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, 2021.
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, 2021
317,325,360 Class B ordinary shares were outstanding as of December 31, 2021
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, 2021
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
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBIT INDEX
Page
4
4
4
5
63
101
101
121
128
131
131
132
138
139
141
141
141
141
142
142
142
143
143
143
143
143
143
144
144
144
144
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;
• “Chenhuan” refers to Beijing Chenhuan Technology Co., Ltd., a PRC domestic company and one of the VIEs;
• “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 the
VIEs;
• “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, 2022.
• “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;
• “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
the VIEs;
1
• “VIEs” 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. Significant part of our operations in
China are conducted by the VIEs, in which we do not own any equity interest, through 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;
• “we”, “us”, “our company”, “our” and “Phoenix New Media” refer to Phoenix New Media Limited, a Cayman Islands
company and its subsidiaries, and, in the context of describing our operations and consolidated financial information, its
VIEs in China, including but not limited to Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan; 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,
2019, 2020 and 2021, and as of December 31, 2020 and 2021.
Our ADSs are listed on the New York Stock Exchange under the symbol “FENG.”
Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report
are made at a rate of RMB6.3726 to US$1.00, the exchange rate in effect as of December 30, 2021 as set forth in the H.10 statistical
release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar
amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.
2
Forward-Looking Information
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.
3
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
PART I
Not required.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not required.
4
ITEM 3. KEY INFORMATION
Our Corporate Structure
The following diagram illustrates our corporate structure as of the date of this annual report, including our subsidiaries, the
VIEs and their subsidiaries which are significant subsidiaries as defined in rule 1-02(w) of Regulation S-X:
Our Corporate Structure and Contractual Arrangements with the VIEs
Phoenix New Media Limited is not an operating company in China but a Cayman Islands holding company, which has no
equity ownership in its VIEs, with operations primarily conducted by its PRC subsidiaries and through contractual arrangements with
its VIEs based in China. Currently, VIEs are (i) Fenghuang Ronghe, (ii) Tianying Jiuzhou and (iii) Chenhuan. Under the PRC laws
and regulations, the operation and provision of internet information services to the public, value-added telecommunication-based
online marketing, internet audio visual program services and internet culture operations (except for music) in the PRC is subject to
foreign investment restrictions and license requirements. Therefore, we operate such businesses in China through the VIEs, and rely
on contractual arrangements among our PRC subsidiaries, the VIEs and their respective shareholders to control the business
operations of the VIEs. Revenue contributed by the VIEs and their subsidiaries accounted for 48.3%, 42.2% and 44.7% of our total
revenues for the years ended December 31, 2019, 2020 and 2021, respectively. As used in this annual report, “we”, “us”, “our
company”, “our” and “Phoenix New Media” refer to Phoenix New Media Limited, a Cayman Islands company and its subsidiaries,
and, in the context of describing its operations and consolidated financial information, its VIEs in China, including but not limited to
Tianying Jiuzhou, Fenghuang Ronghe and Chenhuan. Investors in our ADSs are not purchasing equity interest in our operating
entities in China, but instead are purchasing an equity interest in Phoenix New Media Limited, a Cayman Islands holding company.
The VIEs are consolidated with our results of operations for accounting purposes. However, we do not own equity interest in
Fenghuang Ronghe, Tianying Jiuzhou, or Chenhuan. Furthermore, Phoenix New Media Limited, as our holding company, does not
conduct operating activities other than holding investment in certain of our equity investees.
Our Subsidiaries, the VIEs and their respective shareholders have entered into a series of contractual agreements, including
loan agreements, equity pledge agreements, exclusive equity option agreements, exclusive technical consulting and service
agreements, voting right entrustment agreements, and spousal consent letters. Terms contained in the contractual arrangements with
each of the VIEs and their respective shareholders are substantially similar. For more details of these contractual arrangements, see
“Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIEs.”
The contractual arrangements may not be as effective as ownership in providing us with control over the VIEs. If the VIEs or
their shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by
5
the VIEs is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in
reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties regarding
the interpretation and enforcement of the relevant laws and regulations. Furthermore, in connection with litigation, arbitration or other
judicial or dispute resolution proceedings, assets under the name of any of record holder of equity interest in the VIEs, including such
equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed
pursuant to the contractual arrangement or ownership by the record holder of the equity interest. See “—D. Risk Factors—Risks
Relating to Our Corporate Structure—We rely on contractual arrangements with the VIEs 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,” and “—D. Risk Factors—Risks Relating to Our Corporate Structure—The
shareholders of the VIEs may have potential conflicts of interest with us.”
Our corporate structure is subject to risks associated with our contractual arrangements with the VIEs. Investors may never
directly hold equity interests in the VIEs. If the PRC government finds that the agreements that establish the structure for operating
our business do not comply with PRC laws and regulations, or if these regulations or their interpretations change in the future, we
could be subject to severe penalties, forced to relinquish our interests in those operations or required to restructure our ownership
structure or operations, including terminating the contractual arrangements with the VIEs or deregistering the equity pledge of the
VIEs, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over the VIEs
and thus have a material effect on our operations and result in the value of our ADSs diminishing substantially and our ADSs may
become worthless. Our holding company, our PRC subsidiaries, the VIEs, and investors of our company face uncertainty regarding
potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and,
consequently, significantly affect the financial performance of the VIEs and our company as a whole.
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws,
regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual
arrangements with the VIEs and their respective shareholders. It is uncertain whether any new PRC laws or regulations relating to
variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of the VIEs is found to be in
violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the
relevant PRC regulatory authorities would have broad discretion in accordance with the applicable laws and regulations to take action
in dealing with such violations or failures. See “—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 “—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.”
We face various legal and operational risks and uncertainties associated with being based in or having our operations
primarily in China and the country’s complex and evolving laws and regulations. For example, we face risks associated with
regulatory approvals on offerings conducted overseas by and foreign investment in China-based issuers, the use of the VIEs, anti-
monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain
businesses, accept foreign investments, or list on a United States or other foreign exchange outside of China. These risks could result
in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to offer
or continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. For a
detailed description of risks related to doing business in China, see “—D. Risk Factors—Risks Related to Doing Business in China.”
Furthermore, the Holding Foreign Companies Accountable Act, or the HFCA Act, may affect our ability to maintain our listing on the
NYSE. In particular, as stated in its report dated December 16, 2021, the U.S. Public Company Accounting Oversight Board, or the
PCAOB, has determined that it is unable to inspect or investigate completely registered public accounting firms headquartered in
mainland China and Hong Kong, including our auditor as an independent registered public accounting firm. See “—D. Risks
Factors—Risks Relating to Doing Business in China— 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.”
Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and the VIEs in China. Our business operations in China are
governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and the VIEs have received all
material permissions that are, or may be, required for our business operations in China, and no material permission has been denied
from us by relevant authorities in China, except that we are in the process of applying for the algorithmic recommendation service
record-filing and those as disclosed in “—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 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
6
and results of operation,” “—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 or to cease the Internet access
services provided by third parties to us. In 2021, approximately 90.7% of our total revenues were derived from Internet information
services and services that relied on Internet access services from third parties,” “—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,” “—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,” and “—D. Risk
Factors—Risks Relating to Our Business and Industry—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.” Given the uncertainties of
interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities,
we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the
future.
In connection with our issuance of securities to foreign investors, under currently effective PRC laws, regulations and
regulatory rules, as of the date of this annual report, we, our PRC subsidiaries and the VIEs, (i) are not required to obtain permissions
from the China Securities Regulatory Commission, or the CSRC, (ii) have not been involved in any cybersecurity review initiated by
the Cyberspace Administration of China, or the CAC, and (iii) have not received or were denied such requisite permissions by any
PRC authority.
However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are
conducted overseas and/or foreign investment in China-based issuers. For more detailed information, see “—D. Risk Factors—Risks
Relating to Doing Business in China—The approval, filing or other requirements of the CSRC, CAC or other PRC government
authorities may be required under PRC law in connection with our issuance of securities overseas. Our failure to obtain these
approvals, if required, could have a material adverse effect on our business, operating results, reputation and trading price of our
ADSs.”
Cash and Asset Flows through Our Organization
Under PRC law, we may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the VIEs
only through loans, subject to satisfaction of applicable government registration and approval requirements. For risks relating to the
fund flows of our operations in China, see “Item 3. Key Information—Risk Factors—Risks Related to Doing Business in China—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.”
Phoenix New Media Limited transfers cash to its wholly-owned Hong Kong subsidiaries, by making capital contributions or
providing loans, and the Hong Kong subsidiaries transfer cash to the subsidiaries in China by making capital contributions or
providing loans to them. Because Phoenix New Media Limited and its subsidiaries control the VIEs through contractual arrangements,
they are not able to make direct capital contribution to the VIEs and their subsidiaries. However, they may transfer cash to the VIEs by
loans or by making payment to the VIEs for inter-group transactions.
Prior to December 31, 2019, Phoenix New Media Limited, through its intermediate holding companies, provided capital
contribution of RMB449.2 million to its subsidiaries in China. In 2020, Phoenix New Media Limited, through its intermediate holding
companies, provided capital contribution of RMB78.4 million to its subsidiaries in China. Subsequently there was no additional
capital contribution or loan investment from Phoenix New Media Limited to its subsidiaries in China. In 2021, the primary beneficiary
of VIEs withdrew RMB9.6 million (US$1.5 million) of investment in the VIEs during the contractual reorganization incurred in the
first quarter of 2021, under which Fenghuang On-line terminated the contractual agreements with Yifeng Lianhe and then entered into
a series of new contractual arrangements with Fenghuang Ronghe.
In 2019, our subsidiaries received debt financing of RMB877.3 million from Phoenix New Media Limited and repaid
RMB72.3 million and RMB39.2 million (US$6.1 million) to Phoenix New Media Limited for the years ended December 31, 2020 and
2021, respectively. In 2019, the VIEs received debt financing of RMB308.4 million from the subsidiaries, and repaid RMB225.5
million and RMB33.4 million (US$5.2 million) to the subsidiaries for the years ended December 31, 2020 and 2021, respectively.
For the years ended December 31, 2019, 2020 and 2021, no dividends or distributions were made to Phoenix New Media
Limited by our subsidiaries. Under PRC laws and regulations, our PRC subsidiaries and VIEs are subject to certain restrictions with
respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned
enterprise out of China is also subject to examination by the banks designated by SAFE. The amounts restricted include the paid-up
capital and the statutory reserve funds of our PRC subsidiaries and VIEs, totaling RMB759.1 million, RMB636.5 million and
7
RMB646.3 million (US$101.4 million) as of December 31, 2019, 2020 and 2021, respectively. Furthermore, cash transfers from our
PRC subsidiaries to entities outside of China are subject to PRC government control of currency conversion. Shortages in the
availability of foreign currency may temporarily delay the ability of our PRC subsidiaries and VIEs to remit sufficient foreign
currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. For risks
relating to the fund flows of our operations in China, see “Item 3. Key Information—Risk Factors—Risks Relating to Doing Business
in China—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 do not have a cash management policy to dictate how funds are transferred between
the VIEs and our subsidiaries.
Phoenix New Media Limited has no present plan to pay any cash dividends on our ordinary shares in the foreseeable future.
We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See
“Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and
United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”
For the years ended December 31, 2019, 2020 and 2021, no assets other than cash were transferred through our organization.
8
Taxation on Dividends or Distributions
Phoenix New Media Limited’s source of dividend partly comes from dividends paid by its PRC subsidiaries, including the
primary beneficiary of the VIEs, which in part depends on payments received from the VIEs under the contractual arrangements with
the VIEs. None of our subsidiaries has declared or paid any dividend or distribution to Phoenix New Media Limited. Phoenix New
Media Limited does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future and we
currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our
business. The undistributed earnings that are subject to dividend tax are expected to be indefinitely reinvested for the foreseeable
future.
For purposes of illustration, the following discussion reflects the hypothetical taxes that we might be required to pay within
mainland China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
Hypothetical pre-tax earnings (2)
Tax on earnings at statutory rate of 25% (3)
Net earnings available for distribution
Withholding tax at standard rate of 10% (4)
Net distribution to Parent/Shareholders
Notes:
Tax calculation (1)
100.0 %
(25.0) %
75.0 %
(7.5) %
67.5 %
(1) For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not
considering timing differences, is assumed to equal taxable income in China.
(2) Under the terms of VIE agreements, our PRC subsidiaries may charge the VIEs for services provided to VIEs. These service
fees shall be recognized as expenses of the VIEs, with a corresponding amount as revenues by our PRC subsidiaries and
eliminate in consolidation. For income tax purposes, our PRC subsidiaries and VIEs file income tax returns on a separate
company basis. The service fees paid are recognized as a tax deduction by the VIEs and as income by our PRC subsidiaries
and are tax neutral.
(3) Certain of our subsidiaries and the VIEs qualify for a 15% preferential income tax rate in China. However, such rate is
subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For
purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate
would be effective.
(4) The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign
invested enterprise, or FIE, to its immediate holding company outside of China. A lower withholding income tax rate of 5%
is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty
arrangement with China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical
example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.
The table above has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our PRC
subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIEs exceed the service fees
paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities is determined to be
non-substantive and disallowed by Chinese tax authorities), the VIEs could make a non-deductible transfer to our PRC subsidiaries for
the amounts of the stranded cash in the VIEs. This would result in such transfer being non-deductible expenses for the VIEs but still
taxable income for the PRC subsidiaries. Our management believes that there is only a remote possibility that this scenario would
happen.
9
Financial Information Related to the VIEs
The following tables present the condensed consolidating schedule of financial performance, financial position and cash flows for the VIEs and other entities for the periods and as
of the dates presented.
Selected Condensed Consolidated Statements of Operations Data
Inter-company revenues (1) (4)
Third-party revenues
Inter-company cost of revenues (1) (4)
Third-party cost of revenues
Gross profit
Total operating expenses
(Loss)/income from operations
Income from non-operations
Share of loss from subsidiaries and VIEs (2)
Loss before tax
Income tax expense
Net loss
Net (income)/loss attributable to noncontrolling interests
Net loss attributable to Phoenix New Media Limited
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
RMB (in thousands)
The VIEs and the
VIEs’ Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
For the Year Ended December 31, 2021
—
—
—
—
—
(16,556)
(16,556)
10,930
(200,075)
(205,701)
—
(205,701)
—
(205,701)
6,769
570,038
(48,736)
(299,015)
229,056
(228,824)
232
42,265
(228,466)
(185,969)
(14,028)
(199,997)
(78)
(200,075)
36,020
8
—
(58,723)
(22,695)
(122,595)
(145,290)
2,955
(85,093)
(227,428)
—
(227,428)
—
(227,428)
27,038
460,285
(19,845)
(239,659)
227,819
(402,300)
(174,481)
27,460
—
(147,021)
(6,553)
(153,574)
67,443
(86,131)
(69,827)
—
68,581
—
(1,246)
1,246
—
—
513,634
513,634
—
513,634
—
513,634
—
1,030,331
—
(597,397)
432,934
(769,029)
(336,095)
83,610
—
(252,485)
(20,581)
(273,066)
67,365
(205,701)
10
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
The VIEs and the
VIEs’ Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
For the Year Ended December 31, 2020
RMB (in thousands)
Inter-company revenues (1) (4)
Third-party revenues
Inter-company cost of revenues (1) (4)
Third-party cost of revenues
Gross profit
Total operating expenses
(Loss)/income from operations
Income/(loss) from non-operations
Share of loss from subsidiaries and VIEs (2)
Income/(loss) before tax from continuing operations
Income tax expense
Net income/(loss) from continuing operations
Net loss from discontinued operations, net of income taxes
Net income/(loss)
Net (income)/loss 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 from discontinued operations attributable to Phoenix New Media
Limited
—
—
—
—
—
(39,303)
(39,303)
497,408
(40,129)
417,976
—
417,976
18,751
698,469
(82,736)
(296,659)
337,825
(289,678)
48,147
26,898
(104,860)
(29,815)
(12,746)
(42,561)
74,270
—
—
(22,551)
51,719
(125,961)
(74,242)
34,317
(55,470)
(95,395)
—
(95,395)
417,976
(42,561)
(95,395)
—
—
2,432
2,432
—
—
417,976
(40,129)
(95,395)
11,038
510,376
(19,583)
(240,076)
261,755
(298,933)
(37,178)
(9,425)
—
(46,603)
(6,231)
(52,834)
(52,834)
(12,101)
(12,101)
(64,935)
(104,059)
—
102,319
—
(1,740)
1,740
—
—
200,459
200,459
—
200,459
200,459
—
—
200,459
Net income/(loss) attributable to Phoenix New Media Limited
417,976
(40,129)
(95,395)
(64,935)
200,459
—
1,208,845
—
(559,286)
649,559
(752,135)
(102,576)
549,198
—
446,622
(18,977)
427,645
(62,366)
365,279
(9,669)
24,759
15,090
417,976
(37,607)
380,369
11
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
The VIEs and the
VIEs’ Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
For the Year Ended December 31, 2019
RMB (in thousands)
Inter-company revenues (1) (4)
Third-party revenues
Inter-company cost of revenues (1) (4)
Third-party cost of revenues
Gross profit
Total operating expenses
(Loss)/income from operations
Income from non-operations
Share of loss from subsidiaries and VIEs (2)
Income/(loss) before tax from continuing operations
Income tax expense
Net income/(loss) from continuing operations
Net income from discontinued operations, net of income taxes
Net income/(loss)
Net income from continuing operations attributable to noncontrolling
interests
Net loss from discontinued operations attributable to noncontrolling
interests
Net (income)/loss attributable to noncontrolling interests
Net income/(loss) from continuing operations attributable to Phoenix New
Media Limited
Net income from discontinued operations attributable to Phoenix New
Media Limited
—
—
—
—
—
(40,621)
(40,621)
1,001,732
(296,915)
664,196
—
664,196
27,396
686,066
(61,321)
(271,826)
380,315
(345,975)
34,340
29,817
(350,585)
(286,428)
(8,926)
(295,354)
37,770
—
—
(19,266)
18,504
(136,512)
(118,008)
8,528
(217,541)
(327,021)
(5,737)
(332,758)
43,401
641,715
(44,588)
(392,238)
248,290
(480,110)
(231,820)
7,742
—
(224,078)
(7,287)
(231,365)
(108,567)
—
105,909
—
(2,658)
2,658
—
—
865,041
865,041
—
865,041
664,196
(295,354)
(332,758)
(231,365)
865,041
—
—
(1,561)
(1,561)
—
—
(4,003)
(4,003)
—
—
664,196
(296,915)
(332,758)
(235,368)
865,041
Net income/(loss) attributable to Phoenix New Media Limited
664,196
(296,915)
(332,758)
(235,368)
865,041
—
1,327,781
—
(683,330)
644,451
(1,000,560)
(356,109)
1,047,819
—
691,710
(21,950)
669,760
54,242
724,002
(5,564)
9,391
3,827
664,196
63,633
727,829
12
Selected Condensed Consolidated Balance Sheets Data
ASSETS
Cash and cash equivalents
Term deposits and short term investments
Restricted cash
Accounts receivable, net
Amounts due from related parties
Amount due from inter-company entities (3)
Property and equipment, net
Intangible assets, net
Available-for-sale debt investments
Investment in subsidiaries (2)
Investment in VIEs (2)
Equity investments, net
Deferred income tax assets, net
Operating lease right-of-use assets, net
Prepayment and other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Liabilities
Accounts payable
Taxes payable
Amount due to inter-company entities (3)
Accrued expenses and other liabilities
Total liabilities
Total Phoenix New Media Limited shareholders' equity/(deficit)
Non-controlling interests
Total shareholders' equity/(deficit) (2)
Total liabilities and shareholders’ equity/(deficit)
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
The VIEs and the
VIEs’ Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
RMB (in thousands)
As of December 31, 2021
7,375
487,410
—
9
1
333,844
14,037
2,827
—
354,955
(289,492)
—
—
3,471
13,702
928,139
1,889
(5,773)
80,597
33,631
110,344
817,795
—
817,795
928,139
41,856
126,172
15,618
178,439
41,753
104,215
4,037
19,668
—
—
—
98,128
48,192
18,520
23,798
720,396
63,685
88,212
673,246
225,833
1,050,976
(289,492)
(41,088)
(330,580)
720,396
—
—
—
—
—
(1,524,656)
—
—
—
(1,616,944)
289,492
—
—
—
—
(2,852,108)
—
—
(1,524,656)
—
(1,524,656)
(1,327,452)
—
(1,327,452)
(2,852,108)
188,980
1,309,028
15,618
456,935
57,079
—
29,051
22,495
29,401
—
—
111,128
92,189
41,361
52,581
2,405,846
217,172
412,776
—
386,743
1,016,691
1,427,383
(38,228)
1,389,155
2,405,846
34,027
—
—
—
—
835,428
—
—
29,401
794,149
—
—
—
—
1,117
1,694,122
—
220,794
44,244
1,701
266,739
1,427,383
—
1,427,383
1,694,122
105,722
695,446
—
278,487
15,325
251,169
10,977
—
—
467,840
—
13,000
43,997
19,370
13,964
1,915,297
151,598
109,543
726,569
125,578
1,113,288
799,149
2,860
802,009
1,915,297
13
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
The VIEs and the
VIEs’ Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
RMB (in thousands)
As of December 31, 2020
ASSETS
Cash and cash equivalents
Term deposits and short term investments
Restricted cash
Accounts receivable, net
Amounts due from related parties
Amount due from inter-company entities (3)
Property and equipment, net
Intangible assets, net
Available-for-sale debt investments
Investment in subsidiaries (2)
Investment in VIEs (2)
Equity investments, net
Deferred income tax assets, net
Operating lease right-of-use assets, net
Prepayment and other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Liabilities
Accounts payable
Taxes payable
Amount due to inter-company entities (3)
Accrued expenses and other liabilities
Total liabilities
Total Phoenix New Media Limited shareholders' equity/(deficit)
Non-controlling interests
Total shareholders' equity/(deficit) (2)
Total liabilities and shareholders’ equity/(deficit)
24,932
—
—
—
—
867,801
—
—
36,662
975,487
—
—
—
—
968
1,905,850
—
225,960
16,429
27,717
270,106
1,635,744
—
1,635,744
1,905,850
82,766
442,822
—
—
181
427,468
34,035
732
—
353,918
(194,829)
—
—
9,886
14,532
1,171,511
57
(2,147)
92,379
41,745
132,034
1,039,477
—
1,039,477
1,171,511
96,422
240,388
31,039
325,741
21,211
31,900
12,448
11,664
—
—
—
81,821
45,147
20,642
27,434
945,857
72,696
81,180
577,512
382,703
1,114,091
(194,829)
26,595
(168,234)
945,857
—
—
—
—
—
(1,613,235)
—
—
—
(2,019,964)
194,829
—
—
—
—
(3,438,370)
—
—
(1,613,235)
—
(1,613,235)
(1,825,135)
—
(1,825,135)
(3,438,370)
357,796
1,280,033
31,039
675,616
32,587
—
62,649
12,396
36,662
—
—
94,821
86,867
49,487
52,599
2,772,552
221,203
402,610
—
484,766
1,108,579
1,635,744
28,229
1,663,973
2,772,552
153,676
596,823
—
349,875
11,195
286,066
16,166
—
—
690,559
—
13,000
41,720
18,959
9,665
2,187,704
148,450
97,617
926,915
32,601
1,205,583
980,487
1,634
982,121
2,187,704
14
Selected Condensed Consolidated Cash Flows Data
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
The VIEs and the
VIEs' Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
For the Year Ended December 31, 2021
Net cash (used in)/provided by transactions with inter-company entities
Net cash (used in)/provided by transactions with third parties
Net cash (used in)/provided by operating activities
Investment in inter-company entities (5)
Repatriation of capital to facilitate the reorganization (5)
Loans collected from/(paid to) inter-company entities (3)
Other investing activities
Net cash provided by/(used in) investing activities
Investments from inter-company entities (5)
Repatriation of capital to facilitate the reorganization (5)
(Repayment of)/proceeds from loans from inter-company entities (3)
Other financing activities
Net cash (used in)/provided by financing activities
—
(34,801)
(34,801)
—
—
—
—
—
—
—
39,171
4,725
43,896
(80,713)
132,082
51,369
—
—
(20,701)
(95,358)
(116,059)
—
—
11,958
—
11,958
RMB (in thousands)
125,241
(164,863)
(39,622)
(400)
10,000
42,414
(40,329)
11,685
—
—
(39,429)
(8,025)
(47,454)
(44,528)
(75,240)
(119,768)
—
—
(12,523)
93,034
80,511
400
(10,000)
(20,890)
(240)
(30,730)
—
—
—
400
(10,000)
(9,190)
—
(18,790)
(400)
10,000
9,190
—
18,790
—
(142,822)
(142,822)
—
—
—
(42,653)
(42,653)
—
—
—
(3,540)
(3,540)
Net cash (used in)/provided by transactions with inter-company entities
Net cash (used in)/provided by transactions with third parties
Net cash (used in)/provided by continuing operating activities
Net cash provided by discontinued operating activities
Net cash (used in)/provided by operating activities
Investment in inter-company entities (2)
Loans collected from/(paid to) inter-company entities (3)
Other investing activities
Net cash provided by/(used in) continuing investing activities
Net cash provided by discontinued investing activities
Net cash provided by/(used in) investing activities
Investments from inter-company entities (2)
Proceeds from/(repayments of) loan from inter-company entities (3)
Other financing activities
Net cash (used in)/provided by continuing financing activities
Net cash used in discontinued financing activities
Net cash (used in)/provided by financing activities
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
The VIEs and the
VIEs’ Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
For the Year Ended December 31, 2020
—
(44,706)
(44,706)
(44,706)
—
—
627,070
627,070
627,070
—
72,262
(637,375)
(565,113)
(190,695)
109,288
(81,407)
(81,407)
(78,434)
208,888
13,737
144,191
144,191
—
(45,063)
1,217
(43,846)
RMB (in thousands)
135,293
(84,708)
50,585
50,585
—
258,649
(37,142)
221,507
221,507
78,434
(269,261)
(7,869)
(198,696)
55,402
(83,169)
(27,767)
(27,767)
—
155,085
(123,199)
31,886
31,886
—
(380,560)
4,365
(376,195)
—
—
—
—
78,434
(622,622)
—
(544,188)
(544,188)
(78,434)
622,622
—
544,188
(565,113)
(43,846)
(198,696)
(376,195)
544,188
—
(103,295)
(103,295)
186
(103,109)
—
—
480,466
480,466
265,753
746,219
—
—
(639,662)
(639,662)
—
(639,662)
15
Net cash (used in)/provided by transactions with inter-company entities
Net cash (used in)/provided by transactions with third parties
Net cash (used in)/provided by continuing operating activities
Net cash provided by discontinued operating activities
Net cash (used in)/provided by operating activities
Loans collected from/(paid to) inter-company entities (3)
Other investing activities
Net cash provided by/(used in) continuing investing activities
Net cash used in discontinued investing activities
Net cash provided by/(used in) investing activities
(Repayment of)/proceeds from loans from inter-company entities (3)
Other financing activities
Net cash (used in)/provided by continuing financing activities
Net cash used in discontinued financing activities
Net cash (used in)/provided by financing activities
Notes:
Phoenix New
Media Limited
Other Subsidiaries
Primary
Beneficiary of the
VIEs
The VIEs and the
VIEs’ Subsidiaries
Eliminating
Adjustments
Consolidated
Totals
For the Year Ended December 31, 2019
—
(46,388)
(46,388)
(46,388)
—
1,875,726
1,875,726
1,875,726
(877,312)
(970,520)
(1,847,832)
(1,847,832)
(160,943)
139,469
(21,474)
(21,474)
645,250
(453,188)
192,062
192,062
1,439
—
1,439
1,439
RMB (in thousands)
87,968
(122,495)
(34,527)
(34,527)
(254,953)
(151,841)
(406,794)
(406,794)
177,176
—
177,176
177,176
72,975
(341,971)
(268,996)
(268,996)
(60,000)
270,049
210,049
210,049
368,399
—
368,399
368,399
—
—
—
—
(330,298)
—
(330,298)
(330,298)
330,298
—
330,298
330,298
—
(371,385)
(371,385)
41,080
(330,305)
—
1,540,746
1,540,746
(80,352)
1,460,394
—
(970,520)
(970,520)
(144,100)
(1,114,620)
(1) It represents the elimination of the intercompany service charge at the consolidation level.
