36Kr Holdings Inc (KRKR) 2021 Q1 法說會逐字稿

Hello, ladies and gentlemen, thank you for standing by for 36Kr Holdings Incorporation's First Quarter 2021 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded.

I will now turn the call over to your host, Jing Li, IR Manager of the company. Please go ahead, Jing.

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings First 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, Ms. 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 an English interpretation. Ms. Wei will then provide details of 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. 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 include discussions 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. And please note that all amount numbers are in RMB.

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

(foreign language)

[Interpreted] Thank you. Hello, everyone. Thank you for joining us today.

(foreign language)

[Interpreted] As we venture further into 2021, China's economy is gearing up for a New Normal as it steadily emerges from the COVID-19 pandemic. In this context, we are steadily regaining growth momentum and focusing on our core competencies as the leading platform for New Economy growth-focused business content and service offerings in China. With continuous long-term investments in our content, products and technology, we believe we are well-positioned to seize the immense commercialization opportunities in the digital transformation of traditional enterprises, the rise of Enterprise Services market, the further integration of private equity and public equity markets, and the shift toward short-form video across digital content industry, further unlocking values to our customers, users and investors.

(foreign language)

[Interpreted] During the first quarter, we once again delivered record-setting performance in total user traffic, with average monthly PVs jumping to a new high of 829.3 million, representing a 75% year-over-year increase and a 32% sequential climb. This strong metric represents our 12th consecutive quarter of PV growth, underscoring our exceptional ability to generate New Economy content appealing to a broader and growing audience base.

(foreign language)

[Interpreted] Echoing the growth in our traffic and user engagement, demand from advertisers continued to demonstrate growth momentum in the first quarter. We are delighted to achieve a [58%] (corrected by company after the call) year-over-year jump in advertising revenue amid increases in both the number of advertising customers and average revenue per advertising customer compared with the same period of 2020.

(foreign language)

[Interpreted] Our existing and emerging advertising segments both recovered at a fast pace, propelling us toward a more comprehensive marketing service model. In addition to multinational corporations, domestic brands and Internet giants, our advertising clientele have covered more verticals such as healthcare, Artificial Intelligence and social networking. We are pleasant to see 36Kr is increasingly becoming the go-to partner for fast-growing New-Economy companies, as well as elite brands.

(foreign language)

[Interpreted] During the first quarter, we continued to refine our content platform and our product offerings, which are the foundation of our commercialization. Our content platform strategy remains intact, as we're dedicated to further strengthening our content quality, depth and diversity through both PGC and UGC. Our professionally-produced content continues to enjoy high popularity and an unparalleled word-of-mouth effect. We publish numerous insightful analysis reports, timely market updates as well as thought-provoking editorials and commentaries every single day. As a content platform, we also endeavor to attract and cultivate more quality content creators and continuously expand our content genres in order to cover more niche markets and access broader user demographics.

(foreign language)

[Interpreted] In addition to our proprietary platform, we continued to leverage external resources to expand our user reach. We now work with almost all major third-party platforms including WeChat, Weibo, Douyin, Kuaishou, Bilibili and most recently, Xiaohongshu. In the first quarter, there were over 160 pieces of content published on 36Kr WeChat official account that have gained readership of over 100,000 times each. In addition, our newly launched WeChat account - Oh! Youth, customized for the younger generation and their lifestyle and business trends - is well-received by the audience with a fast-growing number of followers.

(foreign language)

[Interpreted] Furthermore, we are harnessing our capabilities in video and audio content forms to broaden our offering matrix and resonate with a wider user base, especially the younger generation. During the first quarter, our live streaming and short-form video content initiatives continued to fuel additional user traffic growth. Specifically, our self-produced video content gained further traction, with over 4.4 million followers on the third-party trafficked platforms at the end of the first quarter, up 53% sequentially. We attracted more than 647,000 followers on Bilibili, with our video content garnering over 60 million total views. On Douyin, our Kr-Finance account attracted around 3.6 million followers, spurred by our high-performance, trendsetting video content. Recently, we also created a content distribution account on Xiao Hong Shu, and we are excited to have witnessed fast follower growth on this new channel as our short-form video content continues to gain popularity.

