenues from paid
services for the year of 2018 have been retrospectively re-classified. The following table presents the Group’s revenues disaggregated
by products and services (in thousands):
Net advertising revenues
Paid services revenues
Revenues from paid contents
Revenues from games
Revenues from MVAS
Revenues from others
Total
Contract balances
2018
RMB
1,198,150
178,131
94,066
14,727
55,037
14,301
1,376,281
For the Years Ended December 31,
2019
RMB
2020
RMB
2020
US$
1,194,761
133,020
71,144
13,833
18,499
29,544
1,327,781
1,113,017
95,828
46,175
161
13,083
36,409
1,208,845
170,577
14,686
7,077
25
2,005
5,579
185,263
Timing of revenue recognition may differ from the timing of invoicing to customers. Contract asset represents the Group’s
right to consideration in exchange for goods or services that it has transferred to a customer when that right is conditioned on
something other than the passage of time (for example, the entity’s future performance). Accounts receivable represent amounts
invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the
unconditional right to payment. Contract assets as of December 31, 2019 and 2020 were not material.
F-20
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(s) ASC 606 Revenue from Contracts with Customers (Continued)
If a customer pays consideration, or the Group has a right to an amount of consideration that is unconditional (that is, a
receivable), before the Group transfers a good or service to the customer, the Group shall present the contract as a contract liability
when the payment is made or the payment is due (whichever is earlier). A contract liability is the Group’s obligation to transfer goods
or services to a customer for which it has received consideration (or an amount of consideration is due) from the customer. Receipts in
advance and deferred revenue relate to unsatisfied performance obligations at the end of the period and primarily consist of fees
received from advertisers. Due to the generally short-term duration of the contracts, the majority of the performance obligations are
satisfied in the following reporting period. Contract liability is presented as advances from customers in the balance sheet.
Revenues recognized for the years ended December 31, 2019 and 2020 that were included in the contract liability balance at the
beginning of the period were RMB44.7 million and RMB32.1 million (US$4.9 million), respectively.
The assets recognized for costs incurred to fulfill contracts shall be amortized on a systematic basis that is consistent with the
transfer to the customer of the goods or services to which the asset relates. As of December 31, 2019 and 2020, the costs incurred to
fulfill contracts recognized as assets were immaterial.
Practical expedients
The Group has used the following practical expedients as allowed under ASC 606:
i.
The transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, has not been
disclosed as substantially all of the Group’s contracts have duration of one year or less.
ii. Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or
payment within one year or less. In instances where the timing of revenue recognition differs from the timing of
invoicing, the Group has determined that its contracts generally do not include a significant financing component.
iii. The Group generally expenses sales commissions when incurred because the amortization period would be one year or
less. These costs are recorded within sales and marketing expenses.
(t) Revenue recognition
According to ASC 606, revenue is recognized when control of the promised services is transferred to the customers, in an
amount that reflects the consideration the Group expects to be entitled to in exchange for those services. The recognition of revenues
involves certain management judgments, including the estimation of the fair value of the noncash transaction, estimated lives of
virtual items purchased by game players, and volume sales rebates. The Group does not believe that significant management
judgments are involved in revenue recognition, but the amount and timing of the Group’s revenues could be different for any period if
management made different judgments or utilized different estimates.
The Group adopts the five-step model for recognizing revenue from contracts with customers:
Step 1: Identify the contract(s) with a customer,
Step 2: Identify the performance obligations in the contract,
Step 3: Determine the transaction price,
Step 4: Allocate the transaction price to the performance obligations in the contract,
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Group evaluates if it is a principal or an agent in a transaction to determine whether revenue should be recorded on a
gross or net basis. The Group is acting as the principal if it obtains control over the goods and services before they are transferred to
customers. When the Group is primarily obligated in a transaction, is generally subject to inventory risk, has latitude in establishing
prices, or has several but not all of these indicators, the Group acts as the principal and revenue is recorded on a gross basis. When the
Group is not primarily obligated in a transaction, does not generally bear the inventory risk and does not have the ability to establish
the price, the Group acts as the agent and revenue is recorded on a net basis.
F-21
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(t) Revenue recognition (Continued)
(i) Net advertising revenues
Advertising revenues are derived principally from advertising contracts with customers where the advertisers pay to place
their advertisements on the Group’s ifeng.com, mobile Internet website i.ifeng.com and its mobile applications in different formats
over a particular period of time. Such formats generally include but are not limited to banners, news feed, text-links, videos, logos,
buttons and rich media. The Group’s performance obligations are to place the customers’ advertisements on different spots, in
different formats and at different times.
The Group’s contracts with customers may include multiple performance obligations. For such arrangements, the Group
allocates revenues to each performance obligation based on its relative standalone selling price. The Group generally determines
standalone selling prices of each distinct performance obligation based on the prices charged to customers when sold on a standalone
basis. Where standalone selling price is not directly observable, the Group generally estimates selling prices based on the publicly
published advertising rate card, times the relevant discount rates, taking into considerations of the historical trend, the pricing of
advertising areas sold with similar popularities, advertisements with similar formats and quoted prices from competitors, and other
relevant market conditions. The Group recognizes revenue on the satisfied performance obligations and defers the recognition of
revenue for the estimated value of the undelivered elements until the remaining performance obligations have been satisfied. When all
of the elements within an arrangement are delivered uniformly over the agreement period, the revenues are recognized on a straight-
line basis over the contract period.
Currently the advertising business has three main types of pricing models, consisting of the Cost Per Day (“CPD”) model, the
Cost Per Impression (“CPM”) model, and the Cost Per Click (“CPC”) model.
CPD model
Under the CPD model, a contract is signed to establish a fixed price for the advertising services to be provided over a period
of time. Given the advertisers benefit from the displayed advertising evenly, the Group recognizes revenue on a straight-line basis
over the period of display, provided all revenue recognition criteria have been met.
CPM model
Under the CPM model, the unit price for each qualifying display is fixed and stated in the contract with the advertiser. A
qualifying display is defined as the appearance of an advertisement, where the advertisement meets criteria specified in the contract.
Given that the fees are priced consistently throughout the contract and the unit prices are consistent with the Group’s pricing practices
with similar customers, the Group recognizes revenue based on the fixed unit prices and the number of qualifying displays upon
occurrence of display, provided and all revenue recognition criteria have been met.
CPC model
Under the CPC model, there is no fixed price for advertising services stated in the contract with the advertiser and the unit
price for each click is auction-based. The Group charges advertisers on a per-click basis, when the users click on the advertisements.
Given that the fees are priced consistently throughout the contract and the unit prices are consistent with the Group’s pricing practices
with similar customers, the Group recognizes revenue based on qualifying clicks and the unit price upon the occurrence of a click,
provided all revenue recognition criteria have been met.
Agency service fees to third-party advertising agencies
Certain customers may receive sales rebates, which are accounted for as variable consideration. The Group estimates annual
expected revenue volume of each individual agent with reference to their historical results. The sales rebate will reduce revenues
recognized. The Group recognizes revenue for the amount of fees it receives from its advertisers, after deducting sales rebates and net
of value-added tax (“VAT”) and related surcharges. The Group believes that there will not be significant changes to its estimates of
variable consideration.
F-22
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(t) Revenue recognition (Continued)
The Group has estimated and recorded RMB215.2 million, RMB180.7 million and RMB180.9 million (US$27.7 million) in
agency service fees to third-party advertising agencies for the years ended December 31, 2018, 2019 and 2020, respectively.
Noncash transactions
The Group enters into contracts with certain customers involving consideration in a form other than cash. The noncash
consideration (or promise of noncash consideration) shall be measured at fair value. If the Group cannot reasonably estimate the fair
value of the noncash consideration, it shall measure the consideration indirectly by reference to the standalone selling price of the
goods or services promised to the customer (or class of customer) in exchange for the consideration. The Group recognized revenue
from noncash transactions involving exchanging advertising services for advertisement, content, technical, application pre-installation
services and others amounted to RMB17.8 million, RMB8.7 million and RMB6.8 million (US$1.0 million) for the years ended
December 31, 2018, 2019 and 2020, respectively.
(ii) Paid services revenues
Prior to 2019, paid services revenues comprised of (i) revenues from digital entertainment, which included MVAS and digital
reading, and (ii) revenues from games and others, which included web-based games, mobile games, content sales, and other online and
mobile paid services through the Group’s own platforms.
Beginning from January 1, 2019, paid services revenues have been re-classified and now comprise of (i) revenues from paid
contents, which includes digital reading, audio books, paid videos, and other content-related sales activities, (ii) revenues from games,
which includes web-based games and mobile games, (iii) revenues from MVAS, and (iv) revenues from others. For comparison
purposes, the revenues from paid services for the year of 2018 have been retrospectively re-classified.
Paid contents
Paid contents revenues mainly comprise of revenues generated from digital reading, audio books, paid videos, and other
content-related sales activities.
Digital reading
Digital reading revenues are derived from providing fee-based internet literatures from writers and digital format books
licensed from third-party publishers to customers both on the Group’s PC and mobile platforms and on third-party platforms. Digital
reading revenues generated from the Group’s PC and mobile platforms are recorded on a gross basis and recognized evenly over the
subscription period, or in the period in which a pay-per-view service is provided, as the Group is responsible for providing the desired
services to the customers and has primary responsibility and broad discretion to establish price, and therefore the Group is considered
the primary obligor in these transactions. Digital reading revenues generated from third-party platforms are recorded on a net basis.
Audio books
Audio books revenues are derived from the sale of copyright of audio books to third parties and licensing audio books to third
parties.
With respect to the sale of copyright of audio books, the Group is determined to be the primary obligor and accordingly, the
Group records its revenues on a gross basis. With respect to the revenues that derived from licensing audio books to third parties, the
Group evaluated and determined it is not the primary obligor in the service rendered to the end users and accordingly, the Group
records its revenues based on the portion of the sharing of revenues that derives from third parties. The Group recognizes revenue on
the satisfied performance obligations and defers the recognition of revenue for the estimated value of the undelivered elements until
the remaining performance obligations have been satisfied.
F-23
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(t) Revenue recognition (Continued)
Paid videos
The Group generates revenues from licensing video content to third parties. For such content sales transactions, the Group
earns up-front fixed- amount license fees or revenue sharing fees based on pre-agreed percentage. The Group views the third parties as
customers and recognizes revenues on a net basis during the licensing periods, provided that no significant obligation remains,
collection of the receivables is reasonably assured and the amounts can be accurately estimated.
Games
Games include web-based games and mobile games. Revenues from these services are recognized over the periods in which
the services are performed, provided that no significant obligations remain, collection of the receivables is reasonably assured and the
amounts can be accurately estimated.
MVAS
MVAS revenues are mainly derived from providing mobile phone users with wireless value-added services (“WVAS”)
through telecom operators’ platforms, mobile newspaper services and mobile video services. Revenues from MVAS are charged on a
monthly or per-usage basis, and are recognized in the period in which the service is performed, provided that no significant obligation
remains, collection of the receivables is reasonably assured and the amounts can be accurately estimated. Most revenues from mobile
newspaper services, mobile video services and most WVAS are recorded on a net basis as the Group is acting as an agent of operators
in these transactions.
Others
Other paid service revenues mainly comprise of revenues generated from E-commerce services and online real estate related
services. Revenues are recognized in the period in which the service is performed, provided that no significant obligation remains,
collection of the receivables is reasonably assured and the amounts can be accurately estimated.
For certain E-commerce services, the Group charges commission fees to third-party merchants for participating in the
Group’s online marketplace, where the Group generally is acting as an agent and its performance obligation is to arrange for the
provision of the specified goods or services by those third-party merchants. Upon successful sales, the Group charges the third-party
merchants a negotiated amount or a fixed rate commission fee based on the sales amount. Commission fee revenues are recognized on
a net basis at the point of delivery of products, net of return allowances. For some E-commerce services, the Group recognizes
revenues from certain online retail business on a gross basis as the Group is acting as a principal in these transactions and is
responsible for fulfilling the promise to provide the specified goods.
(u) Sales taxes and related surcharges and other surcharges
The Group is subject to value-added tax (“VAT”) and related surcharges on the revenues earned for services provided in the
PRC. The primary applicable rate of VAT is 6.0% for the years ended December 31, 2018, 2019 and 2020. The Group is also subject
to a cultural development fee on the provision of advertising services in the PRC and the applicable tax rate is 3% of the net
advertising revenues before July 1, 2019 and 1.5% after July 1, 2019. The VAT and the cultural development fee are recorded as a
reduction item of revenues in the consolidated statements of comprehensive income/(loss).
Other surcharges mainly comprised of urban maintenance and construction tax and education surcharges. The urban
maintenance and construction tax are charged at 7%, 5% or 1% of the amount of VAT actually paid depending on where the taxpayer
is located. Education surcharges are charged at 3% of the amount of VAT actually paid and local education surcharges are charged at
2% or 1% of the amount of VAT actually paid depending on where the taxpayer is located. The urban maintenance and construction
tax, education surcharges and local education surcharges are recorded in the cost of revenues in the consolidated statements of
comprehensive income/(loss).
The sales taxes and related surcharges and other surcharges for the years ended December 31, 2018, 2019 and 2020 were
RMB127.6 million, RMB114.1 million and RMB84.8 million (US$13.0 million), respectively.
F-24
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(v) Cost of revenues
The Group’s cost of revenues consists primarily of (i) revenue sharing fees, including service fees retained by mobile
telecommunications operators and revenue sharing fees paid to the Group’s channel and content partners, (ii) content and operational
costs, including personnel-related cost associated with content production and certain advertisement sales support personnel, content
procurement costs to third-party professional media companies and to Phoenix TV Group, direct costs related to in-house content
production, channel testing costs, rental cost, depreciation and amortization, the urban maintenance and construction tax, education
surcharges and local education surcharges, and other miscellaneous costs, and (iii) bandwidth costs.
