36Kr Holdings Inc (KRKR) 2019 Q3 法說會逐字稿

Ladies and -- hello, ladies and gentlemen. Thank you for standing by for 36Kr Holdings Inc.'s Third Quarter 2019 Earnings Conference Call. (Operator Instructions). Today's conference call is being recorded. I will now turn the call over to your host, Yolanda Liu, Investor Relations of the Company. Please go ahead, Yolanda.

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings' Third Quarter 2019 Earnings Conference Call. 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 Web site at ir.36kr.com. Participants on today's call will include our Co-Chairman and CEO Mr. Dagang Feng, and our CFO Ms. Jihong Liang.

Mr. Dagang Feng will start the call by providing an overview of the Company and the performance highlights of the quarter in Chinese, followed by English interpretation. Ms. Jihong Liang will then provide details on the Company's financial results before opening the call for your 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 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.

Further information regarding these and other risks and uncertainties is included in the Company's prospectus and other public filings as filed with the U.S. Securities and Exchange Commission. 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 include discussions of the 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. And all the amount figures mentioned today are in RMB.

I will now turn the call over to our Co-Chairman and CEO Mr. Dagang Feng. Please go ahead.

(Spoken in Foreign Language).

(interpreted) Thank you and hello, everyone. Thank you for joining us for our fiscal 2019 third quarter earnings conference call.

(Spoken in Foreign Language).

(interpreted) We're very excited to be on this call today as this is our first quarterly earnings call report after our recent IPO. To begin, we completed the third quarter of 2019 on a strong note, achieving robust traffic growth and solid top-line performance, as well as positive non-GAAP bottom-line results.

Our average monthly page views for the twelve-month period ended September 30, 2019 reached 389.5 million across our self-operated platforms and our accounts on major third-party platforms, representing a dramatic year-over-year increase of 167.5%. And just to note, average monthly page views are a key indicator of 36Kr's influence on its audiences across the internet.

(Spoken in Foreign Language).

(interpreted) Our impressive traffic growth was driven by outstanding content generation and distribution capabilities. We constantly provided timely and high-quality New Economy-focused contents, including insightful reports on companies, timely market updates as well as thought-provoking editorials and commentaries presented in various forms.

During the third quarter, we published over 24,700 pieces of content, including both content produced by our in-house team and content sourced from third-party professional providers.

(Spoken in Foreign Language).

(interpreted) Supported by our strong content capability and brand influence, all three of our business segments realized revenue growth with encouraging progress for the quarter.

Notably, we successfully expanded our New Economy customer base in the quarter by establishing partnerships with over 100 brands, including unicorn companies and well-known Internet giants.

These New Economy customers cover a wide spectrum of industries. Our collaboration with them illustrates the popularity of our services among the leading players in the New Economy community.

We are also working with companies from traditional industries and address their needs to upgrade and modernize their practices. In the third quarter, we extended our service offerings to more customers in traditional industries such as cosmetics, fast retailing, and automotive.

(Spoken in Foreign Language).

(interpreted) Now, let's look at the detailed breakdown of our revenues. First of all, our enterprise value-added services segment plays an increasingly important role in our business model. In the third quarter of 2019, revenues from our enterprise value-added services achieved remarkable year-over-year growth of 202.8% to RMB64 million, representing 48.9% of total revenues.

Our enterprise value-added services are contributing to an increasing proportion of total revenues as we provide a variety of unique and valuable enterprise services to a growing customer base with high average revenue per customer.

In the first nine months of 2019, the number of customers for our enterprise value-added services increased substantially by 102.5% as compared to the year-ago period, with average revenue per customer up 116% year-over-year. This performance is in line with our strategy of evolving ourselves into a service-focused enabler for New Economy participants.

(Spoken in Foreign Language).

(interpreted) Our comprehensive enterprise value-added services offerings, which include integrated marketing, offline events and consulting services cover the different demands of our customers.

To better serve our customers with unique and valuable solutions in collaboration with Ali Cloud, we constructed an SME Growth Acceleration Platform, which is dedicated to serving small to mid-sized enterprises in the third quarter.

