36Kr Holdings Inc. (KRKR) Earnings Call Transcript & Summary

[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 Plus ], brings direct resources support from the government for start-ups. This type of support was put in practice during the quarter in Tianjin -- 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 content. 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 ahead 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, Paul, and hello, everyone. Our first quarter results got the year off to a solid start. As Paul 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 continue 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 principal in certain low-gross margin businesses and only acted 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 businesses. 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 there 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 of 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 question -- 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 I ask your comment on the clients' spend you saw with 36Kr? It was mentioned that some international clients have reduced this dealer -- their spending. Have they -- have returned in the -- 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 a year-over-year revenue growth of 58%. Advertising services for our New Economy customers continue to grow, both in terms of number of advertising customers and average revenue per advertising customer. And we achieved a more than 100% growth each in advertising services for several verticals such as consumer and lifestyle, e-commerce, artificial intelligence and health care. In particular, advertising services for health care customers delivered explosive growth. We are actively managing to tap into rising opportunities in the artificial intelligence and health care 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 categorized 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 traditionally a slow season for advertising demand, we expect the average revenue per traditional customers to see substantial year-over-year growth in the following quarters. And along with a global recovery from the pandemic, we saw advertising demand from multinational customers greatly 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 our 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 Economy companies.

We have our next question from the line of [ Joan 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 [ stat ] would change the accounting recognition to the net basis and also the business for -- in your unaudited financial results, 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 64% 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 are 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 remaining -- 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. Should 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. The 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, insert for analysis reports and premium offline activities to participants in the public equity markets, including pre-IPO companies, listed companies, bonds 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 markets and extend to our broader field. We believe in the great potential in the public equity markets. Thank you.

We have the next question from the line of [indiscernible] from Industrial Securities.

[Foreign Language] So I will translate my question. For management, I have a question about your 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 accounts 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-trafficked 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 accounts attracted around 3.6 million followers, spurred by our high-performance training 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, Ping An, Huawei and HP. And our current monetization model for our short-form video is mainly advertising, but we will expand our current services to a more comprehensive services, including training and [ contents ] for our customers, to better serve their needs in this New Economy content space. Thank you.

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

I want to know more about the enterprises services, 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 wins are recovering gradually. Recently, in May, we successfully hosted China Fund Partners Future Summit and the 2021 WISE Innovation Leader Conference in Shenzhen, where we discussed 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 health care. We also made the event successful via livestream and received positive feedback and recognition from many event attendees. We see various sectors checking out digital transformation, including digital information, digital merchandise, digital service and digital tenants. We think within the next 20 years, most of the business activities will eventually 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 great -- attract a lot of attention from the capital. And also, 5G technology, health care, new health care and new infrastructure -- health care are gaining vast 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. Thank you.

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

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.]