36Kr Holdings Inc (KRKR) 2020 Q3 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for 36Kr Holdings Inc. Third Quarter 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 Third Quarter 2020 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 website at ir.36kr.com.

Participants on today's call will include our Co-Chairman and CEO, Mr. Dagang Feng(Pal); and our CFO, Ms. Jihong Liang. 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. 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. 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. Feng. Please go ahead.

(foreign language)

[Interpreted] Thank you, and hello, everyone. Thank you for joining us for our third quarter 2020 earnings conference call.

(foreign language)

[Interpreted] In this quarter, our fundamentals remained solid and the market demand for our business-themed content and services have been quite robust, despite macro-headwinds from residual pandemic effects and the changing market conditions. In the third quarter, we achieved our second consecutive quarter of sequential growth with 61% increase in revenue compared to the previous quarter.

Notably, our user traffic continued to grow rampantly across our core platform and the major third-party platforms during this quarter.

Driven by our strong operations, industry-leading content production capabilities and our stellar brand, many of our key traffic metrics also continued to demonstrate strong growth. In particular, our average monthly page views for the trailing 12 months surged to a record high of 566.3 million as of the end of September, up 45.4% from a year earlier. This marked our tenth consecutive quarter of PV growth, demonstrating our core capabilities.

(foreign language)

[Interpreted] We continue to strategically expand and diversify our content generation and distribution capabilities, which also maintained strong momentum in Q3. Our focus on growth across a wide spectrum of PGC and UGC offerings is working and increasing our brand recognition.

It is worth noting that the proportion of UGC offerings saw a progressive increase, exemplifying our strategic efforts to strengthen our content platform capabilities. We are actively amassing a library of high-quality content, while simultaneously enhancing reader engagement across a broader audience base. For example, a total of 115 articles were published on 36Kr's Weixin account, each of which gained readership of more than 100,000 in Q3, representing a 15% increase from Q2.

(foreign language)

[Interpreted] Along with heightened page views, our live streaming and short video content initiatives have also paved the way for greater engagement. With our rapidly growing audience base with more diverse demographic appeal, our self-produced video content are gaining traction among younger generations, especially as evidenced by growth on key platforms such as Bilibili, where we accumulated nearly 400,000 followers since our first content was published there in mid-August.

Our user numbers on Douyin were also robust, exceeding 2 million at the end of third quarter.

(foreign language)

[Interpreted] With the rising trend in video as the preferred format for companies, municipalities and individuals alike, we have considerably stepped up our efforts to seize more opportunities in this fast-growing and popular-content format.

Most notably, in September, we announced our strategic cooperation with Youku Tudou to actively promote and produce an increasing number of high-profile video products.

We debuted our first co-produced program on both platforms on September 1, covering a variety of emerging financial and industry-specific topics.

(foreign language)

[Interpreted] Additionally, we hosted more than 200 live streaming events every month in the third quarter with themes including finance, career advancement and the new economy industries.

On the heels of these efforts, there has been a gradual increase in the average number of viewers and average user time spent on our platform, stabilized at about 40 minutes.

These initiatives to grow our content and maintain a dynamic strength of poignant information are expected to reinforce our leading position in providing new economy-focused content as well as create more monetization channels.

(foreign language)

[Interpreted] In the wake of COVID-19 pandemic while largely eradicated in China, we, along with a part of our clients, are still impacted by the subsequent fall out here and in other markets with slow economic recovery. Notwithstanding the challenges presented by the pandemic, it is fairly encouraging to see new opportunities blooming under the New Normal in the aftermath of COVID-19.

In particular, digital transformation is accelerating across a wider spectrum of traditional industries. With its new economy-focused expertise, resources network, industry-leading content capabilities and proven track record in the new economy sector, 36Kr is well versed in supporting the digitalization efforts of enterprises.

(foreign language)

[Interpreted] With our well-placed strategies, solid executions and the technology-driven innovations, our operations have witnessed encouraging sequential recovery metrics. Notably, in third quarter, revenues from our enterprise value-added services increased by 55.7% quarter-over-quarter and nearly 4% year-over-year, demonstrating the vitality and durability of this business segment.

(foreign language)

[Interpreted] With off-line activities gradually resuming, at the end of August, we held 2 summits in Shanghai, WISE Super Evolver Summit and 2020 Investors Summit, each accommodating about 1,000 attendees. In the meantime, we provided live streaming of the events on both our core platform and third-party platforms, attracting more than 1 million views.

(foreign language)

[Interpreted] Encouragingly, customer demand has also showed signs of a further recovery. Client needs from industries including automobiles, 3C and real estate began to rebound, raising our focus on these industries.