(2) It represents the elimination of the investment among Phoenix New Media Limited, other subsidiaries, primary beneficiary of the VIEs, and the VIEs and subsidiaries of the VIEs
as well as share of loss from subsidiaries and VIEs.
(3) It represents the elimination of intercompany balances, transactions and cash flows among Phoenix New Media Limited, other subsidiaries, primary beneficiary of the VIEs, and
the VIEs and subsidiaries of the VIEs.
(4) For the years ended December 31, 2019, 2020 and 2021, the VIEs have incurred RMB43.3 million, RMB17.4 million and RMB16.8 million (US$2.6 million), respectively, in fees
related to technical services provided to the subsidiaries and subsidiaries concurrently recognized same amounts as revenues.
(5) In March 2021, shareholders of Yifeng Lianhe transferred all of their equity interests in Yifeng Lianhe to 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. During the reorganization, Fenghuang On-line withdrew RMB10.0 million
(US$1.6 million) of investment in Yifeng Lianhe and invested RMB0.4 million (US$0.1 million) in Fenghuang Ronghe through contractual agreements.
16
B.
Capitalization and Indebtedness
Not required.
C.
Reasons for the Offer and Use of Proceeds
Not required.
D.
Risk Factors
Summary of Risk Factors
Investing in our ADSs involves significant risks. You should carefully consider all of the information in this prospectus
before making an investment in our ADSs. Below please find a summary of the material risks we face, organized under relevant
headings.
Risks Relating to Our Business and Industry
Risks and uncertainties relating to our business and industry include, but are not limited to, the following:
• 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. (Page 20)
• 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. (Page 20)
• We may not be successful in growing our mobile Internet related business and our revenue growth could be negatively
impacted. (Page 21)
• 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, mobile websites and
third-party platform accounts, 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, mobile websites and
third-party platform accounts could decline and our business and operating results could be adversely affected. (Page 21)
•
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. (Page 22)
• 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. (Page 22)
• 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. (Page 22)
•
•
•
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. (Page 23)
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. (Page 23)
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. (Page 23)
17
Risks Relating to Our Corporate Structure
Risks and uncertainties relating to our corporate structure include, but are not limited to, the following:
•
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. (Page 43)
• 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. (Page 43)
•
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. (Page 44)
• We rely on contractual arrangements with the VIEs 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. (Page 45)
•
•
The shareholders of the VIEs may have potential conflicts of interest with us. (Page 45)
The contractual arrangements with the VIEs 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. (Page 46)
• 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. There is no assurance that the PRC government will not
intervene or impose restrictions on the company’s ability to transfer cash. (Page 46)
•
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. (Page 46)
Risks Relating to Doing Business in China
We are subject to risks and uncertainties relating to doing business in China in general, including, but are not limited to, the
following:
• 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. (Page 47)
• Uncertainties with respect to the PRC legal system could limit the protections available to you and us. (Page 48)
•
•
Fluctuations in exchange rates of the Renminbi could materially affect our reported operating results. (Page 49)
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. (Page 49)
• 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. (Page 49)
•
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 VIEs. (Page 50)
18
•
•
•
•
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. (Page 51)
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. (Page 51)
The approval, filing or other requirements of the CSRC, CAC or other PRC government authorities may be required
under PRC law in connection with our issuance of securities overseas. Our failure to obtain these approvals, if required,
could have a material adverse effect on our business, operating results, reputation and trading price of our ADSs. (Page
52)
The approval of MOFCOM may be required in connection with the establishment of our contractual arrangements with
the VIEs. 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. (Page 53)
• Governmental control of currency conversion may affect the value of your investment. (Page 53)
• Dividends we receive from our PRC subsidiaries located in the PRC may be subject to PRC withholding tax. (Page 54)
• We may be deemed a PRC resident enterprise under the CIT Law and be subject to the PRC taxation on our worldwide
income. (Page 54)
• 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. (Page 54)
• We may be required to register our operating offices not located at our residence addresses as branch companies under
PRC law. (Page 55)
• We could be adversely affected by political tensions between the United States and China. (Page 55)
•
The audit report included in this annual report is prepared by an auditor who is not inspected by the U.S. Public
Company Accounting Oversight Board and, as such, our investors are deprived of the benefits of such inspection. (Page
55)
• Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act,
or the HFCA Act, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or 2023 if
proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially
and adversely affect the value of your investment. (Page 56)
•
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. (Page 57)
• 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. (Page 57)
Risks Relating to Our ADSs
Risks relating to our ADSs include, but not limited to, the following:
•
•
The market price for our ADSs may be volatile which could result in a loss to you. (Page 58)
Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to
decline. (Page 58)
19
• We have fallen below the continued listing requirements of the New York Stock Exchange, and if we cannot regain
compliance in time, our ADSs may be delisted and the liquidity and the trading price of our ADSs could be materially
and adversely affected. (Page 59)
• 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. (Page 59)
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 2019, 2020, and 2021, we generated 90.0%, 92.1% and 90.3% 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”), 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;
20
•
•
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, mobile websites and third-party platform accounts,
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, mobile websites and third-party platform
accounts, 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, mobile websites and third-party platform accounts 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, mobile websites and third-party platform accounts. 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,
21
mobile websites and third-party platform accounts through application marketplaces, Internet search engines, navigation sites, web
browsers, pre-installations and other social media platforms could harm our business and operating results.
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 overtaken personal computer devices as 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. Given the decline in
PC-based advertising revenue with traffic, 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 growth momentum and remain an 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 65.2%, 64.6% and 52.9% of our net advertising revenues in China were derived from advertising agencies in
2019, 2020 and 2021, 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.
22
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
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 whether our video
and audio services that provide other content will 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.
23
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.
We intend to continue to explore new business opportunities, and such new businesses may not deliver the expected benefits.
To grow our business, we intend to continue to explore new business opportunities in addition to our core media content
business. For example, we launched our e-commerce business in 2020 to leverage our user base. If we experience initial success with
the new business, we may decide to invest significant amounts of capital to grow the business. We cannot assure you that our new
business initiatives will be successful. We may make significant capital expenditures to develop new businesses, and our
management’s attention may be diverted. We may also incur significant cost to comply with the laws and regulations that apply to
such new businesses. Any failure of our efforts to pursue new business opportunities could have a material adverse effect on our
business, prospects, financial condition and results of operations.
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, mobile
websites and third-party platform accounts and negatively impact our operating results.
24
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. Since the execution of these agreements in 2009, we and Phoenix
TV Group have amended and renewed the agreements on several occasions. As of March 31, 2022, the trademark license agreements
in effect are those that Phoenix Satellite Television Trademark Limited renewed with each of Tianying Jiuzhou and Yifeng Lianhe in
December 2020, or the New Trademark License Agreements, to grant Tianying Jiuzhou and Yifeng Lianhe the right to use the
trademarks and to grant Tianying Jiuzhou the right to sublicense certain trademarks to agents that operate local websites of our
Company, which has a term of three years. The effective Program License Agreement is a new program resource license and
cooperation agreement between Tianying Jiuzhou and Phoenix Satellite Television Holdings Limited dated August 24, 2021, or the
2021 Program Resource License and Cooperation Agreement, which has a term of three years. According to the 2021 Program
Resource License and Cooperation Agreement, Phoenix Satellite Television Company Limited grants Tianying Jiuzhou exclusive
right to broadcast copyrighted video content and the audio content derived from three television channels of Phoenix TV Group on the
internet in Mainland China with such content also broadcasted on the three television channels of Phoenix TV Group. Phoenix TV
also grants the Tianying Jiuzhou the right to sublicense such contents. 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. The New Trademark License Agreements extended
the license term and covered additional trademarks registered in various classes containing the double-phoenix logo together with the
Chinese or English words of “Phoenix New Media” or “ifeng” and other variations, while retained the clause of 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
RMB213.4 million (US$33.5 million) in 2021 in accordance with U.S. GAAP, which meant that the annual license fee payable to
Phoenix TV Group was RMB4.3 million (US$0.7 million) in 2021. 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.
25
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.
Negative publicity, rumors or media coverage of our company, our affiliates or business partners could materially and adversely
affect our reputation, business and financial condition.
Negative publicity of our company, our affiliates or business partners, whether or not accurate and whether or not applicable
to us, could have a material adverse effect on our reputation, business and financial condition, and could result in diversion of our
managerial and financial resource. For example, in April 2021, news media reported that the police department has started its
investigation of certain alleged fraudulent activities by subsidiaries of Phoenix Financial Group Limited relating to the “Phoenix
Finance Mobile Application.” We only have a minority equity interest in Phoenix Financial Group Limited and do not consolidate
Phoenix Financial Group Limited in our financials. However, Phoenix Financial Group Limited was licensed by a subsidiary of our
parent company, Phoenix TV, to use the “Phoenix” (“鳳凰”) brand. Due to our minor equity interest in Phoenix Financial Group
Limited and the fact that we share the same brand name, certain of our customers may terminate their business relationship with us
due to concerns of our brand reputation, although we are not legally liable for its actions.
We cannot assure you that in the future there will not be any negative rumors or media coverage related to our company, our
affiliates or business partners. Any negative publicity, rumors or media coverage of our company, our affiliates or business partners
may materially and adversely affect our business and operating results, and diverge our managerial and financial resources.
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
26
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, mobile
websites and third-party platform accounts 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.
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 2021, approximately 90.7% 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, mobile websites and third-party platform accounts. 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 2021, approximately
90.7% 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, mobile websites and third-party platform accounts 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
27
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, or the 2016 A/V Provisions, which replaced the 2004 Internet A/V Measures.
On March 23, 2021, NRTA issued the Administrative Provisions on Audio-Visual Program Services through Private Network and
Targeted Communication, or the 2021 A/V Provisions, which replaced the 2016 A/V Provisions. The 2021 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, mobile websites and third-party platform accounts, and other penalties that are not clearly provided for in the
relevant regulations.
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, the Network Publication Service License of Tianying Jiuzhou has expired, and Tianying
Jiuzhou is in the process of applying for renewal of such license. There is uncertainty as to whether Tianying Jiuzhou will be able to
renew such licenses. In addition, 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
28
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.
We are subject to a variety of laws and other obligations regarding cyber security, data security and personal information
protection in China, and our failure to comply with any of them could result in proceedings against us by governmental entities or
others and harm our public image and reputation, which could have a material adverse effect on our business, results of
operations and financial condition.
We are subject to laws in China relating to the collection, use, sharing, retention, security and transfer of confidential and
private information, such as personal information and other data. These laws are continuing to develop, and the PRC government may
adopt other rules and restrictions in the future. Non-compliance could result in penalties or other significant legal liabilities.
According to the Cyber Security Law of the People’s Republic of China, or Cyber Security Law, which was promulgated by
the National People’s Congress Standing Committee on November 7, 2016, and took effect on June 1, 2017, we, as a network
operator, are obligated to provide technical assistance and support to public security and national security authorities in order to
protect national security or assist with criminal investigations. In addition, the Cyber Security Law provides that personal information
and important data collected and generated by an operator of critical information infrastructure in the course of its operations in the
PRC must be stored in the PRC.
On December 28, 2021, the CAC and other twelve PRC regulatory authorities jointly issued the Cybersecurity Review
Measures, which became effective from February 15, 2022. The Cybersecurity Review Measures require that, (i) any procurement of
network products and services by critical information infrastructure operators, which affects or may affect national security, (ii) any
data processing activities by network platform operators, which affects or may affect national security, or (iii) any network platform
operators which has personal information of more than one million users and is going to be listed abroad, shall be subject to
cybersecurity review.
In anticipation of the strengthened implementation of cybersecurity laws and regulations and the continued expansion of our
business, we face potential risks if we are deemed as a “critical information infrastructure operator” or a “network platform operator”
that affects or may affect national security under the Cybersecurity Review Measures and would be required to follow cybersecurity
review procedures. During such review, we may be required to suspend new user registration in China and/or experience other
disruptions of our operations. Furthermore, if we were found to be in violation of applicable laws and regulations of the PRC during
such review, we could be subject to administrative penalties, such as warnings, fines, service suspension or removal of our apps from
the relevant app stores. Therefore, cybersecurity review may have a material and adverse impact on our business, results of operations
and financial condition. Since the measures were recently promulgated, there exists uncertainties with respect to their interpretation
and implementation.
On June 10, 2021, the Standing Committee of the National People’s Congress, or the SCNPC, promulgated the PRC Data
Security Law, which has come into effect on September 1, 2021. The PRC Data Security Law imposes data security and privacy
protection obligations on entities and individuals which carry out data activities, and introduces a data classification and hierarchical
protection system based on the importance of data in economic and social development, and the degree of harm it might cause to
national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with,
destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides a national security review procedure for data
activities that may affect national security and imposes export restrictions on certain data and information.
29
On November 14, 2021, the Cyberspace Administration of China, or the CAC, issued the Draft Data Security Regulations for
public comments, pursuant to which, data processors carrying out the following activities must, in accordance with the relevant
national regulations, apply for a cybersecurity review: (i) the merger, reorganization or spin-off of internet platform operators that
possess a large number of data resources related to national security, economic development and public interests that affects or may
affect national security; (ii) listing in a foreign country of data processors that process the personal information of more than one
million users; (iii) listing in Hong Kong of data processors that affects or may affect national security; and (iv) other data processing
activities that affect or may affect national security. The scope of and threshold for determining what “affects or may affect national
security” is still subject to uncertainty and further elaboration by the CAC.
The Personal Information Protection Law, or the PIPL, was released by the National People’s Congress Standing Committee
on August 20, 2021 and became effective on November 1, 2021. The PIPL stipulates the scope of personal information and the ways
of processing personal information, establishes rules for processing personal information and for transferring personal information
offshore, and clarifies the individual’s rights and the processor’s obligations in the process of personal information. The PIPL applies
to (i) the processing within the territory of the PRC of natural persons’ personal information; or (ii) the processing outside the territory
of the PRC over personal information of natural persons within the PRC, provided that such information is processed (x) for the
purpose of providing products or services to domestic natural persons, (y) to analyze or assess the conduct of domestic natural
persons, or (z) under any other circumstances as prescribed by laws and administrative regulations. The PIPL requires, among others,
that (i) the processing of personal information should have a clear and reasonable purpose which should be directly related to the
processing purpose, in a method that has the least impact on personal rights and interests, and (ii) the collection of personal
information should be limited to the minimum scope necessary to achieve the processing purpose to avoid the excessive collection of
personal information.
These newly promulgated laws and regulations reflect the PRC government’s further attempts to strengthen the legal
protection for national network security, data security and the security of personal information protection. These laws and regulations
are relatively new, and therefore there are substantial uncertainties with respect to the interpretation and implementation. We may
need to adjust our business to comply with these laws and regulations regarding network security, data security and personal
information from time to time. We have been making constant efforts to comply with the Cybersecurity Review Measures and other
data protection laws and regulations of the PRC. Our mobile apps and websites only collect basic user information which are
necessary for the provision of the corresponding services. We update our privacy policies and adjust our data processing practices
from time to time to meet the latest regulatory requirements of CAC and other authorities and adopts technical and organizational
measures to protect data and cybersecurity. We could be subject to investigations launched by PRC regulators in the future. Any
failure or any other non-compliance with the related laws and regulations may result in fines or other administrative penalties,
including suspension of business, website closure, removal of our app from app stores, and revocation of licenses, as well as
reputational damage or legal proceedings or actions against us, which may have an material adverse effect on our business, financial
condition or results of operations. In addition, our ability to continue to offer our ADSs to investors could be significantly limited or
completed hindered, and the value of our ADSs could significantly decline or become worthless. As of the date of this annual report,
we have not been involved in any cybersecurity review initiated by the CAC or other relevant governmental regulatory authorities, and
we have not received any inquiry, notice, warning, or sanction in such respect. However, we cannot rule out the possibility that we
may be subject to the cybersecurity review or other investigations initiated by the CAC or the related governmental regulatory
authorities.
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.
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
30
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, 2021, 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.” The effectiveness
of our internal control over financial reporting as of December 31, 2021 has been audited by our independent registered public
accounting firm, as stated in their report which appears herein.
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.
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:
•
•
•
•
•
•
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
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.
The VIEs 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
31
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, 2022, 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, 2022, Tianying Jiuzhou owned 487 PRC registered trademarks, six of which were transferred from Phoenix Satellite
Trademark Limited, and Yifeng Lianhe owned 50 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 the VIEs 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 the value-added telecommunications services to date, the provincial-level
counterpart of MIIT may enforce the MIIT 2006 Notice on the VIEs and their respective subsidiaries. In such case, the provincial-
level counterpart of MIIT could order the VIEs 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 the VIEs’ 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.
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, mobile websites
and third-party platform accounts.
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, mobile websites and third-party platform accounts in China through
the VIEs 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,
mobile websites and third-party platform accounts 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
32
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
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, mobile websites and third-party platform accounts.
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, mobile websites and third-party platform accounts, 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 five employees and more than 300 outsourced staff members who are responsible for monitoring and preventing the public
33
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, mobile websites and third-party platform accounts 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, mobile websites and third-party platform
accounts. 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, mobile websites and third-party platform 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, mobile websites and third-party platform account 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 further amended on October 26, 2018 and April 29, 2021, 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 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 or mobile websites and third-party platform account, 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, mobile websites and third-party platform
account 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
34
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, mobile websites and
third-party platform accounts 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, mobile websites and
third-party platform accounts, 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.
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
35
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.
Our business and reputation may be harmed by the misconduct or errors of our employees or their failure to perform their duties.
Misconduct, including illegal, fraudulent or collusive activities, unauthorized business conducts and behavior, misuse of
corporate authorization, or errors by our employees or their failure to perform their duties could subject us to legal liability and
negative publicity. Our employees may conduct fraudulent activities to bypass our internal system and to complete shadow
transactions and/or transactions outside our official or authorized manner, such as kickbacks, self-dealing, misappropriation of
corporate funds and resources, disclosing users’ information to competitors or other third parties for personal gains, or applying for
fake reimbursement. They may conduct activities in violation of unfair competition law, which may expose us to unfair competition
allegations and risks or conduct activities that may damage our reputation, corporate culture or internal working environment, such as
sexual harassment. While we continue to strengthen our code of conduct and related internal policies, we cannot assure you that such
incidents will not occur in the future. It is not always possible to identify and deter such misconduct, and the precautions we take to
detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to prevent such misconduct. Such misconduct could
damage our brand and reputation, which could adversely affect our business and results of operations.
We have been in the past and may continue to be subject to complaints, claims, controversies, regulatory actions and legal
proceedings, which could have a material adverse effect on our results of operation, financial condition, liquidity, cash flows and
reputation.
We have been and may continue to be subject to or involved in various complaints, claims, controversies, regulatory actions,
arbitrations and legal proceedings. Complaints, claims, arbitration, lawsuits, and litigations are subject to inherent uncertainties, and
we are uncertain whether existing or new claims against us would develop into lawsuits or regulatory penalties and other disciplinary
actions. Lawsuits, litigations, arbitration and regulatory actions may cause us to incur substantial costs or fines, utilize a significant
portion of our resources and divert management’s attention from our day-to-day operations, or materially modify or suspend our
business operations, any of which could materially and adversely affect our financial condition, results of operations and business
prospects.
Defending litigations or other claims against us is costly and can impose a significant burden on our management and
employees, and there can be no assurances that favorable final outcomes will be obtained in all cases. For example, we have been
subject to various legal proceedings in connection with certain intellectual property infringement and personality rights infringement
and have paid damages for some of those legal proceedings. In 2019, 2020 and 2021, we incurred damages of RMB2.8 million,
RMB3.6 million and RMB2.2 million, respectively. See “— 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, mobile
websites and third-party platform accounts, 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.” and “Item 4. Information
on the Company—B. Business Overview—Legal and Administrative Proceedings” for more information.
In addition, there can be no assurance that we will be successful in the claims we pursue against other parties. Any resulting
liability, losses or expenses, or changes required to our businesses to reduce the risk of future liability, may have a material adverse
effect on our business, financial condition and prospects. There remain uncertainties in the interpretation of PRC laws in different
jurisdictions, and an adverse outcome of a single claim against us in one jurisdiction regarding our business practices may result in
significant negative publicity and heightened scrutiny by regulators and courts of our business and operations across the country, or
potential penalties or other regulatory actions against us. Any of such outcomes may cause significant disruptions to our operations
and materially and adversely affect our results of operation and financial condition.
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, 2022, options to purchase 44,957,507 Class A ordinary shares granted under the 2008 share option plan and the 2018
share option scheme were outstanding. As of March 31, 2022, 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, 2019, 2020 and 2021, we recorded RMB11.9 million, RMB9.4 million and
36
RMB9.6 million (US$1.5 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, mobile websites and third-party platform accounts, 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
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.
In June 2021, the plaintiff applied for a retrial with the Supreme People’s Court and the Supreme People’s Court conducted a hearing
on the matter of retrial. As of the date of this annual report, we have not received any notification from the Supreme People’s Court
with respect to the retrial and we cannot assure you that the Supreme People’s Court will not order a retrial for this case. In 2021, 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
37
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.
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 2019 to 2021. 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 2019 to 2021. In 2017 and 2020, Fenghuang
Yutian was qualified as an HNTE, and therefore, Fenghuang Yutian was subject to a 15% income tax rate from 2019 to 2021. 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. Fenghuang
Borui was qualified as an HNTE in 2021, and therefore, Fenghuang Borui was subject to a 15% income tax rate for the year 2021. See
“Item 10. Additional Information—E. Taxation.”
38
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 2021. 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. 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 8.1%
in 2021. 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.
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.
We believe we were a passive foreign investment company for 2021, 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, we believe we were
a “passive foreign investment company,” or PFIC, for 2021, and that 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
39
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 (generally
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 the VIEs will be treated for purposes of
the PFIC rules. If it is determined that we do not own the stock of the VIEs 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 “Item 10. Additional Information—E. 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.
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.
Despite holding 71.8% of the equity interest in Phoenix FM Limited, or Phoenix FM before April 2020, 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 other shareholders of Phoenix FM. We had fully written down the entire investment in Phoenix FM in 2015.
In April 2020, other shareholders of Phoenix FM transferred all of their 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 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, 2021, the fair value of investment in Humanistic Intelligence was RMB6.0 million (US$0.9
million).
40
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. On March 22, 2019, we entered into a share purchase agreement with Run Liang Tai Management Limited, or Run
Liang Tai, and entered into a supplemental agreement with Run Liang Tai on July 23, 2019, or the Particle Supplemental Agreement,
for the proposed sale of 34% equity interest of Particle on an as-if converted basis. According to the Particle Supplemental Agreement,
we agreed to sell 212,358,165 shares with the total purchase price of US$448 million. In addition, we agreed that Run Liang Tai may
pay the purchase price in several installments and deliver the preferred shares of Particle to Run Liang Tai in batches. We completed
delivery of the first batch of 94,802,752 Particle shares to Run Liang Tai 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 of preferred shares of Particle to be delivered to Run Liang Tai in or before August 2020. 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 Run Liang Tai 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 as the second batch of preferred shares of Particle to Run Liang
Tai at a total purchase price of US$150 million. On August 10, 2020, Run Liang Tai 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 Run
Liang Tai 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 in the consolidated statements of
comprehensive income/(loss) in 2020. In August 2020, we 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 the date of this annual report, we held 4,584,209
Series D1 convertible redeemable preferred shares of Particle, which had been accounted for as available-for-sale debt investments,
representing an aggregate of approximately 0.60% 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 RMB23.4 million (US$3.7 million) as of December 31, 2021.
In December 2018, we acquired a 25.5% equity interest in Yitian Xindong with a consideration of RMB144.1 million and
started to consolidate Yitian Xindong in our financial statements since December 28, 2018. In March 2019, we acquired another
25.5% equity interest in Yitian Xindong with a consideration of RMB144.1 million and held a total of 51.0% equity interest in and a
51.0% voting rights of Yitian Xindong and continued to consolidate Yitian Xindong’s financial statements. In May 2020, we sold all
of our equity interests in Yitian Xindong to other investors 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, 2021, 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
41
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, 2021, we made a total of RMB81.0 million (US$12.7 million) investments in these three funds.
