36Kr Holdings Inc. Q4 FY2021 Earnings Call

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings fourth quarter and fiscal year 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 web section of our website at ir36kr.com. Participants on today’s call will include our Co-Chairman and CEO, Mr. Dagang Feng; and our CFO, Ms. Lin Wei. Mr. Feng will start with the call by providing an overview of companies and the performance highlights of the quarter in Chinese, followed by English interpretation. Ms. Wei 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 provision of 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 this and other risks and uncertainties can be found 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 by applicable law. Please note that 36Kr’s earnings press release and this conference call include a discussion of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. 36Kr’s earnings press release contains a reconciliation of unaudited non-GAAP measures to the unaudited GAAP measures. Please note that all amounts are in RMB. I will now turn the call over to our Co-Chairman and CEO, Mr. Dagang Feng.

Thank you. Hello, everyone, and thank you for joining our fourth quarter and fiscal year 2021 earnings conference call. 2021 has been an eventful year given the complex environment—a year we faced both expansion opportunities and rising challenges. Despite the rapid global change, China’s new economy demonstrated strong resilience and vitality, committing to our mission of empowering new economic participants to achieve more. We continue to witness, as well as our company many new industries and verticals on their journey of development and expansion. In the meantime, 36Kr delivered solid top-line growth in 2021, with our total revenue reaching RMB370 million for the full year. Notably, we also achieved quarterly profitability in the fourth quarter of 2021 for the first time in the past eight quarters. This robust financial result was driven by significant accomplishments and breakthroughs in many aspects, including content strategy, product development, platform refinement, branding influence, and monetization capability. In the fourth quarter, we delivered another record-setting performance in user traffic, with average monthly page views reaching 850 million, up 35% year-over-year. This 15th consecutive quarter demonstrated 36Kr's unique leading position within the new economy. The release of blockbuster articles such as CTL crack in the trillion RMB battery in Kr, Corporate in TRG, and intelligent hunters in internet giants, as well as all the white papers staying up late, is further evidence of the continued rise of our content influence. These articles attracted wide attention and gained popularity with their premier quality. During 2021, nearly 700 pieces of articles published on our WeChat official account amassed over 100,000 views each, with some attracting more than 200,000 views. Even more impressively, some financial articles achieved phenomenal readership levels, over 300,000 views, and in some cases, over 600,000 views. Meanwhile, our content platform strategy remains intact as we are dedicated to further enhancing our content quality, deepening and diversifying through both PGC and UGC. Additionally, our ongoing efforts bore fruits with results in product development, presentation formats, distribution channels, user experience, and the expansion of our footprint. With respect to content columns and product development, we continued to expand our high-quality content metrics. We target a wide range of industries, including new consumption, smart vehicles, high-end manufacturing, corporate digital transformation, and the Beijing Stock Exchange's dual carbon economy. Meanwhile, we place more focus on the new economy and capital market and continue to upgrade our product offerings across both private and secondary markets. To this end, we launched a series of new products such as digital 36Kr, Kr Finance, OUS, Super Review, 36Kr Research Institute, and Kr Carbon, providing professional analysis of the latest business trends. In addition, we continue to optimize and innovate a series of IP products, such as Wiscofort, 36 and the 36 suite waste classes, and 36Kr Enterprises Service Review platform. Regarding content formats, in addition to reinforcing our advantage in text and images, we have strengthened our strategic efforts and investment in audio, live streaming, particularly short-form videos. We have produced nearly 200 short-form videos, acquiring over 600 million views across our platform, with close to 20 million likes. These videos are unique in terms of topic selection and visual presentation, appealing to a broad range of user demographics, and have currently attracted more than six million followers of our video platform. It is particularly noteworthy that the number of followers to our official corporate account on Bilibili now exceeds 1 billion. This testifies to the increasing popularity and rising influence of 36Kr short-form video content among young audiences. 36Kr audio content is another highlight of our content metrics. An example of one of our exciting audience programs is Kr Walkman, which provides users with the latest business highlights in short audio clips that take just a few minutes to digest. We also collaborate with news radio to broadcast our business-centric product programs on their new radio playlists, enabling 36Kr to deliver premier content to a wide audience across various settings. Furthermore, live streaming has become a significant addition to our content advantage, leveraging its interactive features and our business gurus and industry experts, we have attracted many new users to our live stream content. On the content distribution front, we continue to reinforce our omnichannel distribution strategy, establishing a comprehensive range of channels for distribution. In addition to our proprietary platform, the 36Kr website and 36Kr app, we also distribute our content through external channels, such as our official WeChat account, Weibo, Juhu, Bilibili, and several other platforms and apps. We have expanded our reach to almost all the mainstream platforms, and our followers exceed 22 million, providing us unprecedented influence. In terms of user experience, we continue to optimize and upgrade our product offering. For example, the iOS desktop top widgets