(foreign language)

[Interpreted] In terms of commercialization of video content, we have entered into collaborations with a variety of elite brands, including Yili, Pingan, Huawei and HP for video marketing services. Moreover, we are expanding our audio-based content integrating multiple forms, including text, image, video, audio and live streaming, of which are aimed to providing customers with a comprehensive array of content marketing solutions.

(foreign language)

[Interpreted] On the product front, in the first quarter, we continued to upgrade our 36Kr App in effort to cultivate our organic and proprietary user growth. We added newer iOS desktop widget features to the 36Kr App, providing users with a more accessible and easy to use way to discover and browse content. We also enabled a new test function on our 36Kr App for users to access live streaming content, our own mobile App to deliver a smoother content viewing experience across our platform. For the first quarter of 2021, the average content consumption per person on the 36Kr App increased by nearly 40% on a year-over-year basis.

(foreign language)

[Interpreted] Last but not the least, we recently launched a brand new public equity markets product. Over the years, 36Kr has accumulated rich experience and expertise in 7 new economy companies and private equity market participants. It's a natural extension to provide services for the professional public equity market sector and building on our proven accomplishments. We believe we can replicate this success with relevant public equity market content and grasp new opportunities in this tremendous market. Our content and service offerings across pre- and post-IPO companies exhibited rapid growth with positive market feedback. This strong performance reinforces confidence in our ability to drive growth in this promising field.

(foreign language)

[Interpreted] Next I would like to share some color on progress we have made with new initiatives across the enterprise services business space.

(foreign language)

[Interpreted] We are excited to have made meaningful strides in our Enterprise Service Review Portal, beta launched last year in a bid to build a digital destination to discover and select enterprise service in China. The review portal has showcased over 3,000 enterprise applications as of March 31st 2021. More specifically, the review platform launched the ranking of Business Intelligence Software on a rolling basis in spring 2021, featuring leading companies and industry experts in the BI space and promoting comments on various BI products from hundreds of enterprise customers.

We also arranged exclusive meetings for BI software brands and enterprise customers to facilitate potential procurement transactions.

(foreign language)

[Interpreted] In addition, we are working diligently to extend our value-added enterprise service offerings to more cities and regions in China to ride the wave of digital transformation. We are confident that our geographic expansion initiatives will bolster our ability to scale our enterprise services, especially in partnership with local governments and value chain resources. In this spirit, during the first quarter, we pivoted to develop the collaborative opportunities between enterprises and the local governments in Henan, Shandong and Hunan. To date, we have expanded our footprints into top cities, including burgeoning megacities like Hangzhou, Chongqing, Chengdu and Guangzhou, and we plan to expand to more provinces over time.

These efforts supported our capabilities to build up a multi-faceted and dynamic enterprise service ecosystem, inspiring New Economy-driven development across the nation through our engaging and valuable content as well as our comprehensive service offerings.

(foreign language)

[Interpreted] The development of the Internet in China has been fueling changes in economic systems as digital technologies have been redefining more and more economic activities. This included digital information, digital merchandise and digital finance as well as an increasing share of business activities going digital. The COVID-19 crisis has especially accelerated digital transformation across a wider range of business activities. We believe that within the next 20 years, economic activities will irreversibly go digital. All Internet companies and the traditional companies will eventually evolve to New Economy companies. We see huge opportunities are emerging in the digital transformation journey across the board. And keeping this in mind, we are poised to step up our strategic efforts to grasp the growth potential.

(foreign language)

[Interpreted] On May 11, we hosted our China Fund Partners Future Summit in Shenzhen, attracting hundreds of mainstream investment institutions, which included first-tier LPs, international investment bankers and globally well-known equity funds. This flagship summit featured a keynote on the dynamic opportunities and the challenges, business venture capital and active markets, bringing insights to our customers and users. And on May 12, also in Shenzhen, we hosted the 2021 WISE Innovation Leader Conference, dozens of industry KOLs, leading companies and analysts attending the event, focusing on themes surrounding new technology, new consumers and new healthcare sectors.

(foreign language)

[Interpreted] Moving on to our subscription services. With a firm commitment to serving the 6 major communities of China's New Economy, our subscription services have successfully engaged enterprises, governmental agencies and capital across the country. For example, our iconic membership product-Ali Speedway Star Class brings direct resources support from the government for start-ups. This type of support was put in practice during the first quarter in Tianjin and Futian, Guangdong.

