36Kr Holdings Inc (KRKR) 2019 Q4 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for 36Kr Holdings Inc. Fourth Quarter and Fiscal Year 2019 Earnings conference call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded.

I will now turn the call over to your host, Yolanda Liu, I.R. Manager of the Company. Please go ahead, Yolanda.

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings Fourth Quarter and the Fiscal Year 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 I.R. 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 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 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. All fiscal numbers mentioned on today's conference call are in RMB.

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

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

2019 has been a fulfilling year for us. As we successfully grew our enterprise service business, expanded our outreach to serve more and New Economy participants and enhanced our brand influence and recognition through our listing on NASDAQ.

We completed 2019 with solid fourth quarter results. Bolstered by our strong content production and distribution capabilities, we published 93,268 pieces of content in the year of 2019.

Our timely and high-quality New Economy-focused content has generated robust traffic. This is demonstrated by average monthly page views for 2019 of 425.4 million, representing a dramatic increase of 116.8% compared with 2018.

In early 2020, we also further expanded our content coverage to include as a secondary market by launching the China Concept Stock channel on our platform. This channel provides content on U.S. or Hong Kong listed Chinese companies that are associated with the New Economy.

Building on our extensive and diversified content, we are enriching our New Economy community ecosystem and creating more opportunities for the ecosystem's participants to build commercial relationships.

Our significant traffic growth and the heightened brand awareness set a steady foundation for our core business with robust client increase from the New Economy space. During the fourth quarter, we delivered top-line growth of 123.6% year-over-year.

Now, let's look at the detailed breakdown of our revenues. Enterprise value-added services as our biggest revenue contributor continued its robust momentum during the fourth quarter, as revenue from this segment grew 147.1% year-over-year.

It is worth mentioning that a majority of our key clients purchasing our enterprise services were previously clients of our advertising services. These long-lasting relationships not only reflect our customers' increasing demand for our expanded offerings but also illustrate our success in extending our monetization capability from advertising to enterprise services.

Moreover, we launched our dedicated one-stop enterprise service platform 36KrPLUS during the quarter. By leveraging 36Kr's advantages in content, brand influence, and resources, 36KrPLUS efficiently that connects the supply and demand fronts in the enterprise service sector, providing enterprises in need, 36Kr's premium offerings as well as stringently selected service packages from other service providers. We are under discussion with additional partners to further enrich our platform ecosystem.

Our consulting project, Volkswagen Tomorrow Calls Innovative Contest was another highlight for the fourth quarter. On behalf of Volkswagen, we orchestrated the biggest open contest in China's automobile industry for 2019.

This contest served as a partner screening process for Volkswagen to potentially collaborate with the elite entrepreneurs. We successfully concluded this project by the end of 2019 and received a very positive feedback from our client.

Encouraged by the initial success of this service, we are actively exploring more partner opportunities with large company and local governments. As it has become mainstream for large-sized enterprises to execute innovative business in initial ages through collaborations with emerging companies, the ability to identify the optimal partner is more critical than ever. Leveraging our sophisticated enterprise database, we can offer the most relevant and suitable partner targets for large companies, significantly in reducing their expenditures of time, capital and the resources.

Aside from our enterprise value-added services, our online advertising services also reported impressive fourth quarter performance. Revenue from this segment grew 110.7% year-over-year in the fourth quarter, driven by a largely expanded customer base.

As mentioned earlier, since the second half of 2019, we have established partnerships with an increasing number of mid to small-sized companies. We believe with 36Kr's influential platform, we will be able to help these relatively smaller-sized companies gain more market exposure, amplify their brand recognition and continue to address their other development needs as they grow.

Our subscription services also achieved considerable growth of 72.1% year-over-year during the fourth quarter. Our featured E-Club targets startup, enhancing their resources from relationships, knowledge, updates, and the financing dimensions, these efforts also fortify our connection and the interaction with enterprise communities, which all further enable even more monetization opportunities. As of 2019, our E-Club had held over 20 live streaming panels and the major offline membership day events.

In the fourth quarter, we also expanded our footprint overseas and introduced new strategic partners. Specifically, during the fourth quarter, we inked collaboration agreements with an Israeli technology media, NoCamels, and a Middle-Eastern-North-Africa technology media, MENAbyte.

We are also deepening the discussion on the partnership with South China Morning Post and enter an MOU on collaboration with FTChinese.com. In the fourth quarter, we continue to team with Nikkei and organized two innovative New Economy seminar events in Japan.