For example, we created a new short video and live streaming content for that, so-called Experiencing Lab to evaluate real estate projects from the viewpoint of customers or experts.

We also conducted a high-profile marketing campaign for Greentown Project called, "Anyway, We Are Together, " reaching a target audience of tens of millions of people. We plan to continue to navigate the dynamic environment to uncover more top-quality opportunities as more and more industries ramp up recovery.

(foreign language)

[Interpreted] We are also dedicated to expanding our services to government clients and supporting the digital transformation initiatives of local municipalities as part of our mission to accelerate the development of China's New Economy. To support these efforts, we have established teams in Guangdong, Zhejiang, Jiangsu, Sichuan and Shanxi and will explore more cities that pursue industrial development.

For instances, we assisted Hangzhou local government to hold the Culture and Tourism Summit in September, promoting the cohesive development of industries involved in the digital economy.

In October this year, we rolled out a new program that leverages our brand assets and resources spanning the new economy sector to connect enterprises with governments, bridging the organizations in different segments.

(foreign language)

[Interpreted] Beyond our many initiatives in enterprise services, we've also been strengthening our position in subscription services built on our compelling content and data access.

We have built 18 user communities across the 9 key industries, including culture and entertainment, healthcare, business services, e-commerce, smart manufacturing, automobile, education, finance and new infrastructure.

Our subscription services will continue to target individuals and organizations who can stimulate business demand and bring more opportunities for various services of our company.

(foreign language)

[Interpreted] Overall, our core fundamentals remain solid. Our exceptional content capabilities continuously add value to our ever-broadening user base. We are confident that our innovative and attractive value-added services position us well with the booming New Economy communities, especially in the post-pandemic era as we work to broaden our monetization models. With COVID-19 containment measures gradually relaxed in China and most off-line activities returning to more normal levels, we believe our leverage in online and off-line capabilities as well as in our permanent content and data analytic capabilities will further strengthen customer satisfaction and engagement in our value-added services and will support us to seize more growth opportunities in the field of enterprise value-added services.

(foreign language)

[Interpreted] Lastly, I'd like to speak of our overseas business. We continued to make positive progress in our overseas operations with increased high-quality content offerings and meaningful traffic growth. We officially introduced Oasis, a cross-border KOL community based in South Asia region, which will nurture stable and quality UGC offerings to support our long-term growth strategy.

(foreign language)

[Interpreted] In conclusion, we will continue to pursue our strategy to boost the diversity of our product and service offerings. Drawing on our unit core strengths in servicing the needs of new economy companies, we are confident in our ability to overcome the short-term challenges brought by the pandemic and the step-up of efforts to make greater breakthroughs in the post-pandemic era and deliver long-term value for all our stakeholders.

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

Thank you, Mr. Feng, and hello, everyone. As Pal mentioned, despite the challenging operating environment, our third quarter financial performance experienced a meaningful improvement on a quarter-over-quarter basis. This is a testament the resilient market demand for our products and services.

Nevertheless, total revenues in this quarter slightly decreased year-over-year, largely attributable to a lingering effect related to COVID-19. We achieved positive operating cash flow for the second consecutive quarter, which reflects our capabilities to deftly navigate market dynamic.

In addition, our account receivables continued the improving trend, thanks to our adjusted policies to implement stricter prepayments and optimize client base for better quality.

We continued prudent investment in technologies that are critical for further innovations and further growth. Our performance allowed us to remain committed to the promising future of the New Economy, and we believe our competitive advantages will help us to withstand challenges and thrive in the community with our partners.

We are confident that our content strength and strategy initiatives will position us well in tackling market uncertainties in the wake of the COVID-19 and capture more return when the environment turns better.

Now I'd like to walk you through more details on the third quarter of 2020 financial results. Total revenues were CNY 123.5 million in the third quarter of 2020 compared to CNY 130.9 million in the same period of 2019.

Online advertising services revenues decreased by 5.5% to CNY 51.1 million in the third quarter of 2020 from CNY 54.1 million in the same period of 2019. The decrease was primarily attributable to the relatively weak demand from certain advertisers in wake of the COVID-19.

Enterprise value-added services revenues increased by 3.8% to CNY 66.4 million in the third quarter of 2020 from CNY 64 million in the same period of 2019. The increase was primarily attributable to the recovering demand from 13 enterprise value-added services customers.

Subscription services revenues were CNY 6 million in the third quarter of 2020 compared to CNY 12.9 million in the same period of 2019. The decrease was primarily attributable to the decrease of individual subscription revenues associated with relatively weak demand.

