36Kr Holdings Inc. Q1 FY2021 Earnings Call

Hello, ladies and gentlemen, thank you for standing by for 36Kr Holdings Incorporation's First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After 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, Jing Li, IR Manager of the company. Please go ahead, Jing. Thank you.

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings' first quarter 2021 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.

Thank you. Hello, everyone. Thank you for joining us today. As we venture further into 2021, China's economy is gearing up for a new normal as we steadily emerge from the COVID-19 pandemic. In this context, we are regaining growth momentum and positioning ourselves as the leading platform for new economy growth focused on business content and service offerings in China with continued long-term investments in our content production and technology. We believe we are well-positioned to seize the emerging commercialization opportunities in the digital transformation of traditional enterprises. The rise of enterprise service markets and the further integration of private equity and public equity markets are key indicators to work effectively across the digital counter industry to unlock values for public customers, users, and investors. During the first quarter, we again delivered record steady performance in total user traffic, with average monthly page views jumping to a new high of 829.3 million, representing a 75% year-over-year increase and a 32% sequential climb. This dramatic growth represents the fourth consecutive quarter of page view growth, underscoring our exceptional ability to generate new economy content appealing to a broader and growing audience base.

Thank you, Paul, and hello everyone. Our first quarter results got the year off to a solid start. As Paul mentioned earlier, we saw a strong 58% year-over-year growth in our advertising revenues in the first quarter due to the rebound in market demand. Also, as we continue to shift our resources and focus towards higher margin businesses, we observed a substantial year-over-year increase in both gross profit and gross profit margin. In addition, net losses decreased 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 of 2021 financial results. Online advertising services revenue increased by 58% to RMB33.2 million in the first quarter of 2021 compared to RMB21 million in the same period 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 was RMB6.9 million in the first quarter of 2021 compared to RMB42.8 million in the same period 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 are now only acting as an agent. As a result, revenues from such businesses are recognized on a net basis from this quarter onward.

Thank you. We have the first question from the line of Vincent Yu from Needham & Co. Please go ahead. Vincent, your line is open. You can ask your question now.

Thank you management for taking my question. I have two questions. First question is, can you share your thoughts on overall market recovery in first quarter 2021? Have we seen any signs that we can expect for the rest of the year? Second question is about the clients spending with 36Kr. It was mentioned that some international clients have reduced their spending; have they returned, and how is all spending and engagement by clients this quarter? Yes, thank you, management.

As the worst of the pandemic appears to be behind us, we are seeing a solid economic recovery and gradual improvement across various industries. More specifically, a few new economy companies are spearheading the growth in the aftermath of the pandemic. As such, our advertising business gained strong momentum in the first quarter, with year-over-year revenue growth of 58%. Our advertising services for our new economy customers continue to grow, both in terms of the number of advertising customers and average revenue per advertising customer. We achieved more than a hundred percent growth in advertising services for several verticals such as consumer and lifestyle, e-commerce, artificial intelligence, and healthcare. In particular, advertising services for healthcare customers delivered explosive growth. We're actively managing to tap into rising opportunities in artificial intelligence and healthcare space with brand new customers. Looking forward to 2021, we expect advertising demand from branded customers, especially from multinational brands, to increase compared with last year. Regarding our traditional customers, in the first quarter, we saw average revenue per traditional customer increase by 11% year-over-year.

Thank you.

Thank you.

Thank you. We have our next question from the line of Joan Bing from Credit Suisse. Please go ahead.

Thank you. Good meeting the management. I have a question here on behalf of Kevin. Can you comment on this quarter's gross profit margin in relation to the business changes and also the outlook for the gross profit margin in 2021? I understand that there have been changes in accounting recognition to the net basis and also changing business dynamics. Thank you, management.