(w) Sales and marketing expenses
Sales and marketing expenses comprise primarily of: (i) personnel-related expenses including sales commissions related to
the sales and marketing personnel; (ii) advertising and promotion expenses including traffic acquisition expenses; and (iii) rental
expense, depreciation and amortization expenses. The Group expenses advertising costs as incurred. Total advertising and promotion
expenses including traffic acquisition expenses were RMB376.7 million, RMB314.2 million and RMB99.9 million (US$15.3 million),
for the years ended December 31, 2018, 2019 and 2020, respectively.
(x) Technology and product development expenses
Technology and product development expenses mainly consist of: (i) personnel-related expenses associated with the
development of, enhancement to, and maintenance of the Group’s PC websites, mobile applications and mobile websites; (ii) expenses
associated with new technology and product development and enhancement; and (iii) rental expense and depreciation of servers. The
Group expenses technology and product development expenses as incurred for all the years presented.
(y) Operating leases and adoption of ASU 2016-02
On February 25, 2016, the FASB issued ASU 2016-02 Leases (Topic 842), which supersedes the lease accounting guidance
under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use
assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising
from leasing arrangements.
The Group applied ASU 2016-02 beginning from January 1, 2019 and elected to apply practical expedients permitted under
the transition method that allow the Group to use the beginning of the period of adoption as the date of initial application, to not
recognize lease assets and lease liabilities for leases with a term of twelve months or less, and to not reassess lease classification,
treatment of initial direct costs, or whether an existing or expired contract contains a lease. The Group used modified retrospective
method and did not recast the prior comparative periods. Under the new lease standard, the Group determines if an arrangement is or
contains a lease at inception. Right-of-use assets and liabilities are recognized at lease commencement date based on the present value
of remaining lease payments over the lease terms. The Group considers only payments that are fixed and determinable at the time of
lease commencement.
As a result of the adoption, the Group recorded a right-of-use asset of approximately RMB99.5 million and a lease liability of
approximately RMB99.5 million upon the adoption of ASU 2016-02 on January 1, 2019, primarily related to the Group’s leased office
space. The adoption had no material impact on the Group’s consolidated statements of comprehensive income/(loss) for the year
ended December 31, 2019 or the opening balances of retained earnings as of January 1, 2019.
As of December 31, 2020, the Group’s operating leases had a weighted average remaining lease term of 1.47 years and a
weighted average discount rate of 5.61%. Future lease payments under operating leases as of December 31, 2020 were as follows (in
thousands):
Year ending December 31,
2021
2022
2023
Total future lease payments
Less: Imputed interest
Total lease liability balance
F-25
Operating Leases
RMB
US$
38,209
16,715
280
55,204
2,162
53,042
5,856
2,562
43
8,461
331
8,130
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(y) Operating leases and adoption of ASU 2016-02 (Continued)
Future lease payments under operating leases as of December 31, 2019 were as follows (in thousands):
Year ending December 31,
2020
2021
2022
2023
Total future lease payments
Less: Imputed interest
Total lease liability balance
Operating Leases
RMB
41,615
35,706
16,052
291
93,664
5,861
87,803
Rent expense under operating leases was RMB37.6 million for the year ended December 31, 2018. Operating lease costs and
expenses for the years ended December 31, 2019 and 2020 were RMB39.1 million, and RMB33.6 million (US$5.1 million),
respectively, which excluded costs and expenses of short-term contracts. Short-term lease costs and expenses for the years ended
December 31, 2019 and 2020 was RMB1.7 million and RMB1.1 million (US$0.2 million), respectively. Supplemental cash flow
information related to operating leases was as follows (in thousands):
Cash payments for operating leases
Right-of-use assets obtained in exchange for operating lease liabilities
37,680
19,981
33,677
3,198
(z) Share-based compensation
For the Years Ended December 31,
2020
RMB
2019
RMB
2020
US$
5,161
490
The Group has incentive plans for the granting of share-based awards, such as share options and restricted shares. The Group
measures the cost of employee services received in exchange for share-based compensation at the grant date fair value of the award.
The Group recognizes the share-based compensation as costs or expenses in the consolidated statements of comprehensive
income/(loss), net of estimated forfeitures, on a graded-vesting basis over the vesting term of the awards.
The Group recognizes compensation cost for awards with performance conditions if and when the Group concludes that it is
probable that the performance condition will be achieved and should reassess the probability of vesting at each reporting period for
awards with performance conditions and adjust compensation cost based on its probability assessment. The Group recognizes a
cumulative catch-up adjustment for changes in its probability assessment in subsequent reporting periods.
The share-based awards to nonemployees are accounted for based on the fair value of the consideration received or the fair
value of the award issued, whichever is more reliably measurable. Share-based compensation expense for share options granted to
non-employees is measured at fair value at the earlier of the performance commitment date or the date service is completed and
recognized over the period during which the service is provided. The Company applies the guidance in ASU 2018-07 Compensation—
Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting to account for share options
granted to non-employees based on the grant date fair value beginning from January 1, 2019.
Cancellation of an award accompanied by the concurrent grant of a replacement award is accounted for as a modification of
the terms of the cancelled award (“modification awards”). The compensation costs associated with the modification awards are
recognized if either the original vesting condition or the new vesting condition has been achieved. Such compensation costs cannot be
less than the grant-date fair value of the original award. The incremental compensation cost is measured as the excess of the fair value
of the replacement award over the fair value of the cancelled award at the cancellation date. Therefore, in relation to the modification
awards, the Group recognizes share-based compensation over the vesting periods of the new awards, which comprises (i) the
amortization of the incremental portion of share-based compensation over the remaining vesting term and (ii) any unrecognized
compensation cost of original award, using either the original term or the new term, whichever is higher for each reporting period.
The Group adopts the Black-Scholes option pricing model to determine the fair value of share options, and determines the fair
value of restricted share and restricted share units based on the fair value of the underlying ordinary shares at the grant date
considering the dilutive effect of restricted share and restricted share units.
F-26
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(z) Share-based compensation (Continued)
Forfeiture rates are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from initial estimates. The Group uses historical data to estimate pre-vesting option and restricted share unit forfeitures and record
share-based compensation only for those awards that are expected to vest. Refer to Note 18 for further information regarding share-
based compensation assumptions and expenses.
In 2019, the Company declared a special cash compensation to its share option holders, concurrent with the special cash
dividend declared. In 2020, the Company also declared a special cash compensation to its share option holders, concurrent with the
special cash dividend declared. As the Company’s share options are not dividend-protected award, the option holders have no rights to
participate in all dividends before excising the share options. The Company accounted for the special cash compensation as
incremental compensation cost, which would be vested with the same vesting conditions of the original share options granted. The
compensation cost of RMB31.6 million and RMB39.7 million (US$6.1 million) were recognized as costs or expenses in the
consolidated statements of comprehensive income/(loss) of 2019 and 2020, respectively.
(aa) Income taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and
expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax
jurisdictions. Deferred income taxes are provided using an asset and liability method. Under this method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an
asset or liability is the amount attributed to that asset or liability for tax purpose. The effect on deferred taxes of a change in tax rates is
recognized in the consolidated statements of comprehensive income/(loss) in the period of change. A valuation allowance is provided
to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets
will not be realized.
Uncertain tax positions
In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the
tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will
be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon settlement. The Group did not have significant unrecognized
uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of and for the
years ended December 31, 2018, 2019 and 2020. Refer to Note 16 for details of the Group’s tax positions.
(ab) Employee social security and welfare benefits
The Company’s subsidiaries and consolidated VIEs in the PRC participate in a government-mandated multi-employer defined
contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. The relevant
labor regulations require the Company’s subsidiaries and consolidated VIEs in the PRC to pay the local labor and social welfare
authorities monthly contributions at a stated contribution rate based on the monthly basic compensation of qualified employees. The
relevant local labor and social welfare authorities are responsible for meeting all retirement benefits obligations and the Company’s
subsidiaries and consolidated VIEs in the PRC have no further commitments beyond their monthly contributions. The contributions to
the plan are expensed as incurred. Employee social security and welfare benefits included as cost and expenses in the consolidated
statements of comprehensive income/(loss) were RMB84.3 million, RMB104.3 million and RMB54.4 million (US$8.3 million) for the
years ended December 31, 2018, 2019 and 2020, respectively.
(ac) Other income — Others, net
Other income —Others, net mainly represent government subsidies which primarily consist of financial subsidies received
from provincial and local governments for operating a business in their jurisdictions. Such income has been recognized when the
grants are received and no further conditions need to be met.
F-27
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(ad) Statutory reserves
In accordance with the laws applicable to China’s Foreign Investment Enterprises, those of the Company’s China-based
subsidiaries that are considered under PRC law to be a wholly foreign-owned enterprise are required to make appropriations from their
after-tax profit (as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance of
the People’s Republic of China (“PRC GAAP”)) to non-distributable reserve funds including (i) general reserve fund, (ii) enterprise
expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-
tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the general reserve fund has reached 50% of the
registered capital of the respective company. Appropriations to the other two reserve funds are at the respective companies’ discretion.
In accordance with the China Company Laws, those China-based subsidiaries of the Company that are considered under PRC
law to be domestically funded enterprises, as well as the Company’s VIEs are required to make appropriations from their after-tax
profit (as determined under PRC GAAP) to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary
surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with
PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective
company. Appropriation to the discretionary surplus fund is at the discretion of the respective company.
General reserve fund and statutory surplus fund are restricted for set off against losses, expansion of production and operation
or increase in the registered capital of the respective company. The Group has made appropriations of RMB6.4 million, RMB1.0
million and RMB3.4 million (US$0.5 million) to these funds for the years ended December 31, 2018, 2019 and 2020, respectively.
(ae) Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they
are subject to common control or significant influence, such as a family member or relative, shareholders, or a related corporation.
(af) Dividends
Dividends are charged to retained earnings when declared. No dividends were declared for the year ended December 31,
2018. In 2019, the Group declared a special cash dividend of US$0.1714 per ordinary share, equivalent to US$1.3712 per ADS,
totaling approximately US$100 million, or RMB701.6 million, and had paid the dividends to shareholders on December 13, 2019. In
2020, the Group also declared a special cash dividend of US$0.1714 per ordinary share, equivalent to US$1.3712 per ADS, totaling
approximately US$100 million, or RMB653.9 million, and had paid almost all of the dividends to shareholders on December 22,
2020.
(ag) Net income/(loss) per share
The Group computes net income or loss per Class A and Class B ordinary share in accordance with ASC 260-10 Earnings
Per Share: Overall, using the two class method. Under the two-class method, net income is allocated between ordinary shares and
other participating securities based on their participating rights. Net losses are not allocated to other participating securities if based on
their contractual terms they are not obligated to share in the losses.
The liquidation and dividend rights of the holders of the Company’s Class A and Class B ordinary shares are identical, except
with respect to voting. As the liquidation and dividend rights are identical, the net incomes are allocated on a proportionate basis.
Basic net income or loss per share is computed by dividing net income or loss attributable to ordinary shareholders by the
weighted average number of ordinary shares and contingently issuable shares outstanding during the period except that it does not
include unvested restricted shares or repurchased ordinary shares subject to cancellation.
Diluted net income or loss per share is calculated by dividing net income or loss attributable to ordinary shareholders, as
adjusted for the effect of dilutive potential ordinary shares, if any, by the weighted average number of ordinary shares outstanding and
dilutive potential ordinary shares during the period. Potential ordinary shares are excluded in the denominator of the diluted net
income or loss per share calculation if their effects would be anti-dilutive.
F-28
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(ah) Comprehensive income/(loss)
Comprehensive income or loss is defined as the change in equity of the Group during a period arising from transactions and
other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders.
Comprehensive income or loss is reported in the consolidated statements of comprehensive income/(loss). Accumulated other
comprehensive loss or income, as presented on the Group’s consolidated balance sheets, includes the foreign currency translation
adjustment, fair value remeasurement for available-for-sale debt investments and reclassification adjustment for disposal of available-
for-sale debt investments. The tax effects of pre-tax changes to other comprehensive income or loss should be recorded net against the
pre-tax changes in other comprehensive income or loss.
(ai) Segment reporting
The Group’s segments are business units that offer different services and are reviewed separately by the chief operating
decision maker (the “CODM”) in deciding how to allocate resources and in assessing performance. The Group’s CODM has been
identified as the Chief Executive Officer. As the Group’s long-lived assets and revenues are substantially located in and derived from
the PRC, no geographical segments are presented.
The Group’s organizational structure is based on a number of factors that the CODM uses to evaluate, view and run the
Group’s business operations, which include, but are not limited to, customer base, homogeneity of products and technology. The
Group’s operating segments are based on its organizational structure and information reviewed by the Group’s CODM to evaluate the
operating segment results.
(aj) Recent accounting pronouncements
Simplifying the accounting for income taxes (Topic 740). In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. ASU No. 2019-12 removes certain exceptions to the general
principles in Topic 740 and provides for consistent application of and simplifies generally accepted accounting principles for other
areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. The method of adoption varies depending on the component of the new rule
that is being adopted. Early application is permitted. The Group does not expect to adopt ASU 2019-12 early and is currently
evaluating the impact of adopting this standard on its consolidated financial statements.
Investments—Equity securities (Topic 321), Investments—Equity method and joint ventures (Topic 323), and Derivatives and
hedging (Topic 815)—Clarifying the interactions between Topic 321, Topic 323, and Topic 815. In January 2020, the FASB issued
ASU No. 2020-01, Investments—Equity securities (Topic 321), Investments—Equity method and joint ventures (Topic 323), and
Derivatives and hedging (Topic 815)—Clarifying the interactions between Topic 321, Topic 323, and Topic 815. The amendments
clarify the interaction of the accounting for equity investments under Topic 321 and investments accounted for under the equity
method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic
815. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with
early adoption permitted. The Group does not expect to adopt ASU 2020-01 early and is currently evaluating the impact of adopting
this standard on its consolidated financial statements.
Management does not expect that any other recently issued, but not yet effective accounting pronouncements, if adopted,
would have a material impact on the accompanying financial statements.
3. Certain Risks and Concentration
(a) Major customers
There is no customer with revenues or receivables over 10% of total revenues or total accounts receivable and due from
related parties, respectively.