and the brand-new UI/UE upgrade have made it easier for users to discover and browse our content more conveniently and smoothly. Moreover, the new user achievement system and the localized community operation strategy have gradually promoted user activity and enhanced user stickiness on our platform. Compared with the prior year on a year-over-year basis, in 2021, the number of users has increased by 47%, the number of comments rose by 204%, and our third-day retention rate rose by 97% across the 36 websites and 36Kr app. Moving on to the expansion of 36Kr's footprint, we extended our presence across a broad range of domestic markets, including lower-tier cities and international markets. In August of 2021, we officially launched our dual headquarters in Shenzhen, and through a localized operations strategy, we have enthusiastically participated in the wave of new economy development in the South China Great Bay area. We have expanded our regional offices to 12 key provinces and cities, including Hangzhou, Chengdu, Zhengzhou, and Chongqing, to explore the potential of lower-tier markets and industry upgrades. On the internet front, 36Kr Global is further expanding its presence from South Asia to Australia, New Zealand, and Europe. Furthermore, 36Kr's premier content has also been adopted by Bloomberg, Dow Jones, and Nikkei, which has significantly bolstered our global influence. Driven by the initiatives above, our customer base grew rapidly in 2021. Each of our six major customer communities continues to expand, including startups, TMT segments, investment institutions, local governments, traditional enterprises, and individual clients. At the same time, we have built a close-loop product and service offering that empowers the entire enterprise lifecycle, spanning from start-up and development to the expansion stage, and we are continuously boosting our new commercialization efficiency. Next, let us look at our achievements in terms of commercialization. In 2021, we expected that recurring COVID-19 outbreaks and the complex microeconomic environment would affect us, but we still achieved solid top-line growth on a comparable basis in fiscal year 2021. Our full-year advertising revenue reached RMB250 million, representing a year-on-year increase of 24%, which was above the industry average. In addition, the number of advertisers exceeded 500, and the average revenue per advertising customer was above RMB400,000, both achieving solid year-over-year growth. Unlike other traffic platforms, 36Kr's advertisements, which build brand reputation and visibility, have benefitted from the platform’s significant leverage capability as well as limited impact from the recent macroeconomic cycles, enabling us to exert the powerful revenue potential. Advertisers choose to collaborate with 36Kr because of our deep-seated industry expertise and a strong influence on the new economy. On the other hand, we are also prepared to harness 36Kr's omnichannel distribution, which accurately targets distinct audiences within our high-quality customer base, a testament to our powerful platform asset. Notably, our short-form video business and the launch of content columns targeting customer-end users have demonstrated 36Kr's advertising advantages in achieving both brand awareness and performance. Delivering rich media characteristics of short-form videos, such as visual effects, strong engagement, diverse content, and well-distribution capabilities, we provide brand promotion and content marketing solutions to help customers enhance their brand image and influence. Our customer base has expanded from corporate clients to brands targeting consumer audiences, including Samsung, Nike, P&G, GE, Juhu, GenkiForest, and many other international and well-known local companies. At the same time, our average revenue per customer has been rising steadily. Turning to the latest update regarding our value-added enterprise service, in 2021, we strategically reduced low-margin intercity market businesses while increasing our investments in offline event consulting services. We proactively incubated the platforms and enterprise service products, such as the enterprise service review platform, with the purpose of driving our same growth curve, and as a result, we made positive growth progress. Our full-year revenue from enterprise value-added services reached RMB74 million. Among those services, offline events and consulting services recorded remarkable growth of 19% and 13% compared with 2020, respectively. Besides usual offline events, we adopted a more flexible approach to serving customers by regularly leveraging video and live stream formats for these events. In the fourth quarter, we held our annual WISE conference with the Year of Parkour in this space. In addition to holding high-quality offline summits, we also partnered with an online live streaming program to promote our WISE conference at the same time. We successfully created a long-tier effect from event promotion to live stream and finally, content recreation and distribution, turning the event into a major industry influencer. Not only did the revenue from the 2021 WISE conference remain at a high level, but user exposure also exceeded a total of 1.3 billion across our platform, effectively assessing this partnership as a benchmark for collaborations between financial media and the OE. In 2021, we held various offline events. Furthermore, the number of events and the revenue per event both increased compared with last year. Our events covered a diverse range of topics, including industry trends, investment opportunities, outlook for metrics, overseas commercial expansion, local investment promotion, and industry operations. In 2021, we also continued to make positive progress in our consulting service, an important component of our enterprise value-added solution. On the corporate side, we helped leading high-tech companies, such as ByteDance, Andy Group, Biomind, issue customized industry research reports. On the government side, we produced research reports on investment promotion and construction planning for newly developed zones for local governments in Shenzhen, Hangzhou, Xi An, among others, generating substantial monetization opportunities. In November 2021, 36Kr Research Institute joined after metric research, a testimony to our professional capabilities and recognition from professional