(foreign language)

[Interpreted] In summary, looking ahead to 2021, we believe demand for 36Kr and its diverse service offerings from a growing base of New Economy participants will continue to thrive in the fast-evolving digital business context. As a go-to content and service platform in the Chinese New Economy space, we will continue to diversify our product and service offerings as well as boost our community and user base.

While exploring new growth avenues to enhance monetization, we are confident that our long-term fundamentals position us well to forge head in new business development.

(foreign language)

[Interpreted] With that, I will now turn the call over to our VP of Finance and Capital Markets, Ms. Lin Wei, who will discuss our key financial results. Please go ahead, Lin.

Thank you, Pal, and hello, everyone. Our first quarter results got the year off to a solid start. As Pal mentioned earlier, the rebound in market demand underpinned a strong 58% year-over-year growth in our advertising revenues in the first quarter.

Also, as we continued to shift our resources and focus towards higher-margin businesses, we saw substantial year-over-year increase in both gross profit and gross profit margin. In addition, net loss narrowed substantially in this quarter compared to the same period of last year.

Going forward, we remain dedicated to building on our content strength and growing monetization channels to seize immense new economy opportunities.

Now I'd like to walk you through more details on our first quarter 2021 financial results. Online advertising services revenue increased by 58% to RMB 33.2 million in the first quarter of 2021 compared to RMB 21 million in the same period of last year. The increase was primarily attributable to the strong recovery and growth of market demand in the first quarter of 2021.

Enterprise value-added services revenue were RMB 6.9 million in the first quarter of 2021 compared to RMB 42.8 million in the same period of last year. The decrease was primarily because we continuously shifted our focus toward higher-margin businesses. And starting from this quarter, we ceased to act as a principle in certain low gross margin businesses and only active as an agent. As a result, revenues of such businesses were recognized on a net basis from this quarter onward. To increase comparability of operating results and help investors better understand our business performance and operating trends, we introduced the gross transaction value as a supplemental metric to describe our business.

Gross transaction value of enterprise value-added services was RMB 32.5 million in the first quarter of 2021 compared to RMB 42.8 million in the same period last year.

Subscription services revenue increased by 154% year-over-year to RMB 3.4 million. The increase was primarily attributable to the growth in institutional investor and enterprise subscription services. Total revenues were RMB 43.5 million in the first quarter of 2021 compared to RMB 65.2 million in the same period of last year. This is mainly due to the aforementioned change of revenue recognition for our enterprise value-added services, where it was a RMB 25.6 million variance between net revenues and gross transaction value. If you do the math, you will see actually our overall business trend is upward and demonstrated solid year-over-year growth.

Cost of revenues decreased by 66% year-over-year to RMB 20.2 million in the first quarter of 2021. The decrease was primarily because we continuously shifted our focus toward higher gross margin businesses, as we mentioned earlier, in the enterprise value-added services section.

Gross profit was RMB 23.4 million in the fourth quarter of 2021, representing a 329% increase year-over-year. Gross profit margin was 53.7% in the first quarter of 2021 compared to 8.4% in the same period of last year.

Operating expenses were RMB 64.8 million in the first quarter of 2021, representing a 37% decrease year-over-year. This was mainly due to the decrease in G&A expenses in the first quarter of 2021.

Sales and marketing expenses were RMB 35.7 million in the first quarter of 2021 compared to RMB 34.9 million in the same period last year.

G&A expenses were RMB 20.2 million in the first quarter of 2021 compared to RMB 59.3 million in the same period last year. The decrease was primarily attributable to the decrease in the allowance for doubtful accounts and share-based compensation expenses.

Research and development expenses were RMB 9 million in the first quarter of 2021 compared to RMB 8.5 million in the same period last year. The increase was primarily attributable to the increase in payroll-related expenses, partially offset by the decrease in share-based compensation expenses. Share-based compensation expenses recognized in cost of revenue, sales and marketing expenses, research and development expenses as well as G&A expenses totaled RMB 2.7 million in the first quarter of 2021 compared to RMB 13 million in the same period of last year.