Hi, Joan. This is Lynn. I will take your questions. Yes, you can see that our Q1 gross margin actually saw a substantial increase compared to the same time last year; our gross margin climbed to 54% this quarter compared to 8.4% last year. There are a couple of reasons for this. First of all, we've been shifting our focus towards higher margin businesses as said earlier, and we are implementing some cost control measures. This has helped our gross profit and gross profit margin increase. Secondly, as you mentioned, starting from this quarter, we are recognizing net revenue for our enterprise value-added services. While this does not affect our gross profit, it will definitely help increase our gross profit margins to some extent. I also want to highlight that our overall business trend shows upward growth compared to the same period last year. The reason, as explained in our earnings release and prepared remarks, is due to our shift in resources towards higher margin businesses. Gross margins will remain on a continuous improvement trend for the rest of 2021. Hope this answers your question. Thank you.

Sure. Thank you. That's really helpful.

Thank you. We have our next question from the line of CICC. Please go ahead.

Okay. I'll translate myself quickly. Can the management share more details on the strategy of the new products such as the enterprise service review portal? Thank you.

Okay. I will do a quick translation. Our enterprise service review portal has been our latest initiative in the field of enterprise value-added services. We launched this last year as a B2B additional definition to discover and select enterprise services in China. The review portal has showcased more than 3,000 enterprise service applications, mainly in the fields of BI, CRM, and collaborative work. This year, we expect more enterprise service suppliers to join our platform. By addressing enterprises' transformation demands, we aim to leverage our stellar brand, high-quality content offerings, and data insights to provide enterprise service providers with a platform to reach our customers. Thank you.

Thank you. Thank you very much.

Thank you. Can we move to the next question?

Yes, please.

Thank you. We have the next question from the line of Jay Dagang from T.H. Capital. Please go ahead.

Yeah. Thanks, management, for taking my question. I have one question here. How is the process of product development? Thank you.

We recently launched a brand new public equity markets product providing informative editorial commentary, insightful analysis reports, and premium offline activities for participants in the public equity markets, including pre-IPO companies, listed companies, and securities firms. 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 offering that strengthens our current content and service offerings in the private markets while extending to a broader audience. We believe there is great potential in the public equity markets. Thank you.

Thank you.

Thank you. Can we move to the next question?

Yes, please.

Thank you. We have the next question from the line of Industrial Securities. Please go ahead.

I will translate my question. Management, I have a question about the monetization progress of the new infrastructure. Is it a combination of advertising and enterprise services? Thank you.

I'll do a quick translation. We launched our short-form video initiative within a year. We are happy to see that we are gaining a growing number of followers on platforms like Bidibidi, Douyin, and others. During the first quarter, our self-operated video content gained over 4.4 million followers on the third-party traffic platform, which was up 53% sequentially. We attracted more than 647,000 followers on Bidibidi with our video content, gathering over 60 million total views. On Douyin, our Kr finance account attracted around 3.6 million followers, spreading our high-performance training video content. Recently, we also created a content distribution account, and currently, we have partnered with elite brands like Yili, Huawei, and HP. Our current marketing service model mainly focuses on short-form video advertising, but we will expand our service offerings to include more comprehensive services to better serve our customers in this new economy content space. Thank you.

Thank you.

Thank you. Our next question comes from the line of Brian Lee from AMCD. Please go ahead.

Hello. Thanks for taking my question. I want to know more about the enterprise services. How is the progress of your offline activities and which industry will be the most attractive or popular this year? Thanks.

Okay. I will do a quick transition. Our offline events are recovering steadily. Recently, in May, we successfully hosted the China Fund Partners Future Summit and the 2021 Wise Innovation Leader Conference in Shenzhen, where we discussed investment and financing trends in the private and public equity markets. We observed positive feedback and recognition from many event attendees. We see various sectors adopting digital transformation, including digital information, digital merchandise, digital services, and digital benefits. We believe that within the next 20 years, most business activities will eventually go digital. As this trend continues, it will generate tremendous opportunities. In terms of hot industries, we believe healthcare is currently one of the most attractive sectors, capturing significant attention and interest from capital markets, alongside 5G technology and new infrastructure, which are also gaining traction. 36Kr remains at the forefront of new economy-focused information and remains committed to providing quality content offerings and value-added services in this space. Thank you.

Thank you. Thank you so much.

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 using the contact information provided on our website.

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