(b) Credit risk
The Group’s credit risk arises from cash and cash equivalents, term deposits, short term investments and restricted cash as
well as credit exposures to receivables due from its customers, related parties and other parties and available-for-sale debt securities.
The Group expects that there is no significant credit risk associated with cash and cash equivalents, term deposits, short term
investments and restricted cash which were held by reputable financial institutions in the jurisdictions where the Company, its
subsidiaries, VIEs and the subsidiaries of the VIEs are located. The Group believes that it is not exposed to unusual risks as these
financial institutions have high credit quality.
F-29
Phoenix New Media Limited
Notes to Consolidated Financial Statements
3. Certain Risks and Concentration (Continued)
(b) Credit risk (Continued)
The Group has no significant concentrations of credit risk with respect to its customers, related parties and other parties and
available-for-sale debt securities. The Group assesses the credit quality of and sets credit limits on its customers by taking into account
their financial position, the availability of guarantee from third parties, their credit history and other factors such as current market
conditions.
(c) Currency convertibility risk
The Group’s operating transactions and its assets and liabilities are mainly denominated in RMB. RMB is not freely
convertible into foreign currencies. The value of the RMB is subject to changes by the central government policies and to international
economic and political developments. In the PRC, certain foreign exchange transactions are required by law to be transacted only by
authorized financial institutions at exchange rates set by PBOC. Remittances in currencies other than RMB by the Group in the PRC
must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation
in order to affect the remittance.
(d) PRC regulations
The Group is exposed to certain macro-economic and regulatory risks and uncertainties in the Chinese market. These
uncertainties affect the ability of the Group to provide online advertising, mobile and Internet related services through Contractual
Arrangements in the PRC since these industries remains highly regulated. The Chinese government may issue from time to time new
laws or new interpretations on existing laws to regulate these industries. Regulatory risk also encompasses the interpretation by the tax
authorities of current tax laws and the Group’s legal structure and scope of operations in the PRC, which could be subject to further
restrictions resulting in limitations on the Group’s ability to conduct business in the PRC. The PRC government may also require the
Group to restructure its operations entirely if it finds that its Contractual Arrangements do not comply with applicable laws and
regulations. It is unclear how a restructuring could impact the Group’s business and operating results, as the PRC government has not
yet found any such Contractual Arrangements to be in noncompliance. However, any such restructuring may cause significant
disruption to the Group’s business operations.
In addition, the Group is required to obtain certain licenses to operate the Internet information services. As of the date of the
annual report, the Group is in the process of applying for licenses for the certain operations of the businesses, including an Internet
audio-visual program transmission license and an Internet news license. In 2020, approximately 91.2% of the Group’s total revenues
were derived from business related to the above licenses. Without these licenses, the PRC government may order the Group to cease
its services, which may cause significant disruption to the Group’s business operations.
Recently, regulatory authorities in China have increased their supervision of content platforms similar to the Group’s websites
and mobile applications. In addition to the contents that are considered to be violating PRC laws and regulations, such oversight tends
to pay more attention to content that is or may be deemed misleading, obscene, pornographic, detrimental, and/or contradicting to
social values and moral prevailing in China. The Group may face regulatory inquiries and oral warnings made by relevant regulatory
authorities from time to time. The Group may also be required to limit or even suspend its services due to regulatory requirements or
sanctions. Any of these events could severely impair the attractiveness of the Group’s applications and websites to users, reduce its
user traffic and affect its revenue, and its business, financial condition and results of operation may be materially adversely affected.
(e) Investments risk
The Group has made and may undertake in the future investments in subsidiaries, affiliates and other business alliance
partners in various Internet-related businesses. It is uncertain whether the Group will receive the expected benefits from these
investments, due to any adverse regulatory changes, worsening of economic conditions, increased competition or other factors that
may negatively affect the related business activities. Some of the businesses the Group has invested in are subject to intensive
regulation. Any adverse regulatory change may have a material adverse impact on the business and financial performance of the
subsidiaries, affiliates and other business alliance partners. Furthermore, unanticipated costs and liabilities may be incurred in
connection with those business strategies, including liabilities from the claims related to the businesses prior to the business alliances,
and cost from actions by regulatory authorities.
F-30
Phoenix New Media Limited
Notes to Consolidated Financial Statements
4. Discontinued operations
In December 2018, the Group acquired and started to consolidate Beijing Yitian Xindong Network Technology Co., Ltd.
(“Yitian Xindong”). See Note 5.
In May 2020, the Group sold all of its investment in Yitian Xindong, as well as its rights to contingent returnable
consideration under certain price adjustment mechanisms in connection with its original investment, with a total consideration of
RMB313.6 million and recognized a disposal loss of RMB14.7 million (US$2.1 million) in 2020. Yitian Xindong was a subsidiary
and a separate reporting unit of the Group, and the disposal of Yitian Xindong represents the Group’s strategic shift in operation of
online literature business that had a major effect on the Group’s operations and financial results. Therefore, the disposal of Yitian
Xindong was qualified for reporting as a “discontinued operation” in the Group’s financial statements. Accordingly, Yitian Xindong’s
results of operations have been excluded from the Group’s results from continuing operations in the consolidated statements of
comprehensive income/(loss) and are presented in separate line items as discontinued operations for the years ended December 31,
2018, 2019 and 2020. Additionally, the related assets and liabilities associated with the discontinued operations in the consolidated
balance sheets as of December 31, 2019 were classified as assets/liabilities held for sale to provide the comparable financial
information. The financial information disclosed in this 20-F document is presented on a continuing operations basis, unless otherwise
specifically stated.
The following tables set forth the assets, liabilities, results of operations and cash flows of discontinued operations, that were
included in the Group’s consolidated financial statements (in thousands):
As of December 31,
2019
RMB
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Amounts due from related parties
Prepayment and other current assets*
Total current assets associated with discontinued operations
Property and equipment, net
Intangible assets, net
Goodwill
Operating lease right-of-use assets
Total non-current assets associated with discontinued operations
Total assets associated with discontinued operations
Liabilities
Current liabilities:
Accounts payable
Amounts due to related parties
Advances from customers
Taxes payable
Salary and welfare payable
Accrued expenses and other current liabilities
Operating lease liabilities
Total current liabilities associated with discontinued operations
Deferred tax liabilities
Operating lease liabilities
Total non-current liabilities associated with discontinued operations
Total liabilities associated with discontinued operations
46,840
28,645
3,070
105,477
184,032
4,293
85,647
338,288
1,240
429,468
613,500
10,910
68
9,728
3,746
17,118
19,319
2,452
63,341
5,668
8
5,676
69,017
Note:
* Prepayment and other current assets included the financial assets — contingent returnable consideration of RMB98.5 million, which
represented the fair value of the Group’s right to receive the contingent returnable consideration, subject to certain price adjustment
mechanisms based on Yitian Xindong’s operating and financial performance in 2019 and 2020. The Group assesses the probability of
whether Yitian Xindong’s operating and financial performance targets in 2019 and 2020 could be achieved at each reporting period,
and adjusts the fair value of the financial assets accordingly based on its probability assessment.
F-31
Phoenix New Media Limited
Notes to Consolidated Financial Statements
4. Discontinued operations (Continued)
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing expenses
General and administrative expenses
Technology and product development expenses
Goodwill impairment
Changes in fair value of financial assets-contingent returnable
consideration
Total operating expenses
(Loss)/income from operations
Interest income, net
Loss from disposal of discontinued operations
Others, net
(Loss)/income before tax
Income tax benefit
Net (loss)/income from discontinued operations
Net cash provided by discontinued operating activities
Net cash (used in)/provided by discontinued investing activities
Net cash used in discontinued financing activities
2018
2019
2020*
For the Years Ended December 31,
1,098
(705)
393
(582)
(144)
—
—
—
(726)
(333)
5
—
—
(328)
14
(314)
203,281
(84,972)
118,309
(74,011)
(29,741)
(26,016)
—
62,051
(67,717)
50,592
597
—
1,344
52,533
1,709
54,242
2018
For the Years Ended December 31,
2019
2020*
2,088
(62,057)
—
41,080
(25,952)
(144,100)
69,917
(33,875)
36,042
(29,377)
(6,539)
(9,664)
(39,352)
—
(84,932)
(48,890)
270
(14,678)
569
(62,729)
363
(62,366)
186
265,753
—
Note:
* The results of operations and cash flows of discontinued operations included those of the discontinued operations from January 1,
2020 to May 18, 2020.
5. Acquisition
Acquisition of Yitian Xindong
In December 2018, the Group entered into an agreement with Telling Telecommunication Co., Ltd. (“Telling Telecom”), the
sole shareholder of Beijing Yitian Xindong Network Technology Co., Ltd. (“Yitian Xidong”) , to acquire 25.5% equity interest in
Yitian Xindong (the “Acquisition”) for an aggregate purchase consideration of RMB144.1 million, subject to certain price adjustment
mechanisms based on Yitian Xindong’s operating and financial performance in 2019 and 2020 (the “Performance Targets”). If any of
Yitian Xindong’s Performance Targets in either 2019 or 2020 is not met, Telling Telecom will return part of the purchase
consideration to the Group, which resulted in the recognition of a financial assets derived from the contingent returnable
consideration. Yitian Xindong owns the Tadu APPs, which include but are not limited to Tadu Literature Application.
Concurrently, Telling Telecom also transferred another 25.5% equity interest in Yitian Xindong to Shenzhen Bingruixin
Technology Co., Ltd. (“Bingruixin”), a third party, Bingruixin granted an option that allowed the Group to acquire the 25.5% equity
interest from Bingruixin for RMB144.1 million before March 15, 2019, subject to the above mentioned same price adjustment
mechanisms based on Yitian Xindong’s operating and financial performance in 2019 and 2020 (the “Call Option”). Concurrent with
the Acquisition, Bingruixin agreed to entrust voting rights with respect to the 25.5% equity interest in Yitian Xindong to the Group
(the “Voting Rights Entrustment”) from December 28, 2018 to March 15, 2019. Because of the Voting Rights Entrustment, the Group
concluded that it gained control over Yitian Xindong and consolidated Yitian Xindong upon completion of the Acquisition.
F-32
Phoenix New Media Limited
Notes to Consolidated Financial Statements
5. Acquisition (Continued)
Acquisition of Yitian Xindong (Continued)
On December 28, 2018, the Group completed the Acquisition and consolidated Yitian Xindong thereafter. Therefore, the
Group had consolidated the balance sheet of Yitian Xindong as of December 31, 2018 and the operating results of Yitian Xindong for
the 3-day period from December 29, 2018 to December 31, 2018, and recognized a noncontrolling interest for the 74.5% equity
interest of Yitian Xindong owned by other shareholders.
The allocation of the purchase price as of the date of acquisition was summarized as follows (in thousands):
Purchase consideration
Net assets acquired, excluding intangible assets and the related deferred tax (Note a)
Deferred tax assets
Less: valuation allowance
Amortizable intangible assets
—User base
—Trademark and domain name
—Licensed copyrights of reading content
Goodwill (Note b)
Financial assets — contingent returnable consideration (Note c)
Deferred tax liabilities (Note d)
Noncontrolling interests
Total
Amount
RMB
Amortization
Period
144,100
21,803
8,576
(8,576)
5,100
38,300
49,200
338,288
18,211
(7,390)
(319,412)
144,100
0.8 year
10 years
Not exceeding 3 years,
with a weighted-average
amortization period of
2.34 years
Note:
(a) Net assets acquired included cash and cash equivalents with an amount of RMB10.9 million.
(b) Goodwill arising from this acquisition was attributable to the synergies between Yitian Xindong and the Group’s multiple
business streams. The goodwill recognized was not expected to be deductible for income tax purpose.
(c) The financial assets represented the fair value of the Group’s right to receive the contingent returnable consideration, subject to
certain price adjustment mechanisms based on Yitian Xindong’s operating and financial performance in 2019 and 2020.
(d) Deferred tax liabilities represented the tax effect of the amortizable intangible assets from the Acquisition.
Neither the results of operations since the acquisition dates nor the pro forma results of operations of Yitian Xindong were
presented because the effects of the business combination were not significant to the Company’s consolidated results of operations.
On March 1, 2019, the Group exercised the Call Option and acquired another 25.5% equity interest in Yitian Xindong from
Bingruixin with a consideration of RMB144.1 million. As a result, the Group holds 51.0% equity interest in and a 51.0% voting rights
of Yitian Xindong and continues to consolidate Yitian Xindong’s financial statements. This acquisition of a noncontrolling interest
was accounted for as equity transactions, resulting in a decrease in noncontrolling interest of RMB124.2 million and no gain or loss
recognized in the consolidated statements of comprehensive income/(loss) during the year ended December 31, 2019.
As of December 31, 2019, the Group estimated that the probability of successfully collecting the contingent returnable
consideration of RMB170.6 million would be 60% and as a result, the fair value of the Group’s right to receive the contingent
returnable consideration as of December 31, 2019 were RMB98.5 million.
In May 2020, the Group sold all of its investment in Yitian Xindong, as well as its rights to contingent returnable
consideration under certain price adjustment mechanisms in connection with its original investment and the disposal of Yitian
Xindong was qualified for reporting as a “discontinued operation”. See Note 4.
F-33
Phoenix New Media Limited
Notes to Consolidated Financial Statements
5. Acquisition (Continued)
Acquisition of Tianbo in 2019
The Group holds a 50% equity interest in Tianbo. Before April 1, 2019, as the Group had significant influence over financial
and operating decision-making of Tianbo, it accounted for the 50% equity interest in Tianbo by using the equity method of
accounting. On April 1, 2019, the Group obtained control over Tianbo and started consolidating Tianbo from April 1, 2019, as the
Group and other shareholders of Tianbo agreed to make certain revisions to the articles of association of Tianbo, which granted the
Group the voting power to decide Tianbo’s significant financial and operating decisions at both the shareholder level and the board
level, to accelerate the development of its real estate vertical and to further bolster the development of the Group’s real estate vertical
and to create more synergies on Tianbo’s new business, with the equity interest in Tianbo of 50% unchanged. At the same time, the
Group agreed with other shareholders of Tianbo and would provide free advertising resources to Tianbo as consideration to gain
control over Tianbo with a fair value of RMB5.9 million, estimated by management with the assistance of an independent valuation
firm. The previously held equity interest in Tianbo was remeasured at fair value of RMB17.0 million on the date of acquisition and a
gain on remeasurement of RMB0.5 million was recognized in the consolidated statements of comprehensive income/(loss).