Investments in two of such funds with total considerations of RMB60.0 million were accounted for under equity method as significant
influence could be imposed by us, and the investment in the other fund of RMB21.0 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, 2021 were
RMB83.1 million (US$13.0 million). As of March 31, 2022, we have already made investments in these three funds with a total
amount of RMB90.0 million (US$14.1 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, 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 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. 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). As of
December 31, 2021, the carrying value of the equity investment was RMB15.0 million (US$2.4 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 may hold positions or 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 if any of our board members
and executive officers hold directorship and/or senior management positions and may own shares, restricted share units and/or options
in these affiliated companies. Our affiliated companies may grant or promise incentive share compensation to certain of our board
members and executive officers from time to time if our board members and executive officers hold directorship and/or senior
management positions in such affiliated companies. These relationships, if exist, 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 our 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.
42
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
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, 2022. 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, 2022. 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.
43
•
•
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.
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, February 6, 2016 and March 29, 2022,
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 VIEs 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 the VIEs 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.” In addition, these contractual arrangements have not been tested in a court of law. 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 or mobile websites or
third-party platform accounts, 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, which could
cause the value of our ADSs to significantly decline or become worthless.
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
44
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 the VIEs 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.
Phoenix New Media limited is not a Chinese operating company but a Cayman Islands holding company with operations
primarily conducted by its subsidiaries in China and through contractual arrangements with the VIEs based in China. We rely on and
expect to continue to rely on contractual arrangements with the VIEs 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 VIEs as
ownership of controlling equity interests would be in providing us with control over, or enabling us to derive economic benefits from
the operations of, the VIEs. If we had ownership of the VIEs, 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 VIEs by causing them to declare and pay
dividends. However, under the current contractual arrangements, as a legal matter, if any of the VIEs 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 VIE were
to refuse to transfer their equity interests in such VIE 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 VIE or its shareholders terminate the contractual arrangements or (iii) any VIE 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 or become worthless. 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 VIEs 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 the VIEs 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 the VIEs are individuals who are PRC citizens. None of the shareholders of the VIEs are
significant shareholders of our company. Therefore, the interests of these individuals as shareholders of the VIEs 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
45
cause the VIEs 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 the VIEs 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 VIEs, 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 VIEs 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 VIEs 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 VIE and assess more taxes on it. In addition, the PRC tax authorities may impose
late payment fees and other penalties to such VIE for under-paid taxes. Our net income may be adversely and materially affected if the
tax liabilities of any of the VIEs increase or if it is found to be subject to late payment fees or other penalties.
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 VIEs 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, 2021, our consolidated accumulated deficit was RMB300.4 million
(US$47.1 million), out of which our PRC subsidiaries’ retained earnings were approximately RMB907.3 million (US$142.4 million).
There is no assurance that the PRC government will not intervene or impose restrictions on the company’s ability to transfer cash. 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. For more details of the hypothetical taxes that we might be required to pay within mainland
China, see “—Taxation on Dividends or Distributions”.
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
46
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.
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:
•
•
•
•
•
•
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
47
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 an issuer with substantial operations in China, such as our company, to conduct
its business, control over securities offerings conducted overseas and/or foreign investments in an issuer with substantial operations in
China. The PRC government may intervene or influence the operations of an issuer with substantial operations in China, such as our
company, at any time, which could result in a material change in our operations and/or the value of our ADSs. In particular, there have
been recent statements by the PRC government indicating an intent to exert more oversight and control over offerings that are
conducted overseas and/or foreign investment in China-based issuers with substantial operations in China. Any such regulatory
oversight or control could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and
cause the value of our securities to significantly decline or become worthless. See “—Uncertainties with respect to the PRC legal
system could limit the protections available to you and us.” 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.
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, rules and regulations in China can change quickly with little advance notice, 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
48
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 2019, the RMB depreciated approximately 1.3% against the U.S. dollar; in 2020, the
RMB appreciated approximately 6.3% against the U.S. dollar; and in 2021, the RMB appreciated approximately 2.3% 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 the VIEs 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 RMB7.9 million, RMB5.5 million and RMB8.6 million (US$1.4
million) in 2019, 2020 and 2021, 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
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,
49
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. In addition, on April 2, 2022, CSRC issued the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for
Comments) (the “Draft Confidentiality and Archives Administration Provisions”) for public comment, according to which, overseas
securities regulators and competent overseas authorities may request to investigate, including to collect evidence for investigation
purpose, or inspect a domestic company that has been listed or offered securities in an overseas market, and such investigation and
inspection shall be conducted under a cross-border regulatory cooperation mechanism, and the CSRC and competent PRC authorities
will provide necessary assistance pursuant to bilateral and multilateral cooperation mechanisms. As such provisions have not been
adopted and it remains unclear whether the formal version to be adopted in the future will have any material changes, it is uncertain
how such provisions will be enacted, interpreted or implemented. 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 the VIEs.
As an offshore holding company of our PRC subsidiaries and the VIEs, we may make loans to our PRC subsidiaries and the
VIEs, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our subsidiary or the VIEs 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 the VIEs 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 VIEs 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.
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 VIEs. If we fail to
50
receive such registrations or record-filings, our ability 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 the VIEs in China
established or acquired interest in our company by injecting the assets of, or equity interests in, the VIEs; 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,
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.
51
The approval, filing or other requirements of the CSRC, CAC or other PRC government authorities may be required under PRC
law in connection with our issuance of securities overseas. Our failure to obtain these approvals, 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:
•
•
•
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 VIEs 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, which in turn could cause the value of our ADSs to significantly decline or become worthless.
Furthermore, the Opinions on Strictly Cracking Down on Illegal Securities Activities issued on July 6, 2021 emphasized the
need to strengthen the administration over “illegal securities activities” and the supervision on overseas listings by China-based
companies, and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with
the risks and incidents faced by China-based overseas-listed companies, although such opinions did not specify the definition of
“illegal securities activities.” Such opinions further provided that the special provisions of the State Council on overseas offerings and
listings by those companies limited by shares will be revised and therefore the duties of domestic industry competent authorities and
regulatory agencies will be clarified. Subsequently, CAC issued the Draft Data Securities Regulations and CAC, NDRC, MIIT and
other ten PRC regulatory authorities jointed issued the Cybersecurity Review Measures which further strengthened the cybersecurity
review measures. For more details, please see “Risks Relating to Our Business and Industry—We are subject to a variety of laws and
other obligations regarding data security and personal information protection in China, and our failure to comply with any of them
could result in proceedings against us by governmental entities or others and harm our public image and reputation, which could have
a material adverse effect on our business, results of operations and financial condition.”
In addition, on December 24, 2021, CSRC issued the draft Administrative Provisions of the State Council on Overseas
Issuance and Listing of Securities by Domestic Enterprises (the “Draft Administrative Provisions”) and the draft Administrative
Measures for the Record-Filings of Overseas Issuance and Listing of Securities by Domestic Enterprises (the “Draft Filing
Measures”) for public comment. The Draft Administrative Provisions clarify the responsibilities of the CSRC to supervise the
activities of “overseas issuance and listing of securities by domestic enterprises” and that overseas issuance and listing of domestic
enterprises shall be subject to filing procedures with the CSRC, as well as regulatory requirements for the overseas issuance and
listing of domestic enterprises. The Draft Filing Measures, as a supporting rule to the Draft Administrative Provisions, detail the main
procedures of record-filing management of domestic enterprises’ overseas issuance and listing. Pursuant to the Draft Administrative
Provisions, domestic enterprises seeking overseas listing or issuance of securities directly or indirectly will be required to both go
through filing procedures and report relevant information to the securities regulatory authority under the State Council. A “direct”
issuance and listing of securities by a domestic enterprise refers to the overseas issuance of securities or overseas securities listing for
trading by a company limited by shares incorporated in the PRC. An “indirect” issuance and listing of securities by a domestic
enterprise refers to, enterprises whose main business activities are in the PRC in the name of overseas enterprises issuing securities
52
overseas or listing overseas based on the equity, assets, income or other similar rights and interests of domestic enterprises. Domestic
enterprises seeking an overseas listing or issuance of securities are also required to operate in compliance with laws and regulations on
foreign investment, state-owned asset management, industry supervision, and overseas investment. On April 2, 2022, CSRC issued the
Draft Confidentiality and Archives Administration Provisions for public comment, according to which, a domestic company that seeks
to offer and list its securities in an overseas market shall strictly abide by applicable PRC laws and regulations, enhance legal
awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives
administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. As such Draft
Administrative Provisions, the Draft Filing Measures and the Draft Confidentiality and Archives Administration Provisions have not
been adopted and it remains unclear whether the formal version to be adopted in the future will have any further material changes, it is
uncertain how such measures and provisions will be enacted, interpreted or implemented and how they will affect us.
If the CSRC, CAC or other relevant PRC regulatory agencies subsequently determine that approval is required for any of our
future offerings of securities overseas or to maintain the listing status of our ADSs, we cannot guarantee that we will be able to obtain
such approval in a timely manner, or at all. The CSRC, CAC or other PRC regulatory agencies also may take actions requiring us, or
making it advisable for us, not to proceed with such offering or maintain the listing status of our ADSs. If we proceed with any of such
offering or maintain the listing status of our ADSs without obtaining the CSRC’s or other relevant PRC regulatory agencies’ approval
to the extent it is required, or if we are unable to comply with any new approval requirements which might be adopted for offerings
that we have completed prior to the publication of the above-referenced opinions, we may face regulatory actions or other sanctions
from the CSRC, CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations
in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of
the proceeds from offering of securities overseas into China or take other actions that could have a material adverse effect on our
business, financial condition, results of operations and prospects, which in turn could cause the value of our ADSs to significantly
decline or become worthless.
Furthermore, if there are any other approvals, filings and/or other administration procedures to be obtained from or completed
with the CSRC, CAC or other PRC regulatory agencies as required by any new laws and regulations for any of our future proposed
offering of securities overseas or the listing of the ADSs, we cannot assure you that we can obtain the required approval or complete
the required filings or other regulatory procedures in a timely manner, or at all. Any failure to obtain the relevant approvals or
complete the filings and other relevant regulatory procedures may subject us to regulatory actions or other sanctions from the CSRC or
other PRC regulatory agencies, which may have a material adverse effect on our business, financial condition or results of operations.
Uncertainties and/or negative publicity regarding these PRC regulations 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 VIEs.
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 VIEs, 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 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 VIEs 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 VIEs, 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 VIEs, 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, which in turn could cause the value of our ADSs to significantly decline or become worthless.
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
53
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
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.
54
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. The VIEs 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 U.S. Public Company
Accounting Oversight Board and, as such, our investors are deprived of the benefits of such inspection.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual
report, as an auditor 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
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 auditor is 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 auditor is not currently inspected by the PCAOB. As a result, we and
investors in our ADSs are deprived of the benefits of such PCAOB inspections. In addition, on April 2, 2022, CSRC issued the Draft
Confidentiality and Archives Administration Provisions for public comment, according to which, overseas securities regulators and
competent overseas authorities may request to investigate, including to collect evidence for investigation purpose, or inspect a
55
domestic company that has been listed or offered securities in an overseas market, and such investigation and inspection shall be
conducted under a cross-border regulatory cooperation mechanism, and the CSRC and competent PRC authorities will provide
necessary assistance pursuant to bilateral and multilateral cooperation mechanisms. As such provisions have not been adopted and it
remains unclear whether the formal version to be adopted in the future will have any material changes, it is uncertain how such
provisions will be enacted, interpreted or implemented.
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, which could cause investors and potential investors in our ADSs to lose confidence in our reported financial information
and procedures and the quality of our consolidated financial statements.
Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the
HFCA Act, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or 2023 if proposed changes to
the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value
of your investment.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was signed into law on December 18, 2020. The HFCA
Act states that if the SEC determines that we are an issuer that has filed audit reports issued by a registered public accounting firm that
has not been subject to inspection for the PCAOB, or a covered issuer, for three consecutive years beginning in 2021, the SEC shall
prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the
United States.
The SEC and the PCAOB have adopted new rules to implement the HFCA Act. Specifically, on November 5, 2021, the SEC
announced the approval of the PCAOB’s new rule related to the PCAOB’s responsibilities under the HFCA Act, which provides a
framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it is unable to inspect or
investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more
authorities in that jurisdiction. On December 2, 2021, the SEC announced the adoption of final amendments to implement the
submission and disclosure requirement of the HFCA Act following its interim final amendments announced in March 2021. The
adopting release establishes the SEC’s procedures for identifying covered issuers and for prohibiting the trading of covered issuers’
securities. The SEC will identify covered issuers as early as possible after companies file their annual reports for fiscal years
beginning after December 18, 2020 and on a rolling basis, and will impose a trading prohibition on an issuer after it is identified as a
covered issuer for three consecutive years. The final amendments also include requirements to disclose information, including the
auditor name and location, the percentage of shares of the issuer owned by governmental entities, whether governmental entities in the
applicable foreign jurisdiction with respect to the auditor has a controlling financial interest with respect to the issuer, the name of
each official of the Chinese Communist Party who is a member of the board of the issuer, and whether the articles of incorporation of
the issuer contains any charter of the Chinese Communist Party. Furthermore, pursuant to the HFCA Act, the PCAOB issued a report
on December 16, 2021 notifying the SEC of its determination that it is unable to inspect or investigate completely registered public
accounting firms headquartered in mainland China or Hong Kong. The PCAOB identified our auditor as one of the registered public
accounting firms that the PCAOB is unable to inspect or investigate completely. In March 2022, the SEC issued its first “conclusive
list of issuers identified under the HFCA Act” indicating that those companies are now formally subject to the delisting provisions if
56
they remain on the list for three consecutive years, and the SEC has subsequently updated such lists, and the SEC has subsequently
updated such list. We anticipate being added to the list shortly after the filing of this annual report on Form 20-F.
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 Class A ordinary shares and/or 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. Whether
the PCAOB will be able to conduct inspections of our auditor before the issuance of our financial statements on Form 20-F for the
year ending December 31, 2023, which is due by April 30, 2024, or at all, is subject to substantial uncertainty and depends on a
number of factors out of our and our auditor’s control. If our auditor is unable to be inspected and we are unable to meet the PCAOB
inspection requirement in time, we could be delisted from the NYSE and our ADSs will not be permitted for trading “over-the-
counter” either. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to
list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. Such a prohibition would
substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with
delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to
raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and
prospects.
On June 22, 2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required
for triggering the prohibitions under the HFCA Act from three years to two. On February 4, 2022, the U.S. House of Representatives
passed a bill which contained, among other things, an identical provision. If this provision is enacted into law and the number of
consecutive non-inspection years required for triggering the prohibitions under the HFCA Act is reduced from three years to two, then
our shares and ADSs could be prohibited from trading in the United States in 2023.
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
57
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 the 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, which could cause the value of our ADSs to significantly decline or become worthless.
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:
•
•
•
•
•
•
•
•
•
•
•
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, 2022, 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
58
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.
We have fallen below the continued listing requirements of the New York Stock Exchange, and if we cannot regain compliance in
time, our ADSs may be delisted and the liquidity and the trading price of our ADSs could be materially and adversely affected.
We were notified by the NYSE on January 5, 2022, of our company’s non-compliance with the continued listing standard
because, as of January 4, 2022, the average closing price of our ADSs was less than US$1.00 per ADS over a consecutive 30 trading-
day period. Pursuant to Section 802.01C of the NYSE’s Listed Company Manual, our company has six months, or the Cure Period,
following receipt of the notice to regain compliance with the minimum share price requirement. We can regain compliance at any time
during the Cure Period if on the last trading day of any calendar month during the Cure Period we have a closing share price of at least
US$1.00 and an average closing share price of at least US$1.00 over the 30 trading-day period ending on the last trading day of that
month. In the event that at the expiration of the six-month Cure Period, both a US$1.00 closing share price on the last trading day of
the Cure Period and a US$1.00 average closing share price over the 30 trading-day period ending on the last trading day of the Cure
Period are not attained, the NYSE will commence suspension and delisting procedures.
To address this issue, we intend to monitor the market conditions of our ADSs and are still considering our options. As
required by the NYSE rules, we notified the NYSE on January 14, 2022 of our intent to cure the ADSs’ price deficiency within the
applicable time period required by the NYSE. During the Cure Period, our ADSs will continue to be listed and traded on the NYSE,
subject to our compliance with other NYSE continued listing standards and other rights of the NYSE to delist the ADSs.
Should we fail to regain compliance with NYSE’s continued listing requirements during the Cure Period or encounter any
additional non-compliance, our ADSs may be delisted from the NYSE, and the liquidity and the trading price of our ADSs could be
materially and adversely affected.
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.
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.
59
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
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. Accordingly, for so long as our company or Fread Limited is a tax resident outside the Cayman Islands, it is not required to
60
satisfy the economic substance test set out in the Cayman ES Act. 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 reduced 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 (Revised
Edition January 1, 2020), as amended, 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, but does not include investment fund
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
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.
61
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.
62
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.
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 the
VIEs.”
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. Our premium content is organized in major verticals such as news, video, finance, technology, automobile,
entertainment, military, sport, real estate and fashion. Our main content distribution channels include our PC websites, mobile news
63
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 106 million in December 2021 and we have ranked
second among all Internet portals in China in terms of monthly unique visitors in December 2021. We earn revenues from advertising
and paid services, which accounted for 90.3% and 9.7% of our total revenues, respectively, in 2021.
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 30.0% and 70.0% of our net advertising revenues, respectively, in 2021. Building on
our core competencies of content production capability, dedication to serious journalism and cutting-edge technology, we continue to
create values for our advertising clients.
We offer a wide variety of paid services primarily through our mobile channel and operations with the telecom operators and
other third parties. Prior to 2021, 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. Beginning from January 1, 2021, MVAS, games and others are referred to collectively as E-
commerce and others. For comparison purposes, the revenues from paid services for the years ended December 31, 2019 and 2020
have been retrospectively re-classified into revenues from paid contents and revenues from E-commerce and others. We derived
43.0%, and 57.0% of our paid services revenues, respectively, from our paid contents, and E-commerce and others in 2021. Our paid
services revenues increased from RMB95.8 million in 2020 to RMB100.3 million (US$15.7 million) in 2021, mainly caused by the
increase in revenues from E-commerce and revenues from licensing fees related to audio books.
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, 2022.
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 2021 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. Tianying Jiuzhou
and Yifeng Lianhe later terminated the 2020 Program Resource License and Cooperation Agreement and Tianying Jiuzhou entered
into the 2021 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. In
addition, we and Phoenix TV Group work closely on major world news events coverages, and provide joint advertising services to
each other's advertisers.
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
64
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.”
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: 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.
Content Sourcing
Acquired Professional Content. We have entered into content licensing agreements with approximately 530 third-party
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 Dongnan Satellite TV. In
addition, according to the 2021 Program Resource License and Cooperation Agreement we entered into with Phoenix TV Group, we
have the exclusive right to broadcast copyrighted video content and the derived audio content from three television channels of
Phoenix TV and its subsidiaries on the internet in Mainland China. The content that we source from professional related and third
parties comprises the majority of the content on our PC websites, mobile applications and mobile websites.
Original Content. Our core competitive differentiation lies in our original content production capabilities. As mobile Internet
traffic growth has peaked, we believe that the most effective way to attract and retain users is to produce original content with
distinctive characters that are true to our brand. Our original content matrix encompasses a variety of genres including in-depth
commentary, investigative reporting, interviews, and premium IP production, in forms of text, image, video and livestreaming. For
example, we launched an original opinion column titled Eye of the Storm (“风暴眼”), which is distinctively positioned to examine
contentious current events. We present the audience with our unique, authentic, and timely interpretation of the issues by conducting
meticulous research and exploring a wide array of viewpoints. Our original columns and programs were each produced and presented
in a certain voice and style consistent with our branding differentiation. Through this, we intend to not only enhance our brand image,
but also create a unique brand affinity among our users and advertisers, which should help us unlock more sustainable long-term value
from our brand equity in turn.
We-media Content. We allow our users to upload text, images and videos content (UGC) to our PC websites, mobile
applications and mobile websites through we-media accounts. We-media content adds 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 expand our content offerings.
Content Verticals
We currently provide over 50 interest-based verticals, each of which features integrated text, image, video and livestreaming
content and embedded interactive services, such as user surveys and comment postings. Our users can access all of our interest-based
verticals’ content through our PC and mobile channel. 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
65
•
•
•
•
•
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.
Video. Our video 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 livestreaming vertical, FENG Live (“风直播”), offers live-streamed
news and information to provide real-time professional reports of hit events, conferences, etc.
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.
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.
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.
•
•
•
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.
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, 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
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.
• 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.
Content Editing and Production
66
Content editing and production are critical components of our content production process. We had a team of 390 editors as of
December 31, 2021 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,
2021, our content screening team consists of five employees and more than 300 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.
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 livestreaming 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 content verticals and access to our
licensed digital format books and our e-commerce platform. According to iResearch, our number of PC monthly unique visitors was
106 million in December 2021. We have ranked second among all Internet portals in China in terms of monthly unique visitors in
December 2021.
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, livestreaming and video.
ifeng Video (formerly named “Phoenix Mobile Station”). Ifeng video application provides video news, livestreaming,
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 application Fanyue Novel (“翻阅小说”) provides fee-based Internet
literatures from writers and digital format books licensed from third-party publishers to customers on our mobile
platform. In 2021, we introduced a separate digital reading application Fun Novel (“趣小说”), which offers users free
literatures supported by advertising. Through these applications, our users are able to enjoy a full-fledged online reading
67
experience and enable us to lay a solid foundation for building our own closed-loop IP ecosystem as we cultivate these
content into online series, comic books, audiobooks and short-form videos to expand our content offerings and diversify
our monetization channels.
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, Internet search engines and navigation sites to provide quality content for our
high-end users.
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 2021, our advertising services are primarily on our mobile
channel.
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 23.8% of our total gross advertising revenues in 2021. Our advertisers generally are in the automobile, e-commerce,
financial services, food & beverages, Internet services, entertainment and tourism services, communication services, retail services, IT
products, etc. In 2021, we strengthened our collaboration with Phoenix TV, which allows us to synergize our resources and client
bases, creating a richer and more comprehensive suite of marketing solutions for a broader advertiser base.
Paid Services
Paid services revenues mainly consist of revenues from paid content and E-commerce. Revenues generated from paid
contents include fees from digital reading and revenues from the sales of audio books, paid videos, and other content-related sales
activities. E-commerce revenues are generated from the sales of goods through our e-commerce platform or other third-party
platforms. We have formed a team of professional buyers to select high-end products in categories such as fine culture and creativity,
food and wine, and health and wellness. Leveraging our user traffic, we upgraded our online e-commerce brand and officially
launched our private label brand in the health and wellness segment, Phoenix Premium Products (“凰家尚品”), to cater to their
lifestyle needs and improve the monetization capabilities of our e-commerce business.
The following table sets forth our paid services offerings on third parties’ platforms and our own platforms and the percentage
contribution of our various paid services to our paid services revenues and our total revenues in 2021.
Paid Services Offerings
Paid contents
% of Paid
Service Revenues
% of Total Revenues
Digital reading, audio books, paid videos, and other content-related sales activities
E-commerce and others
E-commerce, MVAS, games and others
43.0%
57.0%
4.2%
5.5%
68
Our Advertising Execution Team
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
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 December 2021, we organized the iFeng Finance Summit, which
featured a stellar lineup of distinguished speakers including authority figures in the field of politics, finance and academia. The event
related coverage and trending topics generated over 300 million views across the Internet.
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 The Action League
(“行动者联盟”), helps associate our brand with social responsibility. In December 2021, we hosted The Action League, which is a
charity event where enterprises, philanthropist, media, celebrities and minority ethnic groups jointly promote social welfares. This
event was reported by a number of leading media outlets, such as CCTV, Phoenix TV, Guangdong TV, which generated more than
300 million exposures across the Internet.
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 2021, 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 under user consent. 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 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”), another customizable marketing
solution, catering to premium advertising demands. Following the success of these two platforms, we decided to develop Fengfei (“凤
飞”), 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 2019, 2020 and 2021, our total technology and product development expenses, including related share-
based compensation, were RMB216.7 million, RMB172.0 million and RMB158.6 million (US$24.9 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 1,100 self-owned and leased servers across China
mainland and Hong Kong with power supply and power generator backup, in addition to cloud-based servers that we lease from third-
69
party operators. 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.
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, UCMS (U-Content Management
System), for content management and delivery.
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 2021.
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.
Environmental, Social and Governance
We firmly believe that, as an enterprise develops, in addition to its economic value, it must also give even more consideration
to its value to the society. In addition, an enterprise must fulfill its social responsibilities and uphold its standard of morality and
conscience to stay in a competitive position. Despite the challenging economic environment, we are committed to corporate social
responsibility and meeting society’s changing needs, which is the mission and objective of our concerning.
We are committed to living up to our social responsibilities and to facilitate meaningful public affairs dialogue. Leveraging
our own advantages as a media company and our brand influence, we provide public welfare information and organize charity events
through our media platform to gather resources from charitable organizations, media partners and caring enterprises, with the aim of
promoting charity, facilitating public welfare and environmental protection projects and making contributions to the society's
sustainable development. For example, we launched the Activist League in 2016, aiming at establishing a charity event platform for
70
the mutual aid and cooperation among charitable organizations, creative industries, celebrities and caring companies, and through the
platform providing extra media resources and corporate support to the charitable parties. Meanwhile, the platform also gathers and
selects from all sectors of the society innovative charity projects which are suitable for dissemination through new media, covering a
multiple of areas such as caring for autistic children, environmental protection and animal protection, etc. In the past 6 years, the
Activist League has launched a series of solutions focusing on wildlife protection and child safety issues, such as the Tape Pledge and
Brave Babe, which not only won awards both at home and abroad, facilitated the spread of the social design concept in China, but also
earned high recognition from the United Nations through promoting the practice of the United Nations' Sustainable Development
Goals in China and around the world. Girls Protection, an important project of the Activist League, has brought children sexual abuse
prevention and puberty health education courses to 31 provinces in China, covering nearly 3 million children and over 0.5 million
parents.
In terms of employment and labor practices, we adopt a people-oriented strategy where we attract and retain talents by
offering reasonable employment terms, a safe and healthy work environment, a wide range of employee benefits and trainings for staff
development while maintaining strict compliance with the labor practices. Meanwhile, we are committed to actively embracing
different individuals with different backgrounds and to promote the value of an inclusive and diverse culture that promotes gender
equality, which we believe attracts the best talent. We offer occupational training to our employees to enhance their knowledge and
skills for performing job duties and we provide a multitude of benefits to our employees and their family members.