Our overseas expansion along with broadened geographic and topic coverage will eventually further solidify our content and monetization capabilities.

This concludes my review of our fourth quarter and full year performance. With 2020 well underway, we will further enhance our capability in developing featured service products that better address their requirements and preferences of our target clients.

We also plan to actively promote our platform business by leveraging our own brand image and sophisticated proficiency in screening premium service providers. We believe through broadened client coverage, we will be able to realize scaled revenues and profits.

Before I turn the call to our CFO, I would like to share some updates regarding the recent coronavirus epidemic. First of all, we extend our condolences to the families of those individuals who have passed away. And our thoughts are with those who have been infected.

We would also like to express our sincere gratitude to people who have been fighting on the frontlines of the epidemic.

Soon after the coronavirus virus outbreak, we prioritized the health and safety of our employees and have taken various preventive and quarantine measures across our Company. In response to the outbreak and its ensuing impact to the entire society, 36Kr as one of the most influential New Economy-focused content provider in China, has been publishing a series of special reports to objectively reflect the epidemic situation and the medical treatment developments, draw public attention to individuals and companies that are affected, and proactively speak up for those in need.

Bolstered by our in-depth understanding of the New Economy and our profound influence in the space, we are leveraging the strength of content to offer value proposition to participants in the community.

In addition, on February 13th, we officially launched a special enterprise service program, 36Kr Winter Warmth Program by mobilizing our connections and resources in the New Economy space to support companies fighting for survival. Centering around the impacts as a result of suspended production, heightened costs and insufficient cash flow, our special service program aims to introduce collaborative opportunities with large companies, financing resources from institutions, supportive policies from local governments, proficient enterprise services and enhanced media exposure for small to medium companies.

Within seven days since the platform launch, we have effectively connected with over 1,000 enterprises, including more than 115 corporates that are able to extend support. Our 36Kr Winter Warmth Program also shares with the enterprise's quality content, pivoting around the online customer acquisition and cost to control and initiated special reports on those elite companies for addition exposure.

We believe in the resilience of China's New Economy, which is undergoing a dynamic inter-reactive support within its community. We will also leave no stone unturned to support our partners through their challenges.

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, and hello, everyone. We achieved a solid fourth quarter and full year 2019 top-line performance. Our rapid growth and development reflect substantial and ever-growing demand for our diverse and high quality services from the New Economy community.

Especially for the fourth quarter, all three of our business segments reported strong year-over-year growth with enterprise value-added services continuing as our main top-line contributor, accounting for 47.8% of total revenue. This is in-line with our strategy to evolve ourselves into service-focused enabler for New Economy participants.

As we broaden our comprehensive offering to an expanded customer base, we are achieving improved profitability in the fourth quarter and the full year 2019. We will continue to fortify our competitive advantages in content creation and distribution while expanding our monetization channel to grasp growth opportunities along with the development of the New Economy.

Next, I would like to share our preliminary estimation on the impact of the coronavirus outbreak. Overall, we currently do not expect material interruption on our operation as most of our daily operations can be accomplished while our employees are working from home, reflecting the operational risk flexibility of our business.

In general, the majority of our content generation, process, and the business operations of our advertising, integrated marketing, innovative consulting, and the subscription services are processed and delivered online. Although our offline events are vulnerable to the epidemic outbreak and subsequent quarantine measures enacted by the government, we typically do not organize many grand offline events during the first half of the year.

On the other hand, we swiftly shifted our offline delivered courses and training to online and have produced additional online courses within a short time, targeting a broader audience as people avoid going out amid the quarantine period.

In addition, we invited distinguished experts from multiple industries to deliver live lectures during the epidemic outbreak, providing advice for SMEs to make through this hard period.

This series of efforts help us, our partners, and further augmented our influence in the New Economy space. We will also take this special period to strengthen our production capabilities of premium subscription services. With future plans to launch additional elite offline courses, we're well-positioned to capitalize on the unleashed market demand when the epidemic is contained.

In the meantime, we do expect indirect impact from the spread of the coronavirus as the epidemic has its shadow over society as a whole, and many of our customers are seriously suffering.

Since 36Kr serves clients from a wide spectrum of the industries, the operational risk from the reduced demand is partially diversified and offset. Also, we are able to partner with those clients that are less impacted or experience booming demand due to the containment measures. These clients include companies in online education, online entertainment, online retail, telecommuting, and enterprise services industries.