Net loss was RMB 40.5 million in the first quarter of 2021 compared to RMB 95.9 million in the same period of last year. Non-GAAP adjusted net loss was RMB 37.8 million in the first quarter of 2021 compared to RMB 82.9 million in the same period of last year.

Net loss attributable to 36Kr Holdings ordinary shareholders was RMB 39.5 million in the first quarter of 2021 compared to RMB 95.4 million in the same period last year.

Basic and diluted net loss per share were both RMB 0.038 in the first quarter of 2021 compared to RMB 0.093 in the same period of last year.

As of March 31, 2021, the company had cash, cash equivalents and short-term investments of RMB 174.1 million compared to RMB 209.2 million as of December 31, 2020. The decrease was mainly attributable to an equity investment we made in the first quarter of 2021, with a total cash consideration of approximately RMB 30 million.

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

(Operator Instructions) We have the first question from the line of Vincent Yu from Needham & Co.

I have 2 questions. First question is, can management share the comment on the overall market recovery in first quarter 2021? And have we seen any chance that we can share for the rest of the year? And so second question is, can you share a comment on the clients spend with 36Kr? It was mentioned that some international clients have reduced this dealer spending. Have they returned and how the overall spending and engagement by client this quarter?

(foreign language)

[Interpreted] Okay. As the worst of the pandemic appears to be behind us, we are seeing solid economic recovery and greater improvements across various industries. More specifically, a few New Economy companies spearheaded the growth in the aftermath of the pandemic. As such, our advertising business gathered strong momentum in the first quarter with year-over-year revenue growth of 58%. Advertising services for our New Economy customers continue to grow, both in terms of a number of advertising customers and average revenue per advertising customer. And we achieved more than 100% growth each in advertising services for several verticals such as consumer and lifestyle, e-commerce, artificial intelligence and healthcare.

In particular, advertising services for healthcare customers delivered explosive growth. We're actively managing to tap into rising opportunities in the artificial intelligence and healthcare space and acquire new customers. And looking forward to 2021, we expect advertisement demand from branded customers, especially in multinational brands to increase compared with last year.

(foreign language)

[Interpreted] Okay, I'll do a quick translation. We category our advertising customers into traditional customers and New Economy customers. The multinational companies accounted for the majority of traditional customers. In the first quarter, we saw average revenue per traditional customer increase 11% year-over-year. Since the first quarter is traditional a slow season for advertising demand, we expect average revenue per traditional customers to see substantial year-over-year growth in the following quarters. And along with global recovery from the pandemic, we saw advertising demand from multinational customers gradually rebounded.

We also saw a stronger growth in advertising needs from domestic New Economy companies, such as both in the new consumer and AI sections. Meanwhile, we are making progress in improving our advertising products such as video advertisement to attract more customers. Some consumer brands have higher interest in this kind of product as they would like to reach to more new customers with exposure to 36Kr's video contents. In addition, customers who are rebuilding their brands expect to complete transformation of brand identity by levering 36Kr's video advertising products. In this regard, 36Kr has become an important partner for traditional brands that are in their transition towards new economic companies.

We have our next question from the line of Joanne Ding from Crédit Suisse.

I have a question here on behalf of Kenneth Fong. Can you comment on this quarter's gross profit margin in relation to the business change nature? And also the outlook for the GPM in 2021? Because I understand the service center (inaudible) would change the accounting recognition to the net basis and also the business for (inaudible) services is shifting from the role of principal to the agent.

Hi Joan, this is Lin. I will take your question. Yes, you can see that our Q1 gross margin actually was a substantial increase compared to the same period last year. Our gross margin climbed to [53.7%] (corrected by company after the call) this quarter compared to 8.4% last year. I think there are a couple of reasons here. First of all, obviously, we have been shifting our focus towards higher-margin businesses, as we said earlier, and also we're implementing some cost control measures. So altogether, this helped our gross profit and gross profit margin to increase.

And secondly, as you also mentioned that starting from this quarter, we starting to recognize net revenue for our enterprise value-added services. So this will not affect our gross profit, but it will definitely help increase our gross profit margin to some extent. And I also want to highlight that, as you mentioned, yes, we changed the revenue recognition for our enterprise value-added services revenue from this quarter onward. And actually, if you take that into consideration and if you do the math, you will see that our overall business trend is upward compared to the same period last year and have demonstrated solid growth.

