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

[Interpreted] Now I'd like to particularly introduce our progress in the enterprise service review business. In recent years, the government has been actively advocating for the integration of the economy and Internet as well as digital transformation in various industries. At the same time, the investment community has witnessed a slowdown in the [ CN ] market and declining marginal return on customer acquisition. Therefore, we believe the industrial Internet economy with enterprise service [ of its core will soon offering ] huge development opportunities as new economy enterprises and traditional enterprises have intrinsic [ need ] for digital upgrades and digital transformation, respectively.

[Foreign Language]

[Interpreted] With this background, in October 2020, 36Kr launched an enterprise service review portal, the first comprehensive enterprise service procurement decision-making platform in China. It's a one-stop platform solution aiming to facilitate its service providers to acquire customers and demand side to make informed [indiscernible] decision. The platform delivers information emerging from the 3 layers: service, interaction and data. On the service layer, we provide customers with one-on-one consultation, self-helping learning tools and social community functions. On the interaction layer, we help customers search for future information in multiple dimensions with content comparison services and [indiscernible] making reports. At data layer, we provide customers with industry data and category information, process, features, real name reviews and commentaries as well as successful case studies and supplier-side information, et cetera.

[Foreign Language]

[Interpreted] Over the past 3 years, 36Kr has accumulated in-depth expertise and unique advantages in providing enterprise services. For example, supported by proven content capabilities, we have built a database of over 800,000 new economy enterprises and accumulating numerous top experts and key opinion leaders, KOLs. We can also help users gain access to relevant industry associations resources and enhance their understanding of the industry. 36Kr enterprise service review portal is the first domestic enterprise service platform providing real name comments and is widely recognized as the [indiscernible] of the 2B market. Our professional graphs of enterprise service software is far more sophisticated than that of our peer -- our peer providing similar service. Our detailed classification of the SaaS industry is worked into a main category and subcategories, which has become the industry benchmark and standards.

[Foreign Language]

[Interpreted] As the first enterprise service review platform in China, 36Kr enterprise service review portal has become the most comprehensive [indiscernible] enterprise decision-making platform. By the end of the second quarter, the review portal had showcased over 4,000 enterprise service applications covering service across 15 industries and 200 categories. Meanwhile, we have received thousands of real user comments in with dozens of industry experts to join the platform offer their opinions to help the demand side make better experience. Moreover, building our own in-depth understanding of the industry, we are able to further enhance our enterprise service with rich content support. Recently, we started initial commercialization of the renewed portal service. In May, by introducing its products in a more expressive and logical way and improving user interaction, we successfully helped a SaaS service provider obtain more sales leads. These leads have an estimated conversion rate as high as 20%, while the cost of conversion was greatly reduced. We believe that as we continuously refine our products and [indiscernible] commercialization, we believe our enterprise service review portal will become a new driver of the company's future growth. We will unlock tremendous value on our way to expand the boundary of medium and tap into more enterprise services.

[Foreign Language]

[Interpreted] Lastly, turning to our subscription service. In the second quarter, we revamped our subscription service model and witnessed a revenue growth of 124% year-over-year. our subscription membership service are available through both online and off-line channels. Online subscription will focus on the Kr column within our 36Kr app for paid knowledge products and [indiscernible] training program, helping college students and new recruits to improve their professional skills. For off-line subscription service, we offer membership programs such as entrepreneur star and speedway star classes bringing opportunities for practitioners in various fields to engage in deep communication and interaction with industry leaders and experts face to face. In the second half of this year, we will continue to expand the breadth and depth of our subscription offerings for our users to better satisfy their needs and further improve user stickiness.