The allocation of the purchase price as of the date of acquisition is summarized as follows (in thousands):
Non-cash consideration
Fair value of previously held equity interests in Tianbo
Total purchase consideration
Net assets acquired (Note a)
Goodwill
Noncontrolling interests
Total
Amount
RMB
5,900
17,012
22,912
17,138
22,786
(17,012)
22,912
Note:
(a) Net assets acquired included cash, cash equivalents and restricted cash with an amount of RMB175.5 million. There were no
material amortizable intangible assets (e.g. trademark and domain names, customer relationship) identified and recognized as
Tianbo has no independent trademark and domain name or exclusive service agreement signed between Tianbo and its customers.
Goodwill, which is non-deductible for tax purposes, is primarily attributable to the synergies expected to be achieved from the
acquisition.
Tianbo contributed revenues of RMB248.5 million and earnings of RMB19.6 million to the Group for the period from April
1, 2019 to December 31, 2019. The following unaudited pro forma summary presents consolidated information of the Group as if the
business combination had occurred on January 1, 2018 (in thousands):
Revenue*
Net (loss)/income attributable to Phoenix New Media Limited
Pro Forma Years Ended December 31,
2018
RMB
(unaudited)
2019
RMB
(unaudited)
1,578,113
(50,577)
1,362,964
731,007
Note:
*As Yitian Xindong’s results of operations have been excluded from the Group’s results from continuing operations and are presented
in separate line items as discontinued operations in the consolidated statements of comprehensive income/(loss) for the years ended
December 31, 2018 and 2019, the unaudited pro forma revenue for the years ended December 31, 2018 and 2019 have been revised
accordingly.
The Group did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings.
F-34
Phoenix New Media Limited
Notes to Consolidated Financial Statements
5. Acquisition (Continued)
Acquisition of Tianbo in 2019 (Continued)
The valuations used in the purchase price allocation described above were determined by the Group with the assistance of an
independent valuation firm. The valuations considered generally accepted valuation methodologies such as the income, market and
cost approaches. As the acquirees are both private companies, the fair value estimates of previously held equity interests or
noncontrolling interests are based on significant inputs considered by market participants which mainly include (a) discount rate,
(b) projected terminal value based on future cash flow (c) financial multiple of companies in the same industry and (d) adjustment for
lack of control or lack of marketability.
6. Accounts Receivable, Net
The following table sets out the balance of accounts receivable excluding notes receivable as of December 31, 2019 and 2020
(in thousands):
Accounts receivable, gross
Allowance for credit losses
Accounts receivable, net
2019
RMB
705,721
(118,301)
587,420
As of December 31,
2020
RMB
756,262
(189,460)
566,802
The following table sets out the balance of notes receivable as of December 31, 2019 and 2020 (in thousands):
Notes receivable, gross
Allowance for credit losses
Notes receivable, net
2019
RMB
As of December 31,
2020
RMB
22,207
—
22,207
113,808
(4,994)
108,814
The following table presents the movement of the allowance for credit losses (in thousands):
2020
US$
115,902
(29,036)
86,866
2020
US$
17,442
(765)
16,677
Balance as of January 1,
Additional allowance for credit losses, net of recoveries
Write-off
Balance as of December 31,
7. Prepayments and Other Current Assets
2018
RMB
2019
RMB
2020
RMB
2020
US$
65,454
21,967
(9,243)
78,178
78,178
43,853
(3,730)
118,301
118,301
80,878
(4,725)
194,454
18,130
12,395
(724)
29,801
The following is a summary of prepayments and other current assets (in thousands):
Prepaid rental and deposits
Prepayments to suppliers and other business related expenses
Receivables related to exercise of employee options
Costs to fulfill contracts with customers
Others
Total
2019
RMB
As of December 31,
2020
RMB
2020
US$
12,660
32,954
4,003
1,686
6,088
57,391
8,695
23,896
4,696
89
5,470
42,846
1,333
3,662
720
14
836
6,565
Prepayments to suppliers and other business related expenses mainly consist of business related staff advances, in-house
produced content costs and the Group’s prepaid content licenses fee to third-party content suppliers for the rights to access and present
on the Group’s website the content produced by these suppliers during a certain period. These content licenses generally have a
license period of one to three years, and are amortized over the license period on a straight-line basis. The portion of the prepaid
content license costs that relates to the license period for more than 12 months from the balance sheet date is classified as other non-
current assets.
F-35
Phoenix New Media Limited
Notes to Consolidated Financial Statements
8. Property and Equipment, Net
The following is a summary of property and equipment, net (in thousands):
Computers, equipment and furniture
Motor vehicles
Leasehold improvements
Total
Less: accumulated depreciation
Net book value
2019
RMB
As of December 31,
2020
RMB
2020
US$
213,651
5,986
42,408
262,045
(164,688)
97,357
170,850
5,736
42,087
218,673
(156,024)
62,649
26,184
879
6,450
33,513
(23,912)
9,601
Depreciation expenses for the years ended December 31, 2018, 2019 and 2020 were RMB29.4 million, RMB34.1 million and
RMB32.5 million (US$5.0 million), respectively.
9. Intangible Assets, Net
The following table summarizes the Group’s intangible assets, net (in thousands):
Computer software
License and licensed games
Licensed copyrights of reading content
Audio content
Trademark and domain name
Total
Less: amortization
impairment
Net book value
2019
RMB
As of December 31,
2020
RMB
2020
US$
20,653
132
7,724
5,317
54
33,880
(20,247)
—
13,633
18,314
—
15,709
11,683
158
45,864
(22,896)
(10,572)
12,396
2,807
—
2,408
1,790
24
7,029
(3,509)
(1,620)
1,900
The Group recognized impairment losses on intangible assets of nil, nil and RMB10.6 million (US$1.6 million) for the years
ended December 31, 2018, 2019 and 2020, respectively. The Group performed an impairment test and recognized an impairment
charge of RMB10.6 million (US$1.6 million) on licensed copyrights of reading content and audio content, which were mainly caused
by the negative impact of the COVID-19 outbreak in 2020, as well as the tightening of rules and regulations on digital reading in
China and in line with the broader market conditions reflecting the trend towards free online reading.
Amortization expenses for the years ended December 31, 2018, 2019 and 2020 were RMB2.9 million, RMB15.4 million and
RMB6.4 million (US$1.0 million), respectively. Based on the current amount of intangible assets subject to amortization, the
estimated amortization expenses for each of the following five years are as follows: 2021: RMB3.9 million, 2022: RMB3.5 million,
2023 RMB3.4 million, 2024: RMB1.5 million and 2025: RMB0.1 million.
10. Available-for-sale Debt Investments
Investments in Particle
The Company held Series B, Series C and Series D1 convertible redeemable preferred shares of Particle Inc. (“Particle”),
which had been accounted for as available-for-sale debt investments. As of December 31, 2018, the fair values of available-for-sale
debt investments in Particle were RMB1,959.5 million, which represented approximately 37.63% equity interest of Particle on an as-if
converted basis.
F-36
Phoenix New Media Limited
Notes to Consolidated Financial Statements
10. Available-for-sale Debt Investments (Continued)
Investments in Particle (Continued)
The Company entered into a share purchase agreement (the “SPA”) with Run Liang Tai Management Limited, or Run Liang
Tai, and its designated entities (the “Proposed Buyers”) on March 22, 2019 and entered into a supplemental agreement (the
“Supplemental Agreement”) to the SPA on July 23, 2019 for its proposed sale of 34% equity interest of Particle on an as-if converted
basis (the “Proposed Transaction”). According to the Supplemental Agreement, the Company agreed to increase the total number of
shares of Particle to be transferred to the Proposed Buyers from 199,866,509 shares to 212,358,165 shares while the total purchase
price would remain unchanged at US$448 million. In addition, the Company agreed that the Proposed Buyers may pay the purchase
price in several installments and deliver the preferred shares of Particle to the Proposed Buyers in batches. In November 2019, the
Company transferred the first batch of 94,802,752 preferred shares of Particle to the Proposed Buyers, corresponding to US$200
million of consideration fully received before August 10, 2019, and recognized a gain on disposal of available-for-sale debt
investments of RMB1,001.2 million in the consolidated statements of comprehensive income/(loss). The Company had received a
further deposit of US$50 million in October 2019 for the second batch preferred shares of Particle to be delivered to the Proposed
Buyers in or before August 2020, which was presented as deposits in relation to disposal of investment in Particle in the Group’s
consolidated balance sheets as of December 31, 2019. Meanwhile, the Company has recognized a liability of RMB16.0 million
representing the forward contract in relation to disposal of investments in Particle in the Group’s consolidated balance sheets as of
December 31, 2019. In 2020, the liability in relation to the forward contract had been expired.
In August 2020, the Company signed a new share purchase agreement (the “New SPA”) with Run Liang Tai, which replaced
the Company’s previous agreements with Run Liang Tai for the sale of the Company’s remaining investment in Particle. Under the
New SPA, the rights and obligations of both the Proposed Buyers and the Company with respect to the second batch of shares under
the previous agreements were terminated, and instead, the Company agreed to sell a total of 140,248,775 shares of Particle,
representing all of the Particle shares the Company then held, to the Proposed Buyers at a total purchase price of US$150 million and
a per share purchase price of US$1.0695. On August 10, 2020, the Proposed Buyers paid approximately US$99.3 million to the
Company under the New SPA, which represented the difference between the total purchase price and the US$50 million deposit
already paid by the Proposed Buyers to the Company under the previous agreements plus certain other accrued interests. The
Transaction was closed on October 19, 2020. The Company recognized a gain on disposal of available-for-sale debt investments of
RMB477.3 million (US$73.1 million) in the consolidated statements of comprehensive income/(loss) for the year ended December 31,
2020.
In August 2020, the Company acquired 4,584,209 Series D1 preferred shares of Particle from Run Liang Tai, which were
previously pledged to the Company to secure the repayment of an interest-free loan with the principal of approximately US$9.7
million granted by the Company to Run Liang Tai. As of December 31, 2020, the Company holds 4,584,209 Series D1 convertible
redeemable preferred shares of Particle, which represents approximately 0.66% equity interest of Particle on an as-if converted basis,
and the fair values of available-for-sale debt investments in Particle was RMB30.7 million (US$4.7 million) as of December 31, 2020.
The Company has determined that its investments in convertible redeemable preferred shares of Particle are not considered
in-substance common stock but considered debt securities as the preferred shares of Particle are redeemable at the option of the
Company and are therefore not within the scope of ASC 323 Equity Method and Joint Ventures. The Company’s investments in
convertible redeemable preferred shares of Particle are classified as available-for-sale debt investments and reported at fair value,
which is estimated by management after considering valuation reports prepared by a reputable and independent appraisal firm on a
recurring basis. Refer to Note 20 for details.
Investments in Fengyi Technology
In December 2018, the Group acquired 40% equity interest of Henan Fengyi Feiyang Network Technology Limited (“Fengyi
Technology”) with a consideration of RMB2.0 million. Fengyi Technology mainly engages in advertising service in China. As the
investment in Fengyi Technology is redeemable at the option of the Group, it is not considered in-substance common stock but
considered debt securities. The Group’s investment in Fengyi Technology is classified as available-for-sale debt investments and
reported at fair value. As of December 31, 2019, the fair value of investment in Fengyi Technology was RMB2.0 million. The Group
had fully written down the whole investment in Fengyi Technology and recognized an impairment loss of RMB2.0 million (US$0.3
million) in 2020.
F-37
Phoenix New Media Limited
Notes to Consolidated Financial Statements
10. Available-for-sale Debt Investments (Continued)
Investments in Humanistic Intelligence
As of December 31, 2019, the Group had loan receivable of approximately RMB9.8 million due from Phoenix FM (Beijing)
Information Technology Co., Ltd., (“FM Beijing”), the former subsidiary of Phoenix FM, which had been fully impaired in 2015. In
April 2020, through a series of debt restructuring transactions, the Group acquired 19.99% of the equity interest in FM Beijing. In
August 2020, the Group acquired 6.04% equity interest of Humanistic Intelligence Inc. (“Humanistic Intelligence”) through a share
exchange transaction related to FM Beijing, and recognized a gain of RMB6.0 million (US$0.9 million) from the transaction, which
was included in the income/(loss) from equity method investments, net of impairment item in the consolidated statements of
comprehensive income/(loss) of 2020. As the investment in Humanistic Intelligence is redeemable at the option of the Group, it is not
considered in-substance common stock but considered debt securities. The Group’s investment in Humanistic Intelligence is classified
as available-for-sale debt investments and reported at fair value. As of December 31, 2020, the fair value of investment in Humanistic
Intelligence was RMB6.0 million (US$0.9 million).
As the Group does not expect to sell or redeem the investments mentioned above within one year, the available-for-sale debt
investments are classified as long-term available-for-sale debt investments. Total unrealized gains on available-for-sale debt
investments recorded in accumulated other comprehensive income excluding tax effect were RMB1,615.1 million as of December 31,
2019 and total unrealized loss on available-for-sale debt investments recorded in accumulated other comprehensive income excluding
tax effect was RMB8.0 million (US$1.2 million) as of December 31, 2020. The total fair value of available-for-sale debt investments
were RMB2,014.5 million and RMB36.7 million (US$5.6 million) as of December 31, 2019 and 2020, respectively (see Note 20).
11. Equity Investments
Equity method investments
The Group applies the equity method of accounting to account for its equity investments in common stock or in-substance
common stock and limited-partnership investments in entities, over which it has significant influence but does not own a majority
equity interest or otherwise control.
