36Kr Holdings Inc (KRKR) 2020 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 2020 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded. I will now turn the call over to your host, Yolanda Liu, IR Manager of the company. Please go ahead, Yolanda.

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings' Fourth Quarter and Fiscal Year 2020 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 acting CFO, Mr. Xiang Li. Mr. Feng will start the call by providing an overview of the company and performance highlights of the quarter in Chinese, followed by English interpretation. Mr. Li 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. 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 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. Feng. Pal, please go ahead.

(foreign language)

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

(foreign language)

[Interpreted] Before we begin, I would like to extend my sincere gratitude to all of our stakeholders for your continued support over the past year. 2020 was an extremely unusual year for the whole world and also for our business. As with many companies, we encountered varying degrees of challenges and macroeconomic uncertainties, stemming from the widespread impact of the COVID-19 pandemic. Thanks to proactive responses from our supporters and our exceptional employees and their timely adaptation to changing market dynamics, we believe we have weathered the storm. Having seamlessly overcome the short-term obstacles, our fundamentals are evolving to be stronger, and we are entering 2021 from a position of strength as we return to more normal business activities.

(foreign language)

[Interpreted] First of all, we are proud to have concluded 2020 with strong traffic momentum in the fourth quarter across our core platforms and the major third-party platforms. Thanks to consistent delivery of high-quality content and diverse distribution channels, our total average monthly page views reached a new record high of 630.2 million for the full year 2020, increasing 48.1% from the prior year and 11.3% sequentially. This stellar performance marks our 11th consecutive quarter of PV growth and further validates that our ever-growing and engaging PGC and UGC content are resonating well with our expanding audience. In addition to upgrading our own platforms to effectively improve the reading and viewing experience of our users, our efficient use of third-party trafficked platforms such as Douyin and Bilibili simultaneously deepens our business moat by driving additional healthy traffic growth.

(foreign language)

[Interpreted] Our content creation and production capabilities have gained momentum as have our UGC production and distribution capabilities as well as our monetization abilities. For the 2020 full year, we produced 108,000 pieces of content, an increase of 16% year-over-year. Besides our superior quality content creation and production, we have also strategically created a compelling library of insightful user-generated content, leveraging our in-depth data insights into user demographics. We proactively help institutional UGC creators determine appropriate topics around which they can create compelling content.

In the fourth quarter, our UGC offerings accounted for 67% of our total content offerings, up from 48% in the prior year period and 60% in the prior quarter. The increase indicates that we are well on track to strengthen our content platform capabilities.

(foreign language)

[Interpreted] Our insightful business research spanning a broader range of companies and industries continues to gain popularity in various markets. In particular, it is widely praised among security market participants. To some, our information is invaluable, leveraging our New Economy community-centric resource networks. We are spearheading the transmission of timely and in-depth analysis of public companies by covering their pre- and post-IPO phases.

For instance, we published exclusive and thoughtful business overviews on an array of newly listed Chinese companies such as RLX Technology and Kuaishou, from inception to their IPOs. The deeper we go into our research expertise and experience, the more we are able to extend our services across a wide spectrum of industries.

(foreign language)

[Interpreted] The information we curate is available in a variety of digital forms. Clear trends in video have quickly emerged as a top choice. With our considerable capability in this arena, the rapidly growing video market presents a huge growth opportunity for us. And we significantly increased our engagement across a broad demographic in the fourth quarter. Our self-produced video content has spurred us to become one of the most sought-after organization accounts on leading video platforms such as Bilibili, where we host more than 600,000 followers. In addition to Bilibili, we continue to work with other highly trafficked platforms to enhance our monetization channels.

On Douyin, our Kr-Finance account has more than 3.6 million followers, and we are ranked among the Top 30 video creators in the finance segment. We have also distributed multiple trendsetting short-form videos on Douyin, each gaining over 10 million playbacks. The high engagement level and rapid growth we are experiencing on these influential social platforms are excellent barometers of our success in successfully executing our growth strategy with captivating content.

(foreign language)

[Interpreted] As the video content continues to be heavily sought after by individual users, companies from various industries and government, we have further deepened our strategic cooperation with prestigious partners on the content production side, both domestically and overseas, and including our strategic shareholders.