[Foreign Language]

[Interpreted] In summary, in the second quarter of 2021, 36Kr continued to enhance its influence on new economy-centered content offerings, thereby achieving growth in both user traffic value and the number of total followers on all platforms. We are pleased to have delivered strong financial results in the second quarter, exceeding analysts' expectations on all key financial measures. Led by our success, devotion and investment in our enterprise service review business, the company has delivered several initial results by innovating and exploring the commercialization opportunities of our new business initiatives. Looking ahead, we believe that 36Kr is well poised to capitalize on the readiness of real economy, industrial Internet and hard and core technology to create brand new development opportunities.

[Foreign Language]

[Interpreted] With that I'll 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, Wei.

Thank you, Paul, and hello, everyone. We are pleased to have achieved a set of solid financial results in the second quarter of 2021 with a strong year-over-year growth across all of our business segments on a comparable basis. Notably, as Paul just mentioned, our advertising revenues increased by 65.1% this quarter compared to the same period of last year, demonstrating sustained user engagement and customer interest in our premium content and service offerings. Also, thanks to our continued efforts to provide customized and innovative services, revenues from our enterprise value-added services more than doubled sequentially and its grand transacted value increased by 35.9% year-over-year. In addition, our commitment to maintaining efficient operations with an increased focus on higher-margin businesses is paying off, with our gross margin expanding to 57.4% from 29% in the same period of last year, and net loss narrowed by 56.8% year-over-year. Looking ahead, we believe we are well positioned to continue on this growth trajectory, serving new economy participants more effectively and expand our monetization channels to seize the vast opportunities ahead of us. Now I'd like to walk you through more details on our second quarter 2021 financial results. Online advertising services revenue increased by 65.1% to RMB 51.7 million in the second quarter of 2021 from RMB 31.3 million in the same period of last year. The increase was primarily attributable to the strong recovery of market demand as well as more innovative marketing solutions we provided to our customers. The number of advertising customers and the average revenue per advertising customer both achieved strong growth in the second quarter of 2021. Enterprise value-added services revenue of RMB 14.3 million in the second quarter of 2021 compared to RMB 42.6 million in the same period of last year. The decrease was primarily because we continuously shifted our focus towards higher-margin businesses and starting from the first quarter of 2021, 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 the first quarter onwards. To increase comparability of operating results and help investors better understand our business performance and operating trends, we introduced gross transaction value as a supplemental metric to describe our business. Gross transaction value of enterprise value-added services was RMB 57.9 million in the second quarter of 2021 increased by 35.9% from RMB 42.6 million in the same period of last year. Subscription services revenues increased by 124.1% to RMB 6 million in the second quarter of 2021 from RMB 2.7 million in the same period of last year. The increase was primarily attributable to high-quality subscription products we offered to our institutional and individual subscribers. Total revenues were RMB 72.1 million in the second quarter of 2021 compared to RMB 76.7 million in the same period last year. Taking into consideration of the aforementioned change in revenue recognition for our enterprise value-added services, which involves RMB 43.6 million variance between net revenues and gross transaction value, you will actually find that we maintained our overall upward business trend and demonstrated solid year-over-year growth. Cost of revenues was RMB 30.7 million in the second quarter of 2021 compared to RMB 54.4 million in the same period of last year. The decrease was primarily due to our continued cost control measures to improve our operational efficiency and our shift of focus towards higher-margin businesses as well as the recognition of certain revenues on a net basis, which we discussed earlier in the enterprise value-added services section. Gross profit increased by 86.1% to RMB 41.4 million in the second quarter of 2021 from RMB 22.2 million in the same period last year. Gross profit margin was 57.4% in the second quarter of 2021 compared to 29% in the same period last year. Operating expenses were RMB 75.3 million in the second quarter of 2021 compared to RMB 99.4 million in the same period of last year. Sales and marketing expenses were RMB 33.4 million in the second quarter of 2021 compared to RMB 39 million in the same period of last year. The decrease was primarily attributable to the decrease in marketing expenses and share-based compensation expenses. G&A expenses were RMB 29.9 million in the second quarter of 2021 compared to RMB 50.9 million in the same period of last year. The decrease was primarily attributable to the decrease in the allowance for credit losses and share-based compensation expenses. Research and development expenses were RMB 12 million in the second quarter of 2021 compared to RMB 9.6 million in the same period of last year. The increase was primarily attributable to the increase in payroll-related expenses as we beefed up our research and development capabilities. Share-based compensation expenses recognized in cost of revenues, sales and marketing expenses, research and development expenses as well as G&A expenses totaled RMB 3.3 million in the second quarter of 2021 compared to RMB 12.6 million in the same period of last year. Net loss was RMB 34.3 million in the second quarter of 2021 compared to RMB 79.3 million in the same period of last year. Non-GAAP adjusted net loss was RMB 31 million in the second quarter of 2021 compared to RMB 66.7 million in the same period of last year. Net loss attributable to 36Kr Holdings ordinary shareholders was RMB 34.1 million in the same period -- in the second quarter of 2021 compared to RMB 79.5 million in the same period of last year. Basic and diluted net loss per share were both RMB 0.033 in the second quarter of 2021 compared to RMB 0.078 in the same period of last year. As of June 30, 2021, the company had cash, cash equivalents and short-term investments of RMB 149.6 million compared to RMB 174.1 million as of March 31, 2021. The decrease was mainly attributable to the share repurchase as well as cash used in operating activities. Lastly, let me provide some updates on our share repurchase program. On May 6, 2020, the company announced that its Board of Directors authorized a share repurchase program under which the company may repurchase up to a total of 1 million of its American depository shares each representing 25 Class A ordinary shares. As of June 30, 2021, the company had repurchased approximately 786,000 ADS for approximately RMB 17.5 million under this program. This concludes our prepared remarks today. We will now open the call for questions. Operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Vincent Yu from Needham & Company.