In the area of environmental protection, our operations do not produce or discharge any industrial waste which is hazardous to
the environment and we maintain compliance with the environment laws and regulations in the PRC. We are committed to carbon
mitigation measures and will continue to explore ways to further improve energy efficiency. We ask our employees to be mindful of
the environment when consuming office supplies.
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 317 PRC software registrations and owned 57 domain names, including ifeng.com, as of March 31,
2022.
We have also designed proprietary logos for use in the respective businesses of Tianying Jiuzhou and Yifeng Lianhe. As of
March 31, 2022, Tianying Jiuzhou owned 487 PRC registered trademarks, six of which were transferred from Phoenix Satellite
Trademark Limited, and Yifeng Lianhe owned 50 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—The VIEs 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.”
Employees
We had approximately 1,689, 1,305 and 1,245 employees as of December 31, 2019, 2020 and 2021, respectively. The table
below sets forth the number of employees categorized by function as of December 31, 2021:
Function
Management and administration
Content development
Mobile products and services
Technology and product development
Sales and marketing
Total
Number of Employees
206
390
61
232
356
1,245
As of December 31, 2021, we had 975, 43 and 59 employees located in Beijing, Shanghai and Guangzhou, respectively, and
168 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.
71
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, 2021, we leased an aggregate of 15,059 square meters of office space in Beijing
and 6,148 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,
2021 to March 31, 2022, we have been subject to 300 cases in the PRC, 228 of which have been concluded. The aggregate amount of
damages awards and settlements paid by us was RMB2.7 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. In June 2021, the plaintiff applied for a retrial with the Supreme People’s
Court and the Supreme People’s Court conducted a hearing on the matter of retrial. As of the date of this annual report, we have not
received any notification from the Supreme People’s Court with respect to the retrial and we cannot assure you that the Supreme
People’s Court will not order a retrial for this case.
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
Licenses and Permissions Requirements
Except for as disclosed in “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 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,” “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 or to cease the Internet access services provided by third parties to us. In 2021, approximately 90.7% of our total revenues
were derived from Internet information services and services that relied on Internet access services from third parties,” “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,” “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,” “Item 3. Key Information—D. Risk Factors—Risks
Relating to Our Business and Industry—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,” we have received all material
permissions that are, or may be, required for our operations in China, and no material permission has been denied from us by relevant
authorities in China. As of the date of this annual report, we have not been informed by any PRC government authority of any
72
requirement for us to obtain permission for issuance of our ADSs to foreign investors. However, there remains some uncertainty as to
how the relevant PRC laws, rules and regulations will be interpreted or implemented. In addition, rules and regulations in China can
change quickly with little advance notice. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and
Industry—We may be subject to cybersecurity review by regulatory authorities of the PRC in the future” and “Item 3. Key
Information—D. Risk Factors —Risks Relating to Doing Business in China— 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.”
The table below sets forth material permissions and/or licenses we have obtained for our operations in China.
Company Name
Company Status
Name of Permission/License
Governing Government Authority
Tianying Jiuzhou
One of the VIEs
Tianying Jiuzhou
Tianying Jiuzhou
Tianying Jiuzhou
Tianying Jiuzhou
Tianying Jiuzhou
Tianying Jiuzhou
One of the VIEs
One of the VIEs
One of the VIEs
One of the VIEs
One of the VIEs
One of the VIEs
One of the VIEs
Value-added Telecommunications Business
Operating License
Value-added Telecommunications Business
Operating License
Online Culture Operating Permit
Publication Operation Permit
Permit for Radio and Television Program
Production and Operation
Commercial Performance License
Telecommunications Code Number Resources
Operating Certificate
Tianying Jiuzhou
Certificate of High-tech Enterprise
Tianying Jiuzhou
One of the VIEs
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Yifeng Lianhe
Fengyu Network
Fengyu Network
Fengyu Network
Fengyu Network
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Zhongguancun Science Part High and New
Technology Enterprise
Value-added Telecommunications Business
Operating License
Value-added Telecommunications Business
Operating License
Online Culture Operating Permit
Publication Operation Permit
Food Operation Licenses
Internet Medicine Information Service
Qualification Certificate
Telecommunications Code Number Resources
Operating Certificate
Filling of Third-party Platform Provider for Online
Food Trading
Filing of Foreign Trade Business Operators
Customs Record Return Receipt for Consignees
and Consignors of Import and Export Goods
Value-added Telecommunications Business
Operating License
Online Culture Operating Permit
Publication Operation Permit
Permit for Radio and Television Program
Production and Operation
73
Beijing Communications Administration
Ministry of Industry and Information
Technology of the People’s Republic of
China
Beijing Municipal Bureau of Culture and
Tourism
Chaoyang District People’s Government of
Beijing Municipality
Beijing Municipal Radio and Television
Bureau
Beijing Municipal Bureau of Culture and
Tourism
Ministry of Industry and Information
Technology of the People’s Republic of
China
Beijing Municipal Science & Technology
Commission, Beijing Municipal Finance
Bureau, Beijing Municipal Tax Bureau
Administrative Commission of
Zhongguancun Science Park
Beijing Communications Administration
Ministry of Industry and Information
Technology of the PRC
Beijing Municipal Bureau of Culture and
Tourism
Beijing Municipal Bureau of Press and
Publication
Chaoyang District Market Regulation
Administration of Beijing Municipality
Beijing Municipal Medical Products
Administration
Ministry of Industry and Information
Technology of the People’s Republic of
China
Beijing Municipal Medical Products
Administration
Chaoyang District Commerce Bureau of
Beijing Municipality
Chaoyang District Customs District of
Beijing Municipality P.R.China
Beijing Communications Administration
Beijing Municipal Bureau of Culture and
Tourism
Beijing Municipal Bureau of Press and
Publication
Beijing Municipal Radio and Television
Bureau
Fengyu Network
Beijing Fengyue
Culture Technology
Co., Ltd.
Beijing Fengyue
Culture Technology
Co., Ltd.
Beijing Fengyue
Culture Technology
Co., Ltd.
Beijing Fengyue
Culture Technology
Co., Ltd.
Shanghai Fengyu
Video Technology
Co., Ltd.
Shanghai Fengyu
Video Technology
Co., Ltd.
Huanyou Tianxia
Huanyou Tianxia
Huanyou Tianxia
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Subsidiary of one of the
VIEs
Commercial Performance License
Value-added Telecommunications Business
Operating License
Beijing Municipal Bureau of Culture and
Tourism
Beijing Communications Administration
Online Culture Operating Permit
Beijing Municipal Bureau of Culture and
Tourism
Permit for Radio and Television Program
Production and Operation
Beijing Municipal Radio and Television
Bureau
Publication Operation Permit
Value-added Telecommunications Business
Operating License
Beijing Municipal Bureau of Press and
Publication
Ministry of Industry and Information
Technology of the People’s Republic of
China
Permit for Radio and Television Program
Production and Operation
Beijing Municipal Radio and Television
Bureau
Telecommunication and Information Services
Business License
Publication Operation Permit
Food Operation Licenses
Fenghuang On-line
Our PRC subsidiary
Certificate of High-tech Enterprise
Fenghuang On-line
Our PRC subsidiary
Zhongguancun Science Part High and New
Technology Enterprise
Fenghuang Yutian
Our PRC subsidiary
Certificate of High-tech Enterprise
Fenghuang Yutian
Our PRC subsidiary
Zhongguancun Science Part High and New
Technology Enterprise
Fenghuang Borui
Our PRC subsidiary
Certificate of High-tech Enterprise
Fenghuang Borui
Our PRC subsidiary
Zhongguancun Science Part High and New
Technology Enterprise
Beijing Communications Administration
Beijing Municipal Bureau of Press and
Publication
Chaoyang District Market Regulation
Administration of Beijing Municipality
Beijing Municipal Science & Technology
Commission, Beijing Municipal Finance
Bureau, Beijing Municipal Tax Bureau
Administrative Commission of
Zhongguancun Science Park
Beijing Municipal Science & Technology
Commission, Beijing Municipal Finance
Bureau, Beijing Municipal Tax Bureau
Administrative Commission of
Zhongguancun Science Park
Beijing Municipal Science & Technology
Commission, Beijing Municipal Finance
Bureau, Beijing Municipal Tax Bureau
Administrative Commission of
Zhongguancun Science Park
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 December 27, 2021, MOFCOM and the NDRC released the Special Management Measures (Negative List) for the Access
of Foreign Investment (2021 Version), which became effective on January 1, 2022, 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.
74
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
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
75
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.
Opinions on Further Compacting the Main Responsibility of Website Platform Information Content Management, or the
Opinions on Website Responsibility (2021). On September 15, 2021, the CAC issued the Opinions on Website Responsibilities, which
took effect on the same date. These opinions systematically put forward the work requirements for the website platform to perform the
main responsibility of information content management, mainly including ten specific contents: (i) clearly grasp the connotation of the
main responsibility; (ii) improve the platform community rules; (iii) strengthen the standardized management of accounts; (iv)
improve the content review mechanism; (v) improve the quality of information content; (vi) standardize the dissemination of
information content; (vii) strengthen the management of key functions; (viii) insist on operating in compliance with laws and
regulations; (ix) strictly protect minors on the Internet; and (x) strengthen the construction of the personnel team. Besides, these
opinions further put forward specific requirements for the website platform to perform the main responsibility.
Administrative Provisions on Internet Information Service Algorithm Recommendation (2022). The Administrative Provisions
on Internet Information Service Algorithm Recommendation implements classification and hierarchical management for algorithm
recommendation service providers based on varies criteria, and stipulates that algorithm recommendation service providers with
public opinion attributes or social mobilisation capabilities shall submit the relevant information within ten business days from the
date of providing such services and go through the record-filing formalities. Algorithmic recommendation service providers are
required to provide users with options that are not specific to their personal characteristics, or provide users with convenient options to
cancel algorithmic recommendation services. If the users choose to cancel the algorithm recommendation service, the algorithm
recommendation service provider shall immediately stop providing relevant services. Algorithmic recommendation service providers
shall provide users with the function to select or delete user labels of personal characteristics which are used for algorithmic
recommendation services. In violation of such provisions, the algorithm recommendation service providers may be ordered to effect
rectification by the relevant competent authorities; where they fail to effect rectification or if the circumstances are serious, a fine of
no less than RMB10,000 but no more than RMB100,000 may be imposed, and the relevant competent authorities may order them to
suspend information updating. As of the date of this annual report, we are in the process of such record-filing formalities. There is
uncertainty as to whether we will be able to complete such record-filing.
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 (2022, revised), or the FITE
Regulations, which will take effect on May 1, 2022. 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.
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
76
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, 2022, Tianying Jiuzhou owned 487 PRC registered trademarks, six of which were transferred to it from Phoenix Satellite
Trademark Limited, and Yifeng Lianhe owned 50 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. 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 the VIEs 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—The VIEs 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 the VIEs. 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, mobile websites and third-party platform accounts. 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
77
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,
mobile websites and third-party platform accounts.”
Regulation of Online Transmission of Audio-Visual Programs
Pursuant to the 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 March 23,
2021, NRTA issued the revised Administrative Provisions on Audio-Visual Program Services through Private Network and Targeted
Communication, or the 2021 A/V Provisions. 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 all
types of fixed or mobile electronic equipment, such as TV, cellphone, 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 NRTA. Foreign-invested enterprises are not allowed to engage in the above business.
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 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,
78
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
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 March 23, 2021, NRTA issued the 2021 A/V Provisions, which replaced 2016 A/V Provisions. The 2021 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, mobile websites and third-party platform
accounts 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.
79
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 MOC promulgated the new Provisional Measures on Administration of Internet Culture on May 10, 2003, or the Internet
Culture Measures, which was further amended in 2011 and 2017. The latest amended Internet Culture Measures become effect on
December 15, 2017. The Internet Culture Measures apply to entities that engage in activities 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, mobile websites and third-party
platform accounts. 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, art products, play performance, animation
products, organization of exhibition or race of the online cultural products and performances. The Network Publication Service
80
License of Tianying Jiuzhou has expired, and Tianying Jiuzhou is in the process of applying for renewal of such license. There is
uncertainty as to whether Tianying Jiuzhou will be able to renew such license.
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, mobile websites
and third-party platform accounts.
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
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 February 9, 2021, CAC and other six authorities issued the Guiding Opinions on Strengthening the Standardized
Management of Network Live Broadcasting, according to which, live streaming platforms that carry out business-oriented online
performance activities must hold the online culture operating permit and carry out ICP filing; live streaming platforms that carry out
network audio-visual program services must hold the audio-visual program transmission license (or complete the registration in the
national network audio-visual platform information registration management system) and carry out ICP filing; live streaming
platforms that carry internet news information service must hold Internet news information service license. Live streaming platforms
shall file with local cyberspace administration office in a timely manner, and shall cancel its filing immediately after it ceases to
provide live streaming services.
81
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.
On March 12, 2022, the NDRC and MOFCOM jointly issued the Negative List for Market Access (2022 Edition), pursuant to
which, market entities are prohibited from illegally conducting news media related businesses. To be specific, non-State-owned capital
shall not: (i) be engaged in business of news gathering, editing and broadcasting; (ii) invest in the establishment and operation of news
organizations; (iii) operate the layout, frequency, channel, column and public account of news organizations; (iv) be engaged in live
broadcasting related to politics, economics, military, diplomatic or related to major social, cultural, scientific and technological,
health, education, sports activities and events and other activities and events related to political discretion, direction of public opinion
and value orientation; (v) introduce news released by foreign subjects; or (vi) hold forum, summit or award selection activities in the
field of news and public opinion.
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
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
82
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
medical equipment must obtain an Internet Medicine Information Service Qualification Certificate from the applicable provincial level
counterpart of SFDA.
83
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.
The Personal Information Protection Law (the “PIPL”) was released by the National People’s Congress Standing Committee
on August 20, 2021 and became effective on November 1, 2021. The PIPL stipulates the scope of personal information and the ways
of processing personal information, establishes rules for processing personal information and for transferring personal information
offshore, and clarifies the individual’s rights and the processor’s obligations in the process of personal information. The PIPL
specifically provides rules for processing sensitive personal information. Sensitive personal information refers to personal information
that, once leaked or illegally used, could easily lead to the infringement of human dignity or harm to the personal or property safety of
an individual, including biometric recognition, religious belief, specific identity, medical and health, financial account, personal
whereabouts and other information of an individual, as well as any personal information of a minor under the age of 14. Only where
there is a specific purpose and sufficient necessity, and under circumstances where strict protection measures are taken, may personal
information processors process sensitive personal information. A personal information processor shall inform the individual of the
necessity of processing such sensitive personal information and the impact thereof on the individual’s rights and interests.
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
84
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
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’ business licenses.
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
85
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 Guiding
Opinions for Declaration of 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, and the Interim Provisions on Reviewing Concentration of Undertakings issued
by the SAMR on October 23, 2020.
On February 7, 2021, the Anti-monopoly Commission of the State Council promulgated the Guidelines to Anti-Monopoly in
the Field of Internet Platforms, or the Anti-Monopoly Guidelines, which took effect on the same date and will operate as a compliance
guidance for platform economy operators under the existing PRC anti-monopoly laws and regulations. The Anti-Monopoly Guidelines
mainly covers five aspects, including general provisions, monopoly agreements, abusing market dominance, concentration of
undertakings, and abusing of administrative powers eliminating or restricting competition.
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.
86
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;
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
87
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.
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.
On June 10, 2021, the National People’s Congress Standing Committee released the PRC Data Security Law, which became
effective on September 1, 2021. The PRC Data Security Law stipulates the measures to support and promote data security and
development, to establish and optimize the national data security management system, and to clarify organizations’ and individuals’
responsibilities in data security. According to the PRC Data Security Law, data processing activities shall be carried out in accordance
with PRC laws and regulations, establishing and improving the data security management system of the whole process, organizing and
carrying out data security education and training, and taking corresponding technical measures and other necessary measures to
guarantee data security. Where data processing activities are carried out through the Internet and other information networks, the
above-mentioned data security protection obligations shall be fulfilled on the basis of the hierarchical network security protection
system. In carrying out data processing activities, risk monitoring shall be strengthened, and remedial measures shall be taken
immediately when data security defects, loopholes and other risks are found. In the event of a data security incident, the processors of
data shall take immediate measures to deal with it, inform the user in time and report to the competent authorities in accordance with
relevant provisions. The processors of important data shall, in accordance with relevant provisions, carry out regular risk assessments
of their data processing activities and submit risk assessment reports to the competent authorities. The PRC Data Security Law
provides a national data security review system, under which data processing activities that affect or may affect national security shall
be reviewed. Any organization or individual carrying out data processing activities that violates the PRC Data Security Law shall bear
the corresponding civil, administrative or criminal liability depending on the specific circumstances.
On December 28, 2021, the CAC, NDRC, MIIT and other ten PRC regulatory authorities jointly issued the Cybersecurity
Review Measures, effective on February 15, 2022. The Cybersecurity Review Measures require that, (i) any procurement of network
products and services by critical information infrastructure operators, which affects or may affect national security, (ii) any data
processing activities by network platform operators, which affects or may affect national security, or (iii) any network platform
operators which has personal information of more than one million users and is going to be listed abroad, shall be subject to
cybersecurity review. Since the measures were recently promulgated, there exists uncertainties with respect to their interpretation and
implementation.
On July 30, 2021, the State Council issued the Regulations for the Security Protection of Critical Information Infrastructure
(the “CII Regulations”), which came into effect on 1 September 2021. Pursuant to the CII Regulations, “critical information
infrastructures” refers to important network facilities and information systems of important industries and sectors such as public
communications and information services, energy, transport, water conservation, finance, public services, e-government, and science
and technology industry for national defense, as well as other important network facilities and information systems that may seriously
88
endanger national security, national economy and citizen’s livelihood and public interests if they are damaged or suffer from
malfunctions, or if any leakage of data in relation thereto occurs. Competent authorities as well as the supervision and administrative
authorities of the above-mentioned important industries and sectors are responsible for the security protection of critical information
infrastructures (the “Protection Authorities”). The Protection Authorities will establish the rules for the identification of critical
information infrastructures based on the particular situations of the industry and report such rules to the public security department of
the State Council for record. The following factors must be considered when establishing identification rules: (i) the importance of
network facilities and information systems to the core businesses of the industry and the sector; (ii) the harm that may be brought by
the damage, malfunction or data leakage of, the network facilities and information systems; and (iii) the associated impact on other
industries and sectors. The Protection Authorities are responsible for organizing the identification of critical information
infrastructures in their own industries and sectors in accordance with the identification rules, promptly notifying the operators of the
identification results and reporting to the public security department of the State Council.
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.
Since some of these laws and regulations were recently promulgated, there exists uncertainties with respect to their
interpretation and implementation, our failure to comply with such laws and regulations could result in proceedings against us by
competent authorities or others. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We
are subject to a variety of laws and other obligations regarding data security and personal information protection in China, and our
failure to comply with any of them could result in proceedings against us by governmental entities or others and harm our public
image and reputation, which could have a material adverse effect on our business, results of operations and financial condition.”
Regulation of Internet Copyrights
In order to address copyright issues relating to the Internet, in December 2020, 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 became 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
89
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
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, mobile websites and third-party platform accounts, 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.
90
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
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
91
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
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 the VIEs in China established or acquired interest in our company
by injecting the assets of, or equity interests in, the VIEs, 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
92
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
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
93
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.
On December 24, 2021, CSRC issued the draft Administrative Provisions of the State Council on Overseas Issuance and
Listing of Securities by Domestic Enterprises (the “Draft Administrative Provisions”) and the draft Administrative Measures for the
Record-Filings of Overseas Issuance and Listing of Securities by Domestic Enterprises (the “Draft Filing Measures”) for public
comments. The Draft Administrative Provisions clarify the responsibilities of the CSRC to supervise the activities of “overseas
issuance and listing of securities by domestic enterprises”, and that overseas issuance and listing of domestic enterprises shall be
subject to the filing procedures with the CSRC, as well as the regulatory requirements for the overseas issuance and listing of domestic
enterprises. The Draft Filing Measures, as a supporting rule to the Draft Administrative Provisions, detailed the main procedures of
record-filing management of domestic enterprises’ overseas issuance and listing. Pursuant to the Draft Administrative Provisions,
domestic enterprises seeking overseas listing or issuance of securities directly or indirectly will both be required to go through filing
procedures and report relevant information to the securities regulatory authority under the State Council. A “direct” issuance and
listing of securities by a domestic enterprise refers to the overseas issuance of securities or overseas securities listing for trading by a
company limited by shares incorporated in the PRC. An “indirect” issuance and listing of securities by a domestic enterprise refers to
that, enterprises whose main business activities are in the PRC, in the name of overseas enterprises, issue securities overseas or list
overseas based on the equity, assets, income or other similar rights and interests of domestic enterprises. Domestic enterprises seeking
overseas listing or issuance of securities should operate in compliance with laws and regulations on foreign investment, state-owned
asset management, industry supervision, and overseas investment. On April 2, 2022, CSRC issued the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for
Comments) (the “Draft Confidentiality and Archives Administration Provisions”) for public comment, according to which, a domestic
company that seeks to offer and list its securities in an overseas market shall strictly abide by applicable PRC laws and regulations,
enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and
archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. The
“domestic company” may refer to either one of the following entities: a domestic joint-stock company listed in an overseas market via
direct offering, or a domestic operational entity of a company listed in an overseas market via indirect offering. As such Draft
Administrative Provisions, the Draft Filing Measures and the Draft Confidentiality and Archives Administration Provisions have not
been adopted and it remains unclear whether the formal version to be adopted in the future will have any further material changes, it is
uncertain how such provisions and measures will be enacted, interpreted or implemented.
Uncertainties exist as to how these laws and regulations will be interpreted and implemented, and how these draft provisions
or measures will be adopted, failure to obtain these approvals, if required, could have a material adverse effect on us. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Doing Business in China—The approval, filing or other requirements of the CSRC,
CAC or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas. Our
failure to obtain these approvals, if required, could have a material adverse effect on our business, operating results, reputation and
trading price of our ADSs.”
94
C. Organizational Structure
Our Corporate Structure
The following diagram illustrates our corporate structure as of the date of this annual report, including our subsidiaries, the
VIEs 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.
Despite holding 71.8% of the equity interest in Phoenix FM before April 2020, 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 other shareholders of Phoenix FM. We had fully written down the entire investment in Phoenix FM in 2015. In April
2020, other shareholders of Phoenix FM transferred all of their 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 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, 2021, 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.
95
On March 22, 2019, we entered into a share purchase agreement with Run Liang Tai and entered into the Particle
Supplemental Agreement with Run Liang Tai on July 23, 2019, for the proposed sale of 34% equity interest of Particle on an as-if
converted basis. According to the Particle Supplemental Agreement, we agreed to sell 212,358,165 shares with the total purchase price
of US$448 million. In addition, we agreed that Run Liang Tai may pay the purchase price in several installments and deliver the
preferred shares of Particle to Run Liang Tai in batches. We completed delivery of the first batch of 94,802,752 Particle shares to Run
Liang Tai 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 of preferred
shares of Particle to be delivered to Run Liang Tai in or before August 2020. 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 Run Liang Tai and us with
respect to the second batch of shares under the previous agreements were terminated, and instead, we agreed to sell 140,248,775
shares of Particle as the second batch of preferred shares of Particle to Run Liang Tai at a total purchase price of US$150 million. On
August 10, 2020, Run Liang Tai 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 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 in the consolidated statements of comprehensive income/(loss) in 2020. In August 2020, we
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 the date of this annual report, we held 4,584,209 Series D1 convertible redeemable preferred shares of Particle, which
had been accounted for as available-for-sale debt investments, representing an aggregate of approximately 0.60% 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 RMB23.4 million (US$3.7 million) as of
December 31, 2021.
In December 2018, we acquired a 25.5% equity interest in Yitian Xindong with a consideration of RMB144.1 million and
started to consolidate Yitian Xindong in our financial statements since December 28, 2018. In March 2019, we acquired another
25.5% equity interest in Yitian Xindong with a consideration of RMB144.1 million and held a total of 51.0% equity interest in and a
51.0% voting rights of Yitian Xindong and continued to consolidate Yitian Xindong’s financial statements. In May 2020, we sold all
of our equity interests in Yitian Xindong to other investors 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-
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, 2021, the carrying value of our equity investment in Yitong Technology was RMB13.0 million
(US$2.0 million).
96
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, 2021, we made a total of RMB81.0 million (US$12.7 million) investments in these three funds.
Investments in two of such funds with total considerations of RMB60.0 million were accounted for under equity method as significant
influence could be imposed by us, and the investment in the other fund of RMB21.0 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, 2021 were
RMB83.1 million (US$13.0 million). As of March 31, 2022, we have already made investments in these three funds with a total
amount of RMB90.0 million (US$14.1 million).
In December 2020, we acquired, through Tianying Jiuzhou, approximately 3.7773% partnership interests in Kesheng Jiada
with a consideration of RMB10.0 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. 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). As of December 31, 2021, the carrying value of the equity investment was RMB15.0 million (US$2.4
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 the VIEs
Phoenix New Media limited is not a Chinese operating company but a Cayman Islands holding company with operations
primarily conducted by its subsidiaries in China and through contractual arrangements with the VIEs based in China. 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 the VIEs.
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 the VIEs 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 Ming Chen and Yansheng He. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our Corporate Structure—The shareholders of the VIEs 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 2021, Tianying Jiuzhou and its subsidiaries
accounted for 37.9% of our total revenues, Fenghuang Ronghe and its subsidiaries accounted for 3.3% of our total revenues, and
Chenhuan and its subsidiaries accounted for 3.5% of our total revenues.
These contractual arrangements may not be as effective as ownership in providing us with control over the VIEs. If the VIEs
or their shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held
by the VIEs is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in
reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties regarding
the interpretation and enforcement of the relevant laws and regulations. Furthermore, in connection with litigation, arbitration or other
judicial or dispute resolution proceedings, assets under the name of any of record holder of equity interest in the VIEs, including such
equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed
pursuant to the contractual arrangement or ownership by the record holder of the equity interest. See “Item 3. Key Information—D.
97
Risk Factors—We rely on contractual arrangements with the VIEs 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.”
All of these contractual arrangements are governed by and interpreted in accordance with PRC law, and disputes arising from
these contractual arrangements will be resolved through arbitration in China. As a result, uncertainties in the interpretation and
enforcement of PRC laws, rules and regulations could limit our ability, as a Cayman holding company, to enforce these contractual
arrangements.
