36Kr Holdings Inc. Q3 FY2020 Earnings Call

Hello, ladies and gentlemen, thank you for standing by for 36Kr Holdings Incorporated's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. 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.

Thank you, and hello, everyone. Thank you for joining us for our third quarter 2020 earnings conference call. In this quarter, our fundamentals remained solid and the market demand for our business-themed content and services has 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 a 61% increase in revenue compared to the previous quarter. Notably, our user traffic continued to grow rampantly across our core platform and a major third-party platform 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% compared to a year earlier. This marks our 10th consecutive quarter of PV growth, demonstrating our core capabilities.

Thank you, Mr. Feng, and hello, everyone. Despite the challenging operating environment, our third quarter financial performance experienced a meaningful improvement on a quarter-over-quarter basis. This is a testament to 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.

Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Ivy Ji of Credit Suisse. Please ask your question.

Thanks, management, for taking the questions. I am asking on behalf of Kenneth. So I just wanted to ask about the advertising business. Can management share with us first the demand recovery trend by vertical in the third quarter and also the overall ad demand outlook into the fourth quarter and early 2021? Thanks.

Thanks, Ivy, and thanks, Kenneth. I think it's a long answer. I will do a quick translation for also recovery in Q3 and our outlook for Q4 and maybe early next year. So for the advertisement demand recovery in this quarter, we have seen a more rapid recovery for our advertisement segment with a 63% quarter-to-quarter growth compared to Q2, which had a 48.9% quarter-to-quarter growth. Compared to the same period last year, we achieved a 21% quarter-to-quarter growth. We can also see some of our multinational clients, who delayed their budgets in the first half of the year due to the impact of the pandemic, resumed their advertising on our platforms in this quarter. The most significant recovery was witnessed from the automobile and hardware industries. Particularly among domestic brands, we noticed that the automobile and real estate sectors experienced the strongest recovery. As we can see, our online advertisements, offline events, and offline training have been continuously recovering, which we believe will continue into the next quarter. Giving a bit more color on the breakdown of different industries, for example, entertainment, media, and e-commerce, both of which benefited from the stay-at-home lifestyle during the COVID-19 pandemic, improved their ranking to the top five industries in our advertiser base by the end of this quarter. In contrast, the automobile and finance sectors were replaced, which are under short-term pressure, we believe. The consumer sector is another rapidly increasing industry for advertisement on our platform. We’ve seen the resilience of TMT companies and the rise of domestic brands in the first three quarters. We believe these trends will continue into the next quarter. At the same time, we believe the demand from the 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.

Thank you.

Your next question comes from the line of Vincent Yu of Needham and Company. Please ask your question.

Thank you, management, for taking my question. I have two questions. One is on the cost side. We have seen a decrease in our cost base and given that the margin is already 34% this quarter, any comments on the margins and the trends, and when we will recover to the 2019 level? My second question is about the offline events. Do you have any visibility on whether hosting offline events is possible in the next few quarters, particularly in the first quarter? Thank you.

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 three quarters of this year slightly increased compared to the same period last year. We think this benefit comes primarily from our revenue, which increased over 60% quarter-to-quarter. The second reason is our fixed costs, meaning that our content production costs are controlled well and have decreased quarter-to-quarter, as we can see. The third reason, thanks to our revenue structure, actually, the enterprise value-added services contributed slightly lower than the previous quarter. So when it achieved a quarter-to-quarter decrease, the whole structure improved. That's for your first question. Regarding offline events, we are excited to announce that our flagship event, the WISE conference, will be held in Beijing from December 8th to 10th this year as scheduled. This year, we will cover even more industry topics and have a very strong speaker lineup. It happens to be the 10th anniversary since we launched our website, so it will be a landmark event welcoming all 36Kr fans to join us. These plans, however, are still under the assumption that there is no second outbreak of COVID-19, so thank you, Vince, for your questions.

Thank you.

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

Thanks management for taking my question. My question is about the progress of new Codec developments in the third quarter related to live streaming, and I look forward to the fourth quarter.

Thank you for the question, Shan. As we can see, our monthly page views have continuously increased, and our content in various forms is well received on the forums and platforms. First of all, thanks to our content capabilities, which are continuously strengthening. Secondly, we will find and explore more strategic collaboration opportunities, even with platforms that we hadn't considered before. We believe these strategic collaborations will bring us more opportunities in both internet traffic and monetization capabilities. Third, we will still explore more opportunities in different content formats. For example, our video content on top-tier platforms has attracted larger viewership on various platforms. With all three strategies, we believe we will continuously strengthen our leading position in the content business.

Thank you very much.

Sir, maybe, Mr. Feng will want to add some more points?

Okay, I thank Mr. Feng for adding some more solid examples in terms of our content capabilities. I think many people would agree that 36Kr has a strong presence in text and picture content over the past several years. Now, from this year, we started to cover more video content, but we still maintain our leadership as a content provider. For example, we have accumulated over 300,000 fans on Bilibili and nearly 3 million followers on Douyin from different accounts of 36Kr. This demonstrates our strong content capabilities and diversified operational strategies, especially concerning new content formats such as short videos and live streaming content. We have seen good performance from our live streaming content on our platforms. The average viewership and the average user time spent are both increasing on our platforms. Notably, very popular IPs, such as 36Kr live and our co-produced programs, have also performed well in terms of viewership on our platform. This gives us confidence that we can maintain our leading position as a content provider. Thank you for these questions.

Thanks.

Your next question comes from the line of Brian Li of AMTD Group. Please ask your questions.

Let me translate quickly. We noticed that your accounts receivable declined substantially. Can you share with us more details on the improvements you have made in this area this quarter? Thanks.

Thanks, Brian, for your question, and also for the quick translation. Regarding our improvements on our accounts receivables, our accounts receivables improved significantly in this quarter as of the date of September 13. The balance of the accounts receivable decreased by RMB 73 million compared to the balance at the end of June, indicating a sequential decrease for two consecutive quarters. The settlements in Q3 partly offset the allowance for doubtful accounts in the first half of this year, which led to this result. This is a question we are very keen to address as we know many people are concerned about it. Thanks again, Brian.

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 would 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 Investor Relations through the contact information provided on our website. Thank you all again for joining us today.

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