36Kr Holdings Inc.
Q2 2021 Earnings Call Transcript

Published: 24 Aug 2021

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for 36Kr Holdings Inc. Second Quarter 2021 Earnings Conference Call. Today’s conference call is being recorded. I’d now like to turn the call over to your host, Yang Li, IR Manager of the company. Please go ahead, Yang.

[Yang Li:]

Thank you very much. Hello, everyone and welcome to 36Kr Holdings second quarter 2021 earnings conference call. The company’s financial and operational results were released earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.36kr.com. Participants on today’s call will include our Co-Chairman and CEO, Mr. Dagang Feng and our Vice President of Finance and Capital Markets, Mr. Lin Wei . Mr. Feng will start the call by providing an overview of the company and performance highlights of the quarter in Chinese, followed by English translation. Ms. Wei will then provide details on the company’s financial results before opening the call for questions. Before we continue, please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Legislation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results maybe materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company’s prospectus and other public filings as well with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please note that 36Kr’s earnings press release and this conference call includes discussion of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. 36Kr’s press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. Also, please note that all amounts are in RMB. I will now turn the call over to our Co-Chairman and CEO, Mr. Dagang Feng. Feng, please go ahead.

[Dagang Feng:]

Thank you. Hello, everyone. Thank you for participating in our 2021 second quarter results conference call. In the second quarter of 2021, we continue to enhance content quality and influence while strategically focusing on enterprise services as our growth driver. These efforts broadened our new economy-focused content offerings and value-added services further developing our core competencies and spearheading business innovation. We have made robust progress in content arrangements with diversified presentation from us to meet the needs of varied user groups. We are also exploring possibilities for innovative services. Moreover, our progress in products and technologies is paving the way for us to empower the growth of new economic participants as well as the digitalization of traditional industries creating a compelling value proposition for more customers, users and investors in this new area of fresh opportunities and challenges. Our second quarter user traffic volume reached a new high of average monthly page views of 846.3 million, up 17% year-over-year. The second quarter of 2021 marks our 17th consecutive quarter of PV growth, reaffirming our strong user resonance and our growing brand awareness. The rising popularity and recognition of 36Kr’s content and platforms largely stems from our continuing innovation in flexible content formats, omni-channel content distribution and our ingenuity in broadening our horizons. Let me walk you through our progress and our strategy in each of these areas. First, with respect to content strategy, we present content in various formats across a wide range of business sectors to address the full spectrum of user demand. Our proprietary platform delivers comprehensive reports and insights across those professional and user-generated content or PGC and UGC. In addition to traditional tax and image format, we have expanded our offerings to audio, short video and live running, etcetera covering that users for – users feedback regarding each of these information dissemination channels has been quite positive. We continue to make progress with those traditional and innovative content formats during the second quarter. Notably, the number of articles published on our primary retail accounts with leadership of over 100,000 grew to 180,000, a new record. Other exciting common initiatives include our audio program, Kr Walkman, which provide user with the latest business highlights, insured segments that just take – just a few minutes to digest. Meanwhile, our short form video covering various topics, including PAM business, current public affairs, economics and finance and personnel growth, also gained popularity among various groups of consumers and users. In terms of content general diversify 36Kr main accounts we also have a full scale of content metrics that covers different topics. For example, of Kr Pro column targets professional groups with in-depth industrial insights and also targets the younger audience and covers lighter business and more pod-like topics is rapidly becoming popular and gaining growth momentum among younger generations. Second, we continue to execute our omni-channel distribution strategy in addition to becoming a top content provider in the finance and economics vertical on WeChat, we bought , an audio comprehensive traffic platform, 36Kr has also been building business co-operations with top tier short video platforms such as Douyin, Bilibili, , Xiaohongshu and regional channels. Leveraging our progress in short from video content, this collaboration enable us to reach more diversified individual user communities and provide them with a variety of business insights and analytics content. Our initiatives to promote short video and live streaming content are crucial for us to