Overview of the Contractual Arrangements
The contractual arrangements among Fenghuang On-line, Qieyiyou, the VIEs and the shareholders of the VIEs 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 VIEs, 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
VIEs 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 VIEs to Fenghuang On-line. To the extent that the relevant VIEs 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 VIEs develop business-related
technologies independently, the relevant VIEs 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 VIEs.
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 VIE. The Fenghuang On-line Technical Service Agreements provide that the relevant
VIEs 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.
Qieyiyou and Chenhuan have 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 VIEs 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 VIE. 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
98
parties. Historically, the VIEs have deducted relevant costs and expenses from the amount that is subject to the service fee payment. In
2019, 2020 and 2021, the VIEs transferred technical service fees of RMB43.3 million, RMB17.4 million and RMB16.8 million
(US$2.6 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 VIEs When and to the Extent Permitted Under PRC Laws
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 VIE 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
VIE’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 VIE 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 VIEs 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.
Qieyiyou, Chenhuan and each of the shareholders of Chenhuan have 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 VIEs. 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 VIEs 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 VIEs, disposing or causing the relevant
VIEs’ management to dispose of any of the entities’ tangible or intangible assets, terminating any material agreement to which the
relevant VIEs are party, appointing or removing any of the relevant VIEs’ directors, supervisors or management members, causing or
endorsing the declaration or actual distribution of any profit, bonus, dividends or interests of the relevant VIEs, 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 VIEs have been duly
transferred to Fenghuang On-line or its designated representative. In addition, the equity option agreements provide that neither of the
relevant VIEs 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.
99
Qieyiyou, Chenhuan and each of the shareholders of Chenhuan have 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 VIEs in an amount
equal to their respective paid-in capital contribution in the relevant VIEs. The loans can be repaid only with proceeds from the sale of
all of the respective shareholder’s equity interests in the applicable VIE 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.
Qieyiyou and the shareholders of Chenhuan have entered into a loan agreement. The loan agreement contains terms
substantially similar to the loan agreement relating to Fenghuang On-line described above.
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 VIEs to Fenghuang On-line to secure the performance of the obligations of the relevant VIEs
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 VIEs, the conditional transfer of the shareholders’ equity interests in the VIEs 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, 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 the VIEs) 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
100
power of our ordinary shares as of March 31, 2022. 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.
101
According to iResearch, our number of PC monthly unique visitors was 106 million in December 2021 and we have ranked
second among all Internet portals in China in terms of monthly unique visitors in December 2021. We earn revenues from advertising
and paid services, which accounted for 90.3% and 9.7% of our total revenues, respectively, in 2021.
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 30.0% and 70.0% of our net advertising revenues, respectively, in 2021. 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 and
other third parties. Prior to 2021, 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. Beginning from January 1, 2021, MVAS, games and others are referred to collectively as E-
commerce and others. For comparison purposes, the revenues from paid services for the years ended December 31, 2019 and 2020
have been retrospectively re-classified into revenues from paid contents and revenues from E-commerce and others. We derived
43.0%, and 57.0% of our paid services revenues, respectively, from our paid contents, and E-commerce and others in 2021. Our paid
services revenues increased from RMB95.8 million in 2020 to RMB100.3 million (US$15.7 million) in 2021, mainly caused by the
increase in revenues from E-commerce and revenues from licensing fees related to audio books.
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.
102
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires our management to make
estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet
dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material
differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our
estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our
circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about
matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably
likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have
a material impact on our financial condition or results of operations. There are other items within our financial statements that require
estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material
impact on our financial statements. For a detailed discussion of our principal accounting policies and related judgments, see “Notes to
Consolidated Financial Statements – Note 2 Principal Accounting Policies”.
Allowance for Credit Losses
The allowance for credit losses represents our estimate of the expected lifetime credit losses inherent in accounts receivable as
of the balance sheet date. The adequacy of our allowance for credit losses, the assumptions and models used in establishing the
allowance are evaluated regularly. Because credit losses can vary substantially over time, estimating credit losses requires a number of
assumptions about matters that are uncertain. Changes in assumptions affect our operating expenses on our consolidated statements of
comprehensive income/(loss) and the allowance for credit losses contained within our accounts receivable, net on our consolidated
balance sheets. See Note 6 of the Notes to the Financial Statements for more information regarding allowance for credit losses.
Nature of Estimates Required. We estimate the allowance for credit losses for receivables that share similar risk
characteristics based on a collective assessment using a combination of measurement models and management judgment. The models
consider factors such as historical trends in credit losses, recent portfolio performance, and forward-looking macroeconomic
conditions. If we do not believe the models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect
management judgment regarding qualitative factors including economic uncertainty, observable changes in portfolio performance, and
other relevant factors.
Assumptions Used. The provision for credit losses is estimated mainly based on past collection experience as well as
consideration of current and future economic conditions and changes in our collection trends. We estimate the expected credit losses
for financial assets with similar risk characteristics on a pool basis. The key assumptions used in the process of estimating the
provision for credit losses include portfolio composition, loss severity and recoveries, and application of macroeconomic forecasts.
The estimate of expected credit losses is sensitive to our assumptions in these factors. When one of our estimates of loss severity and
recoveries and macroeconomic forecasts decreased/increased by 5% while holding all other estimates constant, there would be no
significant impact to our consolidated results of operations.
Our estimate of the key assumptions did not change significantly throughout the periods presented.
Income Taxes
Nature of Estimates Required. We must make estimates and apply judgment in determining the provision for income taxes for
financial reporting purposes. We make these estimates and judgments primarily in the following areas: (i) the calculation of tax
credits, (ii) the calculation of differences in the timing of recognition of revenue and expense for tax reporting and financial statement
purposes, as well as (iii) the calculation of interest and penalties related to uncertain tax positions. Changes in these estimates and
judgments may result in a material increase or decrease to our tax provision, which would be recorded in the period in which the
change occurs.
Assumptions and Approach Used. We are subject to the income tax laws and regulations of the jurisdictions in which we
operate. These tax laws and regulations are complex and involve uncertainties in the application to our facts and circumstances that
may be open to interpretation. We recognize benefits for these uncertain tax positions based upon a process that requires judgment
regarding the technical application of the laws, regulations, and various related judicial opinions. If, in our judgment, it is more likely
than not (defined as a likelihood of more than 50%) that the uncertain tax position will be settled favorably for us, we estimate an
amount that ultimately will be realized. This process is inherently subjective since it requires our assessment of the probability of
103
future outcomes. We evaluate these uncertain tax positions on a quarterly basis, including consideration of changes in facts and
circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities.
Changes to our estimate of the amount to be realized are recorded in our provision for income taxes during the period in which the
change occurred.
We must also assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable
income and reduce the carrying amount of deferred tax assets by recording a valuation allowance if, based on all available evidence, it
is more likely than not that all or a portion of such assets will not be realized.
This assessment, which is completed on a taxing jurisdiction basis, takes into account various types of evidence, including the
following:
·
·
·
Nature, frequency, and severity of current and cumulative net operating losses. A pattern of objectively measured recent
net operating losses is heavily weighted as a source of negative evidence. We generally consider cumulative pre-tax
losses in the three-year period ending with the current quarter to be significant negative evidence regarding future
profitability. We also consider the strength and trend of earnings, as well as other relevant factors. In certain
circumstances, historical information may not be as relevant due to changes in our business operations;
Sources of future taxable income. Future reversals of existing temporary differences are heavily weighted sources of
objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary
differences are a source of positive evidence only when the projections are combined with a history of recent profits and
can be reasonably estimated. Otherwise, these projections are considered inherently subjective and generally will not be
sufficient to overcome negative evidence that includes relevant cumulative losses in recent years, particularly if the
projected future taxable income is dependent on an anticipated turnaround to profitability that has not yet been achieved.
In such cases, we generally give these projections of future taxable income no weight for the purposes of our valuation
allowance assessment; and
Tax planning strategies. If necessary and available, tax planning strategies could be implemented to accelerate taxable
amounts to utilize expiring carryforwards. These strategies would be a source of additional positive evidence and,
depending on their nature, could be heavily weighted.
In assessing the realizability of deferred tax assets, we consider the trade-offs between cash preservation and cash outlays to
preserve tax credits. However, the ultimate realization of our deferred tax assets is subject to a number of variables, including our
future profitability within relevant tax jurisdictions, and future tax planning and the related effects on our cash and liquidity position.
Accordingly, our valuation allowances may increase or decrease in future periods.
For additional information regarding income taxes, see Note 16 of the Notes to the Financial Statements.
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
2019
RMB
For the Years Ended December 31,
2020
%
(In thousands except percentages)
RMB
%
RMB
2021
US$ %
1,194,761
133,020
1,327,781
90.0
10.0
100.0
1,113,017
95,828
1,208,845
92.1
7.9
100.0
930,025
100,306
1,030,331
145,941 90.3
15,740 9.7
161,681 100.0
We derive our revenues from advertising services and paid services.
Advertising Services. Our net advertising revenues accounted for 90.0%, 92.1% and 90.3% of our total revenues in 2019,
2020 and 2021, 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
104
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.
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 4.2%, 3.4% and 3.1% of our net
advertising revenues in 2019, 2020 and 2021, respectively.
Paid Services. Our paid services revenues contributed 10.0%, 7.9% and 9.7% of our total revenues in 2019, 2020 and 2021,
respectively. The following table sets forth our paid services offerings and their respective contributions to our paid services revenues
and total revenues in 2019, 2020 and 2021, respectively.
Paid Services Revenues*
Paid contents
Digital reading, audio books, paid videos, and other
content-related sales activities
E-commerce and others
E-commerce, games, MVAS and others
% of Paid Services Revenues
2020
2021
2019
% of Total Revenues
2020
2019
2021
For the Years Ended December 31,
53.5
46.5
48.2
51.8
43.0
57.0
5.3
3.8
4.7
4.1
4.2
5.5
Note:
*
Prior to 2021, paid services revenues comprised of (i) revenues from paid contents, which included digital reading, audio books,
paid videos, and other content-related sales activities, (ii) revenues from games, which included web-based games and mobile
games, (iii) revenues from MVAS, and (iv) revenues from others. Beginning from January 1, 2021, MVAS, games and others
are referred to collectively as E-commerce and others. For comparison purposes, the revenues from paid services for the years
ended December 31, 2019 and 2020 have been retrospectively re-classified into revenues from paid contents and revenues from
E-commerce and others.
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 45.5%, 31.8% and 29.7% of our paid
services revenues in 2019, 2020 and 2021, respectively. We generated paid services revenues of RMB60.5 million, RMB30.5 million
and RMB29.8 million (US$4.7 million) from providing services to customers of China Mobile and collecting fees through
arrangements with China Mobile in 2019, 2020 and 2021, 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.
VAT and Related 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, 2019, 2020 and 2021. Related 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. We are also subject to a cultural development fee on the provision of
advertising services in the PRC and 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, valid until December 31, 2024. The VAT and the cultural development fee are
recorded as a reduction item of revenues in the consolidated statements of comprehensive income/(loss). 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,
105
including personnel-related cost associated with content production and certain advertisement sales support personnel, content
procurement costs to third-party professional media companies, we-media and other personal content providers 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 increase in cost of revenues from 2020 to 2021 was primarily caused by the increase in revenue sharing fees
paid to business partners and the increase in personnel related costs to develop original content in 2021. The following table sets forth
the components of our cost of revenues by amount and by percentage of total revenues for the years indicated.
Cost of revenues:
Revenue sharing fees
Content and operational costs
Bandwidth costs
Total cost of revenues
2019
RMB
%
For the Years Ended December 31,
2020
RMB
%
(In thousands except percentages)
RMB
2021
US$
%
25,157
603,573
54,600
683,330
1.9
45.5
4.1
51.5
19,550
482,641
57,095
559,286
1.6
40.0
4.7
46.3
27,673
513,449
56,275
597,397
4,342
80,572
8,831
93,745
2.7
49.8
5.5
58.0
Revenue Sharing Fees. We share the revenues generated from some 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 business partners through whose platforms or channels 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 we-media and other personal content providers, (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 increase in operating expenses from 2020 to 2021 was
primarily attributable to the increase in allowance for credit losses recognized in 2021 related to the accounts receivable and notes
receivable from Evergrande Group caused by Evergrande’s operating results, which was partially offset by the decrease in certain
operating expense items as a result of the strict cost control measures, and the absence of impairment of goodwill in 2021 as compared
to impairment of goodwill for the reporting unit of Tianbo recognized in 2020.
106
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.
2019
RMB
%
For the Years Ended December 31,
2020
RMB
%
(In thousands except percentages)
RMB
2021
US$
%
Operating expenses:
Sales and marketing expenses
General and administrative expenses
Technology and product development
expenses
Impairment of goodwill
Total operating expenses
541,772
242,047
216,741
—
1,000,560
40.8
18.2
16.3
—
75.3
279,429
277,931
23.1
23.0
276,254
334,189
171,989
14.2
158,586
22,786
752,135
1.9
62.2
—
769,029
43,350
52,442
24,886
—
120,678
26.8
32.4
15.4
—
74.6
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, allowance for credit losses, rental expenses, and
depreciation and amortization expenses.
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 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.
107
Related Party Transactions
In 2019, 2020 and 2021, 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
Other income earned from Particle
Advertising revenues earned from/(agency service fees paid to) 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,
2019
RMB
2020
RMB
2021
RMB
US$
(In thousands)
(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)
(17,263)
(2,477)
(5,360)
(595)
12,403
17,464
29,770
(6,631)
—
—
—
—
(1,047)
—
—
(2,709)
(389)
(841)
(93)
1,946
2,740
4,672
(1,041)
—
—
—
—
(164)
—
—
Our other income, net generally reflects gain on disposal of available-for-sale debt investments, government subsidies, net
interest income, foreign currency exchange gain or loss, income/(loss) from equity method investments, net of impairment, fair value
changes in investments, net, 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.
For more information about the gain on disposal of available-for-sale debt investments, see “Note 10 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, RMB477.3 million and nil in the consolidated statements of comprehensive income/(loss) for the years ended December 31,
2019, 2020 and 2021, 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 the VIEs 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
108
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 2019 to 2021.
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 2019 to 2021.
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 2019 to 2021.
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. Fenghuang Borui was qualified as an HNTE in 2021, and therefore, Fenghuang Borui was subject to a 15% income tax rate
for the year 2021.
All our other PRC subsidiaries and the VIEs 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
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, 2019, 2020 and 2021. Related 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. We are also subject to a cultural development fee on the provision of advertising services in the PRC
and 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, valid until December 31, 2024. The VAT and the cultural development fee are recorded as a reduction
item of revenues in the consolidated statements of comprehensive income/(loss). 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.”
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
109
periods from 2019 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.
110
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*
Income/(loss) from continuing operations before
income taxes
Income tax expense
Net income/(loss) from continuing operations
Net income/(loss) from discontinued operations, net
of income taxes
Net income/(loss)
Net (income)/loss 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 income/(loss) 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
2019
RMB
%
For the Years Ended December 31,
2020
RMB
%
(In thousands, except percentages)
RMB
2021
US$
%
1,194,761
133,020
1,327,781
(683,330)
644,451
(541,772)
(242,047)
(216,741)
—
(1,000,560)
(356,109)
1,047,819
691,710
(21,950)
669,760
54,242
90.0
10.0
100.0
(51.5)
48.5
(40.8)
(18.2)
(16.3)
—
(75.3)
(26.8)
78.9
52.1
(1.7)
50.4
4.1
1,113,017
95,828
1,208,845
(559,286)
649,559
(279,429)
(277,931)
(171,989)
(22,786)
(752,135)
(102,576)
549,198
92.1
7.9
930,025
100,306
100.0 1,030,331
(597,397)
(46.3)
432,934
53.7
(23.1)
(23.0)
(14.2)
(1.9)
(62.2)
(8.5)
45.4
(276,254)
(334,189)
(158,586)
—
(769,029)
(336,095)
83,610
145,941
15,740
161,681
(93,745)
67,936
(43,350)
(52,442)
(24,886)
—
(120,678)
(52,742)
13,120
446,622
36.9
(252,485)
(39,622)
(18,977)
427,645
(1.6)
35.3
(20,581)
(273,066)
(3,230)
(42,852)
(62,366)
(5.2)
—
—
724,002
54.5
365,279
30.1
(273,066)
(42,852)
(5,564)
(0.4)
(9,669)
(0.8)
67,365
10,573
9,391
3,827
0.7
0.3
24,759
15,090
2.0
—
—
1.2
67,365
10,573
90.3
9.7
100.0
(58.0)
42.0
(26.8)
(32.4)
(15.4)
—
(74.6)
(32.6)
8.1
(24.5)
(2.0)
(26.5)
—
(26.5)
6.5
—
6.5
664,196
50.0
417,976
34.5
(205,701)
(32,279)
(20.0)
63,633
4.8
(37,607)
(3.2)
—
—
727,829
54.8
380,369
31.3
(205,701)
(32,279)
724,002
54.5
365,279
30.1
(273,066)
(42,852)
1,188,762
89.5
(887,248)
(73.4)
(6,611)
(1,037)
(1,008,795)
(76.0)
(491,197)
(40.6)
—
37,483
2.8
(55,577)
(4.6)
(4,483)
—
(704)
941,452
70.8
(1,068,743)
(88.5)
(284,160)
(44,593)
3,827
0.3
15,090
1.2
67,365
10,573
—
(20.0)
(26.5)
(0.6)
—
(0.4)
(27.5)
6.5
945,279
71.1
(1,053,653)
(87.3)
(216,795)
(34,020)
(21.0)
Non-GAAP gross profit (2)
Non-GAAP loss from operations (2)
649,624
(344,250)
48.9
(25.9)
2019
RMB
%
111
For the Years Ended December 31,
2020
RMB
%
(In thousands, except percentages)
652,172
(70,407)
53.9
(5.8)
435,986
(326,513)
RMB
2021
US$
%
68,415
(51,238)
42.3
(31.7)
Non-GAAP adjusted net loss from continuing
operations attributable to Phoenix New Media
Limited (3)
(326,120)
(24.6)
(33,650)
(2.8)
(198,426)
(31,137)
(19.3)
Notes:
*
Other income, net generally reflects net interest income, foreign currency exchange gains or loss, income/(loss) from equity
method investments, net of impairments, fair value changes in investments, net, 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,
2019
RMB
2020
RMB
2021
RMB
2021
US$
(In thousands)
5,173
1,402
4,041
1,243
11,859
2,613
1,764
3,648
1,358
9,383
3,052
1,704
3,244
1,582
9,582
479
267
509
248
1,503
(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, fair value changes in investments,
net, 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, fair
value changes in investments, net, 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.
112
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 income/(loss) from continuing operations attributable to Phoenix
New Media Limited
Excluding:
Share-based compensation
Loss/(income) from equity method investments, net of impairments
Fair value changes in investments, net,
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
For the Years Ended December 31,
2019
RMB
2020
RMB
2021
RMB
2021
US$
644,451
649,559
432,934
(In thousands)
5,173
649,624
2,613
652,172
3,052
435,986
(356,109)
(102,576)
(336,095)
11,859
—
(344,250)
9,383
22,786
(70,407)
9,582
—
(326,513)
67,936
479
68,415
(52,742)
1,504
—
(51,238)
664,196
417,976
(205,701)
(32,279)
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
9,582
(401)
(1,906)
—
—
—
—
—
—
—
1,504
(63)
(299)
—
—
—
—
—
—
—
(326,120)
(33,650)
(198,426)
(31,137)
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.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues. Our total revenues decreased by 14.8% to RMB1.03 billion (US$161.7 million) in 2021 from RMB1.21 billion in
2020, primarily attributable to the year-over-year decline in our net advertising revenues. Net advertising revenues (net of advertising
agency service fees and sales taxes and related surcharges) decreased by 16.4% to RMB930.0 million (US$145.9 million) in 2021
from RMB1.11 billion in 2020, primarily attributable to the reduction in advertising spending of advertisers from certain industries
and intensified industry-wide competition. Paid service revenues increased by 4.7% to RMB100.3 million (US$15.8 million) in 2021
from RMB95.8 million in 2020, primarily attributable to the increase in revenues from E-commerce and revenues from licensing fees
related to audio books.
Cost of Revenues. Our cost of revenues for the year ended December 31, 2021 was RMB597.4 million (US$93.8 million),
which represented an increase of 6.8% from RMB559.3 million for the year ended December 31, 2020, primarily attributable to the
increase in revenue sharing fees paid to business partners and the increase in personnel related costs to develop original content in
2021. Cost of revenues as a percentage of our revenues increased from 46.3% in 2020 to 58.0% in 2021.
113
•
•
•
Revenue sharing fees. Our revenue sharing fees for the years ended December 31, 2020 and 2021 were RMB19.6
million and RMB27.7 million (US$4.3 million), respectively, mainly attributable to the increase in certain revenues that
requires revenue-sharing.
Content and operational costs. Our content and operational costs for the years ended December 31, 2020 and 2021 were
RMB482.6 million and RMB513.4 million (US$80.6 million), respectively. The increase in content and operational costs
from 2020 to 2021 was primarily attributable to the increase in personnel related costs to develop original content in
2021.
Bandwidth costs. Our bandwidth costs decreased slightly from RMB57.1 million in 2020 to RMB56.3 million (US$8.8
million) in 2021.
Share-based compensation. Our share-based compensation allocated to cost of revenues as part of content and operational
costs above, increased from RMB2.6 million in 2020 to RMB3.1 million (US$0.5 million) in 2021. The increase was mainly due to
the adjustment of the estimated forfeiture rate of some share-based awards as a result of the demission rate of headcounts recorded in
2021.
As a result of the foregoing, our gross profit decreased from RMB649.6 million in 2020 to RMB432.9 million (US$67.9
million) in 2021. Our gross margin decreased from 53.7% in 2020 to 42.0% in 2021.
Operating Expenses. Our operating expenses increased by 2.2% from RMB752.1 million in 2020 to RMB769.0 million
(US$120.7 million) in 2021, primarily attributable to the increase in allowance for credit losses recognized in 2021 related to the
accounts receivable and notes receivable from Evergrande Group caused by Evergrande’s operating results, which was partially offset
by the decrease in certain operating expense items as a result of the strict cost control measures, and the absence of impairment of
goodwill for the reporting unit of Tianbo recognized in 2020. Our share-based compensation allocated to each of the three categories
of operating expenses was RMB6.5 million (US$1.0 million) in 2021, almost the same as RMB6.8 million in 2020. Our operating
expenses as a percentage of revenues increased from 62.2% in 2020 to 74.6% in 2021.
•
Sales and marketing expenses. Our sales and marketing expenses decreased by 1.1% from RMB279.4 million in 2020 to
RMB276.3 million (US$43.4 million) in 2021. This decrease was mainly due to the strict cost control measures taken in
2021.
• General and administrative expenses. Our general and administrative expenses increased by 20.2% from RMB277.9
million in 2020 to RMB334.2 million (US$52.4 million) in 2021. This increase was mainly caused by the increase in
allowance for credit losses recognized in 2021 related to the accounts receivable and notes receivable from Evergrande
Group caused by Evergrande’s operating results.
•
•
Technology and product development expenses. Our technology and product development expenses decreased by 7.8%
from RMB172.0 million in 2020 to RMB158.6 million (US$24.9 million) in 2021. This decrease was mainly caused by
the strict cost control measures taken in 2021.
Impairment of goodwill. We recognized an impairment of goodwill of RMB22.8 million in 2020 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.
Related Party Transactions
• Our net advertising revenues from related parties decreased by 23.9% from RMB37.6 million in 2020 to RMB28.6
million (US$4.5 million) in 2021, which was primarily attributable to decrease in advertising revenues earned from China
Mobile.
• Our paid service revenues from related parties decreased by 3.2% from RMB31.0 million in 2020 to RMB30.0 million
(US$4.7 million) in 2021, which was primarily attributable to decrease in paid services revenues generated from China
Mobile.
• Our cost of revenues due to transactions with related parties increased by 156.1% from RMB9.6 million in 2020 to
RMB24.5 million (US$3.8 million) in 2021. The increase was primarily due to increase in content costs paid to Phoenix
TV Group as we entered the new 2021 Program Resource License and Cooperation Agreement with Phoenix TV Group
in August 2021, which requires us to pay annual fees of RMB45.0 million to Phoenix TV Group and has a term of three
years.
114
• Our operating expenses due to transactions with related parties increased slightly from RMB7.7 million in 2020 to
RMB7.8 million (US$1.2 million) in 2021, which mainly comprised of trademark license fees and other operating
expenses charged by Phoenix TV Group.
Other Income, Net. Our other income, net decreased from RMB549.2 million in 2020 to RMB83.6 million (US$13.1 million)
in 2021. The decrease in other income, net in 2021 was mainly due to the gain on disposal of available-for-sale debt investments of
RMB477.3 million recognized in 2020, which represented the gain from the disposal of our investments in Particle.
Income Tax Expense. Our income tax expense increased from RMB19.0 million in 2020 to RMB20.6 million (US$3.2
million) in 2021. Our effective tax rate was negative 8.2% in 2021 as compared to 4.2% in 2020. 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 2021.
Net Income or Loss 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 RMB418.0 million in 2020 and net loss from continuing
operations attributable to our company was RMB205.7 million (US$32.3 million) in 2021.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenues. Our total revenues decreased by 9.0% to RMB1.21 billion 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 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 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, 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, respectively, mainly attributable to the decrease in the revenue sharing fees paid 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, 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 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 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 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 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 share-based compensation allocated to each of the three
categories of operating expenses was RMB6.8 million in 2020, almost same as RMB6.7 million in 2019. 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 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.
115
• General and administrative expenses. Our general and administrative expenses increased by 14.8% from RMB242.0
million in 2019 to RMB277.9 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 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 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.
Related Party Transactions
• Our net advertising revenues from related parties decreased by 25.8% from RMB50.7 million in 2019 to RMB37.6
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
in 2020, 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 63.9% from RMB26.5 million in 2019 to
RMB9.6 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 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 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 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 in 2020. Our
effective tax rate was 4.2% in 2020 as compared to 3.2% in 2019.
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 in 2020.