Moreover, the overall challenging operational environment might generate additional demand for comprehensive enterprise service and effective solutions as companies are striving for survival.

As Mr. Feng introduced, we have launched our special program to help companies in need to connect with the most accessible resources. We resolve to stand with the all participants of the New Economy to overcome this challenging time.

In the coming year, we will steadily strengthen our cash flow management by continuously transforming our offline services to more standard online services and transition our revenue model towards the prepaid service fee model.

Since coronavirus situation in China is evolving and business visibility is still limited. We are closely monitoring the epidemic development and evaluating its impact on our business. We will provide updates when we have more clarity.

Now, let's look at some of our financial metrics. To be mindful of the length of our earnings call, I will focus on key financial highlights of the fourth quarter, and encourage listeners to refer to our earnings press release and financial filings for further details.

Total revenues were RMB322.8 million in the fourth quarter of 2019, compared to RMB144.4 million in the same period of 2018. Gross profit increased by 74.4% to RMB156.5 million in the fourth quarter of 2019 from the RMB89.7 million in the same period of 2018.

Operating expenses were RMB106.6 million in the fourth quarter of 2019, compared to RMB41.9 million in the same period of 2018. The increase was mainly due to the increases in general and administrative expenses and the sales and marketing expenses in the fourth quarter of 2019.

Net income was [RMB32 million] (corrected by company after the call) in the fourth quarter of 2019, compared to RMB39.1 million in the same period of 2018. Non-GAAP adjusted net income increased by 69.6% to RMB68.3 million in the fourth quarter of 2019, from RMB40.2 million in the same period of 2018.

Net income attributable to 36Kr Holdings Inc.'s ordinary shareholders was RMB98.7 million in the fourth quarter of 2019, compared to a net loss of RMB30.8 million in the same period of 2018. The change is primarily attributable to the company ceased to accrual the accretion associated with the redeemable and convertible preferred shares upon the completion of the initial public offering as they are automatically converted into the ordinary shares.

As of December 31, 2019, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB264.2 million, compared to RMB194.4 million as of December 31, 2018.

This concludes all our prepared remarks today. We will now open the call to questions. Operator, please go ahead.

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of Kenneth Fong from Credit Suisse. Please ask your question.

Hi, dear management, thank you very much for taking my questions and congrats on a very solid set of results. I have two questions. The first is given the challenging macro outlook especially the coronavirus, I heard a lot of SMEs. How do we think about the advertising outlook for this year, and given the weak macro, and on top of that, we also have competition from the market?

And my second question is, on the monthly page view, definitely a very strong growth of 120% year-on-year. So on 2020 this year, is there any way or new initiative that can help us to monetize the traffic in content on the website? Thank you.

Okay. First, I would just do a little bit translation for the first question.

(interpreted) Indeed, it has seen that the market demand has been slowing down or even decreasing from 2019. And the market advertising traffic has decreased by around 10%, compared to the same period of 2018, which the data is from a third-party institution.

Also, we can see the head effect in a more competitive market. And also, the industry concentration of a brand advertising shows an increasing trend. These concentrations are mainly concentrated in several verticals in the market.

But we can also see the [barking] trend of our advertising services growth, which proves the differentiation advantage of our so-called [2B] and connecting-type of advertising. And it further proves the head effect in the market.

And we will see the main driving factors of our advertising growth is the number of our customers growth. Also, like the average price per customer also has increased slightly, which is due to the strategy of expanding more New Economy customers, but we can also see the relatively large brands, large customers, they have a higher retention rate.

And then let's take a look at the 2020. We will continue to expand the New Economy and relatively traditional customers by broadening industry and original coverage. And we will continue to take the active strategy to increase our CPD-type [ad] price to take for the price rise by leveraging our own differentiation advantages. And we have to admit that our brand awareness is also enhanced by the successful IPO in last year.

And in the supply side, we will continue to pay attention to our user experience. So we will maintain the advertising space at this level, and to improve the utilization rates. Also, we can see the impact of the coronavirus outbreak in the very beginning of this year, and this may lead to a relatively slowdown in the revenue growth of the first half of the 2020.

And many of our customers are seriously suffered and they may cut the budget, decrease the purchase to our enterprise value-added services or postpone the plans. But we want to address that our core business model stay stable, which is independent of the fluctuation of the market demand. And we serve clients from a wide spectrum of the industries so the risk from the reduced demand is partially diversified or offset.

So we may benefit from the partnership with those clients that are less impacted or experience maybe booming demand due to the content measures such as in online education, online entertainment, online retail, enterprise services industries.