(foreign language)

[Interpreted] Following last September's announcement of our strategic collaboration with Youku, in December 2020, we became the exclusive tech media partner for Youku's first production of the tech-focused New Year's Eve Gala, Future Imagination Technology. Building on our industry-leading content and resource capabilities, we featured our insights into futuristic technology trends under the impact of the pandemic as well as helped screen and identify new economy companies who showcase their innovative products and future technology at the event. Going forward, we plan to co-produce more high-quality content covering a wide spectrum of business topics and explore the possibility of multichannel network, MCN business.

(foreign language)

[Interpreted] This March, we entered into a strategic partnership on business-centric video content production and New Economy focused services with China's major media outlet, Xinhuanet with a shared mission to embrace the evolving New Economy environment across multiple Chinese consumer brands that are adopting digital transformation. We kicked off the program production and sponsorship promotion for our first joint proprietary program, The Great Chinese Companies. As part of the partnership, we also have future plans to work together to discover and retain talented content creators and producing business-wise content that fosters a vibrant content ecosystem and, at the same time, to explore monetization opportunities.

(foreign language)

[Interpreted] Turning to our monetization efforts. In the light of the intricate market environment during 2020, we were responsive to seek opportunities to transform our core businesses into a more countercyclical and scalable model. At the same time, we have been actively working on tapping into emerging market demand in the aftermath of the pandemic. By leveraging our premium content capability and consistently optimizing technology and data insights across segments, we've increased our ability to capture new opportunities.

(foreign language)

[Interpreted] In terms of our value-added enterprise service segment, we successfully hosted our highly influential New Economy annual submit in Beijing in December 2020, including both offline and online activities, our WISE 2020 event with the theme of Rise and Return, featured a broader spectrum of industry-wide subjects and keynote speakers. Attendance at our offline venues and the live streaming sessions were better than expected. Over the course of the 3-day event, more than 22,000 visitors joined us on site. And our live streaming sessions attracted 390 million visitors across our core and third-party platforms. The broad reach of these prestigious events not only had a positive impact on our monetization, but highlights our ability to continually enhance our brand recognition and expand our customer base not just domestically, but also abroad as a number of overseas New Economy participants access our live broadcasting sessions.

(foreign language)

[Interpreted] As normalcy returns to most of the country's offline activities, we remain committed to cultivating diverse learning communities for different industries and sectors. By connecting entrepreneurs and executives in the same industry, they can more effectively share and learn best practices to better tackle shared industry challenges. These initiatives are also designed to help us generate leads for our subscription services. For example, our exclusive seminar on strategy, (foreign language) and the industry interview by 36Kr (foreign language) have helped clients in both traditional industries and New Economy sectors to explore and discover new opportunities in areas we were not previously familiar with, while achieving efficient customer acquisition and building collaborative business connections to access more resources and growth opportunities.

(foreign language)

[Interpreted] Given the ubiquitous format and the massive market in China, we began actively exploring commercialization opportunities in video content. This is a natural evolution of our capabilities. And in the fourth quarter, more than 30% of our service solutions adopted video formats and received positive feedback. As video content and followers rapidly grow across our core and third-party platforms, more traditional brands increasingly want to work with us to capitalize on these trendsetting market strategy. For example, we recently signed a contract with Yili, one of China's leading dairy companies to create digital marketing plans by our self-produced videos to make its yogurt product resonate with young consumers. As we further expand and diversify our product and service offerings, including our robust video content, we will continue to explore strategic collaborations with more prestigious partners.

(foreign language)

[Interpreted] This Tuesday, we just announced a strategic cooperation with Chinese state media, CCTV's program, The Growing of the Great Brand, supported by multiple online and offline activities. We will use our diverse services and strong resource networks to help a large number of Chinese New Economy enterprises to enhance their brands and propel more coordinated business development along their supply chains.

(foreign language)

[Interpreted] In terms of subscription services, in the fourth quarter, we launched a new and upgraded version of our Enterprise Service Review website, dianping.36kr.com in order to build China's most professional platform for enterprise-level application and services selection. This comprehensive new offering enables potential buyers to fill the information gap by providing the rankings and feedback for application and services from real users on the platform.