Through comprehensive research and extensive data analysis, our consulting services provided in-depth reports on regional New Economy development to local governments. We also collaborated with Volkswagen China on an intelligent transportation project during the quarter.

(Spoken in Foreign Language).

(interpreted) In addition, we also hosted various grand high-profile events with the aim to help enterprises enhance their brand awareness and media exposure, and more importantly, to help them create the opportunities to connect with each other as well as other New Economy participants.

For instance, in mid-September, we hosted the China Investor Future Summit where we invited over 50 prominent institutional investors to share their views and insights on a number of topics centering around the development of the New Economy, in addition to over 150 investment institutions participating at the summit.

Through such events, we connect startup companies with institutional investors face-to-face, providing them a valuable and effective platform to engage in investment discussions. And recently on November 26th and 27th, we successfully organized our featured WISE conference for the seventh consecutive year since 2013.

This grand event hosted prestigious guests from leading entrepreneurs, investors and KOLs for discussion on various topics across the New Economy, such as technological advancements, business innovations, industry trends and development opportunities.

Our WISE 2019 attracted 158 New Economy companies, 28 investment institutions, local governments of four cities, and over 22,000 participants to the event. We believe our WISE conference further strengthens the connections across our vibrant community of New Economy participants.

(Spoken in Foreign Language).

(interpreted) In the third quarter of 2019, our online advertising services revenues increased by 4.6% year-over-year, while up 30.1% year-over-year for the first nine months of 2019. The revenue growth of this segment was primarily driven by the increase in the number of our advertising customers.

It's worth mentioning that in the third quarter of 2019, we established partnerships with more mid-to-small size companies, which drove the dramatic increase of 46.9% year-over-year in our customer base for the quarter.

Although our collaboration with smaller companies slightly impacted our average revenue per advertising customer for the quarter, we believe as these young companies grow and mature, we are able to continuously provide them with more sophisticated and innovative marketing and enterprise value-added services to address their evolving demands. In return, we will be able to further enhance our monetization capabilities.

(Spoken in Foreign Language).

(interpreted) With an affluent and sophisticated user base, we are extending our subscription services to a broader group of individuals, institutional investors and enterprise customers. In the third quarter, the number of institutional investor subscribers increased by 23.3% year-over-year.

Our enterprise subscription services we launched this year attracted 262 subscribers in the third quarter. With the encouraging growth of our subscription services in the third quarter, revenues from this business segment sustained a healthy growth of 36.2% year-over-year.

Of special note, in the first nine months of 2019, our average revenue per institutional subscriber increased substantially to RMB1,377, compared to RMB152 in the year-ago period. This was because an increasing number of our customers registered for our offline trainings which are offered at a higher price.

These offline trainings focus on investment and New Economy business management and are delivered by well-known entrepreneurs, experienced investors and KOLs in the New Economy space. For example, we successfully organized the third Ali Artificial Intelligence Startup Star course.

As of to-date, through this star course project, we have connected over 100 A.I. startups with BABA's top businesses and affiliates such as Taobao and Tmall. The active participation of our offline courses reflects our enhanced user stickiness and customers' increasing acceptance for paid knowledge.

In the third quarter, our newly launched E-Club that gathers star elite entrepreneurs has served over 200 CEOs through a number of live streaming panels and major offline membership day events.

(Spoken in Foreign Language).

(interpreted) Building on our success in positioning 36Kr as a pioneering New Economy-focused platform in China, we have been actively expanding our presence and influence overseas. In October 2019, we launched 36Kr Global, which operates kr-asia.com in Singapore and 36kr.jp in Japan.

Kr-Asia also established its local team in Bangalore, India. In mid-September, kr-Asia entered into an agreement with South China Morning Post to collaborate on content sharing of innovation and technology development in Southeast Asia. In early November, we established a strategic partnership with DailySocial.id, a local tech media in Indonesia.

Since May, we have also partnered with Nikkei, a leading international media group on content sharing, premium content development, services development and customer referrals. This strategic partnership will boost our overseas coverage of China's New Economy participants and their activities.

In November, 36Kr Japan and Nikkei jointly organized the China Technology-Empowered Innovation Seminar in Tokyo with the theme of, "Focusing on China's New Retail". Leveraging our strength in content capabilities, as of today, our overseas footprint has extended to Southeast Asia, Japan and India.