diversify our CN user base to further tap into B2C service offerings. Now, I would like to talk more specifically about our short-form video content. It has been exactly a year since we embarked on our short-form video initiatives and the business is rapidly growing popularity across diverse demographics. We are very pleased to see that we have attracted more than 4 million followers in Douyin and more than 800,000 followers on Bilibili among other platforms. Based on multiple criteria, including follower base, content depth, virtual performance, insurance tracking, 36Kr has been recognized as one of the top tier short-form video business verticals across all major social media platforms. We had a notable success in the second quarter with our blockbuster video, the meaning they haven’t changed yourself, which we published on Bilibili and several other platforms. This current affairs content attracts a record sizing viewership of over 30 million total views for 3 consecutive days. We are also excited to share that our recent video clips on interpretation of the Olympic Games economy set new highs, receiving more than 100 million total views and 1.42 million likes and adding 22,000 new followers. By the middle of the August 2021, 36Kr’s short form video has already achieved its annual target of gaining 2 million new followers. This accounting number further validates that increasingly throughout individual user community is enjoying and consuming our content, which in turn drives B2C business marketing spend – spending on our platform. Looking forward, we believe our short video content initiatives will continue to attract a wider range of user communities and boost our commercialization capabilities. Third, we continue upgrading our product offerings for public equity markets. Our secondary market products are a natural extension of our rich experience and expertise in serving startup companies over the past 10 years and are quickly gaining traction. For instance, in July, we joined forces with industrial securities to hold an investor forum covering topics around both the private and secondary markets. We are also collaborating with CICC to cooperate 36Kr Capital client, a new program focusing on individual investor education, which greatly enhance our influence and recognition in both institutional and individual investor circles, diversified our customer base and laid a solid formation for customer expansion in the secondary market. First, we celebrated the grand opening of our new dual headquarters in Shenzhen, a move to capitalize on the opportunities in the Greater Bay area. The Greater Bay area is drawing attention as a fast developing innovation and technology hub that offers exciting opportunities to startup from around the world. We noticed that a multitude of unneglectable hard and core technology startups have emerged in Guangdong province at a considerable number of investment institutions have setup branches in Shenzhen, given that industrial internet and hub technology are extremely popular and available to us, supported by both the clients and the investment community. Strategically, selected for its central location, Shenzhen will serve as our hub on which we can gain access to surrounding startups and investment institutions in South China’s Greater Bay area. The establishment of our 36Kr’s South China headquarters will enable us to better meet the needs of local customers and respond to them more efficiently, further contributing to our commercialization capabilities. With , we are actively building 36Kr’s international presence. We are excited to report that Bloomberg journal will be including 36Kr’s article in its news page during the second quarter, making our latest coverage available to global readers. At the same time, our overseas business is making steady progress and gradually become profitable. We have seen a significant increase in revenue during 2021 and our presence in Japan and Singapore has continued growing. We are pleased that 36Kr’s brand influence is gaining traction worldwide. Now, let’s take a look at our commercialization progress, thanks to our cultivation in content and products. In the second quarter, all of our three business segments achieved strong year-over-year growth on a comparable basis. Let me walk you through each of them. Our advertising revenue increased by 65% year-over-year this quarter with growth in both the number of advertising customers and average revenue per advertising customer. We continue to harness our capability in video content creation to provide customized and innovative short form video marketing solutions for traditional enterprises, improving their brand image and operating their marketing take the automobile industry, for example, Volkswagen China join hands with 36Kr and launched a short video title, what will the future looks like to describe future automobiles from a brand new perspective. This marketing campaign helped Volkswagen successfully reach more potential customers. It was also importing branding and publicity platform for Volkswagen to position itself from a traditional carmaker to a mobility service provider, further validating our efforts to broaden and surpass the boundaries of conventional marketing through seamless content integration. Short form video is also enabling us to develop new marketing solutions and penetrate more into the CN brands and advertising clients. For example, we help promote its new products, A-MAX with a short form