Cost of revenues was CNY 76.6 million in the third quarter of 2020 compared to CNY 75.8 million in the same period of 2019. Gross profit was CNY 46.8 million in the third quarter of 2020 compared to CNY 55.1 million in the same period of 2019. Operating expenses were CNY 63.2 million in the third quarter of 2020 compared to CNY 77.9 million in the same period of 2019. The decrease was mainly due to the decrease in general and administrative expenses in the third quarter of 2020.

Sales and marketing expenses were CNY 31.6 million in the third quarter of 2020 compared to CNY 31.8 million in the same period of 2019. The decrease was primarily attributable to the decrease of payroll-related expenses, partially offset by the increase of share-based compensation expenses.

General and administrative expenses decreased by 45.3% to CNY 20.5 million in the third quarter of 2020 compared to CNY 37.4 million in the same period of 2019. The decrease was primarily attributable to the decrease of the share-based compensation expenses, partially offset by the increase of the professional fees.

Research and development expenses increased by 28.6% to [CNY 11.2 million] (corrected by company after the call) in the third quarter of 2020 compared to CNY 8.78 million in the same period of the 2019. The increase was primarily attributable to the increase in technology expenses related to technology, procurement, device maintenance and testing.

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 CNY 4.6 million in the third quarter of 2020 and CNY 25.8 million in same period of 2019.

Other income was CNY 2.5 million in the third quarter of 2020 compared to CNY 12.8 million. That included an income [CNY 11.5 million] (corrected by company after the call) from the realized proposal gain associated with the overseas business investment in the same period of 2019.

Income tax expenses were CNY 21,000 in the third quarter of 2020 compared to CNY 2.4 million in the same period of 2019. Net loss was CNY 14 million in the third quarter of 2020 compared to CNY 12.4 million in the same period of 2019.

Non-GAAP adjusted net loss was CNY 9.3 million in the third quarter of 2020 compared to non-GAAP adjusted net compared to CNY 13.4 million in the same period of 2019. The net loss attributable to 36Kr Holdings Inc.'s ordinary shareholders were CNY 14 million in the third quarter of 2020 compared to CNY 635.6 million in same period of 2019, which included the association on redeemable non-controlling interests, accretion and re-designation effect of the convertible redeemable preferred shares.

Basic and diluted net loss per share were both CNY 0.014 in the third quarter of 2020 compared to CNY 2.535 in the same period of 2019.

As of the December 30, 2020, the company had cash and cash equivalents, restricted cash and short-term investments of CNY 199 million compared to [CNY 264.2 million] (corrected by company after the call) at December 31, 2019.

To be mindful of the length of our earnings call, for the first 9 months of 2020 financial results, I will 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 to questions. Operator, please go ahead.

(Operator Instructions)

Your first question comes from the line of Ivy Ji of Crédit Suisse.

(foreign language) I'm asking on behalf of Kenneth. So I just wanted to ask about our advertising business. So can management share with us first the amount recovery trend by vertical in the third quarter and also the overall ad demand outlook into the fourth quarter and early 2021?

(foreign language)

[Interpreted] Well, thanks, Ivy, and thanks, Kenneth. And I think it's a long answer. I will do a quick translation for also recovery in Q3 and also our outlook for Q4 and maybe early next year. So for the advertisement demand recovery in this quarter, we see this quarter have seen a more rapid recovery for our advertisement segment with 63% quarter-to-quarter growth compared to Q2 with 48.9% quarter-to-quarter growth. And compared to the same period in last year, we achieved 21% quarter-to-quarter growth.

So also, we can see some of our multinational clients, which they delayed their budget in the first half of the year due to the impact of the pandemic, resume their advertising on our platforms in this quarter. And the most significant recovery were witnessed from automobile and hardware industries. And especially among domestic brands, we noted that automobile and real estate have experienced the strongest recovery. So this is what we observed in this quarter.

And as we can see in this quarter, our online advertisement, off-line events and off-line trainings have been continuously recovering, which we believe in will continuing into the next quarter. And giving you a bit more color on the breakdown of different industries, for example, entertainment and media and e-commerce, both of which are sectors enjoying benefits from the stay-at-home lifestyle in the COVID-19 pandemic, improve their ranking to the top 5 industries in our advertiser base at the end of this quarter. Instead, automobile and finance were replaced, which are under short-term pressure, we believe.

And consumer sector is another rapidly increasing industry for advertisement on our platform.

Also, we want to mention that we've seen the resilience of TMT companies and the rise of domestic brands in first 3 quarters. We believe these trends will continue in next quarter. At the same time, we believe the demand from automobile and financial sectors will start to recover, supported by macro-level favorable policies. But of course, everything is under the assumption that there is no second wave of COVID-19 outbreak in Mainland China. So that's what we think. Thank you, Ivy.