The Group holds 50% equity interest in Tianbo. Before April 1, 2019, as the Group had significant influence over financial
and operating decision-making of Tianbo, it accounted for the 50% equity interest in Tianbo by using the equity method of
accounting. In April 2019, the Group obtained control over financial and operation decision-making of Tianbo and could consolidate
Tianbo (see Note 5). Therefore, Tianbo has been a subsidiary of the Company’s VIE since April 1, 2019.
The Group used equity method to account for investments in limited partnership unless the Group’s interest is so minor and
has virtually no influence over the operating and financial policies of the partnership. In 2020, the Group made new investments in
two limited partnerships with total considerations of RMB60.0 million (US$9.2 million), and accounted for the investments under
equity method as significant influence could be imposed by the Group. The two limited partnerships mainly engage in private equity
investments. The carrying value of investments in the two limited partnerships as of December 31, 2020 were RMB59.8 million
(US$9.2 million).
Despite holding 100% ordinary shares of Phoenix FM Limited (“Phoenix FM”), the Company accounts for its investment in
Phoenix FM as an equity investment since the Company did not control Phoenix FM due to substantive participating rights that have
been provided to IDG-Accel China Growth Fund III L.P. and IDG-Accel China III Investors L.P. (collectively referred to as IDG),
who invested in preferred shares of Phoenix FM. The Group had fully written down the whole investment in Phoenix FM in 2015. In
April 2020, IDG transferred all of its investment in Phoenix FM to the Company and Phoenix FM became a wholly owned subsidiary
of the Company.
The Group holds 31.54% equity interest of Shenzhenshi Fenghuang Jingcai Network Technology Co., Ltd. (“Fenghuang
Jingcai”) and had fully written down the whole investment in Fenghuang Jingcai in 2015. The Group no longer records share of losses
in Fenghuang Jingcai, as the carrying value of equity investments in it had been reduced to zero. Meanwhile, the Group has no future
obligations to fund Fenghuang Jingcai.
F-38
Phoenix New Media Limited
Notes to Consolidated Financial Statements
11. Equity Investments (Continued)
Equity method investments (Continued)
The Group summaries the condensed financial information of the Group’s equity method investments as a group below in
accordance with Rule 4-08 of Regulation S-X (in thousands):
Operating data:
Revenues
Gross profit
Net income/(loss)
Net income/(loss) attributable to the equity method investees
PNM’s share of net income/(loss)
For the Years Ended December 31,
2018
RMB
2019*
RMB
2020
RMB
2020
US$
220,656
140,701
1,747
577
5,352
37,987
25,874
(21,583)
(21,442)
(3,968)
52
(312)
(526)
(526)
(181)
8
(48)
(81)
(81)
(28)
Note:
* Tianbo has been a subsidiary of the Company’s VIE and no longer an equity method investee since April 1, 2019. The operating
data here only included the data of Tianbo from January 1, 2019 to March 31, 2019.
Balance sheet data:
Current assets
Non-current assets
Current liabilities
2019*
RMB
As of December 31,
2020
RMB
2020
US$
3,251
17
59,685
246,992
3
4,357
37,853
1
668
Note:
* Tianbo has been a subsidiary of the Company’s VIE and no longer an equity method investee since April 1, 2019. The balance sheet
data here did not include the data of Tianbo as of December 31, 2019.
Other equity investments
The Group holds 4.69% equity interest of Beijing Phoenix Lilita Information Technology Co., Ltd. (“Lilita”). Lilita is
principally engaged in P2P lending and reward-based crowd-funding businesses. The Group had fully written down the whole
investment in Lilita in 2017.
The Group holds 0.3% equity interest of Lifeix Inc. (“Lifeix”), which had been fully impaired in 2015. Lifeix is the operator
of the life station websites L99.com and Lifeix.com.
F-39
Phoenix New Media Limited
Notes to Consolidated Financial Statements
11. Equity Investments (Continued)
Other equity investments (Continued)
In August 2017, the Group acquired 8% equity interest of Shenzhenshi Kuailai Technology Co., Ltd. (“Kuailai”) with a
consideration of RMB0.2 million. Kuailai operates Xunhutai, a life-style information application in China. The Group had fully
written down the whole investment in Kuailai and recognized an impairment loss of RMB0.2 million (US$0.03 million) in 2020.
In November 2018, the Group acquired 10% equity interest of Yitong Technology (Hangzhou) Limited (“Yitong
Technology”) by investing in newly issued shares of Yitong Technology with a total consideration of RMB13.0 million, of which
RMB6.5 million and RMB6.5 million was paid in December 2018 and February 2019, respectively. Yitong Technology mainly
engages in big data application development and operation in China. As the Group’s equity investment in Yitong Technology has
preferred liquidation rights, it is not considered as in-substance common stock, and should be measured at fair value, with changes in
the fair value recognized through net income/(loss). As the investments in Yitong Technology lack readily determinable fair values,
the Group elects to use the measurement alternative defined as cost, less impairments, adjusted by observable price changes in orderly
transactions for the identical or a similar investment of the same issuer. As of December 31, 2019 and 2020, the carrying value of
equity investment in Yitong Technology was RMB13.0 million and RMB13.0 million (US$2.0 million), respectively.
In December 2020, the Group acquired 3.78% equity interest in Guangzhou Kesheng Jiada Network Partnership (“Kesheng
Jiada”), representing 1.0% indirect equity interests in 4K Garden Network Technology (Guangzhou) Co., Ltd. (“4K Garden”) with a
consideration of RMB10.0 million (US$1.5 million). 4K Garden focuses on developing 4K ultra HD content ecosystem and related
technology and 5G+ ultra HD application technology platform and Kesheng Jiada is a special purpose vehicle that holds equity
interests in 4K Garden. As the investments in Kesheng Jiada lack readily determinable fair values, the Group elects to use the
measurement alternative defined as cost, less impairments, adjusted by observable price changes in orderly transactions for the
identical or a similar investment of the same issuer. As of December 31, 2020, the carrying value of the equity investment was
RMB10.0 million (US$1.5 million).
In December 2020, the Group entered into an investment agreement with a private equity fund to invest a total of RMB30.0
million in it. As of December 31, 2020, the Group had invested RMB12.0 million (US$1.8 million) in the private equity fund and the
carrying value of equity investment in the private equity fund was RMB12.0 million (US$1.8 million). The Group accounts for the
investment using NAV as a practical expedient under ASC 820.
12. Goodwill
The changes in the carrying amount of goodwill are as follows (in thousands):
Balance as of December 31, 2018
Goodwill acquired
Balance as of December 31, 2019
Goodwill impairment
Balance as of December 31, 2020
Tianbo
Business
RMB
—
22,786
22,786
(22,786)
—
The Group first applied the qualitative assessment and then performed the goodwill impairment test by quantitatively
comparing the fair values of the reporting unit to its carrying amounts. A goodwill impairment is the amount by which a reporting
unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The fair value of a reporting unit is
determined by income approach based on the Group’s best estimate, which uses valuation techniques to convert the reporting unit’s
future amounts to a single present value amount. Caused by the negative impact of the COVID-19 outbreak in 2020 and the tightening
of rules and regulations on real estate market in China as well as intensified industry competition, the Group performed an impairment
test and recognized an impairment charge of RMB22.8 million (US$3.5 million) for the Tianbo reporting unit. The Group recorded an
impairment charge of nil, nil and RMB22.8 million (US$3.5 million) for the years ended December 31, 2018, 2019 and 2020,
respectively.
F-40
Phoenix New Media Limited
Notes to Consolidated Financial Statements
13. Other Non-Current Assets
The following is a summary of other non-current assets (in thousands):
Rental deposits
Non-current portion of prepayments to suppliers and other business related expenses
Others
Total
14. Accrued Expenses and Other Current Liabilities
2019
RMB
As of December 31,
2020
RMB
2020
US$
8,330
8,698
2,831
19,859
7,975
1,289
489
9,753
1,222
198
75
1,495
Accrued expenses and other current liabilities are comprised of (in thousands):
Deposits from advertising agencies and customers
Accrued professional fees
Advertising and promotion expenses payables and accruals
General operating expenses payables and accruals
Deposits from potential house buyers
Forward contract in relation to disposal of investments in Particle (Note 10)
Others
Total
2019
RMB
As of December 31,
2020
RMB
2020
US$
16,029
7,869
70,914
71,350
83,131
15,988
8,841
274,122
16,266
5,246
18,247
65,732
49,210
—
17,675
172,376
2,493
804
2,796
10,074
7,542
—
2,708
26,417
As the agent of real estate developers, the Group sells individual property buyers coupons issued by real estate developers that
enable them to purchase specified properties from real estate developers at a discounted price. Coupons purchase price are collected
initially by the Group upfront from the property buyers, and subsequently, the coupon purchase price will be remitted to the real estate
developers when property buyers use the coupons to purchase the specified properties, or will be refunded to property buyers if they
decide not to buy. The coupons purchase price paid by the property buyers are recorded in accrued expenses and other current
liabilities in the Group's consolidated balance sheets.
15. Cost of Revenues
The cost of revenues is as follows (in thousands):
Revenue sharing fees
Content and operational costs
Bandwidth costs
Total
16. Income Taxes
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
47,263
491,478
57,102
595,843
25,157
603,573
54,600
683,330
19,550
482,641
57,095
559,286
2,996
73,968
8,750
85,714
Income Tax Expense and Effective Tax Rate
The provisions for income tax expense are summarized as follows (in thousands):
Current tax expense
Deferred tax expense/(benefit)
Income tax expense
For the Years Ended December 31,
2018
RMB
2019
RMB
19,819
300
20,119
23,219
(1,269)
21,950
2020
RMB
32,156
(13,179)
18,977
2020
US$
4,928
(2,019)
2,909
F-41
16. Income Taxes (Continued)
Phoenix New Media Limited
Notes to Consolidated Financial Statements
The components of income before tax and income tax expense for PRC and non-PRC continuing operations are as follows (in
thousands):
(Loss)/income arising from PRC operations
(Loss)/income arising from non-PRC operations
(Loss)/income before tax from continuing operations
Income tax expense relating to PRC operations
Income tax benefit relating to non-PRC operations
Income tax expense
Effective tax rate for PRC continuing operations
Cayman Islands (“Cayman”)
For the Years Ended December 31,
2018
RMB
(42,681)
(2,498)
(45,179)
20,143
(24)
20,119
2019
RMB
(267,276)
958,986
691,710
21,952
(2)
21,950
2020
RMB
2020
US$
28,133
418,489
446,622
18,977
—
18,977
4,312
64,136
68,448
2,909
—
2,909
(47.2)%
(8.2)%
67.5%
67.5%
Under the relevant current laws of the Cayman Islands, corporate income, capital gains or other direct taxes are not imposed
on corporations in the Cayman Islands. In addition, dividend payments are not subject to withholding taxes in the Cayman Islands.
The Company recognized gain on disposal of available-for-sale debt investments of RMB1,001.2 million and RMB477.3 million
(US$73.1 million) in the consolidated statements of comprehensive income/(loss) for the years ended December 31, 2019 and 2020,
respectively, which was not subject to any corporate income or capital gains taxes under the current laws of the Cayman Islands.
British Virgin Islands (“BVI”)
The Group’s subsidiaries incorporated in the British Virgin Islands are exempted from income tax on their foreign-derived
income and are not subject to withholding taxes.
Hong Kong
Subsidiaries in Hong Kong are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in
Hong Kong. On April 1, 2018, a two-tiered profits tax regime was introduced. The profits tax rate for the first HK$2 million of profits
of corporations is lowered to 8.25%, while profits above that amount continue to be subject to the tax rate of 16.5%.
PRC
Each of the Group’s PRC subsidiaries, VIEs and subsidiaries of the VIEs are obligated to pay income tax in the PRC. The
PRC Corporate Income Taxes Law (“CIT Law”) generally applies an income tax rate of 25% to all enterprises, but grants preferential
tax treatment to High and New Technology Enterprises (“HNTEs”) and Software Enterprises. Under these preferential tax treatments,
HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years and
Software Enterprises are entitled to an income tax exemption for two years beginning from its first profitable year and a 50%
reduction to a rate of 12.5% for the subsequent three years.
Fenghuang On-line was qualified as an HNTE in 2017 and 2020, respectively, and therefore, Fenghuang On-line was subject
to a 15% income tax rate for the years from 2018 to 2020.
Tianying Jiuzhou was qualified as an HNTE in 2017 and 2020, respectively, and therefore, Tianying Jiuzhou was subject to a
15% income tax rate from 2018 to 2020.
In 2017 and 2020, Fenghuang Yutian was qualified as an HNTE, respectively, and therefore, Fenghuang Yutian was subject
to a 15% income tax rate from 2018 to 2020.
In 2016, Fenghuang Borui was qualified as a Software Enterprise. As 2016 was the first year Fenghuang Borui generated
taxable profit, it was exempted from income taxes for the years 2016 and 2017, and was subject to a 12.5% income tax rate from 2018
to 2020.
All other PRC incorporated entities of the Group were subject to a 25% income tax rate for all the years presented.
F-42
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
The CIT Law also provides that an enterprise established under the laws of foreign countries or regions but whose “de facto
management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the
PRC income tax at the rate of 25% for its global income. On April 22, 2009, the State Administration of Taxation (“SAT”) issued a
circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of
a PRC-controlled enterprise that is incorporated offshore is located in China. Under Circular 82, an offshore incorporated enterprise
controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto
management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following
conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the
enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;
(iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located
or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. The
Company and its offshore subsidiaries have never been treated as resident enterprises for PRC tax purposes.
Withholding Tax on Undistributed Dividends
The CIT Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises in the PRC to
their immediate holding companies outside the PRC. A lower withholding tax rate may be applied if there is a tax treaty between the
PRC and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be subject to a 5.0%
withholding tax rate under an arrangement between the PRC and the Hong Kong Special Administrative Region on the “Avoidance of
Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital,” if such holding company is
considered a non-PRC resident enterprise and holds at least 25.0% of the equity interest in the PRC foreign invested enterprise
distributing the dividends, subject to approval of the PRC local tax authority. However, if the Hong Kong holding company is not
considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividend will remain subject to a
withholding tax rate of 10%.