video that was well received by younger generations. took this opportunity to book away from the stereotype of direct marketing and was very satisfied with its publicity collaboration with 36Kr. We believe that by creatively reshaping marketing programs for the future, we can empower more brands with effective B2C solutions. Our secondary market product has also started initial commercialization this quarter. We have entered into collaboration with Alibaba, Trip.com Group, . We will provide in-depth analysis from 36Kr’s unique perspective, showing case a holistic corroborate image for our customers. Next, I would like to share with you some updates in the enterprise service business space, supported by our high-quality content, brand influence as well as expansion of innovation verticals. Brand transaction value for our enterprise value-added services grew by 66% in the second quarter year-over-year. But first, we continue to explore various new application scenarios and distribution channels for our financial content. For example, on the audio content front, we collaborated with NIO to broadcast our podcast program, Care Intelligence on the new radio playlist. We also cooperated with several financial institutions, including China Merchants Bank, selling as an agent to help them operate their apps content, covering a range of topics such as finance, financial planning and career related issues. Through this new partnership, we effectively expand our content distribution and commercialization opportunities. In addition, organizations online and offline submission forum is also important component of our enterprise value-added services. This quarter, we partnered with Google to create google.36kr.com website helping Google host multiple online forum on gaming, brand marketing and brand transformation of cross-border e-commerce. This will in fact also demonstrate the deep bond between Google and the 36Kr, allowing each company’s users to better interact with each other and providing a trendy approach for both companies to attract new users and increase user loyalty. Google’s global online activities broke geographical barriers and surpassed time differences leading participants access leading industry pioneers experience and insights at any time from anywhere. On offline even front, we co-hosted an unknown city of tomorrow event with leading real estate enterprises to building a visionary and imaginative world. The event showcased our capabilities to interact with its user in creative and interesting ways and further strengthened our brand image among the worst audience from younger generations to middle-aged group as well as other user demographics. Moreover, the continuous progress of our enterprise value-added service has laid a solid foundation for 36Kr’s regional expansion. We have been working proactively to expand our cooperation with local governments to serve the municipalities and regional business. During the second quarter, we opened business branches into new provinces, bringing our total regional offices to 12. Building on 36Kr’s spread influence and local business presence. We help enterprises and governments build big relationships, connecting both parties needs and solutions. In June, we hosted the Science and Technology Innovation Conference for the government of Jinshui district in Zhengzhou Hanan Province. The event attracts coverage from more than 100 leading media houses, including CCTV and greatly improved visibility of the Jinshui districts innovative trends and technology sectors as well as 36Kr’s capabilities in the enterprise and government service area. We also recently started commercialization of our 36Kr’s Enterprise account service, a self-service product. 36Kr Enterprise account is an efficient introductory window for enterprise to increase brand awareness, exhibit products, share its business progress with a wider audience and appeal to economy sectors. 36Kr has gone with generations of entrepreneur and enterprises. We are now leveraging our brand to build a platform where a wider range of companies can exhibit their skills, services and accomplishments. In the new economy era, we hope to empower more high-quality enterprises and help them gain market recognition and acquire customers. We were very pleased to see the 36Kr Enterprise account service begin to generate revenue in August. And we believe that with our brand influence, this new service has a promising future. Now I’d like to particularly introduce our progress in the enterprise service review business. In recent years, the government has been actively advocating for the integration of the economy and Internet as well as digital transformation in various industries. At the same time, the investment community is leading a slowdown industry end market and declining margin return on customer acquisition. Therefore, we believe the industrial Internet economy enterprise service – are its core will soon offer huge development opportunities as new economy enterprises and traditional enterprises have intrinsic for digital upgrades and digital transformation, respectively. With this background, in October 2020, 36Kr launched an enterprise service review portal, the first comprehensive enterprise service procedure decision-making platform in China. It’s a one-stop platform solution aiming to facilitate service providers to acquire customers and demand side to make informed decision. The platform delivers information emerging from the three layers