And the reason, as we explained in our earnings release as well as in our prepared remarks, is because we shifted our focus and resources to higher-margin business. So as a result, for some lower-margin businesses, we only act as an agent and where previously, we act as a principal in these businesses. That's why we started to recognize net revenue for those businesses.

And also for your question on the outlook of gross margin trend for the remainder of the year 2021, I can assure you that our gross margin will be on a continuous improvement trend for the rest of the year. I hope this answers your question.

We have our next question from the line of Shan Jiao from CICC.

(foreign language) I will translate myself quickly. So could the management share more color on the details and the future strategy of the new products such as enterprise service review portal?

(foreign language)

[Interpreted] Okay. I'll do a quick translation. Our enterprise service review portal has been our latest attempt in the field of enterprise-related services. We beta launched last year, a base to build additional destination to discover and select enterprise services in China. The review portal has showcased more than 3,000 enterprise service applications, mainly in the field of BI, CRM and collaborative posts. This year, we expect more enterprise service suppliers to come to our platform by addressing enterprises' digital transformation demands. We aim to further leverage our stellar brands, high-quality content offerings and data insights to provide enterprise service providers with our platform to acquire customers.

We have the next question from the line of Jay Dong from TH Capital.

Yes. I have one question here. How is the process of public equity market products?

(foreign language)

[Interpreted] We recently launched a brand-new public equity markets product, providing thought provoking editorials and commentaries, insightful analysis reports and premium offline activities to participants in the public active markets, including pre-IPO companies, listed companies, funds and securities companies. Our public equity markets product has gained popularity since its launch, which proves our ability to drive growth in this promising field. And we are confident this new product will become a classic product in content and service offering field, which strengthens our current content and service offerings in the private equity markets and extend to our broader field. We believe in the great potential in public equity markets.

We have the next question from the line of Peipei Qiu from Industrial Securities.

(foreign language) So I will translate my question. For management, I have a question about short video business. Could you explain more about the monetization progress based on this new infrastructure? And is this a combination of advertising and enterprise service?

(foreign language)

[Interpreted] I'll do a quick translation. We launched our short form video initiatives within a year, and we are happy to see that we are gaining a growing number of followers on our account on Bilibili, Douyin and recently in XiaohongShu. I'll share some numbers of the of our current short form videos.

During the first quarter, our self-operated video content gained over 4.4 million followers on the third-party traffic platform at the end of first quarter, up 53% sequentially. We attracted more than 647,000 followers on Bilibili with our video content garnering over 60 million total views. On Douyin, our Kr finance account attracted around 3.6 million followers, spurred by our high-performance trending video content. And recently, we also created accounting distribution accounts on Xiaohongshu And currently, we have cooperated with some elite brands, for example, like Yili, Pingan, Huawei and HP and our current monetization model for our short-form video is mainly advertising, but we will expand our current services to more comprehensive services, including training and contest for our customers to better serve their needs in this New Economy content space.

Our next question comes from the line of Brian Li from AMTD Group.

I want to know more about the enterprise service. How the progress of your offline activities? And which industry will be the most attractive or the popular this year?

(foreign language)

[Interpreted] Okay. I'll do a quick translation. Our offline events are recovering gradually. Recently in May, we successfully hosted China Fund Partners Future Summit and 2021 WISE Innovation Leader Conference in Shenzhen, where we discuss investments and financing trends in the private and public equity markets as well as the latest industry trends in 3 major fields, including 5G technology, new consumer and healthcare. We also made the event successful via livestream and received positive feedback and recognition from many event attendees. We see various sectors taking out digital transformation, including digital information, digital merchandise, digital service and digital finance. We think within the next 20 years, most of the business activities will irreversibly go digital. As the broader business development goes digital, it will generate tremendous opportunities.

Moving to the hot industries. We think new consumer is the most hot industry and has gained attract a lot of attention from the capital and also 5G technology, healthcare, and new infrastructure are gaining attention across capital markets. 36Kr stands at the frontier of New Economy focused information and remains committed to providing more value to New Economy participants with high-quality content offerings and value-added services. And we think we can provide better services to our clients customers in the New Economy business space.

As there are no further questions now, I would like to turn the call back to company for any 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.

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]