The PRC subsidiaries, VIEs and subsidiaries of VIEs have not paid dividends in the past and do not have any present plans to
declare and pay any dividends on the Company’s ordinary shares or ADSs in the near future and the Group currently intends to retain
most, if not all, of its available funds and any future earnings to operate and expand the business. Accordingly, the Company does not
intend to have its PRC subsidiaries distribute any undistributed profits of such subsidiaries to their direct overseas parent companies,
but rather intends that such profits will be permanently reinvested in such subsidiaries to further expand their business in the PRC. As
of December 31, 2020, the Company did not record any withholding tax on the retained earnings of its foreign invested enterprises in
the PRC. Aggregate undistributed earnings of the Group’s entities located in the PRC that were available for distribution to the
Company as of December 31, 2019 and 2020 were approximately RMB937.8 million and RMB782.1 million (US$119.9 million),
respectively. The amounts of the unrecognized deferred tax liability on the permanently reinvested earnings were RMB93.8 million
and RMB78.2 million (US$12.0 million) as of December 31, 2019 and 2020, respectively.
Withholding Tax on gain from the disposal of available-for-sale debt investments in Particle
The Company is subject to PRC withholding tax of 10% on the gain recognized from the disposal of available-for-sale debt
investments in Particle , with any relevant tax adjustments if applicable, as regulated by the Public Notice on Several Issues regarding
Enterprise Income Tax for Indirect Property Transfer by Non-resident Enterprises, or SAT Circular 7, issued on February 3, 2015,
and the Public Notice Regarding Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Public
Notice 37, issued on October 17, 2017. The Company recognized accrued withholding taxes of gain on disposal of available-for-sale
debt investments of RMB142.6 million and RMB96.6 million (US$14.8 million) for the years ended December 31, 2019 and 2020,
respectively.
F-43
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
Reconciliation of the Differences between Statutory Tax Rate and the Effective Tax Rate for PRC Operations
Reconciliation of the differences between PRC statutory income tax rate and the Group’s effective income tax rate for PRC
continuing operations for the years ended December 31, 2018, 2019 and 2020 is as follows:
Statutory income tax rate
Permanent differences*
Change in valuation allowance
Effect of preferential tax treatment
Uncertain tax positions
Effective income tax rate
For the Years Ended December 31,
2019
%
2020
%
2018
%
25.0
46.5
(77.7)
(37.7)
(3.3)
(47.2)
25.0
7.2
(25.6)
(14.2)
(0.6)
(8.2)
25.0
(30.4)
42.7
28.2
2.0
67.5
Note:
* Permanent differences mainly included the tax-deductible expenses of the research and development expenses so incurred in a year
in determining their tax assessable profits for that year for enterprises engaging in research and development activities, as 175% of the
research and development expenses could be tax-deductible beginning from January 1, 2018, according to policies promulgated by the
State Tax Bureau of the PRC.
The combined effects of the income tax exemption and other preferential tax treatment available to the Group are as follows
(in thousands, except per share data):
Effect of preferential tax treatment
Basic net income/(loss) per share effect
Deferred Tax Assets and Liabilities
2018
RMB
For the Years Ended December 31,
2019
RMB
2020
RMB
(16,104)
(0.03)
(38,077)
(0.07)
(7,934)
(0.01)
2020
US$
(1,216)
(0.00)
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities balances as of December 31,
2019 and 2020 are as follows (in thousands):
Deferred tax assets:
Provision of allowance for credit losses
Accrued payroll and expenses and others
Net operating loss carryforward
Less: valuation allowance
Total deferred tax assets, net
Deferred tax liabilities:
Unrealized holding gain of available-for-sale debt investments*
Others
Total deferred tax liabilities
2019
RMB
As of December 31,
2020
RMB
2020
US$
31,000
31,816
126,665
(115,793)
73,688
48,161
28,716
137,799
(127,809)
86,867
2019
RMB
As of December 31,
2020
RMB
2020
US$
190,830
1,312
192,142
—
1,312
1,312
7,381
4,401
21,119
(19,588)
13,313
—
201
201
Note:
*The Company recognized a deferred tax liability of RMB190.8 million and nil for the unrealized holding gain of available-for-sale
debt investments in Particle, as of December 31, 2019 and 2020, respectively, which was recorded net against the pre-tax changes in
other comprehensive income. The decrease in deferred tax liability was mainly caused by the fact that the gain on disposal of
available-for-sale debt investments in Particle had been realized in 2020.
F-44
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
As of December 31, 2020, the Group had net operating loss of approximately RMB834.6 million (US$127.9 million), which
can be carried forward to offset future taxable income. Net operating loss carry forward of RMB44.8 million, RMB63.4 million,
RMB194.1 million, RMB416.7 million and RMB115.6 million will expire in 2021, 2022, 2023, 2024 and 2025, respectively, if not
utilized.
Movement of Valuation Allowance
Valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the
deferred tax assets will not be utilized in the future. In making such determination, the Group considered factors including future
reversals of existing taxable temporary differences, future profitability and tax planning strategies. Valuation allowance was provided
for net operating loss carry forward because it was more likely than not that such deferred tax assets will not be realized based on the
Group’s estimate of its future taxable income.
The following table sets forth the movement of the valuati on allowance for deferred tax assets (in thousands):
Balance as of January 1,
Additions
Increase from an acquired subsidiary
Reversals
Balance as of December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
14,208
37,549
—
(4,371)
47,386
47,386
68,209
997
(799)
115,793
115,793
15,692
—
(3,676)
127,809
17,746
2,405
—
(563)
19,588
As valuation allowance had been recognized for most of the increased net operating loss carry forward incurred in 2020
because it was more likely than not that such deferred tax assets will not be realized based on the Group’s estimate of its future taxable
income, there was an addition of RMB15.7 million (US$2.4 million) in valuation allowance in 2020.
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows (in
thousands):
Balance as of January 1,
Increase related to current year tax positions
Balance as of December 31,
2018
RMB
2019
RMB
24,714
1,417
26,131
26,131
1,481
27,612
2020
RMB
27,612
570
28,182
2020
US$
4,232
87
4,319
The Group did not accrue any potential penalties and interest related to these uncertain tax positions for all years presented on
the basis that the likelihood of penalties and interest being charged is not considered to be probable.
The amounts of uncertain tax positions listed above are based on the recognition and measurement criteria of ASC 740.
However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of uncertain tax
positions may result in liabilities which could be materially different from these estimates. In such an event, the Group will record
additional tax expense or tax benefit in the period in which such resolution occurs. The Group does not expect changes in uncertain
tax positions recognized as of December 31, 2020 to be material in the next twelve months. In accordance with PRC Tax
Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to claw back
underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the
law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities’ tax years from 2016 to 2020 remain
subject to examination by tax authorities. There are no ongoing examinations by tax authorities as of December 31, 2020.
F-45
Phoenix New Media Limited
Notes to Consolidated Financial Statements
17. Ordinary Shares
The Company has Class A ordinary shares and Class B ordinary shares which are all at par value of US$0.01 each. Holders of
Class A ordinary shares and Class B ordinary shares have the same rights except that holders of Class A ordinary shares are entitled to
one vote per share, while holders of Class B ordinary shares are entitled to 1.3 votes per share. The Parent, which is wholly owned by
Phoenix TV, holds Class B ordinary shares, each of which is convertible into one Class A ordinary share at any time by the holder
thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
As of December 31, 2019, there were 264,998,965 and 317,325,360 Class A and Class B ordinary shares issued and
outstanding, respectively. As of December 31, 2020, there were 264,998,965 and 317,325,360 Class A and Class B ordinary shares
issued and outstanding, respectively.
18. Share-based Compensation
Share-based compensation recognized in costs and expenses for the years ended December 31, 2018, 2019 and 2020 are as
follows (in thousands):
Cost of revenues
Sales and marketing expenses
General and administrative expenses
Technology and product development expenses
Total
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
3,750
2,360
5,072
2,807
13,989
5,173
1,402
4,041
1,243
11,859
2,613
1,764
3,648
1,358
9,383
400
270
560
208
1,438
The Group recognized share-based compensation, net of estimated forfeitures, on a graded-vesting basis over the vesting term
of the awards. There was no income tax benefit recognized in the consolidated statements of comprehensive income/(loss) for share-
based compensation and the Group did not capitalize any of the share-based compensation as part of the cost of any asset in the years
ended December 31, 2018, 2019 and 2020.
For the years ended December 31, 2018, 2019 and 2020, the Group recognized share-based compensation net of forfeitures
for options and restricted share unit of RMB14.0 million, RMB11.9 million and RMB9.4 million (US$1.4 million), respectively.
Share Options of the Company
In June 2008, the Company adopted the Share Option Scheme (the “June 2008 Scheme”) that provides for the granting of
options to employees, directors and consultants to attract and retain the best available personnel and promote the success of the
Group’s business, which terminated automatically in June 2018. In June 2018, the Company adopted another Share Option Scheme
(the “June 2018 Scheme”), whose main clauses are the same with the June 2008 Scheme. The schemes permit the grant of options to
its eligible recipients for up to 10% of the ordinary shares in issue (the “Limit”) on the effective dates of the schemes. The total
number of ordinary shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the
schemes and any other share option schemes of the Company shall not exceed 30% of the ordinary shares in issue from time to time.
The Company may seek approval from its shareholders to refresh the Limit provided that the Limit as refreshed shall not exceed 10%
of the ordinary shares of the Company in issue as at the date of approval, and options previously granted will not be counted for the
purpose of calculating the Limit as refreshed. Any outstanding option lapse in accordance with the terms of the schemes will not be
counted for the purpose of calculating the Limit. Option awards are granted with an exercise price determined by the board of
directors. Those option awards vest over a period of four years and expire in ten years.
In January 2018, the Company granted 3,314,500 share options to two non-employees for the content related consulting
services provided by them, which would vest over a period of four years and expire in ten years. The share-based awards to
nonemployees are accounted for based on the fair value of the consideration received or the fair value of the award issued, whichever
is more reliably measurable. The Company applies the guidance in ASU 2018-07 Compensation—Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting to account for share options granted to non-employees based on the
grant date fair value beginning from January 1, 2019.
F-46
Phoenix New Media Limited
Notes to Consolidated Financial Statements
18. Share-based Compensation (Continued)
Share Options of the Company (Continued)
A summary of the Company’s share option activities for the years ended December 31, 2018, 2019 and 2020 is presented
below:
Number of
Options
Weighted
Average
Exercise Price
US$
Weighted
Average
Remaining
Contractual Life
Years
Aggregate
Intrinsic Value
US$ in Million
Outstanding as of January 1, 2018
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2018
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2019
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2020
Exercisable as of December 31, 2020
Vested and expected to vest as of December 31, 2020
39,288,939
3,719,500
(3,933,599)
(4,823,106)
34,251,734
15,794,018
(7,128,379)
(174,373)
42,743,000
11,330,103
(1,847,750)
—
52,225,353
30,031,236
41,440,258
0.42
0.56
0.47
0.12
0.47
0.48
0.49
0.43
0.47
0.19
0.48
—
0.41
0.47
0.43
6.7
6.4
6.4
6.2
4.2
5.5
15.3
2.3
—
—
—
—
—
—
—
The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest as of December 31, 2020
was calculated as the difference between the Company’s closing stock price of US$1.20 per ADS, or US$0.15 per share as of that
date, and the exercise price of the underlying options. The aggregate intrinsic value of options exercised was calculated as the
difference between the market value on the date of exercise and the exercise price of the underlying options.
As disclosed in Note 2(z), the Company’s share-based compensation is measured at the value of the award as calculated under
the Black-Scholes option pricing model. The Company estimated the expected volatility at the date of grant based on average
annualized standard deviation of the share price of comparable listed companies. The Company has no history or expectation of
paying regular dividends on its ordinary shares. The Company estimated the expected term based on the vesting schedule and the
exercise period of the options. Risk-free interest rates are based on the derived market yield of the U.S. Treasury securities with an
estimated country-risk differential as of the valuation date. The key assumptions used in determining the fair value of options granted
during the years ended December 31, 2018, 2019 and 2020 are as follows:
Expected volatility rate
Expected dividend yield
Expected term (years)
Risk-free interest rate (per annum)
2018
56.76%-57.10%
—
2.50-6.16
0.91%-2.09%
For the Years Ended December 31,
2019
55.92%-77.98%
—
1.00-6.16
2.33%-3.12%
2020
58.59%-74.15%
—
0.50-6.16
1.14%-2.37%
The weighted-average grant date fair value of options granted for the years ended December 31, 2018, 2019 and 2020 were
US$0.48, US$0.20 and US$0.12, respectively.
As of December 31, 2020, there was RMB6.7 million (US$1.0 million) of unrecognized share-based compensation for
options, adjusted for estimated forfeitures. The unrecognized share-based compensation is expected to be recognized over a weighted-
average period of 3.0 years.
F-47
Phoenix New Media Limited
Notes to Consolidated Financial Statements
18. Share-based Compensation (Continued)
Share-based Awards of the Company’s Subsidiaries, VIEs and Subsidiaries of the VIEs
One of the Company’s subsidiaries, Fread Limited, adopted a restricted share unit scheme in March 2018 to grant a total of
2,000,000 restricted share units to employees (the “2018 Fread RSU Scheme”). As of December 31, 2020, 920,000 restricted share
units of Fread Limited have been granted under the 2018 Fread RSU Scheme. For the years ended December 31, 2019 and 2020,
Fread Limited recognized share-based compensation net of forfeitures of RMB3.8 million and RMB0.3 million (US$0.04 million),
respectively.
19. Segments
The Group currently operates in two principal operating segments: net advertising services and paid services. Information
provided to the CODM is at the gross margin level. The Group currently does not allocate operating expenses or assets to its segments,
as its CODM does not use such information to allocate resources to or evaluate the performance of the operating segments.