Enterprise service providers can simultaneously upgrade their products to specifically address the dynamic feedback of users as well as capture potential customer needs and sales leads. Our goal with this innovative service is to form a virtuous business cycle driven by powerful content offerings. This is a natural progression and extension of our own enterprise service territory, while also potentially helping us evolve into a more scalable subscription model with higher customer stickiness. We plan to utilize our large-scale enterprise network community to boost traffic for our new platform, building an enterprise services alliance community focused on our enterprise services review business.

(foreign language)

[Interpreted] Our innovative and creative services gained further traction with new government collaborations during the fourth quarter. For example, in December 2020, we supported a local municipality to host an Air and Aerospace Information Summit in Hangzhou, a significant local industry seminar. We also aided local governments in planning and developing smart city concepts. We held a series of entrepreneurial contests focused on smart city projects across different regions in partnership with local governments. Our strategic focus on governmental collaborations not only raises awareness of our brand, but also places us at the forefront of opportunities in cross-regional economic growth within the New Economy space.

(foreign language)

[Interpreted] In summary, facing the challenging 2020 and the fast-evolving market dynamics, we continued to build out our core strength. At the same time, we demonstrated our ability to swiftly adjust our cooperations and operations to align with the changing market and reach our sustainable growth goals over the long term. With the pandemic largely behind us, we will work to strategically enrich our product and service offerings, enhance our network communities, increase our user base and diversify our growth avenues to strengthen our monetization capabilities. As a go-to content and service platform in China's New Economy space, we retain (sic) [remain] committed to capturing additional opportunities in the growing markets and delivering long-term value to our shareholders.

With that, I will now turn the call over to our acting CFO, Mr. Xiang Li who will discuss on our key financial results. Please go ahead, Neil.

Thank you, Yolanda. Thank you, Pal. Hello, everyone. As Pal indicated, the lingering impact from the COVID-19 pandemic extended into our fourth quarter top line performance. However, revenue from our online advertising services and subscription services delivered sequentially growth, which we see as a good sign of a gradual demand recovery. Given the challenging environment and the lessons we learned, we have been actively adjusting our business operations in order to achieve long-lasting efficiencies.

Notably, our gross margin increased by 400 basis points to 42% in the fourth quarter of 2020 from the third quarter. We also realized a positive operating cash flow for the third continuing quarter, exemplifying the resilience and agility of our business model. Additionally, we continued to see quarter-over-quarter improvement in our accounts receivable after we made our prepayment policy adjustments and tightened requirement for the strict selective of quality clients. As we enhanced our core strengths in industry-leading content production capabilities and broaden our monetization channels, we believe we are well positioned to serve New Economy participants and grow alongside with them.

Now I will go through more detail on our fourth quarter of 2020 financial results. Our total revenue were CNY 121 million in the fourth quarter of 2020 compared to CNY 323 million in the same period of 2019. Online advertising services revenues decreased by 54% to CNY 69 million in the fourth quarter of 2020 from CNY 150 million in the same period of 2019. The decrease was mainly caused by the weak demand from certain advertisers and adoption of stricter credit policy for customer selection.

Enterprise value-added services revenues were CNY 41 million in the fourth quarter of 2020 compared to CNY 154 million in the same period of 2019. The decrease was mainly caused by the decrease in revenues from integrated marketing services as strategic, the company decreased the inputs in certain business.

Subscription services revenues were CNY 11 million in the fourth quarter of 2020 compared to CNY [19 million] (corrected by company after the call) in the same period of 2019. The decrease was mainly caused by the decrease in revenue from individual subscription, as some of the offline training courses were canceled due to the negative impact of COVID-19.

Cost of revenues were CNY 71 million in the fourth quarter of 2020 compared to CNY 166 million in the same period of 2019. The decrease was mainly caused by the decrease in revenues. Gross profit was CNY 51 million in the fourth quarter of 2020 compared to CNY 156 million in the same period of 2019.