(Spoken in Foreign Language).

(interpreted) Overall, we are pleased with our growing user base both domestically and in our overseas markets, which demonstrates the numerous vitality of the New Economy and the attractiveness of our high-quality content as well as the significant demand for our comprehensive services for various kinds of participants in the New Economy space.

We will continue to leverage our capabilities in content generation and distribution to further solidify our position as one of the most recognized platforms and influential sources of information among New Economy participants in China.

Meanwhile, we will keep expanding our -- and diversifying our service offerings to address the rapidly evolving needs of our customers with strong data support capabilities and technology advancement.

In this way, we are dedicating ourselves to growing alongside our customers and extending a broader range of services to them with superior user experience and effective results. We believe in the energy and strength of the New Economy, which we'll continue to reshape both the way of doing business and our lives in various aspects. We are committed to empowering participants in the New Economy to realize greater achievements.

With that, I will now turn the call over to our CFO Ms. Jihong Liang, who will discuss our key financial results.

Thank you, Mr. Feng, thank you, Yolanda, and hello, everyone. Our third quarter results showcase our solid business growth and improving profitability. We reported 59.1% year-over-year growth in total revenues to RMB130.9 million, primarily driven by the robust growth of our enterprise value-added services and subscription services, which grew 202.8% and 36.2%, respectively, both on a year-over-year basis.

Our gross profit increased by 23.3% year-over-year with gross margin of 42.1% for the quarter. Compared with the same period of 2018, our gross margin decreased as enterprise value-added services became the main contributor to our total revenues. This is due to the successful execution of our strategy to proactively enhance our enterprise value-add services.

While compared with online advertising services, enterprise value-added services business has a relatively lower gross margin. In addition, to better position ourselves in driving key growth initiatives in the coming quarters, we made an upfront investment in additional headcount during the third quarter, therefore we incurred higher staff cost and substantial one-time share-based compensation expenses in the third quarter, which led to a significant year-over-year increase in total operating expenses.

However, excluding total share-based compensation expenses, we achieved a non-GAAP adjusted net income of RMB13.4 million for the third quarter, despite the upfront investment in additional headcount during the quarter in preparation for the peak season ahead.

Going forward, we will continue to sharpen our content capability with the goal of driving user base expansion and cultivating our dynamic community. Along with the development of China's New Economy and our customers, we are exploring more cross-selling opportunities and diversifying our service offerings across various industries, so as to enhance our monetization capabilities.

Now, I'd like to walk you through more details on our third quarter of 2019 financial results. Total revenues were RMB130.9 million in the third quarter of 2019, compared to RMB82.3 million in the same period of 2018.

Online advertising services revenues increased by 4.6% to RMB54.1 million in the third quarter of 2019, from RMB51.7 million in the same period of 2018. The increase was mainly attributable to an increased number of end customers.

Enterprise value-added services revenues increased by 202.8% to RMB64 million in the third quarter of 2019 from RMB21.1 million in the same period of 2018. The increase was primarily attributable to the increase of integrated marketing service revenues and business consulting services revenues.

Subscription services revenues increased by 36.2% to RMB12.9 million in the third quarter of 2019, from RMB9.4 million in the same period of 2018. This increase was primarily attributable to the increase of individual subscription services revenues in the third quarter of 2019.

Cost of revenues increased by 101.7% to RMB75.8 million in the third quarter of 2019, from RMB37.6 million in the same period of 2018. This increase was generally in line with the growth of the Company's business. Site fee and execution fee of enterprise value-added services and offline training were the main contributors to the increase of the cost of revenues.

Gross profit increased by 23.3% to RMB55.1 million from RMB44.7 million in the same period of 2018.

Operating expenses were RMB77.9 million in the third quarter of 2019, compared to RMB32.6 million in the same period of 2018. The increase was mainly due to increases in general and administrative expenses and the sales and marketing expenses in the third quarter of 2019.

Sales and marketing expenses increased by 69% to RMB31.8 million in the third quarter of 2019, compared to RMB18.8 million in the same period of 2018. The increase was primarily attributable to an increase in payroll-related expenses in relation to hiring new sales and marketing staff and rental expenses in relation to office expansion.