116
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,
2019
RMB
2020
RMB
2021
RMB
2021
US$
(In thousands)
Net cash used in continuing operations
Net cash provided by discontinued operating activities
Net cash used in operating activities
Net cash provided by/(used in) continuing investing activities
Net cash (used in)/provided by discontinued investing activities
Net cash provided by/(used in) 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
(371,385)
41,080
(330,305)
1,540,746
(80,352)
1,460,394
(970,520)
(144,100)
(1,114,620)
(35,191)
(33,916)
(19,722)
430,748
377,110
(103,295)
186
(103,109)
480,466
265,753
746,219
(639,662)
—
(639,662)
(38,563)
46,840
(35,115)
377,110
388,835
(142,822)
—
(142,822)
(42,653)
—
(42,653)
(3,540)
—
(3,540)
4,778
—
(184,237)
388,835
204,598
(22,412)
—
(22,412)
(6,693)
—
(6,693)
(556)
—
(556)
750
—
(28,911)
61,017
32,106
As of December 31, 2021, we had RMB204.6 million (US$32.1 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
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, 2021, we also had RMB1.31 billion (US$205.4 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,
2022.
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 2021, our net cash used in continuing operating activities were RMB142.8 million (US$22.4 million). This was primarily
due to our net loss of RMB273.1 million, partially offset by non-cash adjustments which primarily included provision for allowance
for credit losses of RMB186.5 million, amortization of the right-of-use assets of RMB37.5 million, depreciation and amortization
expenses of RMB28.5 million, and share-based compensation of RMB9.6 million. The decrease in cash from RMB116.6 million in
working capital items is also included in operating cash flow.
In 2020, our net cash used in continuing operating activities were RMB103.3 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
RMB235.7 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
117
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 RMB164.8 million in working capital items is also
included in operating cash flow.
Investing Activities
In 2021, our net cash used in investing activities were RMB42.7 million (US$6.7 million). This was primarily due to
(i) placement of term deposits and short term investments of RMB5.8 billion, (ii) cash paid for equity investments in certain investees
of RMB14.0 million, and (iii) capital expenditures of RMB16.8 million. These items were partially offset by (i) the maturity of term
deposits and short-term investments of RMB5.8 billion, and (ii) proceeds from disposal of property and equipment of RMB17.4
million.
We had net cash provided by continuing investing activities of RMB480.5 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”.
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 Run Liang Tai 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”.
Financing Activities
We had net cash used in continuing financing activities of RMB3.5 million (US$0.6 million) for 2021, mainly attributable to
the special cash dividends paid to shareholders under the special dividend plan declared in December 2020.
We had net cash used in continuing financing activities of RMB639.7 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.
PRC Regulations Related to Profit Appropriation, Withholding Tax on Dividends and Foreign Currency Exchange
Regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated profits as
determined in accordance with accounting standards and regulations in China. Our PRC subsidiaries are also required to set aside each
year to their general reserves at least 10% of their after-tax profit based on PRC accounting standards, until the cumulative amount
reaches 50% of their paid-in capital. These reserves may not be distributed as cash dividends, or as loans or advances. Any amounts so
allocated may not be distributed by our PRC subsidiaries and, accordingly, would not be available for distribution to our offshore
intermediate holding company.
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 any dividends to our offshore intermediate holding company and
therefore have retained their earnings for the purpose of conducting our business operations in China. As of December 31, 2019, 2020
and 2021, our PRC subsidiaries’ retained earnings were RMB972.0 million, RMB1,015.3 million and RMB907.3 million (US$142.4
million), respectively, and our PRC subsidiaries’ cash and cash equivalents were RMB125.4 million, RMB106.2 million and
RMB19.9 million (US$3.1 million), respectively.
The CIT Law imposes a 10% withholding income tax for dividends distributed by foreign invested enterprises in the PRC to
their immediate holding companies outside the PRC. A lower withholding tax rate will be applied if there is a tax treaty arrangement
between Mainland China and the jurisdiction of the foreign holding company. A holding company in Hong Kong, for example, will be
subject to a 5% withholding tax rate under an arrangement between the PRC and the Hong Kong Special Administrative Region on
118
the “Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income” if such holding company is
considered a non-PRC resident enterprise and holds at least 25% of the equity interests in the PRC FIE 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 withholding tax at a rate of 10%.
Under regulations of the SAFE, the RMB is not convertible into foreign currencies for capital account items, such as loans,
repatriation of investments and investments outside of Mainland China, unless prior approval of the SAFE is obtained and prior
registration with the SAFE is made.
Material cash requirements
Our material cash requirements as of December 31, 2021 and any subsequent interim period primarily include our capital
expenditures, operating lease obligations, purchase obligations.
We had capital expenditures of RMB57.9 million, RMB12.1 million and RMB16.8 million (US$2.6 million) in 2019, 2020
and 2021, respectively. The capital expenditures were mainly attributable to purchasing intangible assets, servers and network
equipment. We expect capital expenditures to increase to approximately RMB40.2 million in 2022. We plan to fund our capital
expenditures in 2022 with cash flows from our operations and remaining cash and cash equivalents as of December 31, 2021.
Our operating lease obligations consist of the commitments under the lease agreements for our office premises. We lease our
office facilities under non-cancelable operating leases with various expiration dates. Our leasing expense was RMB39.1 million,
RMB33.6 million and RMB34.5 million (US$5.4 million) for the years ended December 31, 2019, 2020 and 2021, respectively. The
majority of our operating lease commitments are related to our office lease agreements in China.
Purchase obligations primarily consist of purchase obligations for bandwidth and property management fees, and purchase
obligations for content assets under non-cancelable agreements for licensed copyrights and produced content.
We intend to fund our existing and future material cash requirements with our existing cash balance. We will continue to
make cash commitments, including capital expenditures, to support the growth of our business.
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third
parties. We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that
support the credit, liquidity or market risk for transferred assets. We do not have obligations that arise or could arise from variable
interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in our
own equity, or not reflected in the balance sheets.
Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or
guarantees as of December 31, 2021.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the
number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to
calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The amendments are
effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption
permitted. We are currently evaluating the impact and do not expect it to have a significant impact on our consolidated financial
statements and related disclosures.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and
Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in
Entity’s Own Equity (Subtopic 815-40) to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of
freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.
The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or
after the effective date of the amendments. We are currently evaluating the impact and do not expect it to have a significant impact on
our consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets
and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should
recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from
119
Contracts with Customers The new amendments are effective for us are effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations
occurring on or after the effective date of the amendments, with early adoption permitted. We are currently evaluating the impact and
do not expect it to have a significant impact on our consolidated financial statements and related disclosures.
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.
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.
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 2021. 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.
Critical Accounting Estimates
See “Item 5. Operating and Financial Review and Prospects — Critical Accounting Estimates.”
120
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
Yusheng Sun
Shuang Liu
Daguang He
Ka Keung Yeung
Xiaoyan Chi
Carson Wen
Jerry Juying Zhang
Edward Lu
Chun Liu
Age
62
52
65
63
43
70
61
41
55
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
Yusheng Sun has served as the chairman of our board of directors since August 2021. Mr. Sun is the executive director,
deputy chief executive officer, a member of the Nomination Committee, authorized representative and editor-in-chief of Phoenix
Media Investment (Holdings) Limited, our Company’s parent company. Mr. Sun had served in China Central Television for more than
30 years. He was the vice president, deputy editor-in-chief and director of the news center. He has accumulated extensive experience
and good reputation in the television broadcasting industry. He was awarded the “Top Ten Outstanding Youth in China” in 1995. Mr.
Sun was the awardee of the State Council Special Allowance and was elected as the vice president of the Asia-Pacific Broadcasting
Union, or ABU, in 2017, the first Chinese national to become a senior official in ABU. Mr. Sun is a doctoral advisor and part-time
professor at the Tsinghua University and the Renmin University of China. He graduated from Jilin University with a bachelor’s degree
in economics and holds the professional qualification of senior editor granted by the Ministry of Radio, Film and Television, China.
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
121
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
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, 2021, we paid an aggregate of approximately US$3.0 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
122
granted under the 2008 share option plan (excluding awards previously granted, outstanding, cancelled, lapsed or exercised). As of
March 31, 2022, no shares are available for grant of additional options under the 2008 share option plan, and a total of 1,865,026
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.
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, July 2020, January 2021 and June 2021. As of December 31, 2021, 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$0.4823
per share and a new vesting schedule that generally adds 12 months to each original vesting date, and the new options would vest no
sooner than May 1, 2017.
123
As of March 31, 2022, options to purchase 44,957,507 Class A ordinary shares granted under the 2008 share option plan and
the 2018 share option scheme were outstanding. The table below sets forth the awards that we granted to our directors and executive
officers (including pursuant to the exchange program described above) and were outstanding as of March 31, 2022:
Name
Shuang Liu
Xiaoyan Chi
Edward Lu
Chun Liu
Total
Note:
Class A
Ordinary Shares
Underlying
Outstanding
Awards
11,970,000
3,200,000
*
*
20,060,000
Exercise
Price or
Purchase Price
(US$/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
* Less than 1% of our total outstanding Class A ordinary shares.
As of March 31, 2022, other employees and consultants in aggregate held awards entitling them to receive 24,897,507
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;
124
•
•
•
•
•
•
reviewing with the independent auditors any audit problems or difficulties and management’s response;
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
125
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.
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 compounds 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, 2022:
•
•
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.
126
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, 2022. 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 31,2022, 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
Yusheng Sun
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)
Class A Ordinary Shares
Beneficially Owned
Number
% (1)
—
19,368,250
—
*
—
—
*
*
*
24,744,008
26,447,648
—
7.31
—
*
—
—
*
*
*
9.34
9.98
Notes:
*
(1)
(2) Represents (i)10,062,000 Class A ordinary shares held by Mr. Shuang Liu and (ii) 9,306,250 Class A ordinary shares that Mr.
Less than 1% of our total outstanding Class A ordinary shares.
Percentages disclosed are with respect to Class A ordinary shares.
Liu has the right to receive upon the exercise of share options within 60 days of March 31, 2022.
(3) Represents 24,744,008 Class A ordinary shares, including 8,322,008 Class A ordinary shares in the form of ADSs.
(4)
Information is as of December 31, 2021, based on the Amendment No. 2 to Schedule 13G filed on February 9, 2022 by FIL
Limited, and consists of 26,447,648 Class A ordinary shares in the form of 3,305,956 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, 2022, 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.
127
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, 2022. 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 the VIEs. See “Item 4. Information on
the Company—C. Organizational Structure—Contractual Arrangements with the VIEs.”
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
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 VIE, 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.
128
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.
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. On
August 24, 2021, Tianying Jiuzhou and Yifeng Lianhe terminated the 2020 Program Resource License and Cooperation Agreement
and Tianying Jiuzhou entered into a new program resource license and cooperation agreement with Phoenix Satellite Television
Holdings Limited, or the 2021 Program Resource License and Cooperation Agreement. According to the 2021 Program Resource
License and Cooperation Agreement, Phoenix Satellite Television Company Limited grants Tianying Jiuzhou exclusive right to
broadcast copyrighted video content and the derived audio content from three television channels of Phoenix TV Group on the internet
in Mainland China with such content also broadcasted on the three television channels of Phoenix TV Group. Phoenix TV also grants
the Tianying Jiuzhou the right to sublicense such contents. The annual fees payable to Phoenix TV by us for such content licenses will
be RMB45.0 million and the 2021 Program Resource License and Cooperation Agreement has a term of three years.
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.
129
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 RMB11.3 million, RMB2.6 million and RMB17.3 million
(US$2.7 million) in 2019, 2020 and 2021, respectively. We were charged by Phoenix TV Group for advertising and promotion
expenses of RMB4.2 million, RMB2.5 million and RMB2.5 (US$0.4 million) in 2019, 2020 and 2021, respectively. We were charged
corporate administrative expenses by Phoenix TV Group in the total amounts of RMB2.1 million, RMB0.7 million and RMB1.1
million (US$0.2 million) in 2019, 2020 and 2021, respectively. We were also charged Trademark license fee by Phoenix TV Group
with the total amounts of RMB5.0 million, RMB4.4 million and RMB4.3 million (US$0.7 million) in 2019, 2020 and 2021,
respectively.
We provide joint advertising services to Phoenix TV Group’s advertisers from which we earned revenues of RMB15.7
million, RMB10.6 million and RMB12.4 million (US$1.9 million) in 2019, 2020 and 2021, respectively.
As of December 31, 2020 and 2021, we had amounts due from Phoenix TV Group with the amounts of RMB11.4 million and
RMB43.8 million (US$6.9 million), respectively, and accounts due to Phoenix TV Group with the amounts of RMB23.5 million and
RMB26.6 million (US$4.2 million), respectively.
Cooperation Agreement with China Mobile
China Mobile is a shareholder of our parent company, Phoenix TV. As of March 31, 2022, China Mobile held 19.7% of the
outstanding shares of Phoenix TV.
We obtained revenues for our paid services through China Mobile of RMB60.5 million, RMB30.5 million and RMB29.8
million (US$4.7 million) in 2019, 2020 and 2021, respectively. We earned revenues from China Mobile for advertising services
RMB23.3 million, RMB23.7 million and RMB17.5 million (US$2.7 million) in 2019, 2020 and 2021, respectively. We incurred
revenue sharing and bandwidth costs in connection with MVAS provided through China Mobile’s platforms in the amounts of
RMB14.0 million, RMB6.5 million and RMB6.6 million (US$1.0 million) in 2019, 2020 and 2021, respectively.
As of December 31, 2020 and 2021, we had amounts due from China Mobile with the amounts of RMB16.0 million and
RMB12.0 million (US$1.9 million), respectively, and accounts due to China Mobile with the amounts of RMB3.8 million and
RMB3.9 million (US$0.6 million), respectively.
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.
130
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.”
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 the VIEs 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.”
131
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
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.
132
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
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. 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 a person 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;
133
•
•
•
•
•
•
•
•
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 U.S. dollar.
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 (or other
entity or arrangement treated as a partnership for United States federal income tax purposes) 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 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.
Subject to applicable limitations (including a minimum holding period requirement), dividends received by non-corporate
United States Holders from a qualified foreign corporation may be treated as “qualified dividend income” that is 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 (which are listed on the New York Stock Exchange), but not our
Class A ordinary shares, are readily tradable on an established securities market in the United States. Thus, we believe that dividends
134
we pay on our Class A ordinary shares that are not represented by ADSs will not be eligible for the reduced tax rates. There also can
be no assurance that our ADSs will be considered readily tradable on an established securities market in the United States 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 (the “Treaty”), 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 potentially eligible for the reduced
rates of taxation. Notwithstanding the foregoing, however, 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 in the taxable year in which such dividends are paid or in the preceding
taxable year. As discussed below under “—Passive Foreign Investment Company,” we believe we were a PFIC for 2021, and that we
may be classified as a PFIC for future taxable years. Therefore, if you are a non-corporate United States Holder, you should not
assume that any dividends will be taxed at a reduced rate. 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
able to obtain a reduced rate of PRC withholding taxes under the Treaty 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. Instead of claiming a foreign tax credit, you may, at your
election, deduct any otherwise creditable PRC withholding taxes in computing your taxable income, but only for a taxable year in
which you elect to do so with respect to all foreign income taxes and subject to generally applicable limitations under United States
law.
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 reported as a
dividend (as discussed above).
Distributions of ADSs, Class A ordinary shares or rights to subscribe for ADSs or Class A ordinary shares that are received as
part of a pro rata distribution to all of our shareholders generally will not be subject to United States federal income tax.
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 (generally 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). Cash is generally treated as an asset that
produces or is held for the production of passive income. 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 the VIEs will be treated for purposes of the PFIC rules. If it is determined that we do not own the stock of the VIEs 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, we believe we were
a PFIC for 2021, and that 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 and the value of our assets from time to time.
135
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.
Because the determination of whether or not we are a PFIC 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,
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 or we otherwise hold an investment in a non-United States corporation that is treated as an equity
interest in a PFIC (any such PFIC, a “lower-tier 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.
136
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 general PFIC rules discussed above with
respect to such United States Holder’s indirect interest in any lower-tier PFIC.
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, both determined in U.S. dollars. Subject to the
discussion under “—Passive Foreign Investment Company” above, such gain or loss will generally be capital gain or loss. Capital
gains of non-corporate United States Holders (including 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. However, in the event that we are deemed to be a PRC “resident
enterprise” under the PRC tax law and PRC tax 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 Treaty may be able to elect to treat such gain
as PRC-source income. If you are not eligible for the benefits of the Treaty or if you fail to make the election to treat any gain as PRC-
source income, then you generally would not be able to use a foreign tax credit for 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, pursuant to recently issued United States Treasury regulations that apply to taxes
paid or accrued in taxable years beginning on or after December 28, 2021, if you do not claim the benefits of the Treaty, any such
PRC tax would generally not be a foreign income tax eligible for a foreign tax credit (regardless of any other income that you may
have that is derived from foreign sources). 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.
137
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.
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 2.9%, 2.5% and 0.9% in 2019, 2020 and 2021, 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.
138
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, 2021, we had RMB denominated cash and cash
equivalents, term deposits and short term investments and restricted cash, totaling RMB1.47 billion (US$231.2 million), and U.S.
dollar denominated cash and cash equivalents and term deposits totaling US$5.0 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.
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:
139
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.
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, 2022, we had received total payments of US$2.75 million from JPMorgan, the current depositary bank for
our ADR program for reimbursement of investor relations expenses and other program related expenses.
140
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None of these events occurred in any of the years ended December 31, 2019, 2020 and 2021.
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, 2021, 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, 2021, 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, 2021 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, 2021.
141
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2021 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.
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, 2021 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, 2021, 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,
2020
2021
(In thousands of RMB)
8,505
—
17
8,522
8,085
—
12
8,097
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 2020 and 2021, 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.
142
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.
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.
ITEM 16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
143
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
2.4
4.1
4.2
4.3
4.4
4.5
4.6
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).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
(incorporated by reference Exhibit 2.4 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).
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).
144
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 (incorporated by reference Exhibit 4.8B to our Annual Report on Form 20-F for the
Fiscal Year Ended December 31, 2020 (File No. 001-35158), initially filed with the Securities and Exchange Commission
on April 28, 2021).
*4.8C
Translation of the Exclusive Equity Option Agreement, dated as of May 7, 2021, between Qieyiyou and Chenhuan.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 (incorporated by reference Exhibit 4.10B to our Annual Report on Form 20-F for the Fiscal
Year Ended December 31, 2020 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April
28, 2021).
*4.10C Translation of the Equity Pledge Agreement, dated as of May 7, 2021, between Qieyiyou and Chenhuan 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).
145
4.12C Translation of the Exclusive Technical Consulting & Service Agreement, dated as of January 25, 2021, between Fenghuang
On-line and Fenghuang Ronghe (incorporated by reference Exhibit 4.12C to our Annual Report on Form 20-F for the Fiscal
Year Ended December 31, 2020 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April
28, 2021).
*4.12D Translation of the Exclusive Technical Consulting & Service Agreement, dated as of May 7, 2021, between Qieyiyou and
Chenhuan and its shareholders.
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 (incorporated by reference Exhibit 4.13A 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).
4.14
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 (incorporated by reference Exhibit 4.14B to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2020 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2021).
*4.14C Translation of the Loan Agreement, dated as of March 30, 2021, between Qieyiyou and shareholders of Chenhuan.
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 (incorporated by reference Exhibit 4.16B to our Annual Report on Form 20-F for the
Fiscal Year Ended December 31, 2020 (File No. 001-35158), initially filed with the Securities and Exchange Commission
on April 28, 2021).
*4.16C Translation of the Voting Right Entrustment Agreement, dated as of May 7, 2021, between Qieyiyou and Chenhuan and its
shareholders.
4.17
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).
146
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
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).
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).
147
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
4.40
4.41
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).
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).
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).
148
4.42
4.43
4.44
4.45
4.46
4.47
4.48
4.49
4.50
4.51
4.52
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).
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).
149
4.53
4.54
4.55
4.56
4.57
4.58
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).
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 (incorporated by reference Exhibit 4.59C to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2020 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2021).
4.60
4.61
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).
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 (incorporated by reference Exhibit
4.61 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2020 (File No. 001-35158), initially filed
with the Securities and Exchange Commission on April 28, 2021).
150
4.62
4.63
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. (incorporated
by reference Exhibit 4.62 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2020 (File No. 001-
35158), initially filed with the Securities and Exchange Commission on April 28, 2021).
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.
(incorporated by reference Exhibit 4.63 to our Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2020
(File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2021).
4.64
Translation of the Termination Agreement, dated as of March 1,2021, between Fenghuang On-line and Yifeng Lianhe and
its shareholders (incorporated by reference Exhibit 4.64 to our Annual Report on Form 20-F for the Fiscal Year Ended
December 31, 2020 (File No. 001-35158), initially filed with the Securities and Exchange Commission on April 28, 2021).
*4.65
Translation of Program Resource License and Cooperation Agreement between Phoenix Satellite Television Company
Limited and Beijing Tianying Jiuzhou Network Technology Co., Ltd., dated August 24, 2021.
*4.66
Translation of the Termination Agreement, dated as of May 7,2021, between Qieyiyou and Chenhuan 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
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. *
104
Cover Page Interactive Data File (embedded within the Inline XBRL document). *
*
Filed herewith
151
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, 2022
152
Phoenix New Media Limited
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1424)
Consolidated Balance Sheets as of December 31, 2020 and 2021
Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2019, 2020 and 2021
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2019, 2020 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2020 and 2021
Notes to Consolidated Financial Statements
Page
F-2
F-5
F-6
F-8
F-9
F-10
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, 2021 and 2020, 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, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2021 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,
2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
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.
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.
Allowance for Credit Losses on Accounts Receivable
As described in Notes 2 and 6 to the consolidated financial statements, as of December 31, 2021, the gross balance of accounts receivable
was RMB799.4 million, against which an allowance for credit losses of RMB360.7 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.
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 related to default rates, lifetime for debt recovery, current and future
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.
Equity investments in limited partnerships accounted for under equity method
As described in Notes 2 and 11 to the consolidated financial statements, as of December 31, 2021, the Company held investments in
limited partnerships with total carrying value of RMB60.2 million. The two limited partnerships mainly engage in private equity
investments. The investments in the limited partnerships are accounted for under equity method. The Company adjusted the carrying
value of equity method investments for its share of the income or losses of the limited partnerships. The income or losses of the limited
partnerships were mainly attributable by the estimated fair value change of the underlying investments held by the limited partnerships.
The Company recognized its share of income from these investments of RMB0.4 million for the year ended December 31, 2021.
The principal considerations for our determination that performing procedures relating to the equity investments in limited partnerships
accounted for under equity method is a critical audit matter are the significant judgment made by management in recognizing the
Company’s share of income or losses of the limited partnerships. This in turn led to a high degree of auditor judgment, subjectivity and
effort in performing procedures and evaluating the reasonableness of the Company’s share of income or losses of the limited partnerships.
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
accounting of equity investments in limited partnerships. These procedures also included, among others, testing management’s
recognition of the Company’s share of income or losses of the limited partnerships through evaluation of the limited partnerships’
financial statements, and, on a sample basis, testing the reasonableness of the estimated fair value change of the limited partnerships’
underlying investments by assessing the methods used to value the underlying investments, the current performance and development
F-3
of the underlying investments, and other relevant market information.