authorities. Next, I would like to share in detail the upgrades regarding our PK incubation project, the 36Kr Enterprise Service Review platform. The digital and smart technology trends have accelerated the industry into a year of faster growth. According to iResearch, the size of the China enterprise SaaS market is expected to grow from RMB53.8 billion in 2020 to RMB130 billion by 2023, with a compounded annual growth rate of 34%. As a result, we launched the 36Kr Enterprise Service Review platform to fuel this huge product demand and market potential driven by corporate undergoing digital transformation. After more than a year of optimization and fine-tuning, our Enterprise Service Review platform has become China’s largest, most authoritative, and convenient enterprise service software selection platform. Targeting the pain points of information metrics between demand side and the sell side service providers, the 36Kr Enterprise Service Review platform team has built its platform within three noteworthy features to empower every enterprise seeking the best solution for their corporate digitalization transformation. First, providing elaborate important information covering key industries in China’s enterprise service market and major leading players in each industry, allowing the demand side to compare similar software products in terms of functionality and price ratings. Secondly, it analyzes user reviews from real users of the software product who are willing to share their experience. Thirdly, a structured analogy system is created by integrating various distinct items of knowledge from across the enterprise service industry to help users accurately aggregate knowledge of the information. As of the fourth quarter of 2021, we have grown our enterprise service review platform to exclude close to 6,000 software applications, up substantially and 21 year-over-year. The platform market active user reached almost 600,000, sequentially increasing by 72% from the third quarter and growing nearly 600 times year-over-year. The cumulative comment amounts to nearly 20,000, increasing over 400 times quarter-over-quarter and 1,000 times year-over-year. These outstanding operation metrics further prove that our product review portal has become appealing to an even broader but still growing user base. In 2022, we are accelerating the development of 36Kr’s competitive advantages and overall influence in the enterprise service review market. Firstly, we will set the evaluation standards for the Chinese enterprise service industry and leverage our first-mover advantages to educate the market. Secondly, through improvements in the product library, user reviews, knowledge likes, and key influence library, we will further reinforce our enterprise service review platform and solidify product competitive advantages. Additionally, as an independent third-party, the 36Kr Enterprise Service Review platform will collect real comments from a wide user demographic as well as encourage users to voice their opinion to ensure the objectivity and fairness of our platform. Furthermore, we will gradually begin testing the commercialization potential of the enterprise service review platform, aiming to achieve full monetization by generating sales leads, providing consulting services, brand marketing solutions, and other effective measures to realize the monetization of our platform. Building on our advantages, we will collaborate with leading domestic SaaS and other service providers, as well as industries with digitalization demand, such as finance, new energy, and healthcare to establish enterprise service review benchmarks and create a flagship platform. Today, we have grown the platform to cover over 16% of enterprise service products in the market. We believe that by deepening the enterprise service review portal's market penetration, the advantages of our platform products and services will position us to capitalize on the best opportunities of this RMB100 billion market, enabling us to achieve impressively further returns. Last but not least, let’s turn to our subscription service. Our full-year revenue from subscriptions totaled RMB28 million, up to RMB35 million year-over-year. In 2021, we achieved solid growth in the number of institutional and enterprise customers, which increased by 40% year-over-year, with average revenue per customer growing by 19% year-over-year. Looking ahead to 2022, as a pioneering platform dedicated to surveying the new economy, we will continue to build and develop our content products and ecosystem to provide the entire life cycle of service for our customers. We will continuously optimize the three major business segments to grow our customer base, including enhancing new formats such as short-form video, and programs targeting individual subscribers. We will also increase our ARPU and explore new business opportunities in the low-tier market and industry upgrades. Additionally, regarding our emerging business, we will maintain an unwavering commitment to bolstering the research and development operations and commercialization of the 36Kr enterprise service review platform. We believe this enterprise service review platform will become our second growth curve. For quite some time, we have faced challenges from COVID-19 and a complex macroeconomic environment. Despite those difficulties, we have shown exceptional performance in our core business, achieving solid year-over-year growth. Riding the wave of industry upgrades and digital transformation aimed at the rise of new consumption, advanced technology, and the dual carbon industry, along with the growth of specialized, refined, differentiated, and innovative enterprises, we will seize the historical opportunity to build a system of optimized product and service, achieving faster and high-quality business growth. We expect 36Kr to continue to deliver strong revenue growth and achieve profitability on a full-year basis in 2022. Under the circumstances where the COVID-19 pandemic is progressively contained and the macroeconomy is stabilized, it will result in a comprehensive reshuffling of 36Kr's business fundamentals, promoting the market to hash 36Kr's valuation and hit the inflection point of the company’s revenue. We are confident that our robust long-term fundamentals will empower us to forge ahead and deliver long-term sustainable value to society and our shareholders.

