Qutoutiao Inc.
Q4 2020 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for the Fourth Quarter 2020 Earnings Conference Call for Qutoutiao Incorporated. . Today's conference call is being recorded. I will now turn the call over to your host, Sai Chi Du. Please go ahead, Sai Chi.

[Sai Chi Du:]

Thank you very much, and welcome, everyone, to the Fourth Quarter 2020 Earnings Conference Call of Qutoutiao Inc. The company's financial and operational results were released via Newswire Services 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.qutoutiao.net. Participants on today's call will include our CEO, Mr. Eric Tan; and our CFO, Mr. Xiaolu Zhu. 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 Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today.

[Xiaolu Zhu:]

Thank you, Eric and Sai Chi. And again, thank you, everyone, for joining today's call. Let me first review our financial and operational results with you before providing outlook for the next quarter and also our thoughts on the full year. Our net revenues in the fourth quarter were RMB1.302 billion with an ARPU of RMB0.44, which is a significant sequential improvement. We had an average of 32 million DAU and 125 million MAU during the quarter. Our focus for the year 2020 has been enhancing operational efficiency and profitability, and we have been well on track. After consistently improving our cost-to-income ratios, we turned profitable on a non-GAAP operational basis for the first time since IPO in the fourth quarter of 2020. So let's look at costs and expenses in more detail. Please note, I will be referring to non-GAAP measures which excludes stock-based compensation. Cost of revenues were RMB441.7 million in the fourth quarter of 2020, a decrease of 12% year-on-year, driven by our disciplined approach towards managing the fixed components, partially offset by our increased investment into content. As a result, our gross profit was RMB860.7 million with gross margin slightly lower year-on-year at 66%, a strong reading considering the revenue headwind we encountered throughout the year. Our biggest expense is sales and marketing, which is mainly composed of user engagement expenses and user acquisition expenses. During the quarter, they came to RMB163 million and RMB397 million, respectively. Our link new operational mode has produced material improvement on both of these line items and saw the total sales and marketing expense more than halving year-on-year in absolute dollar terms to RMB680.3 million and a significant reduction as a percentage of revenue from 82% a year ago to now 52.2%. In other words, our prudent management of sales and marketing activities have produced a 23 percentage point improvement in our underlying operating margin. Our R&D expenses were RMB199.7 million during the quarter, which was 12% of revenue, a small decrease as a percentage of revenue as a result of our streamlining of R&D teams.

[Operator:]

. Your first question comes from the line of Vicky Wei of Citi.

[Vicky Wei:]

Congratulation on the first profitable quarter. So my question is about Midu. So what does management think of long-term operating margin profile for the free online literature business in China? And for Midu specifically in 2021, what is the specific user acquisition strategy as we see good user attrition from third-party database and what does it imply for the operating margin profile for Midu in 2021? And regarding to the first quarter guidance, what is the base case assumption for the revenue contribution of Midu?

[Xiaolu Zhu:]

Thank you, Vicky. Regarding the long-term margin prospect of the Midu remodel, I think it's still too early as we are still in a relatively earlier stage of this business. However, if you look at the overall group, the more mature part of our business, as we have already achieved like profitability in Q4 last year, we see that level to continue to increase for 2021. And I think overall, it's possible that we can achieve operating profit margin to be over 20%.

[Operator:]

. Your next question comes from the line of Thomas Chong of Jefferies.

[Unidentified Analyst:]

Congratulations, management. I'm asking on behalf of Thomas. I got a question about the advertising industry. Could management comment on the competitive landscape of the advertising market since?

[Xiaolu Zhu:]

Thank you. So I think we can mainly speak from our own perspective. So if we look back at year 2020, we took a balanced approach between profitability and growth. So we took a more disciplined approach to our investment, especially on the marketing side. However, we do see trend of recovery, especially on the top line in the second half of 2020 -- of 2020, and I think this trend will continue in 2021. And we have seen very strong demand from our e-commerce partners in the second half of 2020. And app downloads and other web services, which is the top category for us in Q1 so far this year, is also gradually getting back as well. We also have seen some recovery in terms of branding, which is another area that was weak in 2020. However, given our lack of exposure in this area in previous years, we have made some breakthroughs in 2020, and we think this will continue to contribute to our top line in 2021. So overall, I think the landscape is gradually getting back. And we believe our strength in performance-based ads will help us to get through difficult times as our customers are increasingly looking for direct and more measurable results. So overall, I think we are quite confident in terms of the overall end market in 2021.

[Operator:]

. As there are no further questions, now I'd like to turn the call back over to the company for the closing remarks.

[Sai Chi Du:]

Thank you all very much for joining us today, and thank you again for your time. If you have any further questions, please do not hesitate to contact us. Thank you, and have a good day. Thank you.

[Operator:]

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