And by completing the organization restructuring, we are going to increase the average human performance in this year, and we believe this this would help our high [gross] margin business, I mean the advertising of business. And we're going to improve the standardization of our products with a better economy of SKU and make full use of our competitive advantage. We will catch up with the full year expectation.

Okay, so that is for the first question.

And for the second question? Okay. So we can see that we generated and published over 93,000 pieces of contents in the last year and which is compared to the 2018, is at relatively the same level. This is because we really focused on the top high-quality content that brought massive traffic.

So as you can see, our traffic, just average, which is measured by the average monthly page view has increased by around 117%, compared to the 2018. And this is because we conducted the traffic promotion on the external channels, especially like Weibo, and we achieved a remarkable result.

So when mentioning the major strategy in terms of the content and traffic for this year, first of all, for [ourself] owned platforms, we're going to -- we attempt to increase the proportion of the UGC content, which will enrich our platform ecosystem to drive the traffic as well.

And, the second strategy will be more diversified content and refine the operation especially to the external platforms. And we believe the traffic increments will be on Toutiao, Zhihu, Baidu like these external channels, and we will copy the successful lessons from the Weibo we achieved last year.

And another growth opportunity, we will focus on Douyin or TikTok, WeXin short videos, this will contribute more traffic proportion we believe and to bring more monetization value opportunities.

And when we speak of the coronavirus epidemic outbreak this year, we currently do not expect the material interruptions on our content generation or operation. And we have been publishing a series of special reports to object literally like the epidemic situation and the medical treatment developments and draw public attention to the individuals and companies that are affected and to speak up for those who are in need. We are leveraging this strength of content to offer the value proposition to participants in the New Economy community.

And last but not the least, well, the contents always serves as our customer entry point to our services. So we will continue to conduct this strategy. And also, we believe the traffic number, as we mentioned earlier, the average monthly page view is one of the indicator of our influence in the New Economy space.

Okay, so that's for the two questions.

Thank you very much.

Your next question comes from the line of Vincent Yu from Needham & Company. Please ask your question.

Hi, management. Thank you for taking my questions. I have a few. First of all, how much impact we are seeing on the offline training business caused by the coronavirus epidemic? And second is do we have any updates on the new category coverage expansion by the marketing business team? Lastly, I would like to follow up on the epidemic question. After resumption to work since March, are we seeing any pressure on the app pricing? (Foreign Language Spoken).

(Foreign Language Spoken).

Okay, I'll --

(Foreign Language Spoken).

(Foreign Language Spoken). I would just do a short translation to the -- like the previous two questions.

(interpreted) And the first question is the impact on our offline business. And our offline business mainly consists of the two segments. First of all is the offline events. And the second part is the offline subscription courses or the trainings. Actually, we do expect the direct impact by the epidemic outbreak from the coronavirus epidemic.

But we want to address that typically, we do not organize many grand offline events during the first half of the year and the smaller summit in the middle of the year also like it's in the middle of the year. And at the same time, we swiftly switched our offline delivered courses and trainings to online and this type of online summit like recently, we partnered with [Lark] and also, we helped the -- like Huoyan Cloud to acquire customers via the online live streaming and road shows. This success shows our online type of events or road shows have achieved success and very popular.

And the second part is the offline courses and trainings. And we want to say we swiftly switched over offline delivered courses to online and also at the same time produce additional online courses within a short time. And in addition, we invited distinguished experts from the multiple industries to deliver live lectures during the outbreak.

We also take this special period to strengthen our production production capability of the premium subscription services. Like Mr. Feng just mentioned, we launched 36Kr Future Academy, which will give the market more online and offline subscription services. And bolstered by our resources in the spectrum of the industries, we will just diversify this kind of risk for every segment of our business.

And for the second question, it's about the New Category coverage by our business team. And we would like to share some new attempts in a variety of industries and business categories.

I would just make a quick point taking to let everybody know about the new coverage. First, we -- to amplify the New Economy ecosystem, which by this -- by this, we just launched our China Concept Stock channel on our platform, and also, we are trying to integrate the material industrial chain to better facilitate the monetization capabilities.

And the second one, to extend the service categories. By this strategy, we launched the 36KrPLUS, which we mentioned earlier, and we partnered with us other business friends. We launched the 36Kr Winter Warmth Program beginning of this year.