Operating expenses were CNY 127 million in the fourth quarter of 2020 compared to CNY 107 million in the same period of last year. The [increase] (corrected by company after the call) was mainly due to the increase in G&A expenses in the fourth quarter of 2020. Sales and marketing expenses were CNY 35 million in the fourth quarter of 2020 compared to CNY 50 million in the same period of 2019. The decrease was mainly caused by the decrease in payroll-related expenses and share-based compensation expenses.

G&A expenses were CNY 82 million in the fourth quarter of 2020 compared to CNY 47 million in the same period of 2019. The increase was mainly caused by the increase in allowance for doubtful accounts, partially offset by the decrease in the share-based compensation expenses.

R&D expenses decreased by 12% to CNY 9 million in the fourth quarter of 2020 compared to CNY 10 million in the same period of 2019. The decrease was mainly caused by the decrease in share-based compensation expenses.

Share-based compensation expenses recognized in cost of revenues, sales and marketing, R&D expenses and general and administrative expenses in total were CNY 9 million in the fourth quarter of 2020 and CNY 36 million in the same period of 2019.

Other expenses were CNY 10 million in the fourth quarter of 2020, which included a loss of CNY 16 million from equity method investments and an income of CNY 5 million from government grants compared to other income of CNY 2 million in the same period of 2019.

Income tax expenses were CNY 4 million in the fourth quarter of 2020 compared to CNY 20 million in the same period of 2019. The decrease was mainly caused by the increase in the allowance for deferred tax assets.

Net loss was CNY 90 million in the fourth quarter of 2020 compared to an income of CNY 32 million in the same period of 2019.

Non-GAAP adjusted net loss was CNY 81 million in the fourth quarter of 2020 compared to an income of CNY 68 million in the same period of 2019.

Net loss attributable to 36Kr Holdings Inc.'s ordinary shareholders was CNY 91 million in the fourth quarter of 2020 compared to income of CNY 99 million in the same period of 2019, which includes the accretion on redeemable noncontrolling interests, accretion and re-designation effect of convertible redeemable preferred shares.

Basic and diluted net loss per share were both CNY 0.09 in the fourth quarter of 2020 compared to the basic and [diluted net income per share] (corrected by company after the call) of CNY 0.1 and CNY 0.03 in the same period of 2019. As of December 31, 2020, the company had cash and cash equivalents, restricted cash and short-term investments of CNY 209 million compared to CNY 264 million at the same time in the last year.

To be mindful of the length of our earnings call, for the fiscal year of 2020 financial results, I'll encourage listeners to refer to our earnings press release for further details. This concludes all of our prepared remarks today. We will now open the call to questions. Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Ivy Ji of Crédit Suisse.

(foreign language) I just have a quick one. Just wanted to ask our ad demand by vertical, how does it trend in the fourth quarter?

(foreign language)

[Interpreted] Okay, thank you for your question, Ivy. I think directly on the customer demand side, our multinational customers have been affected the most, leading to delayed budget for advertising. However, since Q3, advertising needs from some customers began to recover like what we've been in automobile and 3C. At the same time, quite a few Chinese consumer brands, which are -- which we actively reached out in the second half of 2020 show their growing demand for our platform. And another characteristic for our New Economy customers, they showed their resilience during and post COVID-19,as their own businesses keep growing. And this contributed to the increases in the number of customers and the average customer price in this year, especially when it comes to those TMT giants and super unicorns.

And we can share some more color on the industry distribution. The top 5 in 2020 of our consumers are, entertainment, enterprise services, 3C and e-commerce. Besides, we also saw strong demand growth for our advertising services in the AI and online education industries. So to sum up, we can see that we achieved nearly 36 percentage sequential just to correct a little mistake. And if we see, in the last quarter, we can see this sequential growth have already achieved as 63% in the Q3. So we can see this consecutive recovery from our advertisement segment. I think this is for your question. Thanks.

Our next question is from the line of Vincent Yu of Needham & Company.

(foreign language) The first question is about the fiscal 2021 outlook. Can management share some insights on the fiscal year 2021 outlook? And where do we see the most potential in terms of revenue growth? And where are we investing the most. The second question is, can management share some insights on the shifts in revenue mix in fourth quarter, as it was pretty drastic. So what drove the shift? And is it going to be the new normal going forward?