Thank you, Feng, and hello, everyone. We are very pleased to report another set of solid financial results for the fourth quarter and fiscal year 2021, despite the intermittent resurgence of COVID-19 and the complex macroeconomic environment. We achieved strong growth across all three business segments on a comparable basis in fiscal year 2021, meeting consensus on both the top line and bottom line. I want to highlight that our online advertising business grew 24% year-over-year, outperforming most of our peers in the industry. Most importantly, as we continuously improve our operating efficiency, we booked a record high gross profit margin of 65% and a net income of RMB15.4 million for the fourth quarter of 2021, the first time achieving profitability in the past eight quarters. In addition, we ended the year of 2021 with a very strong cash position of RMB216.1 million as we generated positive operating cash flow in both the fourth quarter and the full year of 2021. As we venture further into 2022, we will continue to solidify our core strengths in content production and service offerings while expanding our monetization channels. We believe that we are well-positioned to capture the vast opportunities in China’s new economy space and create greater value for our users, customers, and shareholders. Now I’d like to walk you through more details of our fourth quarter and fiscal year 2021 financial results. Online advertising services revenue increased 10% year-over-year to RMB76.4 million in the fourth quarter and grew 24% year-over-year to RMB214.7 million for the full year of 2021. The increase was primarily attributable to more innovative marketing solutions we provided to our customers. The number of advertising customers and the average revenue per advertising customer both achieved growth in the fourth quarter and the full year 2021. Enterprise value-added services revenue was RMB30.3 million in the fourth quarter of 2021 and RMB74 million for the full year of 2021. As stated in our earnings release, starting from the first quarter of 2021, we ceased to act as a principal assuming low gross margin businesses and acted fully as an agent, hence revenues of such businesses were recognized on that basis from the first quarter onward. 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. The gross transaction value of enterprise value-added services increased 46% year-over-year to RMB60.5 million in the fourth quarter of 2021 and increased 12% year-over-year to RMB217.2 million for the full year of 2021. In particular, our consulting services revenue and offline-enhanced revenue increased by 13% and 19% year-over-year, respectively, for the full year of 2021, reflecting sustained growth despite the lingering pandemic's influence. Subscription services revenue decreased by 11% to RMB9.6 million in the fourth quarter of 2021, mainly because some offline training programs were canceled or delayed due to the resurgence of COVID-19. For the full year 2021, our subscription revenues increased by 35% to RMB28 million, primarily attributable to our continued efforts in offering high-quality subscription products. Total revenues were RMB116.3 million in the fourth quarter of 2021 and RMB316.8 million for the full year of 2021, respectively. Taking into consideration the aforementioned changes in revenue recognition for enterprise value-added services, where there was a RMB30.2 million and RMB143.2 million difference between net revenues and gross transaction value for the fourth quarter and full year, respectively, investors can see that our overall business trend is upward and demonstrates solid year-over-year growth. Cost of revenues decreased by 42% year-over-year to RMB40.7 million in the fourth quarter and decreased by 51% year-over-year to RMB128.8 million for the full year of 2021. The decrease was primarily due to our continuous shift in focus towards higher-margin businesses and recognition of certain revenues on a net basis. Gross profit increased by 49% year-over-year to RMB75.6 million in the fourth quarter of 2021 and increased by 50% year-over-year to RMB187.9 million for the full year of 2021. Gross profit margin reached a record high of 55% in the fourth quarter of 2021 compared to 42% in the same period last year. For the full year 2021, gross margin was 39% compared to 32% last year. The increase