I have 3 questions. The first question is, can management help us understand the impact on our client base as a result of regulatory crackdown on sectors such as online education platforms? My second question is in terms of our video content initiative, do we see any potential impact also from regulation on our video that could cause negative impacts on our ability to monetize these contents? And third question is, can management help us break down our top 3 customers in terms of their respective industries?

[Foreign Language]

[Foreign Language]

[Interpreted] We embarked our short-form video initiative because there's great potential in this market. Short-form video enable users to acquire massive amounts of information efficiently across scenario in a timely manner. This better received and more popular, especially among young people. Short-form video as an efficient dissemination channel will empower us to expand our [ CN ] user base with digital high-quality content and improved user mental capabilities. Regulations on short-form video are mainly focused on proper content themes, while our short-form video content focus on finance, business and personal growth in line with national guidelines. Therefore regulations on short-form videos have no impact on us. We believe our content will always be virtuously supported by the country, [indiscernible] short-form video rollout in the future.

[Foreign Language]

[Interpreted] In the second quarter, our top 3 customers for our advertising business were in the e-commerce and Internet industry: Alibaba, ByteDance and Baidu. Revenue generated from each of them didn't reflect the significant proportion of the total advertising revenue. And actually, revenues generated from our top 10 customer only accounted for 37% of total ad revenue. In addition to the Internet e-commerce industries, our customers also includes top-tier companies in industries such as artificial intelligence, entertainment and media, automobiles and transportation and consumption, online sales industries. Vincent, can you repeat your first question?

Okay. The first question is about the -- in terms of the impact from the regulation crackdown on online education platforms.

[Foreign Language]

[Foreign Language]

[Interpreted] So about the education industry impact on our advertising business. Revenue from the education industry represents only a small proportion of our total advertising revenue. The education industry contribution to advertising revenue is 0.7% in the second quarter of 2021. And for 2020, quarter 2 is 1.7%. So therefore, the fluctuations in the education industry have a limited influence on our overall advertising revenue.

[Operator Instructions] Our next question comes from the line of Shan Jiao from CICC. [Operator Instructions] All right. We are not getting response. I'll move to the next question from Peipei Qiu from Industrial Securities.