/s/PricewaterhouseCoopers Zhong Tian LLP
Beijing, the People’s Republic of China
April 28, 2022
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)
As of December 31,
2020
RMB
2021
RMB
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
Total current assets
Non-current assets:
Property and equipment, net
Intangible assets, net
Available-for-sale debt investments
Equity investments, net
Deferred income tax assets, net
Operating lease right-of-use assets, net
Other non-current assets
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 RMB493,389 and RMB345,561 as of December 31, 2020 and
2021, respectively. Note 1) :
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
Non-current liabilities (including amounts of the consolidated VIEs, excluding intercompany amounts,
without recourse to the Company of RMB43,190 and RMB32,169 as of December 31, 2020 and 2021,
respectively. Note 1) :
Deferred tax liabilities
Long-term liabilities
Operating lease liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 22)
Shareholders’ equity:
Phoenix New Media Limited shareholders’ equity:
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, 2020 and 2021, 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, 2020 and 2021, respectively)
Additional paid-in capital
Statutory reserves
Accumulated deficits
Accumulated other comprehensive loss
Total Phoenix New Media Limited shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
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
17,499
22,053
1,620,580
92,017
(88,191)
(28,214)
1,635,744
28,229
1,663,973
2,772,552
188,980
1,309,028
15,618
456,935
57,079
49,363
2,077,003
29,051
22,495
29,401
111,128
92,189
41,361
3,218
328,843
2,405,846
217,172
34,735
33,461
412,776
119,812
123,243
25,780
966,979
1,312
28,330
20,070
49,712
1,016,691
17,499
22,053
1,629,014
98,482
(300,357)
(39,308)
1,427,383
(38,228)
1,389,155
2,405,846
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Phoenix New Media Limited
Consolidated Statements of Comprehensive Income/(Loss)
(Amounts in thousands, except for number of shares and per share (or ADS) data)
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
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
(Loss)/income from equity method investments, net of impairment
Fair value changes in investments, net
Impairment of available-for-sale debt investments
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
Income/(loss) before tax from continuing operations
Income tax expense
Net income/(loss) from continuing operations
Net income/(loss) from discontinued operations, net of income taxes
Net income/(loss)
Net (income)/loss 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 income/(loss) 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 of RMB196,617,
RMB(98,456) and nil for the years ended December 31, 2019,
2020 and 2021, respectively): fair value remeasurement for
available-for-sale debt investments
Other comprehensive loss (net of tax of RMB142,574,
RMB96,606 and nil for the years ended December 31, 2019, 2020
and 2021, 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 New Media
Limited
Net 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:
-Continuing operations
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
930,025
100,306
1,030,331
(597,397)
432,934
(276,254)
(334,189)
(158,586)
—
(769,029)
(336,095)
47,304
8,612
401
1,906
—
—
—
—
25,387
(252,485)
(20,581)
(273,066)
—
(273,066)
67,365
—
67,365
(205,701)
—
(205,701)
(273,066)
1,188,762
(887,248)
(6,611)
(1,008,795)
37,483
941,452
3,827
945,279
727,829
1.14
0.11
1.25
1.14
F-6
(491,197)
(55,577)
(1,068,743)
15,090
(1,053,653)
380,369
0.72
(0.07)
0.65
0.72
—
(4,483)
(284,160)
67,365
(216,795)
(205,701)
(0.35)
—
(0.35)
(0.35)
-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
0.11
1.25
9.13
0.87
10.00
9.13
0.87
10.00
(0.07)
0.65
5.74
(0.51)
5.23
5.74
(0.51)
5.23
—
(0.35)
(2.83)
—
(2.83)
(2.83)
—
(2.83)
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
50,700
61,690
(26,512)
(4,157)
(7,045)
37,639
30,950
(9,566)
(2,692)
(5,044)
28,629
29,959
(24,500)
(2,465)
(5,361)
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
Additional
paid-in Statutory
Shares
Amount Shares
RMB
Amount
capital
RMB RMB
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12
—
—
—
—
—
499
—
—
—
—
—
—
—
—
—
—
—
—
—
174,373
—
264,824,592 17,487 317,325,360 22,053 1,604,588
8,041
Balance as of January 1, 2019
Share-based compensation
Issuance of ordinary shares upon
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
(1,644 )
—
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
9,096
—
Share-based compensation
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
Capital contribution received from
noncontrolling shareholders
Disposal of a subsidiary
Dividends declared and paid
Net income
Cumulative effect of initially
applying ASC 326
—
—
Balance as of December 31, 2020 264,998,965 17,499 317,325,360 22,053 1,620,580
8,434
—
Share-based compensation
Appropriation to statutory reserves
—
—
Fair value changes of available-for-
sale debt investments, net of tax
Foreign currency translation
—
—
adjustment
—
—
Dividends declared and paid
Net loss
—
—
Balance as of December 31, 2021 264,998,965 17,499 317,325,360 22,053 1,629,014
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Accumulated
other
comprehensiv
e
Noncontrollin
g
Total
shareholders
’
Retained
earnings/
(accumulated
deficits)
RMB
reserves
RMB
87,620
—
income/(loss)
RMB
1,188,358
—
interests
RMB
310,634
12,180
equity
RMB
3,390,361
20,221
159,621
—
—
963
—
—
—
—
(963 )
—
—
—
—
511
—
—
1,188,762
—
1,188,762
—
(1,008,795 )
—
(1,008,795 )
—
37,483
—
37,483
—
—
—
—
88,583
—
3,434
—
—
(700,163 )
727,829
186,324
—
(3,434 )
—
—
—
—
1,405,808
—
—
(124,245 )
18,522
—
(3,827 )
213,264
287
—
(125,889 )
18,522
(700,163 )
724,002
3,545,015
9,383
—
—
—
(887,248 )
—
(887,248 )
—
—
—
—
—
—
—
92,017
—
6,465
—
(491,197 )
—
(491,197 )
—
(55,577 )
—
(55,577 )
—
—
(653,501 )
380,369
2,051
(88,191 )
—
(6,465 )
—
—
—
—
1,600
(169,339 )
(442 )
(15,090 )
1,600
(169,339 )
(653,943 )
365,279
—
(28,214 )
—
—
(2,051 )
28,229
1,148
—
—
1,663,973
9,582
—
—
—
(6,611 )
—
(6,611 )
—
—
—
98,482
—
—
(205,701 )
(300,357 )
(4,483 )
—
—
(39,308 )
—
(240 )
(67,365 )
(38,228 )
(4,483 )
(240 )
(273,066 )
1,389,155
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)
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
Cash flows from operating activities:
Net income/(loss)
Net (income)/loss 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 credit losses, including related party amounts of RMB(2,336), RMB3,344
and RMB1,000 for the years ended December 31, 2019, 2020 and 2021, respectively
Depreciation and amortization expense
Amortization of the right-of-use assets
Impairment of intangible assets
Loss/(income) from equity method investments, net of impairment
Fair value changes in investments, net
Impairment of available-for-sale debt investments
Deferred tax benefit
(Gain)/loss on disposal of property and equipment
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
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
Proceeds from disposal of property and equipment and intangible assets
Net cash provided by/(used in) continuing investing activities
Net cash (used in)/provided by discontinued investing activities
Net cash provided by/(used in) investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
Repayment of loan from a noncontrolling shareholder
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
724,002
(54,242 )
11,859
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 )
(57,885 )
(9,175,619 )
8,844,241
(6,500 )
—
1,403,046
357,974
175,489
—
1,540,746
(80,352 )
1,460,394
511
—
(267,886 )
(703,145 )
—
—
(970,520 )
(144,100 )
(1,114,620 )
(35,191 )
(33,916 )
(19,722 )
430,748
161,100
269,648
377,110
310,876
66,234
1,083
4,026
—
365,279
62,366
9,383
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 )
695,937
—
—
—
480,466
265,753
746,219
—
(7,630 )
—
(645,244 )
11,612
1,600
(639,662 )
—
(639,662 )
(38,563 )
46,840
(35,115 )
377,110
310,876
66,234
388,835
357,796
31,039
1,688
1,112
42,135
(273,066 )
—
9,582
186,520
28,503
37,549
369
(401 )
(1,906 )
—
(5,322 )
1,107
—
—
—
—
(8,612 )
33,161
(8,285 )
(25,492 )
6,535
(9,083 )
(5,374 )
(36,787 )
10,166
315
(45,834 )
(36,467 )
(142,822 )
—
(142,822 )
(16,833 )
(5,839,637 )
5,810,436
(14,000 )
—
—
—
—
17,381
(42,653 )
—
(42,653 )
—
—
—
(3,540 )
—
—
(3,540 )
—
(3,540 )
4,778
—
(184,237 )
388,835
357,796
31,039
204,598
188,980
15,618
1,012
—
—
—
5,980
The accompanying notes are an integral part of these consolidated financial statements.
—
F-9
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, 2021, the Company had twelve subsidiaries, three VIEs and eighteen 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, E-commerce 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 certain 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, 2021 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”)
Beijing Fenghuang Ronghe Investment Co., Ltd. (“Fenghuang Ronghe”)
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”)
Yifeng Lianhe (Beijing) Technology Co., Ltd. (“Yifeng Lianhe”)
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
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
September 18, 2015
June 10, 2014
February 8, 2010
June 1, 2012
June 16, 2006
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 % Investment holding
100 % Paid services
100 % Advertising
100 % Paid services
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 and advertising 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. In March 2021, shareholders of Yifeng Lianhe transferred all of their equity interests in Yifeng Lianhe to
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.
Through the aforementioned activities, Tianying Jiuzhou, Fenghuang Ronghe 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.
1. Organization and Principal Activities (Continued)
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
F-10
Phoenix New Media Limited
Notes to Consolidated Financial Statements
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 agreements in writing, or unless the Fenghuang On-line or Qieyiyou decide in their discretion to
terminate the relevant agreements.
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 agreements 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 agreements. The term of each loan is ten years, and may be extended upon mutual agreements 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 agreements 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 agreements,
voting right entrustment agreements, exclusive equity option agreements and loan agreements. 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 by 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-11
Phoenix New Media Limited
Notes to Consolidated Financial Statements
1. Organization and Principal Activities (Continued)
Risks in relation to the VIE structure
The Company is not an operating company in China but a Cayman Islands holding company, which has no equity ownership
in its VIEs, with operations primarily conducted by its PRC subsidiaries and through contractual arrangements with its VIEs based in
China. The Company operates part businesses in China through the VIEs, and rely on contractual arrangements among its PRC
subsidiaries, the VIEs and their respective shareholders to control the business operations of the VIEs. Revenue contributed by the
VIEs and subsidiaries of the VIEs accounted for 48.3%, 42.2% and 44.7% of the Group’s total revenues for the years ended December
31, 2019, 2020 and 2021, respectively.
The Group’s corporate structure is subject to risks associated with its contractual arrangements with the VIEs. Investors may
never directly hold equity interests in the VIEs. 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, or if these regulations or their interpretations change in the
future, the Group could be subject to severe penalties, forced to relinquish its interests in those operations or required to restructure its
ownership structure or operations, including terminating the contractual arrangements with the VIEs or deregistering the equity pledge
of the VIEs, which in turn would affect its ability to consolidate, derive economic interests from, or exert effective control over the
VIEs and thus have a material effect on its operations and result in the value of its ADSs diminishing substantially.
Under the Contractual Agreements with the VIEs, the Company has the power to direct the activities of all the VIEs and
subsidiaries of the VIEs, and can have assets transferred out of the VIEs and subsidiaries of the VIEs. Therefore, the Company
considers itself the ultimate primary beneficiary of the VIEs and there is no asset of the VIEs that can only be used to settle obligations
of the VIEs and subsidiaries of the VIEs, except for registered capital and PRC statutory reserves of the VIEs and subsidiaries of the
VIEs amounting to RMB25.6 million as of December 31, 2021. 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. There is currently
no contractual arrangement that would require the Company to provide additional financial support to the VIEs. However, as the
Company is conducting certain businesses through its VIEs and subsidiaries of the VIEs, the Company may provide such support on a
discretionary basis in the future, which could expose the Company to a loss.
F-12
Phoenix New Media Limited
Notes to Consolidated Financial Statements
1. Organization and Principal Activities (Continued)
The following tables set forth the summarized assets, liabilities, results of operations and cash flows from continuing
operations of the consolidated VIEs (in thousands):
Cash and cash equivalents
Term deposits and short term investments
Accounts receivable, net
Amounts due from inter-company entities
Other current assets
Current assets
Equity investments, net
Deferred income tax assets, net
Operating lease right-of-use assets, net
Other non-current assets
Non-current assets
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
Non-current liabilities
Total liabilities
Revenues (1)
Net loss from continuing operations (2)
Net income/(loss) from discontinued operation
As of December 31,
2020
RMB
2021
RMB
96,422
240,388
325,741
31,900
75,275
769,726
81,821
45,147
20,642
28,521
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
41,856
126,172
178,439
104,215
80,014
530,696
98,128
48,192
18,520
24,860
189,700
720,396
63,685
26,035
673,246
18,633
88,212
61,082
87,914
1,018,807
32,169
1,050,976
For the Years Ended December 31,
2020
RMB
2021
RMB
2019
RMB
685,116
(231,365)
54,242
521,414
(52,834)
(62,366)
487,323
(153,574)
—
Notes:
(1) For the years ended December 31, 2019, 2020 and 2021, the VIEs have incurred revenues of RMB43.4 million, RMB11.0 million
and RMB27.0 million, respectively, derived from inter-company entities and the corresponding inter-company entities
concurrently recognized same amounts as fees, which have been eliminated upon consolidation.
(2) For the years ended December 31, 2019, 2020 and 2021, the VIEs have incurred costs of RMB43.3 million, RMB17.4 million and
RMB16.8 million, respectively, related to technical services provided by the inter-company entities and the corresponding inter-
company entities concurrently recognized same amounts as revenues, which have been eliminated upon consolidation.
F-13
Phoenix New Media Limited
Notes to Consolidated Financial Statements
1. Organization and Principal Activities (Continued)
Revision of Previously Reported VIE Information
Certain information in the preceding table previously presented for the year ended December 31, 2020 in the 2020 Form 20-F
has been revised. The amount previously reported as “net loss” of the VIEs for 2020 was the “net loss from continuing operations”,
and the correct amount of “net loss from discontinued operations” is also added in but was not included in the table in prior year. It has
been corrected by fully presenting the appropriate amounts in the preceding table. Previously reported net loss information for 2019
has been revised to conform to the current year presentation. There was no impact on any other reported information.
Cash flow from operating activities：
Net cash provided by/(used in) transactions with inter-company entities
Net cash used in transactions with third parties
Net cash used in operating activities
Cash flow from investing activities：
Loans (paid to)/collected from inter-company entities
Other investing activities
Net cash provided by investing activities
Cash flow from financing activities：
Investments from inter-company entities
Repatriation of capital to facilitate the reorganization
Proceeds from/(repayment of) loans from inter-company entities
Other financing activities
Net cash provided by/(used in) financing activities
For the Years Ended December 31,
2020
RMB
2021
RMB
2019
RMB
72,975
(341,971)
(268,996)
(60,000)
270,049
210,049
—
—
368,399
—
368,399
55,402
(83,169)
(27,767)
155,085
(123,199)
31,886
—
—
(380,560)
4,365
(376,195)
(44,528)
(75,240)
(119,768)
(12,523)
93,034
80,511
400
(10,000)
(20,890)
(240)
(30,730)
As of December 31, 2021, there was no pledge or collateralization of the VIEs’ assets. Unrecognized revenue-producing
assets that are held by the VIEs and subsidiaries of the VIEs mainly comprise of 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. The balances and transactions of the consolidated VIEs disclosed above were reflected in the Company’s
consolidated financial statements with inter-company transactions eliminated.
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).
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)
The Group and Phoenix TV Group have engaged in various mutual cooperation activities in content, branding, promotions,
technical support and corporate management. After the expiration of a Program Resource License Agreements and a Program
Text/Graphics Resource License Agreements, or 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 were 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 had a term of two years. In August 2021, the Group entered into a new program resource license and
cooperation agreement, or the 2021 Program License Agreement, with Phoenix TV Group and terminated the 2020 Program Resource
License and Cooperation Agreement. The 2021 Program License Agreement grants the Group exclusive right to broadcast
copyrighted video content and the derived audio content from three television channels of Phoenix TV Group on the internet in
Mainland China with such content also broadcasted on the three television channels of Phoenix TV Group and also the right to
sublicense such contents. The annual fees payable to Phoenix TV Group by the Group for such content licenses will be RMB45.0
million and the 2021 Program License Agreement has a term of three years.
The Group and Phoenix TV Group entered into new trademark license agreements in December 2017, which became
effective on December 8, 2017 and expired 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 covered
additional trademarks registered in various classes containing the double-phoenix logo together with the Chinese or English words of
"Phoenix New Media" or "ifeng" and other variations, while retained the clause of 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.
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 to the 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).
F-15
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(c) Business combinations and noncontrolling interests (Continued)
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.
(d) Discontinued operations
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 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).
F-16
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(e) Foreign currency translation (Continued)
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) 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.
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, 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.
(g) 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.
(h) 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, 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 and changes in the fair
value are reflected in the consolidated statements of comprehensive income as interest income. The Group classifies the valuation
techniques that use these inputs as Level 2 of fair value measurements. Please see Note 20 for additional information.
(i) 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.
F-17
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(j) 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.
(k) 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 opening consolidated balance sheets as of December 31, 2020 and the consolidated statements of
comprehensive income/(loss) for the year ended December 31, 2020, as a result of adopting the new standard.
(l) 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).
F-18
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(m) 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, 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
Estimated Useful Lives
5 years
Lesser of the licensed period or 5 years
10 years
Lesser of the licensed period or 5 years
The Group amortizes the licensed copyrights for reading content and audio content 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 and estimates relating to revenue growth and timing of projected future cash flows.
(n) 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. The Group determines whether a decline in fair value of available-for-sale debt securities below the amortized
cost basis has resulted from a credit loss or other factors and records impairment relating to credit losses through an allowance for
credit losses. However, the allowance shall be limited by the amount that the fair value is less than the amortized cost basis.
Impairment that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income,
net of applicable taxes. Investments with maturities of greater than 12 months are recorded in non-current assets.
(o) Equity investments
Equity investments accounted for using the equity method
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). When the Group’s share of losses in the equity investee equals or
exceeds its interest in the equity investee, the Group does not recognize further losses, unless the Group has incurred obligations or
made payments or guarantees on behalf of the equity investee, or the Group holds other investments in the equity investee. 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 continually reviews its investment in equity investees under the equity method to determine whether a decline in
fair value to below the carrying value is other-than-temporary. The primary factors the Group considers in its determination are the
F-19
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(o) Equity investments (Continued)
duration and severity of the decline in fair value, the financial condition, operating performance and the prospects of the equity
investee, and other company specific information such as recent financing rounds.
Equity investments measured at Measurement Alternative
The Group has adopted ASU 2016-1 Recognition and Measurement of Financial Assets and Financial Liabilities since
January 1, 2018 pursuant to which the Group measures equity investments, other than those accounted for under the equity method, at
fair value through earnings. For investments in equity securities lacking of readily determinable fair values, the Group elects to record
these investments at cost, less impairment, plus or minus subsequent adjustments for observable price changes (referred to as the
measurement alternative). Under this measurement alternative, changes in the carrying value of the investments will be recognized in
consolidated statement of comprehensive income/(loss), whenever there are observable price changes in orderly transactions for the
identical or similar investment of the same issuer.
For those equity investments that the Group elects to use the measurement alternative, the Group makes a qualitative
assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is
impaired, the Group has to estimate the investment’s fair value in accordance with the principles of ASC 820, Fair Value
Measurements and Disclosures (“ASC 820”). If the fair value is less than the investment’s carrying value, the Group recognizes an
impairment loss in net income (loss) equal to the difference between the carrying value and fair value.
Equity investments measured at NAV practical expedient
The Group accounts for investments in private equity funds under the existing practical expedient in ASC Topic 820 to
estimate fair value using the net asset value per share (or its equivalent) of the investment (“NAV practical expedient”), over which
the Group does not have the ability to exercise significant influence.
(p) 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.
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.
F-20
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(q) 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.
(r) ASC 606 Revenue from Contracts with Customers
The Group has adopted ASC 606 Revenue from Contracts with Customers for all periods presented. In 2021, the Group re-
grouped paid services revenues (see Note 2(s)). For comparison purposes, the revenues from paid services for the years ended
December 31, 2019 and 2020 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 E-commerce and others
Total
Contract balances
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
1,194,761
133,020
71,144
61,876
1,327,781
1,113,017
95,828
46,175
49,653
1,208,845
930,025
100,306
43,113
57,193
1,030,331
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, 2020 and 2021 were not material.
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. Advances
from customers 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, 2020 and 2021 that were included in the contract liability balance at the
beginning of the period were RMB32.1 million and RMB24.8 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, 2020 and 2021, 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.
F-21
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(r) ASC 606 Revenue from Contracts with Customers (Continued)
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.
(s) 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-22
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(s) 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, its mobile applications and third-party platforms
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, value-
added tax (“VAT”) and the cultural development fee. The Group believes that there will not be significant changes to its estimates of
variable consideration.
F-23
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(s) Revenue recognition (Continued)
The Group has estimated and recorded RMB180.7 million, RMB180.9 million and RMB145.7 million in agency service fees
to third-party advertising agencies for the years ended December 31, 2019, 2020 and 2021, 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 RMB8.7 million, RMB6.8 million and RMB20.7 million for the years ended December 31, 2019,
2020 and 2021, respectively.
(ii) Paid services revenues
Prior to 2021, paid services revenues comprised of (i) revenues from paid contents, which included digital reading, audio
books, paid videos, and other content-related sales activities, (ii) revenues from games, which included web-based games and mobile
games, (iii) revenues from MVAS, and (iv) revenues from others.
Beginning from January 1, 2021, MVAS, games and others are collectively referred to as E-commerce and others. For
comparison purposes, the revenues from paid services for the years ended December 31, 2019 and 2020 have been retrospectively re-
classified into revenues from paid contents and revenues from E-commerce and others.
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-24
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(s) 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.
E-commerce and others
E-commerce and others revenues mainly comprise of revenues from E-commerce, MVAS, games and others.
E-commerce
The Group generates revenues from promoting or selling products or services which are provided by suppliers in the third-
party online E-commerce platforms. For certain E-commerce services, the Group charges commission fees to suppliers as 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
suppliers. 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. For some E-commerce services, the Group
recognizes revenues from certain online retail business on a gross basis upon successful sales to end customers, as the Group is acting
as a principal in these transactions and is responsible for fulfilling the promise to provide the specified goods.
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 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.
F-25
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(t) Value-added tax and related 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, 2019, 2020 and 2021. Related 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 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, valid until December 31, 2024.
The VAT and the cultural development fee are recorded as a reduction item of revenues in the consolidated statements of
comprehensive income/(loss). 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 VAT and related surcharges for the years ended December 31, 2019, 2020 and 2021 were RMB114.1 million, RMB84.8
million and RMB60.7 million, respectively.
(u) 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 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.
(v) 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) relevant
rental expense, depreciation and amortization expenses. The Group expenses advertising costs as incurred. Total advertising and
promotion expenses including traffic acquisition expenses were RMB314.2 million, RMB99.9 million and RMB70.7 million, for the
years ended December 31, 2019, 2020 and 2021, respectively.
(w) 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) relevant rental expense and depreciation of
servers. The Group expenses technology and product development expenses as incurred for all the years presented.
(x) Operating leases and adoption of ASU 2016-02
The Group applied ASU 2016-02 Leases (Topic 842) beginning from January 1, 2019, which requires lessees to recognize
operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced
disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The adoption of ASU
2016-02 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. The Group elects to apply practical expedients permitted
that allow the Group to not recognize lease assets and lease liabilities for leases with a term of twelve months or less.
F-26
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(x) Operating leases and adoption of ASU 2016-02 (Continued)
Under the new lease standard, the Group determines if an arrangement is or contains a lease at inception. ROU assets
represent the Group’s rights to use underlying assets for the lease term and lease liabilities represent the Group’s obligation to make
lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the
present value of lease payments over the lease term, reduced by lease incentives received, plus any initial direct costs, using the
discount rate for the lease at the commencement date. The Group considers only payments that are fixed and determinable at the time
of lease commencement. As the implicit rate in lease is not readily determinable for the Group’s operating leases, the Group generally
use the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease
payments at commencement date. The Group’s lease terms may include options to extend or terminate the lease when it is reasonably
certain that the Group will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease
term.
As of December 31, 2021, the Group’s operating leases had a weighted average remaining lease term of 2.79 years and a
weighted average discount rate of 5.61%. Future lease payments under operating leases as of December 31, 2021 were as follows (in
thousands):
Year ending December 31,
2022
2023
2024
2025
2026
Total future lease payments
Less: Imputed interest
Total lease liability balance
Operating Lease Liabilities
RMB
27,349
7,580
5,734
4,204
4,234
49,101
3,251
45,850
Operating lease costs and expenses for the years ended December 31, 2019, 2020 and 2021 were RMB39.1 million, RMB33.6
million and RMB34.5 million, respectively, which excluded costs and expenses of short-term contracts. Short-term lease costs and
expenses for the years ended December 31, 2019, 2020 and 2021 was RMB1.7 million, RMB1.1 million and RMB1.5 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
(y) Share-based compensation
For the Years Ended December 31,
2020
RMB
2021
RMB
33,677
3,198
34,509
27,129
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 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.
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-27
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(y) 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
related compensation cost of RMB31.6 million, RMB39.7 million and RMB12.7 million were recognized as costs or expenses in the
consolidated statements of comprehensive income/(loss) of 2019, 2020 and 2021, respectively.
(z) 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, 2019, 2020 and 2021. Refer to Note 16 for details of the Group’s tax positions.
(aa) 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 RMB104.3 million, RMB54.4 million and RMB95.3 million for the years ended
December 31, 2019, 2020 and 2021, respectively.
(ab) 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-28
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(ac) 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 RMB1.0 million, RMB3.4
million and RMB6.5 million to these funds for the years ended December 31, 2019, 2020 and 2021, respectively.
(ad) 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.
(ae) Dividends
Dividends are charged to retained earnings when declared. No dividends were declared before 2019. 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.
(af) 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.
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-29
Phoenix New Media Limited
Notes to Consolidated Financial Statements
2. Principal Accounting Policies (Continued)
(ag) 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.
(ah) 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.
(ai) Recent accounting pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the
number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to
calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The amendments are
effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption
permitted. The Group is currently evaluating the impact and does not expect it to have a significant impact on its consolidated
financial statements and related disclosures.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and
Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in
Entity’s Own Equity (Subtopic 815-40) to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of
freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.
The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or
after the effective date of the amendments. The Group is currently evaluating the impact and does not expect it to have a significant
impact on its consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets
and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should
recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606, Revenue from
Contracts with Customers The new amendments are effective for us are effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations
occurring on or after the effective date of the amendments, with early adoption permitted. The Group is currently evaluating the
impact and does not expect it to have a significant impact on its consolidated financial statements and related disclosures.
F-30
Phoenix New Media Limited
Notes to Consolidated 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.
The Group has no significant concentrations of credit risk with respect to its customers, related parties and other parties. 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 remain 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 2021, approximately 90.7% 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.
F-31
Phoenix New Media Limited
Notes to Consolidated Financial Statements
3. Certain Risks and Concentration (Continued)
(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.
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 in 2020. Yitian Xindong was a subsidiary and a separate
reporting unit of the Group, and the disposal of Yitian Xindong represented 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, 2019 and 2020.
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 results of operations and cash flows of discontinued operations, that were included in the
Group’s consolidated financial statements (in thousands):
For the Years Ended December 31,
2019
2020*
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
Income/(loss) from operations
Interest income, net
Loss from disposal of discontinued operations
Others, net
Income/(loss) before tax
Income tax benefit
Net income/(loss) 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
Note:
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
For the Years Ended December 31,
2020*
2019
41,080
(80,352)
(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
—
* The results of operations and cash flows of discontinued operations included those of the discontinued operations from
January 1, 2020 to May 18, 2020.
F-32
Phoenix New Media Limited
Notes to Consolidated Financial Statements
5. Acquisition
Acquisition of Yitian Xindong
The Group acquired 25.5% equity interest in Yitian Xindong in December 2018 and started to consolidateYitian Xindong
since December 28, 2018. The Group acquired another 25.5% equity interest in Yitian Xindong in March 2019 and held a total of
51.0% equity interest in and a 51.0% voting rights of Yitian Xindong and continued to consolidate Yitian Xindong’s financial
statements.
In May 2020, the Group sold all of its investment in Yitian Xindong and the disposal of Yitian Xindong was qualified for
reporting as a “discontinued operation”. See Note 4.
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, 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) for the year ended
December 31, 2019.
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.
F-33
Phoenix New Media Limited
Notes to Consolidated Financial Statements
5. Acquisition (Continued)
Acquisition of Tianbo in 2019 (Continued)
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 income attributable to Phoenix New Media Limited
Note:
Pro Forma Year Ended December 31, 2019*
RMB
(unaudited)
1,362,964
731,007
* 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 year
ended December 31, 2019, the unaudited pro forma revenue for the year ended December 31, 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.