was primarily due to our continuous shift in focus towards higher gross margin businesses and recognition of certain revenues on a net basis, as well as our improved operating efficiency in fiscal year 2021. Operating expenses decreased by 32% year-over-year to RMB61.6 million in the fourth quarter of 2021 and decreased by 28% year-over-year to RMB282 million for the full year of 2021. Sales and marketing expenses were RMB39.3 million in the fourth quarter of 2021. The increase was primarily attributable to an increase in payroll-related expenses and marketing expenses, partially offset by decreased share-based compensation expenses. For the full year 2021, the sales and marketing expenses were RMB143.9 million. The increase was primarily attributable to an increase in payroll-related expenses, partially offset by decreased share-based compensation expenses and marketing expenses. General and administrative expenses were RMB9.6 million in the fourth quarter and RMB90.6 million for the full year of 2021, representing an 88% and 57% reduction compared to the same period last year, respectively. The decrease was primarily attributable to a release of the allowance for credit losses and a decrease in share-based compensation expenses, partially offset by the increase in payroll-related expenses. The release of the allowance for credit losses was mainly due to the improved collection of accounts receivables, as well as a continuous increase in our efforts in receiving accounts receivables. Research and development expenses were RMB12.6 million in the fourth quarter of 2021 and RMB47.5 million for the full year of 2021. The year-over-year increase was primarily attributable to the increase in payroll-related expenses as we bolstered our research and development capabilities. Share-based compensation expenses recognized in cost of revenues, sales and marketing expenses, research and development expenses, and as well as G&A expenses totaled RMB4.1 million in the fourth quarter of 2021 compared to RMB9.1 million in the same period last year. For the full year 2021, the total amount of share-based compensation expenses was RMB15 million compared to RMB39.3 million in 2020. Other income was RMB1.5 million in the fourth quarter of 2021 and RMB3.6 million for the full year of 2021, respectively, compared to other expenses of RMB10 million and RMB8.3 million in the same period last year. The fluctuation was primarily attributable to net losses recognized from equity method investments in fiscal year 2021. Net income was RMB13.4 million in the fourth quarter of 2021 compared to a net loss of RMB90.1 million in the same period last year. This is the first quarter we achieved quarterly profitability in the past eight quarters. For the full year of 2021, the net loss was RMB90.6 million compared to RMB279.3 million in 2020, a significant reduction from the full-year net loss. Non-GAAP adjusted net income was RMB19.6 million in the fourth quarter of 2021 compared to a net loss of RMB81.1 million in 2020. For the full year 2021, the adjusted net loss was RMB75.6 million compared to RMB240.1 million last year. Net income attributable to 36Kr Holdings' ordinary shareholders was RMB14.6 million in the fourth quarter of 2021 compared to a net loss of RMB91.4 million in the same period last year. For the full year of 2021, the net loss attributable to ordinary shareholders was RMB89.6 million compared to a net loss of RMB280.2 million last year. Basic and diluted net income per share were both RMB0.014 in fourth quarter of 2021 compared to a net loss per share of RMB0.09 in the same period last year. For full year 2021, the basic and diluted net loss per share were both RMB0.087 compared to RMB0.275 in 2020. As of December 31, 2021, the company had cash, cash equivalents, and short-term investments of RMB216.1 million, the highest cash level in the past two years. This was mainly due to the positive operating cash flow generated in both the fourth quarter and full year of 2021. 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 a total of 1 million of its American Depository Shares, each representing 25 Class A ordinary shares. As of December 31, 2021, the company had repurchased approximately 786,000 ADSs for approximately RMB17.5 million under this program. This concludes our prepared remarks. We will now open the questions.