(foreign language)

[Interpreted] Thank you so much, Vincent, for these 2 questions. And I think these 2 questions are well linked. So for your first question to comment on our outlook for this year, I think like for us and for most of the companies in China and globally, 2020 must be a very challenging year from the macroeconomic level and for the fast-evolving market dynamics. So this situation made us to think about our business from a longer perspective. But also in the short term, we also proactively made multiple adjustments in our operations. In the short and medium term, maybe, we will remain focused on our video-oriented strategy and to explore opportunities in broader addressable markets for ourselves, I mean, for the private and the public markets. And second, you can see we already explained for a longer term, we will evolve our business model into a more scalable and counter-cyclical model.

We expected maybe a decrease in our enterprise value-added services in this year, but we believe it's extremely important for our longer-term developments. In this year, our advertising side, we expected a continued recovery in this year, just like we performed in last Q3 and Q4, and as the offline activity restrictions are totally lifted, I believe our offline businesses will continue to restore and be strengthened. And on the investment side, we will keep investing in our technical and data capabilities so as to facilitate the evolution and upgrading for our current enterprise value-added services and other subscription products as well as to innovate other new products. So to sum up, we will see -- the main driver will still be our enterprise VAS.

And for the second question, as you noticed that there is a little bit structure changing for our fourth quarter. But actually, from the whole year's scope, the enterprise VAS were still the top contribution to our total revenue, around 50% and compared to the advertisement accounts for 44.7%. As I just shared the idea that the structural change brought by the pandemic impact will mainly lie in our enterprise value-added services. So we made this prudent adjustment and evolved into a more scalable and counter-cyclical model for our enterprise value-added services over the last 2 quarters in 2020.

And at the same time, we cut down some low-margin integrated marketing business, which has accounted for the most in our enterprise value-added service segment, so that you can see that's why the revenue of the enterprise value-added services in Q4 decreased. However, we believe it's also brought already a higher GP margin and continue the improvement in operating cash flow for us. So these are for your 2 questions, and thank you for your questions, Vincent.

Our next question is from the line of Shan Jiao of CICC.

(foreign language) I will translate for myself. In 2020, the pandemic did have an impact on the overall offline activities. And how was the progress of offline enterprise service recovery and how to look forward in 2021?

(foreign language)

[Interpreted] Thank you for the question, Jiao Shan. And as we mentioned earlier, just started from the late August of 2020, we started to hold offline events in Shanghai as soon as domestic restrictions were lifted, initially lifted. And these events were highly praised. And again, in December, early December in Beijing, as Pal just mentioned, we successfully hosted our featured WISE 2020 conference, which is also highly praised by industry and all kinds of New Economy participants. We extended the agenda setting and the guest invitation for this WISE and these efforts facilitated this WISE 2020 to achieve a record high of online and offline engagements. And even though we extend the scale of this conference, the GP margin for our offline events do retain the high level, so that you can see that we still retain this ability to hold these offline events.

And following the popularity of WISE conference, we hosted another offline event in Shanghai for our 2C IP-amazement series. And this event focused more on like youth culture and the connected emerging Chinese consumer brands with potential consumers. And for this year, if this year we see no new outbreak, and we believe there will be a strong recovery as well. Our WISE series will be expanded across a wider range of industries and regions.

For example, the coming GP-LP conference and WISE Futures Industry summit will be held in Shenzhen soon in this May. And more 2C IPs will be launched in Shanghai, Beijing and other cities this year as well along with our growing and broader user base. And as I just shared with you, also some new offline IPs like Exclusive Seminars on Strategy, (foreign language), and Industry Interview by 36Kr (foreign language) were launched in fourth quarter against the backdrop of the integration of the private and the public market. So to sum up, we are strengthening our ability to serve different New Economy participants better with more offline initiatives. Thank you, Jiao Shan, for the question.

Due to time constraint, that concludes today's question-and-answer session. Now I'd like to turn the call back over to the company for closing remarks.

Sorry for the time limitation. So that's it for us today. Thank you once again for joining us today. If you have further questions, please feel free to contact 36Kr investor relations through the contact information provided on our website or The Piacente Group Investor Relations. Thank you, all.

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

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