[Lin Wei:]

Thank you, Paul, and hello, everyone. We are pleased to have achieved a set of solid financial results in the second quarter of 2021 with a strong year-over-year growth across all of our business segments on a comparable basis. Notably, as Paul just mentioned, our advertising revenues increased by 65.1% this quarter compared to the same period of last year, demonstrating sustained user engagement and customer interest in our premium content and service offerings. Also, thanks to our continued efforts to provide customized and innovative services revenues from our enterprise value-added services more than doubled sequentially and its grand transacted value increased by 35.9% year-over-year. In addition, our commitment to maintaining efficient operations with an increased focus on higher-margin businesses is paying off, with our gross margin expanding to 57.4% from 29% in the same period of last year, and net loss narrowed by 56.8% year-over-year. Looking ahead, we believe we are well positioned to continue on this growth trajectory, serving new economy participants more effectively and expand our monetization channels to seize the vast opportunities ahead of us. Now I’d like to walk you through more details on our second quarter 2021 financial results. Online advertising services revenue increased by 65.1% to RMB51.7 million in the second quarter of 2021 from RMB31.3 million in the same period of last year. The increase was primarily attributable to the strong recovery of market demand as well as more innovative marketing solutions we provided to our customers. The number of advertising customers and the average revenue per advertising customer both achieved strong growth in the second quarter of 2021. Enterprise value-added services revenue of RMB14.3 million in the second quarter of 2021 compared to RMB42.6 million in the same period of last year. The decrease was primarily because we continuously shifted our focus towards higher-margin businesses and starting from the first quarter of 2021 was ceased to act as a principal in certain low gross margin businesses and only acted as an agent. As a result, revenues of such businesses were recognized on a net basis from the first quarter onwards to increase comparability of operating results and help investors better understand our business performance and operating trends we introduced a gross transaction value as a supplemental metric to describe our business. Gross transaction value of enterprise value-added services was RMB37.9 million in the second quarter of 2021 increased by 35.9% from RMB42.6 million in the same period of last year. Subscription services revenues increased by 124.1% to RMB6 million in the second quarter of 2021 from RMB2.7 million in the same period of last year. The increase was primarily attributable to high-quality subscription products we offered to our institutional and individual subscribers. Total revenues were RMB72.1 million in the second quarter of 2021 compared to RMB76.7 million in the same period of last year. Taking into consideration of the aforementioned change in revenue recognition for our enterprise value-added services, which involves RMB43.6 million variance between net revenues and gross transaction value, you will actually find that we maintain our overall upward business trend and demonstrated solid year-over-year growth. Cost of revenues was RMB30.7 million in the second quarter of 2021 compared to RMB34.4 million in the same period of last year. The decrease was primarily due to our continued cost control measures to improve our operational efficiency and our shift of workers towards higher-margin businesses as well as the recognition of certain revenues on a net basis, which we discussed earlier in the enterprise value-added services section. Gross profit increased by 86.1% to RMB41.4 million in the second quarter of 2021 from RMB22.2 million in the same period last year. Gross profit margin was 57.4% in the second quarter of 2021 compared to 29% in the same period last year. Operating expenses were RMB75.3 million in the second quarter of 2021 compared to RMB99.4 million in the same period of last year. Sales and marketing expenses were RMB33.4 million in the second quarter of 2021 compared to RMB39 million in the same period of last year. The decrease was primarily attributable to the decrease in marketing expenses and share-based compensation expenses. G&A expenses were RMB29.9 million in the second quarter of 2021 compared to RMB50.9 million in the same period of last year. The decrease was primarily attributable to the decrease in the allowance for credit losses and share-based compensation expenses. Research and development expenses were RMB12 million in the second quarter of 2021 compared to RMB9.6 million in the same period of last year. The increase was primarily attributable to the increase in payroll-related expenses as we beefed up our research and development capabilities. Share-based compensation expenses recognized in cost of revenues, sales and marketing expenses, research and development expenses as well as G&A expenses totaled RMB3.3 million in the second quarter of 2021 compared to RMB12.6 million in the same period of last year. Net loss was RMB34.3 million in the second quarter of 2021 compared to RMB79.3 million in the same period of last year. Non-GAAP adjusted net loss was RMB31 million in the second quarter of 2021 compared to RMB66.7 million in the same period of last year. Net loss attributable to 36Kr Holdings honorary shareholders was RMB34.1 million in the same period – in the second quarter of 2021 compared to RMB79.5 million in the same period of last year. Basic and diluted net loss per share, were both RMB0.33 in the second quarter of 2021 compared to RMB0.78 in the same period of last year. As of June 30, 2021, the company had cash, cash equivalents and short-term investments of RMB149.6 million compared to RMB174.1 million as of March 31, 2021. The decrease was mainly attributable to the share repurchase as well as cash used in operating activities. Lastly, let me provide some updates on our share repurchase program. On May 6, 2020, the company announced that its Board of Directors authorized a share repurchase program under which the company may repurchase up to a total of 1 million of its American depository shares each representing 25 Class A ordinary shares. As of June 30, 2021, the company had repurchased approximately 786,000 ADS for approximately RMB17.5 million under this program. This concludes our prepared remarks today. We will now open the call for questions. Operator, please go ahead.