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, 2020 and 2021
(in thousands):
Accounts receivable, gross
Allowance for credit losses
Accounts receivable, net
As of December 31,
2020
RMB
2021
RMB
756,262
(189,460)
566,802
The following table sets out the balance of notes receivable as of December 31, 2020 and 2021 (in thousands):
Notes receivable, gross
Allowance for credit losses
Notes receivable, net
As of December 31,
2020
RMB
2021
RMB
113,808
(4,994)
108,814
The following table presents the movement of the allowance for credit losses (in thousands):
Balance as of January 1,
Additional allowance for credit losses, net of recoveries
Write-off
Balance as of December 31,
2019
RMB
2020
RMB
2021
RMB
78,178
43,853
(3,730)
118,301
118,301
80,878
(4,725)
194,454
799,389
(360,680)
438,709
37,520
(19,294)
18,226
194,454
185,520
—
379,974
F-34
Phoenix New Media Limited
Notes to Consolidated Financial Statements
7. Prepayments and Other Current Assets
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
As of December 31,
2020
RMB
2021
RMB
8,695
23,896
4,696
89
5,470
42,846
15,798
19,383
4,105
5,087
4,990
49,363
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.
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
As of December 31,
2020
RMB
2021
RMB
170,850
5,736
42,087
218,673
(156,024)
62,649
107,513
5,721
42,364
155,598
(126,547)
29,051
Depreciation expenses for the years ended December 31, 2019, 2020 and 2021 were RMB34.1 million, RMB32.5 million and
RMB21.1 million, respectively.
9. Intangible Assets, Net
The following table summarizes the Group’s intangible assets, net (in thousands):
Computer software
Licensed copyrights of reading content
Audio content
Trademark and Domain name
Total
Less: amortization
impairment
Net book value
As of December 31,
2020
RMB
2021
RMB
18,314
15,709
11,683
158
45,864
(22,896)
(10,572)
12,396
20,243
28,657
12,907
158
61,965
(28,649)
(10,821)
22,495
The Group recognized impairment losses on intangible assets of nil, RMB10.6 million and RMB0.4 million for the years
ended December 31, 2019, 2020 and 2021, respectively. The Group performed an impairment test and recognized an impairment
charge of RMB0.4 million on licensed copyrights of reading content for the year ended December 31, 2021, which were mainly
caused by the negative impact of the COVID-19 outbreak in 2021, 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, 2019, 2020 and 2021were RMB15.4 million, RMB6.4 million and
RMB7.4 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: 2022: RMB8.2 million, 2023: RMB7.1 million, 2024 RMB4.3 million,
2025: RMB2.0 million and 2026: RMB0.8 million.
F-35
Phoenix New Media Limited
Notes to Consolidated Financial Statements
10. Available-for-sale Debt Investments
Investments in Particle
As of January 1, 2019, the Company held Series B, Series C and Series D1 convertible redeemable preferred shares of
Particle Inc. (“Particle”), representing 37.63% equity interests of Particle on an as-if converted basis, which had been accounted for as
available-for-sale debt investments.
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. According to the Supplemental Agreement, the Company agreed to transfer 212,358,165 preferred shares of Particle with a total
purchase price of 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) for the year ended December 31, 2019.
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 preferred
shares under the previous agreements were terminated, and instead, the Company agreed to sell 140,248,775 preferred shares of
Particle 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 and the Company
recognized a gain on disposal of available-for-sale debt investments of RMB477.3 million in the consolidated statements of
comprehensive income/(loss) for the year ended December 31, 2020. Meanwhile, the Company recognized a gain on changes in fair
value of forward contract in relation to disposal of investments in Particle of RMB4.4 million and RMB16.1 million for the years
ended December 31, 2019 and 2020, respectively.
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 related to co-sale of Particle shares with the
principal of approximately US$9.7 million granted by the Company to Run Liang Tai. The Company recognized a loss on changes in
fair value of loan related to co-sale of Particle shares of RMB24.5 million for the year ended December 31, 2020. As of December 31,
2021, the Company holds 4,584,209 Series D1 convertible redeemable preferred shares of Particle, which represents approximately
0.60% equity interest of Particle on an as-if converted basis. The fair value of available-for-sale debt investments in Particle was
RMB30.7 million and RMB23.4 million as of December 31, 2020 and 2021, respectively.
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.
F-36
Phoenix New Media Limited
Notes to Consolidated Financial Statements
10. Available-for-sale Debt Investments (Continued)
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. The Group had fully written down the whole investment in Fengyi Technology and recognized an impairment
loss of RMB2.0 million in 2020.
Investments in Humanistic Intelligence
In April 2020, through a series of debt restructuring transactions, the Group acquired 19.99% of the equity interest in Phoenix
FM (Beijing) Information Technology Co., Ltd., (“FM Beijing”), the former subsidiary of Phoenix FM Limited (“Phoenix FM”),
which had been fully impaired in 2015. 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
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 and
2021, the fair value of investment in Humanistic Intelligence was RMB6.0 million and RMB6.0 million, respectively.
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 accumulated unrealized loss on available-for-sale
debt investments recorded in accumulated other comprehensive income excluding tax effect were RMB8.0 million and RMB15.3
million as of December 31, 2020 and 2021, respectively. The total fair value of available-for-sale debt investments were RMB36.7
million and RMB29.4 million as of December 31, 2020 and 2021, 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, 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 were RMB59.8 million and RMB60.2 million as of December 31, 2020
and 2021, respectively. The Company recognized losses from investments in these limited partnerships of RMB0.2 million in 2020
and income from investments in these limited partnerships of RMB0.4 million in 2021. The income or losses from investments in
these limited partnerships were mainly attributable to the changes in estimated fair value of the underlying investments held by the
limited partnerships.
F-37
Phoenix New Media Limited
Notes to Consolidated Financial Statements
11. Equity Investments (Continued)
Equity method investments (Continued)
Despite holding 100% ordinary shares of Phoenix FM, the Company accounted 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.
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.
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 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. 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 record the investments at cost, less impairment, plus or minus subsequent adjustments for
observable price changes (referred to as the measurement alternative). Under this measurement alternative, changes in the carrying
value of the investments will be recognized in consolidated statement of comprehensive income/(loss), whenever there are observable
price changes in orderly transactions for the identical or similar investment of the same issuer. As of December 31, 2020 and 2021, the
carrying value of equity investment in Yitong Technology was RMB13.0 million and RMB13.0 million, respectively.
F-38
Phoenix New Media Limited
Notes to Consolidated Financial Statements
11. Equity Investments (Continued)
Other equity investments (Continued)
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. In January 2021, the Group acquired additional 1.89% partnership interests in Kesheng Jiada with
a consideration of RMB5.0 million. The Group had totally 5.67% equity interest in Kesheng Jiada, representing 1.5% indirect equity
interests in 4K Garden. 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. As of
December 31, 2020 and 2021, the carrying value of the equity investment was RMB10.0 million and RMB15.0 million, respectively.
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. The Group invested RMB12.0 million in the private equity fund in December 2020 and invested additional RMB9.0
million in it in February 2021. As of December 31, 2020 and 2021, the carrying value of equity investment in the private equity fund
was RMB12.0 million and RMB22.9 million, respectively. 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, 2019
Goodwill impairment
Balance as of December 31, 2020
Tianbo
Business
RMB
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 for the Tianbo reporting unit for the year ended December 31, 2020.
The Group recorded an impairment charge of nil, RMB22.8 million and nil for the years ended December 31, 2019, 2020 and 2021,
respectively.
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
As of December 31,
2020
RMB
2021
RMB
7,975
1,289
489
9,753
2,263
466
489
3,218
F-39
Phoenix New Media Limited
Notes to Consolidated Financial Statements
14. Accrued Expenses and Other Current Liabilities
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
Others
Total
As of December 31,
2020
RMB
2021
RMB
16,266
5,246
18,247
65,732
49,210
17,675
172,376
16,518
3,334
5,036
65,755
17,217
15,383
123,243
As the agent of real estate developers, the Group sells coupons issued by real estate developers that enable individual property
buyers 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
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
25,157
603,573
54,600
683,330
19,550
482,641
57,095
559,286
27,673
513,449
56,275
597,397
Income Tax Expense and Effective Tax Rate
The provisions for income tax expense are summarized as follows (in thousands):
Current tax expense
Deferred tax benefit
Income tax expense
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
23,219
(1,269)
21,950
32,156
(13,179)
18,977
25,903
(5,322)
20,581
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 continuing operations
Income/(loss) arising from non-PRC continuing operations
Income/(loss) 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
Effective tax rate for the Group
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
(267,276)
958,986
691,710
21,952
(2)
21,950
28,133
418,489
446,622
18,977
—
18,977
(8.2)%
3.2%
67.5%
4.2%
(235,019)
(17,466)
(252,485)
20,581
—
20,581
(8.8)%
(8.2)%
F-40
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
Income Tax Expense and Effective Tax Rate (Continued)
Cayman Islands (“Cayman”)
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 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 from 2019 to 2021.
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 2019 to 2021.
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 2019 to 2021.
In 2016, Fenghuang Borui was qualified as a Software Enterprise and was subject to a 12.5% income tax rate from 2019 to
2020. In 2021, Fenghuang Borui was qualified as an HNTE, and therefore, Fenghuang Borui was subject to a 15% income tax rate in
2021.
All other PRC incorporated entities of the Group were subject to a 25% income tax rate for all the years presented.
F-41
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
Income Tax Expense and Effective Tax Rate (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, 2021, 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, 2020 and 2021 were approximately RMB782.1 million and RMB587.4 million, respectively. The
amounts of the unrecognized deferred tax liability on the permanently reinvested earnings were RMB78.2 million and RMB58.7
million as of December 31, 2020 and 2021, respectively.
F-42
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
Income Tax Expense and Effective Tax Rate (Continued)
Reconciliation of the Differences between Statutory Tax Rate and the Effective Tax Rate
Reconciliation of the differences between PRC statutory income tax rate and the Group’s effective income tax rate for the
years ended December 31, 2019, 2020 and 2021 is as follows:
Statutory income tax rate
Permanent differences (1)
Change in valuation allowance
Effect of preferential tax treatment
Uncertain tax positions
Tax rate difference from statutory rate in other jurisdictions (2)
Effective income tax rate
Notes:
2019
%
For the Years Ended December 31,
2020
%
2021
%
25.0
(2.8)
9.9
5.5
0.2
(34.6)
3.2
25.0
(1.9)
2.7
1.8
0.1
(23.5)
4.2
25.0
(2.4)
(23.6)
(5.3)
(0.1)
(1.8)
(8.2)
(1) 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, according to policies promulgated by the State Tax
Bureau of the PRC.
(2) Tax rate difference from statutory rate in other jurisdictions for 2019 and 2020 had significant influence on the Group’s effective
income tax rates, which was mainly attributable to the fact that the Company recognized significant amount of gain on disposal of
available-for-sale debt investments in the consolidated statements of comprehensive income/(loss) for the years ended December
31, 2019 and 2020, respectively, and thus the Group had significant amount of income arising from non-PRC operations for 2019
and 2020.
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
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
(38,077)
(0.07)
(7,934)
(0.01)
(13,468)
(0.02)
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 accrued withholding taxes of gain on disposal of available-for-sale debt investments were
RMB220.8 million as of December 31, 2021, which 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 the Company actually settles the withholding tax with the tax
authorities in PRC.
F-43
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
Deferred Tax Assets and Liabilities
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities balances as of December 31,
2020 and 2021 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:
Equity investments acquired in disposal of subsidiaries
As of December 31,
2020
RMB
2021
RMB
48,161
28,716
137,799
(127,809)
86,867
92,997
25,725
160,863
(187,396)
92,189
As of December 31,
2020
RMB
2021
RMB
1,312
1,312
As of December 31, 2021, the Group had net operating loss of approximately RMB966.7 million, which can be carried
forward to offset future taxable income. Net operating loss carry forward of RMB19.3 million, RMB25.4 million, RMB23.3 million,
RMB28.9 million and RMB869.8 million will expire in 2022, 2023, 2024, 2025 and years after 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 mainly
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 valuation allowance for deferred tax assets (in thousands):
Balance as of January 1,
Additions
Increase from an acquired subsidiary
Reversals
Balance as of December 31,
2019
RMB
2020
RMB
2021
RMB
47,386
68,209
997
(799)
115,793
115,793
15,692
—
(3,676)
127,809
127,809
61,716
—
(2,129)
187,396
F-44
Phoenix New Media Limited
Notes to Consolidated Financial Statements
16. Income Taxes (Continued)
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,
2019
RMB
2020
RMB
2021
RMB
26,131
1,481
27,612
27,612
570
28,182
28,182
148
28,330
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, 2021 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 2017 to 2021 remain
subject to examination by tax authorities. There are no ongoing examinations by tax authorities as of December 31, 2021.
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, 2020, there were 264,998,965 and 317,325,360 Class A and Class B ordinary shares issued and
outstanding, respectively. As of December 31, 2021, 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, 2019, 2020 and 2021 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,
2020
RMB
2021
RMB
2019
RMB
5,173
1,402
4,041
1,243
11,859
2,613
1,764
3,648
1,358
9,383
3,052
1,704
3,244
1,582
9,582
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, 2019, 2020 and 2021.
For the years ended December 31, 2019, 2020 and 2021, the Group recognized share-based compensation net of forfeitures
for options and restricted share unit of RMB11.9 million, RMB9.4 million and RMB9.6 million, respectively.
Share Options of the Company
In June 2018, the Company adopted a Share Option Scheme (the “June 2018 Scheme”), which 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.
F-46
Phoenix New Media Limited
Notes to Consolidated Financial Statements
18. Share-based Compensation (Continued)
A summary of the Company’s share option activities for the years ended December 31, 2019, 2020 and 2021 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, 2019
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2019
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2020
Granted
Forfeited and expired
Exercised
Outstanding as of December 31, 2021
Exercisable as of December 31, 2021
Vested and expected to vest as of December 31, 2021
34,251,734
15,794,018
(7,128,379)
(174,373)
42,743,000
11,330,103
(1,847,750)
—
52,225,353
1,730,000
(3,616,991)
—
50,338,362
33,820,775
42,963,310
0.47
0.48
0.49
0.43
0.47
0.19
0.48
—
0.41
0.21
0.43
—
0.40
0.45
0.42
6.4
6.4
6.2
5.5
4.2
5.0
—
—
—
—
—
—
—
—
—
The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest as of December 31, 2021
was calculated as the difference between the Company’s closing stock price of US$0.86 per ADS, or US$0.11 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(y), 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, 2019, 2020 and 2021 are as follows:
Expected volatility rate
Expected dividend yield
Expected term (years)
Risk-free interest rate (per annum)
2019
55.92%-77.98%
—
1.00-6.16
2.33%-3.12%
For the Years Ended December 31,
2020
58.59%-74.15%
—
0.50-6.16
1.14%-2.37%
2021
65.34%-68.45%
—
6.16
1.32%-1.72%
The weighted-average grant date fair value of options granted for the years ended December 31, 2019, 2020 and 2021 were
US$0.48, US$0.19 and US$0.21, respectively.
F-47
Phoenix New Media Limited
Notes to Consolidated Financial Statements
18. Share-based Compensation (Continued)
As of December 31, 2021, there was RMB3.2 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 2.2
years.
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”). There were 920,000, nil and nil restricted share units
of Fread Limited granted under the 2018 Fread RSU Scheme for the years ended December 31, 2019, 2020 and 2021, respectively.
For the years ended December 31, 2019, 2020 and 2021, Fread Limited recognized share-based compensation net of forfeitures of
RMB3.8 million, RMB0.3 million and RMB1.1 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
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
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
930,025
100,306
1,030,331
566,443
30,954
597,397
363,582
69,352
432,934
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, 2020:
Assets:
Term deposits and short term investments
Restricted cash
Available-for-sale debt investments
As of December 31, 2021:
Assets:
Term deposits and short term investments
Restricted cash
Available-for-sale debt investments
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
1,280,033
31,039
36,662
—
31,039
—
1,280,033
—
—
1,309,028
15,618
29,401
—
15,618
—
1,309,028
—
—
—
—
36,662
—
—
29,401
The following table sets forth the reconciliation of the fair value measurements of available-for-sale debt investments from
January 1, 2019 to December 31, 2021 (in thousands):
Beginning balance as of January 1, 2019
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
Change in fair value
Currency translation adjustment
Ending balance as of December 31, 2021
Fair Value
Measurements of
Available-for-sale
Debt Investments
RMB
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
(6,611)
(650)
29,401
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)
Term deposit and short term investments. The Group’s term deposit and short term investments consist of wealth management
products and structured deposits issued by commercial banks and other financial institutions with original maturity of more than three
months and up to one year, which contain a variable interest rate. The Group elected the fair value method at the date of initial
recognition and carried these investments at fair value. Changes in the fair value are reflected in the consolidated statements of
comprehensive income/(loss) as interest income. 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. The fair values of the investments in Particle as of December 31, 2019, 2020 and 2021 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. 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, 2019, 2020 and 2021
were as follow:
Lack of marketability discount (“DLOM”)
Volatility
2019
5%
45.7%
As of December 31,
2020
25%
55.3%
2021
20%
49.0%
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 and other current liabilities are financial assets or liabilities with carrying values that
approximate fair value due to their short term nature.
F-50
Phoenix New Media Limited
Notes to Consolidated Financial Statements
21. Net Income/(Loss) per Share
The following table sets forth the computation of basic and diluted net income/(loss) per share for the years indicated
(amounts in thousands, except for number of shares and per share data):
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
Net income/(loss) per Class A and Class B ordinary share — basic:
Numerator:
Net income/(loss) from continuing operations attributable to Phoenix New
Media Limited
Net income/(loss) from discontinued operations attributable to Phoenix New
Media Limited
Net income/(loss) attributable to Phoenix New Media Limited
Denominator:
Denominator used in computing net income/(loss) per share — basic
Net income/(loss) from continuing operations per Class A and Class B
ordinary share — basic
Net income/(loss) from discontinued operations per Class A and Class B
ordinary share — basic
Net income/(loss) per Class A and Class B ordinary share — basic
Net income/(loss) per Class A and Class B ordinary share — diluted:
Numerator:
Net income/(loss) from continuing operations attributable to Phoenix New
Media Limited
Net income/(loss) from discontinued operations attributable to Phoenix New
Media Limited
Net income/(loss) attributable to Phoenix New Media Limited
Denominator:
Denominator used in computing net income/(loss) per share — diluted
Net income/(loss) from continuing operations per Class A and Class B
ordinary share — diluted
Net income/(loss) from discontinued operations per Class A and Class B
ordinary share — diluted
Net income/(loss) per Class A and Class B ordinary share — diluted
664,196
63,633
727,829
417,976
(37,607)
380,369
(205,701)
—
(205,701)
582,275,800
582,324,325
582,324,325
1.14
0.11
1.25
664,196
63,633
727,829
0.72
(0.07)
0.65
417,976
(37,607)
380,369
(0.35)
—
(0.35)
(205,701)
—
(205,701)
582,275,800
582,324,325
582,324,325
1.14
0.11
1.25
0.72
(0.07)
0.65
(0.35)
—
(0.35)
There were 34,445,604, 37,940,736 and 37,838,136 options to purchase ordinary shares have been excluded from the
computation of diluted net income/(loss) per share for the years ended December 31, 2019, 2020 and 2021, respectively, as their
effects would be anti-dilutive.
22. Commitments and Contingencies
(a) Commitments
As of December 31, 2021, 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
Others
RMB
2022
2023
2024
2025
2026 and
thereafter
Total
4,673
1,573
1,345
978
937
9,506
31
—
—
—
—
31
46,275
46,275
—
—
—
92,550
8,175
230
200
200
—
8,805
2,164
—
—
—
—
2,164
9,000
—
—
—
—
9,000
6,130
365
154
132
39
6,820
Total
RMB
76,448
48,443
1,699
1,310
976
128,876
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, 2021 are disclosed in Note 2(x).
F-51
Phoenix New Media Limited
Notes to Consolidated Financial Statements
22. Commitments and Contingencies (Continued)
(a) Commitments (Continued)
The Group did not have any significant capital and other commitments, long-term obligations, or guarantees as of
December 31, 2020 and 2021.
(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 in damages to the plaintiff. The Group had paid the total of approximately RMB1.0 million to the plaintiff and fulfilled its
obligation under the judgment. Nevertheless, the plaintiff could still apply for a retrial under PRC civil procedures. As of the date of
this annual report, the time limit for an application for a retrial has not expired yet and the Group cannot assure that the plaintiffs will
not make such application.
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, 2020 and 2021, the Group had recorded uncertain tax positions of RMB28.2
million and RMB28.3 million, respectively.
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”)
Fengxin Technology (Haikou) Group Co., Ltd. (“Lilita”)
Particle Inc. (“Particle”)
Beijing Fenghuang Tianbo Network Technology Co., Ltd. (“Tianbo”)
Henan Fengyi Feiyang Network Technology Limited (“Fengyi
Technology”)
Mr. Gao Ximin and Mr. Qiao Haiyan
Mr. Zou Ming and Ms. Wang Xiaojia
Mr. Chen Ming and Mr. He Yansheng
Relationships with the Group
Under common control by Phoenix TV
A shareholder of Phoenix TV
Other equity investee, related party of Phoenix TV Group
Available-for-sale debt investee. Former related party, unrelated party for 2020 and 2021
Former equity method investee, and current subsidiary of VIEs since April 1, 2019
Available-for-sale debt investee
Legal shareholders of Tianying Jiuzhou and employees of the Group
Legal shareholder of Fenghuang Ronghe and employee of the Group
Legal shareholders of Chenhuan and employees of the Group
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, 2019, 2020 and 2021 (in thousands):
F-52
Phoenix New Media Limited
Notes to Consolidated Financial Statements
23. Related Party Transactions (Continued)
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:
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
Transactions with Investees:
Advertising revenues earned from Tianbo
Advances provided to Tianbo
Revenues earned from other investee
Other income earned from Particle
Advertising revenues earned from/(agency service fees paid to) Fengyi Technology
Advertising and promotion expenses charged by Fengyi Technology
Revenue sharing fees charged by investees
Note:
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
(11,302)
(4,157)
(2,057)
(4,988)
(1,148)
15,705
(2,595)
(2,549)
(681)
(4,358)
(487)
10,635
(17,263)
(2,477)
(1,093)
(4,267)
(595)
12,402
2019
RMB
For the Years Ended December 31,
2020
RMB
2021
RMB
23,256
60,484
(13,999)
23,747
30,486
(6,487)
For the Years Ended December 31,
2020
RMB
2019*
RMB
2021
RMB
16
247
315
1,990
12,612
—
(62)
—
—
—
—
3,721
(142)
—
17,464
29,770
(6,631)
—
—
—
—
(1,047)
—
—
* 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, 2020 and 2021, 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 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
As of December 31,
2020
RMB
2021
RMB
16,018
11,408
5,000
161
32,587
3,835
23,461
6,310
814
34,420
11,966
43,816
1,297
—
57,079
3,937
26,608
3,690
500
34,735
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-53
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 RMB636.5 million and RMB646.3
million as of December 31, 2020 and 2021, 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.
Furthermore, cash transfers from the Company’s PRC subsidiaries to their parent companies outside of China are subject to
PRC government control of currency conversion. Shortages in the availability of foreign currency may restrict the ability of the PRC
subsidiaries and consolidated affiliated entities to remit sufficient foreign currency to pay dividends or other payments to the
Company, or otherwise satisfy their foreign currency denominated obligations.
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, 2021, 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, 2021. 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 in subsidiaries and VIEs” and
“Share of loss from subsidiaries and VIEs” in the condensed statements of comprehensive income/(loss). See Note 26 for the
Company’s information.
25. Subsequent Events
In February 2022, the Group invested RMB9.0 million in a private equity fund under an investment agreement to invest a
total of RMB30.0 million in it, which was signed in December 2020. The Group had paid the total amount of RMB30.0 million to the
private equity fund as of February 2022, which is accounted for using NAV as a practical expedient under ASC 820.
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 in subsidiaries and VIEs”, and the net profit or loss of subsidiaries and VIEs is
presented as “Share of loss from subsidiaries and VIEs” in the statement of comprehensive income/(loss).
As of December 31, 2020 and 2021, 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-54
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 in subsidiaries and VIEs
Available-for-sale debt investments
Total non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Amounts due to subsidiaries and VIEs
Taxes payable
Accrued expenses and other current liabilities
Total current liabilities
Total liabilities
Shareholders’ equity:
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, 2020 and 2021, 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, 2020 and 2021, respectively)
Additional paid-in capital
Statutory reserves
Accumulated deficits
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
As of December 31,
2020
RMB
2021
RMB
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
34,027
835,428
1,117
870,572
794,149
29,401
823,550
1,694,122
44,244
220,794
1,701
266,739
266,739
17,499
17,499
22,053
1,620,580
92,017
(88,191)
(28,214)
1,635,744
1,905,850
22,053
1,629,014
98,482
(300,357)
(39,308)
1,427,383
1,694,122
F-55
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 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 from subsidiaries and VIEs
Net income/(loss)
Other comprehensive income/(loss)
Comprehensive income/(loss)
For the Years Ended December 31,
2020
RMB
2021
RMB
2019
RMB
(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)
(16,556)
(16,556)
(16,556)
3
5,775
—
—
—
—
5,152
(200,075)
(205,701)
(11,094)
(216,795)
F-56
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
Loans provided to a third party related to co-sale of Particle shares
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:
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)/provided by 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,
2020
RMB
2021
RMB
2019
RMB
(46,388)
(44,706)
(34,801)
(673,350)
788,056
—
1,403,046
357,974
1,875,726
(267,886)
(877,312)
511
(703,145)
(1,847,832)
(18,494)
26,175
7,681
—
—
(68,867)
695,937
—
627,070
—
72,262
—
(637,375)
(565,113)
17,251
7,681
24,932
—
—
—
—
—
—
—
39,171
—
4,725
43,896
9,095
24,932
34,027
Revision to Previously Reported Cash Flow Information of Parent Company
The Company revised certain previously reported parent company information for the year ended December 31, 2020 to
correct a classification error. During 2020, the Company advanced funds in the amount of RMB68.9 million relating to the transfer of
shares of Particle, Inc (see Note 10). The advance by the Company relating to this transaction was an investing activity incorrectly
classified as an operating activity of the parent company, resulting in a misclassification in the condensed statements of cash flows.
The transaction is correctly disclosed in consolidation and the misclassification error therefore had no impact on the
previously reported consolidated financial statements. Management has determined that the error was immaterial and should be
corrected through a revision of previously reported information.
Net cash used in operating activities
Net cash provided by investing activities
Net cash used in financing activities
Net 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 Year Ended December 31, 2020
As previously
reported
RMB
Adjustments
RMB
As revised
RMB
(113,573)
695,937
(565,113)
17,251
7,681
24,932
68,867
(68,867)
—
—
—
—
(44,706)
627,070
(565,113)
17,251
7,681
24,932
F-57