The following table presents summarized information by segments (in thousands):
Revenues
Net advertising services
Paid services
Total revenues
Cost of revenues
Net advertising services
Paid services
Total cost of revenues
Gross profit
Net advertising services
Paid services
Total gross profit
2018
RMB
For the Years Ended December 31,
2019
RMB
2020
RMB
2020
US$
1,198,150
178,131
1,376,281
517,524
78,319
595,843
680,626
99,812
780,438
1,194,761
133,020
1,327,781
623,787
59,543
683,330
570,974
73,477
644,451
1,113,017
95,828
1,208,845
523,813
35,473
559,286
589,204
60,355
649,559
170,577
14,686
185,263
80,278
5,436
85,714
90,299
9,250
99,549
F-48
Phoenix New Media Limited
Notes to Consolidated Financial Statements
20. Fair Value Measurements
Assets and Liabilities Measured and Disclosed at Fair Value on a Recurring Basis
In accordance with ASC 820, the Group measures term deposits and short term investments, restricted cash, available-for-sale
debt investments and forward contract at fair value on a recurring basis.
The following table sets forth the financial instruments, measured at fair value on a recurring basis, by level within the fair
value hierarchy (in thousands):
As of December 31, 2019:
Assets:
Term deposits and short term investments
Restricted cash
Available-for-sale debt investments
Liability:
Fair Value Measurements at Reporting Date Using
Carrying
Value
on Balance
Sheets
RMB
Quote Prices
in Active
Market for
Identical Assets
(Level 1)
RMB
Significant
Other
Observable
Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
1,271,889
66,234
2,014,537
488,488
66,234
—
783,401
—
—
—
—
2,014,537
Forward contract in relation to disposal of investments in Particle
15,988
—
—
15,988
As of December 31, 2020:
Assets:
Term deposits and short term investments
Restricted cash
Available-for-sale debt investments
1,280,033
31,039
36,662
—
31,039
—
1,280,033
—
—
—
—
36,662
The following table sets forth the reconciliation of the fair value measurements of available-for-sale debt investments from
January 1, 2018 to December 31, 2020 (in thousands):
Beginning balance as of January 1, 2018
Change in fair value
Currency translation adjustment
Additional investments
Ending balance as of December 31, 2018
Change in fair value
Disposal of part available-for-sale debt investments
Currency translation adjustment
Ending balance as of December 31, 2019
Change in fair value
Disposal of part available-for-sale debt investments
Additional investments
Currency translation adjustment
Impairment
Ending balance as of December 31, 2020
Fair Value
Measurements of
Available-for-sale
Debt Investments
RMB
1,196,330
698,592
64,552
2,000
1,961,474
1,385,379
(1,390,031)
57,715
2,014,537
(985,704)
(1,005,150)
49,041
(34,062)
(2,000)
36,662
Term deposits. The fair values of term deposits placed with banks with original maturity of more than three months and up to
one year are determined based on the pervasive interest rates in market as stated in the contracts with the banks. The Group classifies
the valuation techniques that use the interest rates input as Level 1 of fair value measurement.
F-49
Phoenix New Media Limited
Notes to Consolidated Financial Statements
20. Fair Value Measurements (Continued)
Assets and Liabilities Measured and Disclosed at Fair Value on a Recurring Basis (Continued)
Short term investments. Short term investments represent interest-bearing deposit placed with financial institutions which are
restricted to withdrawal and use. The investments are issued by commercial bank in the PRC with a variable interest rate indexed to
performance of underlying assets. To estimate fair value, the Group refers to the quoted rate of return provided by banks at the end of
each period using the discounted cash flow method. The Group classifies the valuation techniques that use these inputs as Level 2 of
fair value measurements.
Restricted cash. The Group’s restricted cash represents deposits that are restricted to withdrawal or usage. The fair values of
restricted cash are determined based on the pervasive interest rate in the market. The Group classifies the valuation techniques that use
the pervasive interest rates input as Level 1 of fair value measurement.
Available-for-sale debt investments. Available-for-sale debt investments mainly represent the investments of convertible
redeemable preferred shares in Particle. In accordance with ASC 820, the Group measures available-for-sale debt investments at fair
value on a recurring basis. As the Company entered into a binding letter of intent (the “LOI”) in February 2019, the fair values of the
investments in Particle were determined based on the scenario analysis, the weighted average valuation results derived from both the
discounted cash flow model and the market approach, and the probability of each scenario as of December 31, 2018. As the Company
has completed delivery of the first batch of 94,802,752 preferred shares of Particle to the Proposed Buyers in 2019, the fair values of
the investments in Particle as of December 31, 2019 were determined based on a valuation technique under the market approach,
known as guideline company method, where financial ratios of comparable companies were analyzed to determine the value of
Particle, as well as using observable transactions of Particle’s shares. In August 2020, the Company acquired 4,584,209 series D1
preferred shares of Particle from Run Liang Tai, which were previously pledged to the Company to secure the repayment of an
interest-free loan with the principal of approximately US$9.7 million granted by the Company to Run Liang Tai. As the Company has
completed delivery of 140,248,775 preferred shares of Particle in 2020 and only holds 4,584,209 series D1 preferred shares of Particle
as of December 31, 2020, the fair values of the investments in Particle as of December 31, 2020 were determined based on a valuation
technique under the market approach, known as guideline company method, where financial ratios of comparable companies were
analyzed to determine the value of Particle. The Group classifies the valuation techniques that use unobservable inputs as Level 3 of
fair value measurements.
The key inputs used in valuation of available-for-sale debt investments in Particle as of December 31, 2018, 2019 and 2020
were as follow:
Discount rate
Lack of marketability discount (“DLOM”)
Volatility
Revenue growth rate
Terminal growth rate
Control premium
Probability of each scenario
As of December 31,
2018
2019
2020
Under the Status
Quo
Scenario*
22.5%
20%
44.5%
3.7%-75.8%
3%
N/A
60%
Under the Trade
Sale
Scenario**
17%
15%
44.8%
3.7%-75.8%
3%
30%
40%
N/A
5%
45.7%
N/A
N/A
N/A
N/A
N/A
25%
55.3%
N/A
N/A
N/A
N/A
Note:
*Under the status quo scenario, the Company would not close the transaction contemplated under the LOI, and would keep holding
the investments of convertible redeemable preferred shares in Particle and maintain the status quo.
**Under the trade sale scenario, the Company would close the transaction contemplated under the LOI, and the Company would go
through trade sales on the investments of convertible redeemable preferred shares in Particle.
Forward contract in relation to disposal of investments in Particle. Forward contract in relation to disposal of investments in
Particle represented the derivative forward contract resulting from the Supplemental Agreement between the Proposed Buyers and the
Company, which stated the payment of the agreed-upon price in exchange for the second batch of preferred shares of Particle on or
before August 10, 2020, and thus should be recognized as asset or liability and measured at fair value. The fair values of forward
contract in relation to disposal of investments in Particle were determined based on a valuation technique using inputs including fair
F-50
Phoenix New Media Limited
Notes to Consolidated Financial Statements
value of the underlying assets, risk-free interest rate, term and the delivery price in the Supplemental Agreement. The Group classifies
the valuation techniques that use unobservable inputs as Level 3 of fair value measurements.
20. Fair Value Measurements (Continued)
Assets and Liabilities Measured and Disclosed at Fair Value on a Non-Recurring Basis
The Group’s non-financial long-lived assets, such as intangible assets, goodwill and fixed assets, would be measured at fair
value only if they were determined to be impaired on an other-than-temporary basis. The Group uses a combination of valuation
methodologies, including market and income approaches based on the Group’s best estimate to determine the fair value of these non-
financial assets. Inputs used in these methodologies primarily included future cash flows, discount rate, expected volatility and the
selection of comparable companies operating in similar businesses.
For equity investments without readily determinable fair values accounted for under the measurement alternative, when there
are observable price changes in orderly transactions for identical or similar investments of the same issuer, the investments are re-
measured to fair value. The non-recurring fair value measurements to the carrying amount of an investment usually requires
management to estimate a price adjustment for the different rights and obligations between a similar instrument of the same issuer
with an observable price change in an orderly transaction and the investment held by the Company. These non-recurring fair value
measurements were measured as of the observable transaction dates. The valuation methodologies involved require management to
use the observable transaction price at the transaction date and other unobservable inputs (level 3) such as volatility of comparable
companies and probability of exit events as it relates to liquidation and redemption preferences.
Accounts receivable, notes receivable, amounts due from related parties, prepayments and other current assets, accounts
payable, amounts due to related parties, salary and welfare payable, accrued expense, and other current liabilities are financial assets
or liabilities with carrying values that approximate fair value due to their short term nature.
F-51
Phoenix New Media Limited
Notes to Consolidated Financial Statements
21. Net (Loss)/Income per Share
The following table sets forth the computation of basic and diluted net (loss)/income per share for the years indicated
(amounts in thousands, except for number of shares and per share data):
Net (loss)/income per Class A and Class B ordinary share — basic:
Numerator:
Net (loss)/income from continuing operations attributable to Phoenix New Media
Limited
Net (loss)/income from discontinued operations attributable to Phoenix New Media
Limited
Net (loss)/income attributable to Phoenix New Media Limited
Denominator:
Weighted average number of Class A and Class B ordinary shares outstanding
Weighted average number of contingently issuable shares
Denominator used in computing Net (loss)/income per share — basic
Net (loss)/income from continuing operations per Class A and Class B ordinary share
— basic
Net (loss)/income from discontinued operations per Class A and Class B ordinary
share — basic
Net (loss)/income per Class A and Class B ordinary share — basic
Net (loss)/income per Class A and Class B ordinary share — diluted:
Numerator:
Net (loss)/income from continuing operations attributable to Phoenix New Media
Limited
Net (loss)/income from discontinued operations attributable to Phoenix New Media
Limited
Net (loss)/income attributable to Phoenix New Media Limited
Denominator:
Denominator used in computing Net (loss)/income per share — basic
Share-based awards
Denominator used in computing Net (loss)/income per share — diluted
Net (loss)/income from continuing operations per Class A and Class B ordinary share
— diluted
Net (loss)/income from discontinued operations per Class A and Class B ordinary
share — diluted
Net (loss)/income per Class A and Class B ordinary share — diluted
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
(63,142)
664,196
417,976
(80)
(63,222)
63,633
727,829
(37,607)
380,369
64,058
(5,764)
58,294
580,516,101
568,352
581,084,453
582,275,800
—
582,275,800
582,324,325
—
582,324,325
582,324,325
—
582,324,325
(0.11)
1.14
0.00
(0.11)
0.11
1.25
0.72
(0.07)
0.65
(63,142)
664,196
417,976
(80)
(63,222)
63,633
727,829
(37,607)
380,369
0.11
(0.01)
0.10
64,058
(5,764)
58,294
581,084,453
—
581,084,453
582,275,800
—
582,275,800
582,324,325
—
582,324,325
582,324,325
—
582,324,325
(0.11)
1.14
0.00
(0.11)
0.11
1.25
0.72
(0.07)
0.65
0.11
(0.01)
0.10
The Company has included 568,352, nil and nil contingently issuable shares in the denominator used in computing basic and
diluted net income/(loss) per share for the years ended December 31, 2018, 2019 and 2020, respectively. These shares are contingently
issuable upon the holders’ request without other substantive conditions and for no further consideration. There were 35,183,115,
34,445,604 and 37,940,736 options to purchase ordinary shares have been excluded from the computation of diluted net income/(loss)
per share for the years ended December 31, 2018, 2019 and 2020, respectively, as their effects would be anti-dilutive.
F-52
Phoenix New Media Limited
Notes to Consolidated Financial Statements
22. Commitments and Contingencies
(a) Commitments
As of December 31, 2020, future minimum commitments under non-cancelable agreements were as follows (in thousands):
Property
Management
Costs
RMB
Bandwidth
Purchases
RMB
Cooperation
with
Phoenix TV
Group
RMB
Content
Purchases
RMB
Property and
Equipment, and
Intangible Assets
RMB
Equity
Investment
RMB
2021
2022
2023
2024
2025 and
thereafter
Total
7,836
2,983
37
—
—
10,856
19,582
—
—
—
—
19,582
3,305
1,305
1,305
—
—
5,915
15,417
2,624
189
189
—
18,419
897
280
280
—
—
1,457
18,000
—
—
—
—
18,000
Others
RMB
Total
RMB
4,001
311
272
112
239
4,935
69,038
7,503
2,083
301
239
79,164
The amounts of cooperation with Phoenix TV Group are calculated according to the agreements between the Group and
Phoenix TV Group (see Note 2(a)).
Upon the adoption of ASC 842 on January 1, 2019, future minimum lease payments for operating lease commitments as of
December 31, 2020 are disclosed in Note 2(y).
The Group did not have any significant capital and other commitments, long-term obligations, or guarantees as of
December 31, 2019 and 2020.
(b) Litigation
From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. The
Group is currently a party to certain legal proceedings and claims which in the opinion of the Company’s management, adequate
provisions have been recorded to cover the probable loss of those that can be reasonably estimated, while other claims are considered
would not have material adverse effect, individually or in the aggregate, on the Group’s financial position, results of operations or
cash flows.
In April 2018, the Group received notices from a local court that certain plaintiffs have filed a lawsuit against it about the
infringement of copyright and unauthorized selling on the Group’s website and mobile applications for a piece of literature work, with
the related claim for damages of approximately RMB99.8 million. However, the actual income the Group generated from such
literature work was less than RMB1,500. The Group received the judgment from the local court in April 2020 and received the final
judgement from a higher local court in December 2020, which both ordered it to pay the plaintiffs a total of approximately RMB1.0
million as economic compensation and reimbursement of the plaintiff’s reasonable expenses. As of the date of this annual report, the
time limit for lodging an appeal against the judgments has not expired yet and the Group cannot assure that the plaintiffs or it will not
appeal another judgment.
Litigation is subject to inherent uncertainties and the Group’s view of these matters may change in the future. There exists the
possibility of a material adverse impact on the Group’s financial position, results of operations or cash flows for the period in which
the unfavorable outcome occurs, and potentially in future periods.