General and administrative expenses increased by 473.8% to RMB37.4 million in the third quarter of 2019, compared to RMB6.5 million in the same period of 2018. The increase was primarily attributable to an increase in payroll-related expenses in relation to hiring new general and administrative staff and also an increase in share-based compensation expenses resulted from the newly granted share option in the third quarter of 2019.

Research and development expenses increased by 20.1% to RMB8.7 million in the third quarter of 2019, compared to RMB7.2 million in the same period of 2018. The increase was primarily attributable to an increase in payroll-related expenses in relation to hiring more research and development staff.

Share-based compensation expenses recognized in cost of revenues, sales and marketing expenses, research and development expenses and general and administrative expenses in total were RMB25.8 million in the third quarter of 2019 and RMB1.2 million in the same period of 2018.

Other income increased by 476.1% to RMB12.8 million in the third quarter of 2019, from RMB2.2 million in the same period of 2018. The increase was primarily attributable to the realized disposal gain associated with the overseas business investment in the third quarter of 2019.

Income tax expenses decreased by 47.8% to RMB2.4 million in the third quarter of 2019, compared with RMB4.6 million in the same period of 2018. The decrease was primarily contributable to the change of profitability of certain subsidiaries.

Net loss was RMB12.4 million in the third quarter of 2019, compared to net income of RMB9.8 million in the same period of 2018.

Net loss attributable to 36Kr Holdings Inc.'s ordinary shareholders were RMB635.6 million compared to RMB28.5 million in the same period of 2018. The increase was primarily contributed to an increase of accretion of the convertible redeemable preferred shares.

Basic and diluted net loss per share was RMB2.535 and RMB2.535, respectively in the third quarter of 2019, compared to RMB0.097 and RMB0.097 in the same period of 2018.

Non-GAAP adjusted net income increased by 22% to RMB13.4 million in the third quarter of 2019, from RMB11 million in the same period of 2018.

As of September 30, 2019, the Company had cash and cash equivalents and short-term investments of RMB267.3 million, compared to RMB194.4 million as of December 31, 2018.

To be mindful of the length of our earnings call, for the first nine months of 2019 financial results, I'll encourage listeners to refer to our earnings press release for further details. This concludes all our prepared remarks today. We will now open the call for -- to questions. Operator, please go ahead. Thank you.

Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Kenneth Fong from Credit Suisse. Please go ahead.

Okay, thank you very much for taking my question. I have two questions related to the advertising business as well as the segment outlook. First, given the very difficult macro environment and advertising market, can we start to see our clients, customers cutting the ad budget? And how should we think about the segmental growth in the next few quarters especially into next year?

My second question is with the IPO market seems to be weaker so far, have we seen like a V.C. startup also cutting the ad and event budget that may also hurt our earnings outlook? Thank you.

(Spoken in Foreign Language).

(interpreted) Okay. For the first question, we think the environment has shown such signs to some degree. However, first of all, our advertising business is very special, which is 2B(to businesses) type of advertising.

And the core value is to help our customers to find business opportunities and to establish connections. That is to meet their rigid demands. And under the challenging macro environment, what we call the Crowding-out Effect, will be significant, which means that advertisers will concentrate their budgets on top tier platforms.

And secondly, as mentioned earlier, our strategy is to keep focusing on the enterprise value-added services next year.

(Spoken in Foreign Language).

(interpreted) As we answered in the previous question, in a challenging environment, we will see what we call the Crowding-out Effect emerging. Well, we provide TOB featured services. The core of which is to establish connections to help our customers develop their businesses such as to find upstream and downstream partners fulfilling their necessary needs.

We can see a weaker market in the past one and half years where there are fewer active VCs and startups found it very difficult to raise money. However, you can see the healthy growth over our institutional subscription business and ongoing increase in our smaller customers. Okay, that's our answers for those two questions. Thank you, Kenneth.

(Spoken in Foreign Language). Thank you very much.

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

Management, thanks for taking the question. I have two questions. One is about the enterprise subscription. So enterprise subscription is a relatively new segment, so what is our plan in terms of extending events offering and what is the retention rate of those enterprise subscribers?