[Operator:]

Our first question comes from the line of Vincent Yu from Needham & Company. Please go ahead.

[Vincent Yu:]

Thank you management for taking my question. I have three questions. The first question is, can management help us understand the impact on our client base as a result of regulatory crackdown on sectors such as online education platforms. My second question is in terms of our video content initiative, do we see any potential impact also from regulation on our video that could cause negative impacts on our ability to monetize these contents? And third question is can management help us break down our top three customers in terms of their respective industries. Thank you.

[Dagang Feng:]

We embarked on our short-form video initiative because there is great potential in this market. Short-form video enabled users to acquire massive amounts of information efficiently a proud scenario in a timely manner. This better is deep and more popular especially among young people. Short-form video as an efficient dissemination channel will empower us to expand our end user base is digital high content and improved user mental capabilities. Regulations on short-form video are mainly focused on proper content teams, while our short-form video content focus on finance, business and personnel growth in line with national guidelines for regulations and short-form videos have no impact on us. We believe our content will always be supported by the country, even if offshore for video rollout in the future. In the second quarter, our top three customers for our advertising business were in the e-commerce and Internet industry, Alibaba, Baidu and Zhihu. Revenue generated from each of them didn’t reflect the significant proportion of the total advertising revenue. And actually, revenues generated from our top three customers only accounted for 37% of total ad revenue. In addition to the Internet and e-commerce industries, our customers also includes top-tier companies in industries such as artificial intelligence, entertainment and media, automobiles and transportation and consumption and less sales industries. Vincent, can you repeat your first question?

[Vincent Yu:]

Okay. The first question is about the – in terms of the impact from the regulation crackdown on online education platforms.

[Dagang Feng:]

So about the education industry impact on our advertising business, revenue from the education industry represents only a small proportion of our total advertising revenue or the education industry contribution to advertising revenue was 0.7% in the second quarter of 2021. And for 2020, quarter two is 1.7%. So therefore, the fluctuations in the education industry have a limited influence on our overall advertising revenue.

[Vincent Yu:]

Okay. Thank you.

[Operator:]

Our next question comes from the line of Shan Jiao from CICC. Please go ahead. Shan, your line is open, please go ahead. Shan please un-mute and go ahead. Alright. We are not getting response. I will move to the next question from from Industrial Securities. Please go ahead.