I have two questions. The first is under the current macroenvironment, how do you view the advertising business in 2022? And my second question is, how did COVID-19 in March affect the company’s offline business in the first quarter? Thank you.

Thanks for your questions. For your first question, I would like to say that in 2021, advertising revenue grew by 24% year-over-year, a relatively high growth rate compared to our peers. As the pandemic comes under control, I believe the economy will gradually recover. We believe the advertising industry will trend upward as well. From our perspective, our advertising growth mainly comes from two sources—the increasing number of advertisers and the steady growth of ARPU. 36Kr's distribution channels have become more diversified and targeted more niche markets with new forms like short-form videos. We expect both the number of advertisers and ARPU will grow. We subsidized branding advertising, which currently is stronger leverage and less susceptible to economic cycles. Therefore, our advertising business is least affected by inflections in the economy. From the industry side, it depends more on the pandemic situation. I guess new media will perform better than traditional media. That’s my opinion about the industry. Regarding your second question, the pandemic will indeed impact our offline events. However, we are planning to communicate with customers about moving certain events online. We are adding a live streaming component, which will help alleviate the pandemic impact. From a historical perspective, Q1 is not the peak season for offline events in any case, so the pandemic should not have too great an impact on revenue. We may also communicate with our customers about postponing their events so that even if our Q1 revenue is affected by postponements, full-year revenue will remain intact.