[Foreign Language] I will translate for my question. So could you share some of your main strategies or specific approaches to improve your ARPU of the online advertising business? And how long should we expect ARPU to return to the pre-COVID level?

[Foreign Language]

[Interpreted] Actually, the ARPU of our advertising has increased this quarter compared with the same period last year. For the volume half year, we may improved ARPU through 2 ways. First, due to our content influence and brand premium, our publication price is rising slightly every year, which is conducted to improvement of the ARPU. Therefore, we will continue to improve the quality of content and track more customers from various industries. Second, the rise of short video has greatly increased the growth potential of our ARPU. For example, our recent technology enterprise customer or a single short video advertisement cost RMB 2.25 million. And last quarter, we only have a advertisement cost RMB 1 million. So short-form video content has natural advantages that is customer unit price as matched or even exceeds the commercial value of our retail accounts in short time. So in the future, we will continue to use various modes to help customers upgrade an e-mail-based marketing. In that case, the customer ARPU will raise accordingly with the brand influence and marketing quality and return to the prepandemic situation, even higher the level before pandemic.

[Operator Instructions] Our next question comes from Shan Jiao from CICC.

[Foreign Language]

[Foreign Language]

[Foreign Language] I will translate myself quickly. What is the potential monetization space for the new products such as corporate service products. And what's our strategy of this product in this year and in the long term?

[Foreign Language]

[Interpreted] Okay. Towards 2020, we launched our enterprise service review platform, the first comprehensive SaaS platform in China. As of today, the review portal has showcased over 4,000 enterprise service applications covering software across 15 industries and 200 categories. Additionally, we have received thousands of real user comments and invite dozens of industry experts to join the platform, making the industry most comprehensive and standardized enterprise service decision-making platform. We plan to start with 3 monetization models. The first one takes commission fees from lead generation, which will account for the most significant part of the overall revenue. We believe our enterprise services review platform will provide traffic, but finally that helps acquire customer more [indiscernible]. Meanwhile, we expect the cost of customer acquisition to decrease by at least 30%. This business model is similar to Autohome of the automobile industry and ZOYA of the medical and beauty industry. And the second is to provide marketing management services such as helping manage enterprise accounts, ranking list, analytical reports of follower management's votes on our review portal. And the third builds the membership service system covering buy-side and sell-side that offers regular research reports, and this will have a fixed membership fee will be charged. And for this May, we already have a try on the commercialization. So we have a SaaS company that gets some leads, and we have a really high conversion rate that is 20%. So this is a really good result for us, and it's better than the competitors in the same industry. And also, we acquired the customer at least much more cheaper than the others. So we reasonably will yield refined product systems or have -- try some better way of the commercialization path. So the real -- the true commercialization path is certainly will be launched at 2022.

[Operator Instructions] Our next question comes from Jay Dong from TH Capital.

[Foreign Language] Congratulations on strong revenues. How has off-line events progressed in the second half of 2021? And how [ do we ] think about epidemic impact on off-line events?

[Foreign Language]

[Interpreted] Okay. So in the second half of the year, we -- it's really -- we will have a lot of the off-line events. But we have already signed some collaboration agreements for off-line meetings, and the epidemic will have certain impact on the holding of off-line activities. We will take national policies and epidemic prevention control as the primary consideration. We will negotiate with our partner for delay. And so this impact of recent epidemic will have base impact on the third quarter and some activities may be delayed to the first quarter, but it's not being canceled. So however, from the perspective of the 6 months or the half -- the next half of the year, the impact will not be that much great. Also, the epidemic will also have some impact on some real economic entities to a certain extent. So probably the online advertising revenue will fluctuate a little bit.

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

Thank you once again for joining us today. If you have further questions, please feel free to contact 36Kr's Investor Relations through the contact information provided on our website.

This concludes this conference call. You may disconnect your line. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]