[Unidentified Analyst:]

I will translate for my question. So, could you share some of your main strategies or specific approach to improve your ARPU of the online advertising business? And how long should we expect ARPU to return to the pre-COVID level? Thank you.

[Dagang Feng:]

Actually, the output of our advertising has increased this quarter compared with the same period last year. For the volume half year remain improved ARPU to two ways was due to our content influence and brand premium, our publication price is rising slightly every year, which is conducted to improvement of the uplift. Therefore, we will continue to improve the quality of content and track more customers from various industries. Second, the rise of short video has greatly increased the growth potential of our ARPU. For example, our recent technology enterprise customer or a single short video advertising and cost are RMB2.25 million. And last quarter, we only have advertisement that cost RMB1 million. So short-form video content has natural advantages that is customer unit price as matched or even exceeds the commercial value of our retail accounts short time. So in the future, we will continue to use various modes to help customers upgrade and base marketing. In that case, the customer app will rest accordingly with the brand influence and marketing quality a return to the pre-pandemic situation, even higher the level before pandemic.

[Operator:]

Our next question comes from Shan Jiao from CICC.

[Shan Jiao:]

[Dagang Feng:]

Thank you again.

[Shan Jiao:]

I will translate myself quickly. What is the potential monetization space for the new products such as corporate service products. And what’s our strategy of this product in this year and in the long-term? Thank you.

[Dagang Feng:]

Okay. Towards 2020, we launched our enterprise service the first comprehensive SaaS platform in China. As of today, the review portal has showcased for 100 enterprise service applications covering software across 15 industries and 20 categories. Additionally, we have received progress of real user comments and invite dozens of industry experts to join the platform, making the industry most comprehensive and standardized enterprise service digital-making platform. We plan to start with three monetization models. The first one takes commission fees from lead generation, which will account for the most significant part of the revenue. We believe our enterprise services review platform will provide our traffic, but finally that helps on a customer more positively. Meanwhile, we expect the cost of customer acquisition to decrease by at least 30%. This business model is similar to auto home of the automobile industry. And – so, of the medical and beauty industry. And the second is to provide marketing management services such as helping to manage enterprise accounts, ranking list, analytical reports of follower management’s votes on our review portal. And the third build the membership service system covering buy side and sell side that offers regular research reports. And this will have a six membership fee will be charged. And for this May, we already have a try on the commercialization. So, we have a SaaS company that gets some lease and we have a really high conversion rate that is 20%. So this is a really good result for us, and it’s better than the competitors in the same industry. And also, we acquired the customer at least much more cheaper than the others. So, we reliably will still refine the product systems or have some – try some better way of the commercialization path. So, the real – the true commercialization path is certainly will be launched at 2022.

[Operator:]

Our next question comes from Jay Dong from TH Capital. Please go ahead.

[Jay Dong:]

Congratulations on strong revenues, how high operating lines progress in the second half of 2021? And how should we think about that makes an impact on offline events. Thank you.

[Dagang Feng:]

Okay. So, in the second half of the year, we – it’s really – we will have a lot of the offline events. But we have already signed some collaboration agreements for offline meetings, and the epidemic will help us certain impacts on the holding of offline activities. We will take national policies and epidemic prevention control as the primary consideration. We will negotiate with our partner for delay. And so this impact of recent epidemic will have base impact on the third quarter and some activities may be delayed to the first quarter, but it’s not being canceled. So however, from the perspective of the six months or the half – the next half year, the impact will not be that much great. Also, the epidemic will also have some impact on some real economic entities to a certain extent. So, probably the online advertising revenue will fluctuate a little bit.

[Operator:]

Thank you. As there are no further questions, now I would like to turn the call back to the company for closing remarks.

[Yang Li:]

Thank you once again for joining us today. If you have further questions, please feel free to contact 36Kr’s Investor Relations through the contact information provided on our website.

[Operator:]

This concludes this conference call. You may disconnect your line now. Thank you.