And my second question is on the macro environment as well. So how should we think about the macro environment? Are we seeing some recovery in the primary market?

(Spoken in Foreign Language).

(Spoken in Foreign Language).

(interpreted) Okay, I will just start it with the first question. Actually, regarding ever enterprise subscription business, we launched this new business in this Q2. The number of our customer has increased significantly from 33 in the first half of the -- this year to 262 in this quarter. And the enterprise subscription mainly we refer to our financing partners business and E-Club. Since it's just carrying less than two quarters, the retention rates cannot be calculated for now.

And to the second question, actually, based on our research, the primary market might seem to have been in a recession cycle since the first half of 2018. And we can see a turning point here would be in the middle of this year.

Since October, the markets found rating data began to go up. And in addition, we would like to address the following points again. First of all, the weaker market barely have negative effects on us, which is due to the -- what we call Crowding-out effect again and the leverage of our business features.

And secondly, the spectrum of the New Economy itself has been extending and the trend of Industrializing Internet commerce has brought vitality to the New Economy. And that's what we think about these two questions. Thank you, Vincent.

Thank you, management and Yolanda.

Thank you. Our next question is from the line of [Yuxiang Wang] from CICC. Please go ahead.

Thank you. Thank you, management, for taking my questions. My first question is a follow-up question focusing on the macro level. Could you please share with your expectation of the New Economy industry into 2020, into the next year in China? And more importantly, what are your plans to deal with the industrial changes?

And then my second question is that I saw we have performed especially well in terms of the enterprise value-added services in this quarter. And we also know that the team size is crucial for the enterprise services. So what the Company's plan of growing the sales and services team in the next one to two years? Thank you.

(Spoken in Foreign Language).

(Spoken in Foreign Language).

(interpreted) Okay, I'll just turn to the first question. And the New Economy is really the main driver of China's overall economic growth. That's what we believe. And we believe the former will continue to grow rapidly. And as a company serving the New Economy, we are supposed to grow with the New Economy.

And what we mentioned here is actually benefit from the Industrializing Internet commerce trends where as opposed to serve more New Economy companies as well as the relatively traditional companies to have broader enterprise service offerings to them.

(Spoken in Foreign Language).

And to the second question, yes, we believe so, the team size is very crucial for the enterprise service businesses. And so far, the number of the staff in our sales team is about 240.

As a proactive strategy to further enhance our enterprise value-added services, sales and service headcount will have a certain level of increase as we mentioned all the time in next year. However, it will be far less proportionate to the revenue growth itself.

Thank you very much. (Spoken in Foreign Language).

(Spoken in Foreign Language).

Thank you. (Operator Instructions). Our next question is from the line of Michelle Li of AMTD. Please go ahead.

Hi, thank you for letting me ask the question. So my first question is the enterprise value-added service. So I know we are really strong in auto sector, so do we have any concrete plans to expand outside of the sector? Then in the sectors you want to expand into, who are the key competitors in those verticals?

My second question is around the subscription service. Apart from the A.I. master courses, do you have any other high-end courses in the pipeline?

(Spoken in Foreign Language).

(Spoken in Foreign Language).

First of all, we like to mention like actually, there is no directly comparable competitors for us. And we think the reasons are as follows. First of all, as we mentioned earlier, our content to service business model gets us to this leverage to acquire customers.

Due to our premium content and our brand influence, we barely have any customer acquisition cost. And secondly, we provide our enterprise value-added services to meet the 'Innovation' needs of our customers. We believe such services have very high competitive barriers.

And third but not least, we can leverage our fundamental capabilities of data analytics and a community to broaden and deepen our service offerings with this, what we call the economies of scale.

(Spoken in Foreign Language).

We have successfully organized the third Ali A.I. Startup courses, which was initially launched in 2018. And we plan to continue this high-end course with BABA ecosystem.

In addition, we're seeking similar cooperation opportunities with the giants of the same size as well as some local governments. And we'll share more information later with everybody. Okay, thank you so much, Michelle.

(Spoken in Foreign Language).

(Spoken in Foreign Language).

Thank you. And there are no further questions. Now, I'd like to turn the call over to the Company for closing remarks.

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 or the TPG Investor Relations. Thank you very much.

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