I will translate my question. We know that companies start with new economy content, recently making a lot of assets to expand the content boundaries. Could you give us more color on what you’ve achieved? How would you maintain your competitive advantage in content? Thank you.

Thank you for the question, Peipei. Yes, you asked a very good question. In terms of content innovation and production, we have been doing a lot of initiatives. First of all, we have been expanding our presentation formats. For example, we previously only had text flash information/news and pictures. Now we are expanding to richer formats, including short videos, audio formats, as well as live streaming formats. That’s number one on the presentation formats. And number two, on our columns and content productions, we have mentioned in our prepared remarks that we now have many WeChat account metrics, including our 36Kr official account, 36Kr Pro, 36 Finance, the secondary market WeChat accounts, 36 Research Institute, 36 Carbon, and the Wave, which target institutions as well as younger generations' lifestyle content, including reviews for 3C products and new consumption products. Overall, our presentation formats and the coverage of the channels and verticals are both expanding. That translates into our commercialization. First of all, our short-form video has contributed significantly to our commercialization. We have more C-end customers now; previously, we had a lot of B-end customers, such as Intel. Now we are expanding into Nike, P&G, and various beverage brands. That has helped us increase our advertising customers as well as our ARPU. That’s why we are very confident. As Mr. Feng just mentioned, we expect in 2022 that both our advertising revenue and enterprise value-added services revenue will grow. And we expect to achieve profitability for the full year in 2022. I hope that answers your question, Peipei.

Hi, management. Thanks for taking my question. I have a small question regarding margin. The overall gross margin was a record high at 65%, up about 33 percentage points year-over-year and nine percentage points quarter-over-quarter. I wonder what the reason for this trend is and how we should look at the margin outlook in 2022?

Thank you for your question, Don. That’s a very good question. Yes, our gross margin of 65% for the fourth quarter is a record high; it’s an amazing gross margin level. The year-over-year increase in gross margin mainly comes from recognizing certain revenues on that basis. That gives us almost a 20% lift in gross margin. If you compare every quarter to the first three quarters of last year, we basically increased gross margin by almost 20%. That’s mainly the reason for the year-on-year improvement in gross margin. The quarter-over-quarter improvement in gross margin mainly comes from economies of scale; if you look at our revenue for the fourth quarter, due to seasonality, Q4 is the strongest quarter for the entire year. We achieved almost RMB120 million in revenue, which is a very high level, and our costs remained at a relatively stable level. That’s why we see leverage here, which we call the economy of scale. Sequentially, our Q4 gross margin increased significantly. Additionally, to a smaller extent, because some of our revenues were recognized on a cash basis due to our prudent accounting policy. With our improved efforts in collecting accounts receivables, we made significant progress in the fourth quarter. Therefore, before year-end, we collected some revenues on a cash basis that also resulted in a higher gross margin for Q4. I hope that answers your question, Don.

Thank you for taking my questions. I have two questions. One is Mr. Feng said that we could never be a company that lives solely by advertisement. Currently, the ad business is still the core business of our company. How do you see the potential of the advertising business and other new businesses going forward?

Thanks for following up on my interview. I would like to say I’m not a big fan of the advertising business because there are limitations in terms of revenue scale and gross margin. Of course, from our perspective, we are confident that in the future we can achieve at least 30% or 40% growth. However, I would like to emphasize that we want to focus more attention on our new business, like our enterprise service review platform. In 2021, our advertising business and the value-added enterprise service accounted for 46.6% and 47.2%, respectively, of the gross transaction value, indicating a very healthy revenue mix. In the future, we will continue to build our second growth curve in enterprise services—this revenue will be an important part of our future revenue. We believe that, driven by the enterprise service review platform, 36Kr's growth will continue on an upward trajectory through this new curve.

As a true provider in the enterprise service industry, what are the advantages of the 36Kr enterprise service platform? Thank you.

Thanks for your second question. 36Kr provides advantages with three key features for our enterprise service review platform. First, I would like to note the fairness and objectivity of our platform. As an independent platform, we especially value authoritative user reviews, which are not biased. Compared to other large internet companies that have their own SaaS and cloud products, our enterprise service review platform can display user feedback on software applications impartially, enhancing decision-making efficiency for both sales and buyers. The second advantage is our capability and awareness to serve customers. The third advantage is our complete product system. We originally targeted the pain points for both sellers and buyers in the enterprise service market and started to build our presence earlier. Our contents, such as software product libraries, user review libraries, key person databases, and knowledge maps, contain the crucial elements in our enterprise service software selection platform. I hope my answer provides enough clarity for you. Thank you.

Thank you. We do not have any further questions. I would like to turn the call back to the company for closing remarks.

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

Thank you.

That concludes our conference for today. Thank you for participating. You may all disconnect. Have a nice day.