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

(foreign language) I have 2 questions. One is on the cost side. We have seen we decreased quite some cost base and given the margin is already 34% in this quarter. Any comments on the margins and the trends and when will we recover to the 2019 level?

My second question is on the off-line events, any visibility on whether hosting off-line events is possible in the next few quarters, particularly in fourth quarter?

(foreign language)

[Interpreted] Thanks, Vince. I will do a quick translation. First, for your question regarding our GP margin, I think, as we can see, our GP margin in the first 3 quarters of this year compared to the same period last year slightly increased. And we think this benefit, first of all, our revenue have, quarter-to-quarter, increased over 90% -- sorry, 60%.

And the second reason, we think, is because the fixed cost, which means that our content production cost is controlled pretty good and have the quarter-to-quarter decrease, as we can see. And the third reason, well, thanks to our revenue structure, actually. As we can see, the enterprise value-added services contributed slightly lower than the previous quarter and maybe in the first half. So that we can see because the GP margin for enterprise value-added services is relatively low compared to our online advertisement and subscription services. So when it has achieved the quarter-to-quarter decrease, we can see the whole structure has been improved. So that's for your first question.

And for our off-line events, and we feel very excited to tell everyone that our flagship event, WISE conference, will be held in Beijing from December 8 to 10 this year as scheduled. And for this year, we will cover even more industry topics, and we have very strong speaker lineup. And it happens to be the tenth anniversary since we launched our website. So it will be a grand-scale event welcoming all 36Kr fans join us.

And so -- but as we mentioned, these are still under the assumption there is no second breakout of COVID-19. So thank you, Vince, for your questions.

Your next question comes from the line of Shan Jiao of CICC.

(foreign language) My question is about, what is the progress of new product development in the third quarter relating to live streaming and short video under video content trend? And how look forward to the fourth quarter.

(foreign language)

[Interpreted] thanks for your questions As you can see, our monthly page views has continuously increasing, and our content in various forms are welcome on different platforms. So we think, first of all, thanks to our content capability, which is continuously strengthening. And the second one, where we will see -- we will find and explore more strategic collaboration opportunities and even some other platforms that we didn't think about before. But we think these strategic collaborations will bring us to more and more opportunities both in our Internet traffic, but also for our monetization capabilities.

And third, we'll still explore more opportunities in different content format. For example, as I mentioned in the earlier remarks that our video-formed content on the top-tier platforms have attracted larger and larger viewerships on different platforms, such as Bilibili and the other top-tier platforms.

So with all these 3 strategics, we believe, we'll continuously strengthen our leading position in the content business. So we want to share on our new products, especially on our content.

Sorry, maybe Mr. Feng would want to add some more points.

Okay. (foreign language)

[Interpreted] Okay. I think Mr. Feng just added some more solid examples in terms of our content capabilities. I think many people will just agree that 36Kr has a leading strength in the text and picture content in the past several years. But now from this year, we started to cover more video-formed content, but we still maintain this leading position as a content provider.

For example, our [account] (corrected by company after the call) on Bilibili, accumulated over 300,000 fans on Bilibili. And for our Douyin fans, we have seen nearly 3 million there on Douyin from different accounts of 36Kr. And I would say this, on the one hand is we will give credit to our program content capabilities. And at the same time, we will give thanks to our diversified operational strategies on different distribution platforms, especially in terms of this new-formed content, such as short videos as well as live streaming content.

And maybe as I mentioned, our live streaming content on our self-owned platforms have very good performance. For example, the average viewership as well as the average user spend time are both increasing on our own platforms. And the very famous IP then, now become popular IPs such as 36Kr Live and our co-produced programs with for example, CITIC and Danjie made good performance as well in the viewership on our platform. So that gives us the confidence that we can still maintain our leading position as a content provider.

(Operator Instructions)

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

(foreign language) Let me translate quickly. We noted that your account receivable declined substantially. So can you share with us more details on the improvement you have done in this area this quarter?

(foreign language)

[Interpreted] Thanks, Brian, for your question. And I'll do a quick translation. Regarding our improvement on our account receivables and our account receivables improved greatly in this quarter. As of the date of [September 30th] (corrected by company after the call), and the balance of the accounts receivables decreased by RMB 73 million compared to the balance at the date of the end of June, which shows a sequential decrease for 2 consecutive quarters. And the settlements in Q3 probably offset the allowance for our doubtful accounts in the first half of this year. So that's why just lead to these results. And actually, this is the question we really want to take, maybe many people are concerned about. Thanks, Brian, again.

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

Okay. As there are no further questions, now I'd like to turn the call back over to the management and thank you, again, for joining us today. If you have further questions, please feel free to contact 36Kr's Investor Relations through the contact information provided website or the TPG Investor Relations. And thank you all again for joining us today.

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.]