And the third, we're trying to extend the service cycle and to scale the in-depth services both for the large size companies and for the small to medium-sized companies when trying to focus on the service cycle extension.

And the fourth is to expand our business in more diversified industries in the regions, as we mentioned, that we will enhance the coverage of the top enterprises and diversify the diversified industry besides the automobile. And we never stop to continue to cover more regional -- in regional geography, regional and globally.

And last but not the least, in terms of our subscription services, the newly launched online courses become very popular. And we are going to continue to give the series of online and offline subscription services in the coming years. Okay.

Thank you.

Your next question comes from the line of you Yuxiang Wang from CICC. Please ask your question.

Thank you, management, for taking my question and congratulations on the robust result. Actually, I've got two questions. And the first is, what will be the major growth drivers for the full year 2020? And the second is, could the management share more details about the progress of new agreements or new clients on the enterprise services business? (Foreign Language Spoken).

Okay, I will just do a short translation here.

(interpreted) And for the first question, I can see the robust growth for our enterprise services in the 2019. So we do consider this segment, business will remain to our main driver of the 2020. But we still believe at the same time, the advertising business will keep the growth speed in next year.

And so for the 2020, actually, what we will do is, first of all, we will transit our revenue model towards the prepaid service fee model, which will help our cash flow better. And the second, we will improve the SKU and the updates of other subscription services and also improve the conversion of our core users to our customers, and to take the active strategy to improve the average price per customers as well.

And the third one is to explore more business opportunities and in the more business types at the same time to solidify the current services. And we can share a little bit with everybody like the undergoing new products currently.

The first is the innovative solution to local governments. And the second one is the subscription services online purchasing system. And the third one is that we will do the updates to our enterprise Yellow Page product. So these are what we want to share with everybody.

And for the second question for some details about the progress of the new clients or for the enterprise services, we can see the robust growth of these segments. And we will see our enterprise service clients in the 2019 are distributed in nearly 20 industries. And the top clients are mainly distributed in automobile. And we will take this -- this is because we have these new automobile daily brands in the content.

So, we will take the similar strategy in more diversified industry in this year and to expand the service offerings and to extend the service cycle to skew in-depth services and to promote the platform of business as we mentioned, and further enhance our capability in developing featured services products.

And as you mentioned about our like new orders or pipelines for this year, it's a guess that our -- some of our clients will indeed to postpone the plan to purchase our advertising services. But as we mentioned in the earlier time, we believe we can catch up in the second half of this year.

Okay, so that's the answer for your two questions. Thank you very much, Yuxiang.

Thank you.

Your next question comes from the line of Brian Li from AMTD Group. Please ask your question.

Hello. Hello.

Hi.

Hi, Brian.

Can you hear me?

Yes.

Yes. Thanks for taking my question. So I have two questions. The first is about the subscription services. I want to know, any new services launched for the institutional investors?

And the second line is regarding the sales and marketing expense. I noticed that the Company has a good control on the sales and the marketing. As the expense ratio to the revenue was down one percentage point to 15.4% this quarter, so I want to know how does the Company balance the business expansion and the sales and marketing expense, and how to achieve the operating leverage? Thanks. (Foreign Language Spoken).

Okay, I will just do a little bit of translation here.

(interpreted) For the first question, in terms of our subscription services, actually, we don't see any change for the business in terms of the business type for the institutional investors. And we can see a lot of big names for -- as our institutional subscribers such as [DB], IDG, BAI, Lenovo Capital, Joy Capital, this kind of famous [PEVC fund]. And also, we have seen [CVC] investors, which, because we expanded our customer types as well in this year.

And as the fee model, actually, the fee model stays the same in the 2019. But we do update our kaike Series to 36Kr Future Academy in this year. And the beginning of this year, we have seen this Future Academy, it's very popular in the market, so we will continue with these business lines.

And in terms of the -- in the retention rate of our 2019, the overall retention rate of our total customer is over 40% and the retention rate of the institutional subscribers in 2019 is around 70%. And so this is for the first question.

And for the second question, yes, we can see the robust revenue growth but a relatively low growth of our sales and marketing expenditure. This is -- we will own this to our lower customer acquisition costs by leveraging our content capabilities, as we mentioned all the time.

And we believe in the future, the economies of the scale will further enhance as the enterprise value-added services and the subscription services get more mature. Okay, so these are for your two questions. Thank you so much, Brian.

Thanks.

As there are no further questions, now, I'd like to turn the call back 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.

This concludes today's conference call. You may now disconnect your line. Thank you.