(c) Long-term Liabilities for Uncertain Tax Positions
As mentioned in Note 16, as of December 31, 2019 and 2020, the Group had recorded uncertain tax positions of RMB27.6
million and RMB28.2 million (US$4.3 million), respectively.
F-53
Phoenix New Media Limited
Notes to Consolidated Financial Statements
23. Related Party Transactions
The table below sets forth the major related parties and their relationships with the Group:
Related Parties
Other entities within the Phoenix TV Group
China Mobile Communication Corporation China Mobile (“China
Mobile”)
Under common control by Phoenix TV
A shareholder of Phoenix TV
Relationships with the Group
Fengxin Technology (Haikou) Group Co., Ltd (“Lilita”)*
Other equity investee, related party of Phoenix TV Group
Particle Inc. (“Particle”)
Beijing Fenghuang Tianbo Network Technology Co., Ltd. (“Tianbo”)
Phoenix FM Limited (“Phoenix FM”)
Shenzhenshi Fenghuang Jingcai Network Technology Co., Ltd.
(“Fenghuang Jingcai”)
Yitong Technology (Hangzhou) Limited (“Yitong Technology”)
Lifeix Inc.
Shenzhen Kuailai Technology Co., Ltd. (“Kuailai”)
Henan Fengyi Feiyang Network Technology Limited (“Fengyi
Technology”)
Mr. Gao Ximin and Mr. Qiao Haiyan
Mr. He Yansheng and Mr Shang Xiaowei
Mr. Wu Haipeng and Mr. He Yansheng
Available-for-sale debt investee. Former related party, unrelated party as of December
31,2020
Former equity method investee, and current subsidiary of VIEs since April 1, 2019
Former equity method investee, and current subsidiary since April 2020
Equity method investee
Other equity investee
Other equity investee
Other equity investee
Available-for-sale debt investee
Legal shareholders of Tianying Jiuzhou and employees of the Group
Legal shareholder of Yifeng Lianhe and employee of the Group
Legal shareholders of Chenhuan and employees of the Group
Note:
*In 2019, the name of “Beijing Phoenix Lilita Information Technology Co., Ltd.” was changed to “Fengxin Technology (Haikou)
Group Co., Ltd.”.
In addition to those disclosed elsewhere in the financial statements, the Group had the following significant related party
transactions during the years ended December 31, 2018, 2019 and 2020 (in thousands):
Transactions with the Other Entities Within the Phoenix TV Group:
Content provided by Phoenix TV Group
Advertising and promotion expenses charged by Phoenix TV Group
Corporate administrative expenses charged by Phoenix TV Group
Trademark license fees charged by Phoenix TV Group
Project cost charged by Phoenix TV Group
Revenues earned from Phoenix TV Group
Transactions with China Mobile:
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
(12,398)
(4,258)
(2,166)
(5,752)
(1,763)
14,354
(11,302)
(4,157)
(2,057)
(4,988)
(1,148)
15,705
(2,595)
(2,549)
(681)
(4,358)
(487)
10,635
(398)
(391)
(104)
(668)
(75)
1,630
Advertising revenues earned from China Mobile
Paid services revenues earned from and through China Mobile
Revenue sharing fees and bandwidth costs charged by China Mobile
2018
RMB
27,532
86,352
(15,929)
For the Years Ended December 31,
2019
RMB
2020
RMB
23,256
60,484
(13,999)
23,747
30,486
(6,487)
2020
US$
3,639
4,672
(994)
F-54
Phoenix New Media Limited
Notes to Consolidated Financial Statements
23. Related Party Transactions (Continued)
Transactions with Investees:
Advertising revenues earned from Tianbo
Advances provided toTianbo
Revenues earned from other investee
Loans repaid by Particle
Related interest income including the effect of foreign exchange arising from
convertible loans to Particle
Corporate administrative expenses charged by Particle
Sales of assets to Particle at carrying value
Other income earned from Particle
Advertising revenues earned from Fengyi Technology
Revenue sharing fees charged by investees
Advertising and promotion expenses charged by Fengyi Technology
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
193
10,721
181
(84,083)
8,993
(82)
(413)
—
—
(77)
—
16
247
315
—
—
—
—
1,990
12,612
(62)
—
—
—
—
—
—
—
—
—
3,721
—
(142)
—
—
—
—
—
—
—
—
570
—
(22)
Note:
* As Tianbo has been consolidated starting from April 1, 2019, related party transactions with Tianbo in 2019 only included those
incurred from January 1, 2019 to March 31, 2019.
As of December 31, 2019 and 2020, the amounts of due from and due to related parties were as follows (in thousands):
Amounts due from related parties:
Due from China Mobile
Due from Phoenix TV Group
Due from Particle, net
Due from Fengyi Technology
Due from other investees, net
Total
Amounts due to related parties:
Due to China Mobile
Due to Phoenix TV Group
Due to Fengyi Technology
Due to Others
Total
2019
RMB
As of December 31,
2020
RMB
2020
US$
43,075
10,224
1,040
1,900
414
56,653
3,601
24,636
4,996
922
34,155
16,018
11,408
—
5,000
161
32,587
3,835
23,461
6,310
814
34,420
2,455
1,748
—
766
25
4,994
588
3,596
967
124
5,275
The amounts due from Phoenix TV Group represent accounts receivable from Phoenix TV Group for the advertising services
provided to its customers, and the amounts due to Phoenix TV Group represent resources or services provided by Phoenix TV Group,
expenses paid by Phoenix TV Group on behalf of the Group, and expenses charged by Phoenix TV Group under the cooperation
agreements (see Note 2 (a)).
F-55
Phoenix New Media Limited
Notes to Consolidated Financial Statements
24. Restricted Net Assets
Relevant PRC laws and regulations permit payments of dividends by the Company’s subsidiaries, the VIEs and the
subsidiaries of the VIEs incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations. In addition, the Company’s subsidiaries, the VIEs and the subsidiaries of the VIEs incorporated
in the PRC are required to annually appropriate 10% of their net after-tax income to the general reserve fund or the statutory surplus
fund prior to payment of any dividends, unless such reserve funds have reached 50% of their respective registered capital. As a result
of these and other restrictions under PRC laws and regulations, and in accordance with Securities and Exchange Commission
Regulation S-X Rule 4-08 (e) (3), General Notes to Financial Statements, the Company’s subsidiaries, the VIEs and the subsidiaries
of the VIEs incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company either in the
form of dividends, loans or advances, which the restricted portion amounted to approximately RMB759.1 million and RMB636.5
million (US$97.5 million) as of December 31, 2019 and 2020, respectively. Even though the Company currently does not require any
such dividends, loans or advances from the PRC entities for working capital and other funding purposes, the Company may in the
future require additional cash resources from them due to changes in business conditions, to fund future acquisitions and development,
or merely to declare and pay dividends or distributions to the Company’s shareholders. Except for the above, there is no other
restriction on use of proceeds generated by the Company’s subsidiaries, the VIEs and the subsidiaries of the VIEs to satisfy any
obligations of the Company.
The Company performed a test on the restricted net assets of the Company’s subsidiaries, the VIEs and the subsidiaries of the
VIEs in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), General Notes to Financial
Statements and concluded that it was applicable for the Company to disclose its condensed financial information for the year ended
December 31, 2020, as restricted net assets of the Company’s subsidiaries, the VIEs and the subsidiaries of the VIEs had exceeded 25
percent of consolidated net assets for the year ended December 31, 2020. For the purposes of presenting the Company’s separate
financial information, the Company records its investments in its subsidiaries and VIEs under the equity method of accounting. Such
investments are presented on the separate condensed balance sheets of the Company as “Investments using equity accounting” and
“Share of profit of investments using equity accounting, net of impairments” in the condensed statements of comprehensive
income/(loss). See Note 26 for the Company’s information.
25. Subsequent Events
In January 2021, we acquired additional 1.89% partnership interests in Kesheng Jiada, representing 0.5% indirect equity
interests in 4K Garden, with a consideration of RMB5.0 million (US$0.8 million).
In March 2021, shareholders of Yifeng Lianhe transferred all of their equity interests in Yifeng Lianhe to Beijing Fenghuang
Ronghe Investment Co., Ltd. (“Fenghuang Ronghe”), and Yifeng Lianhe became a wholly owned subsidiary of Fenghuang Ronghe.
Fenghuang On-line terminated the contractual agreements with Yifeng Lianhe and then entered into a series of new contractual
arrangements with Fenghuang Ronghe. The contractual arrangements with Fenghuang Ronghe and their respective shareholders allow
the Group to effectively control Fenghuang Ronghe (and indirectly control Yifeng Lianhe) and to derive substantially all of the
economic benefits from them.
26. Additional Information - Condensed Financial Statements of the Company
The condensed financial statements of Phoenix New Media Limited have been prepared in accordance with SEC Regulation
S-X Rule 5-04 and Rule 12-04.
The Company records its investments in subsidiaries and VIEs under the equity method of accounting. Such investments are
presented on the balance sheets as “Investments using equity accounting”, and the profit of subsidiaries and VIEs is presented as
“Share of profit of investments using equity accounting, net of impairments” in the statement of comprehensive income/(loss).
As of December 31, 2019 and 2020, there were no material contingencies, significant provisions for long-term obligations, or
guarantees of the Company, except for those, if any, which have been separately disclosed in the consolidated financial statements.
F-56
Phoenix New Media Limited
Notes to Consolidated Financial Statements
Phoenix New Media Limited
Condensed Financial Information of the Company
Balance Sheets
(Amounts in thousands, except for number of shares and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Amounts due from subsidiaries and VIEs
Prepayments and other current assets
Total current assets
Non-current assets:
Investments using equity accounting
Available-for-sale debt investments
Total non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Amounts due to related parties
Amounts due to subsidiaries and VIEs
Deposits in relation to disposal of investment in Particle
Taxes payable
Accrued expenses and other current liabilities
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity:
2019
RMB
As of December 31,
2020
RMB
2020
US$
7,681
1,021,268
3,300
1,032,249
1,020,099
2,012,537
3,032,636
4,064,885
13
8,489
355,212
141,016
37,575
542,305
190,829
190,829
733,134
24,932
867,801
968
893,701
975,487
36,662
1,012,149
1,905,850
—
16,429
—
225,960
27,717
270,106
—
—
270,106
3,821
132,996
148
136,965
149,500
5,619
155,119
292,084
—
2,518
—
34,630
4,247
41,395
—
—
41,395
Class A ordinary shares (US$0.01 par value, 680,000,000 shares authorized; 264,998,965
and 264,998,965 shares issued and outstanding as of December 31, 2019 and 2020,
respectively)
Class B ordinary shares (US$0.01 par value, 320,000,000 shares authorized; 317,325,360
and 317,325,360 shares issued and outstanding as of December 31, 2019 and 2020,
respectively)
Additional paid-in capital
Statutory reserves
Retained earnings/(accumulated deficits)
Accumulated other comprehensive income/(loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
17,499
17,499
2,682
22,053
1,611,484
88,583
186,324
1,405,808
3,331,751
4,064,885
22,053
1,620,580
92,017
(88,191)
(28,214)
1,635,744
1,905,850
3,380
248,365
14,102
(13,516)
(4,324)
250,689
292,084
F-57
Phoenix New Media Limited
Notes to Consolidated Financial Statements
Phoenix New Media Limited
Condensed Financial Information of the Company
Statements of Comprehensive Income/(Loss)
(Amounts in thousands)
Operating expenses:
General and administrative expenses
Total operating expenses
Loss from operations
Other income/(loss):
Net interest income/(expense)
Foreign currency exchange (loss)/gain
Income from equity method investments, net of impairments
Gain on disposal of convertible loans due from a related party
Gain on disposal of available-for-sale debt investments
Changes in fair value of loan related to co-sale of Particle shares
Changes in fair value of forward contract in relation to disposal of investments
in Particle
Others, net
Share of loss of investments using equity accounting, net of impairments
Net (loss)/income
Other comprehensive income/(loss)
Comprehensive income/(loss)
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
(8,209)
(8,209)
(8,209)
326
(11,599)
—
10,565
—
—
—
8,230
(62,535)
(63,222)
618,114
554,892
(40,621)
(40,621)
(40,621)
(2,714)
(3,877)
—
—
1,001,181
—
4,441
2,701
(233,282)
727,829
217,450
945,279
(39,303)
(39,303)
(39,303)
1
17,010
6,013
—
477,254
(24,535)
16,085
5,580
(77,736)
380,369
(1,434,022)
(1,053,653)
(6,023)
(6,023)
(6,023)
—
2,607
922
—
73,142
(3,760)
2,465
855
(11,914)
58,294
(219,773)
(161,479)
F-58
Phoenix New Media Limited
Notes to Consolidated Financial Statements
Phoenix New Media Limited
Condensed Financial Information of the Company
Statements of Cash Flows
(Amounts in thousands)
Cash flows from operating activities:
Net cash used in operating activities
Cash flows from investing activities:
Placement of term deposits and short term investments
Maturity of term deposits and short term investments
Proceeds from disposal of convertible loans due from a
related party
Net proceeds from disposal of available-for-sale debt investments
Deposits received from proposed buyers of investments in Particle
Net cash provided by investing activities
Cash flows from financing activities:
Proceeds from/(repayment of) short-term bank loans
(Payment to)/repayment from subsidiaries and VIEs
Proceeds from exercise of stock options
Dividends paid to shareholders
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
For the Years Ended December 31,
2018
RMB
2019
RMB
2020
RMB
2020
US$
(9,113)
(46,388)
(113,573)
(17,405)
(120,220)
27,781
(673,350)
788,056
111,957
—
—
19,518
250,492
(279,607)
3,677
—
(25,438)
(15,033)
41,208
26,175
—
1,403,046
357,974
1,875,726
(267,886)
(877,312)
511
(703,145)
(1,847,832)
(18,494)
26,175
7,681
—
—
—
695,937
—
695,937
—
72,262
—
(637,375)
(565,113)
17,251
7,681
24,932
—
—
—
106,657
—
106,657
—
11,074
—
(97,682)
(86,608)
2,644
1,177
3,821
F-59