36Kr Holdings Inc. Q4 FY2023 Earnings Call

Thank you very much. Hello, everyone and welcome to 36Kr Holdings fourth quarter and fiscal year 2023 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. Participants on today's call will include our Co-Chairman and CEO, Mr. Dagang Feng; and our Chief Financial Officer, Ms. Lin Wei. Mr. Feng will start the call by providing an overview of the company and performance highlights of the quarter in Chinese, followed by an 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 provisions of the U.S. Private Securities Litigation Reform 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 is included 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 under applicable law. Please note that 36Kr's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. 36Kr's earnings press release contains a reconciliation of the unaudited GAAP measures to the unaudited GAAP measures. And please note that all amount numbers are in RMB. I will now turn the call over to our Co-Chairman and CEO, Mr. Dagang Feng.

Thank you. Hello, everyone. Thank you for joining our fourth quarter and full year 2023 earnings conference call. 2023 was an extraordinary year for 36Kr as we continuously strengthened our content ecosystem, leveraging our content creation partners and comprehensive marketing offerings to drive growth in both our user base and monetization. As a result, our annual revenue reached RMB340 million, up 5% year-over-year and we sustained our high gross profit margin of 54%. 2023 also marked the year of exposed growth in AI as we actively embraced the vast opportunities brought by this industry transformation. We were able to dive deeper into visionary AI applications, accelerating AI adoption in real-world scenarios. Let me share some additional details of our 2023 progress across three areas: the enrichment of our content ecosystem, AI product development, and the comprehensive application of AI. I will start with our content ecosystem which we will further enrich and diversify. We will continuously create high-quality content on multiple fronts. In 2023, we built upon our flagship channels, including 36Kr and 36Kr Pro by accelerating our reach in the vertical. We rolled out high-quality content specific accounts like the emergence of intelligence, 36Kr Auto Future Consumption, PR Carbon, and Hardcore among others. These accounts made our metrics more comprehensive, bringing both broad content coverage and a great depth of expertise in specialized domains to provide users with invaluable insights into industry trends and evolving business dynamics. At the same time, we continue to tailor content experiences for younger generations by adding vertical media channels, selling a broad content matrix of text and graphics, clicks and customized videos. This channel successfully engages younger audiences, greatly extending our content reach with approximately 40 accounts so far covering advanced manufacturing digitization, dual carbon, and ESG hardcore technology, highly specialized innovative enterprises, consumer lifestyles, and much more. We have successfully introduced and fostered a solid content ecosystem. We also expanded our footprint across various channels, crafting a comprehensive circulation measure, encompassing major new media platforms like Weibo and China Exposure, which brings us wider overall dissemination and higher visibility for our prime content with blockbuster articles emerging back to back throughout 2023. 740 of our articles achieved over 10,000 views. The automated Weibo topic list with 23 hot search topics and over 100 hotly debated topics, thanks to our continued stream of fresh perspectives. Our consistent production of high-quality content has standardized and diversified our user demographics, further elevating user engagement and stickiness. As of the end of 2023, we had over 32.7 million followers, marking 11 consecutive quarters of growth. Moreover, our overall content ecosystem is now more comprehensive and diverse. We explore a growing area of content formats, including text, graphics, short and long-form videos, as well as audio and live streaming. In terms of short video, our exceptional content creation capabilities are as widespread visibility and views from users. Our short video followers exceeded 9 million by the end of 2023, including a significant 2.2 million on Bilibili alone. Moving on to long-form video. In 2023, we unveiled our first long video talk show series, 'Say in 2033', owing to its roster of single and in-depth discussions, a rarity within the industry. Our show rapidly captured audience attention and imagination. So far, we have aired 2 productive seasons of the show. As a host, I discussed and explored exciting aspects of the new economy with visionaries from various industries, including AI, traditional automotive manufacturing leaders in the emerging electric vehicle sector, carbon neutrality industry luminaries, and capital market experts. Live streaming for 'Say in 2033' at Youku and Beijing Radio and Television Station also marked a pivotal milestone for us. They extended our reach beyond social media, successfully breaching out into long video platforms and television networks and fostering a broader content portfolio and closed-loop ecosystem. In terms of IP product development, we consistently reinforce our medium value by concerning our medium platforms' competitive barriers with high-quality content offerings. In 2023, we continuously augmented our content metrics by creating and nurturing our content IP with programming like those I just mentioned, foreseeing 2023 and our user series. We also launched a diverse range of initiatives supporting our newer IP, including texts and graphics, short videos and live streaming programs, further reinforcing our content influence. In terms of event IP innovation, we broadened the scope of our annual flagship Wise conference to encompass all business domains completing its evolution from the Wiring of the New Economy conference to the Wise King of the Business Conference. This strategic graduation enriches the events' diversity while also providing its audience with broader industry perspectives. We also unveiled a brand-new summit, Waves, as well as two culture and leisure IP series, Surprise Incredible, successfully driving growth in our business and facilitating enterprise client acquisition. Furthermore, 36Kr emphasizes IP-oriented upgrades to enhance its branded service offerings in 2023. As a keen observer and interpreter of industry and market trends, the KR Research Institute has maintained its focus on conducting thorough research on state-of-the-art technologies, innovative trends and business advancement through high precision data and accurate analysis. We support government and corporate clients with tailored consulting services, offering invaluable perspectives and insights to drive industry transformation and innovation. Next, 36Kr business school offers a diverse array of courses, including open lectures, explosive fireside chats with C-level executives, corporate site visits, and interviews. We also advanced our development of degree-based programs for senior executives in the new economy sector in China, teaming up with globally esteemed institutions such as Oxford University, business schools in France, and Queen Mary University of London, among others, to jointly deliver world-class masters and doctoral programs. Moreover, in response to the escalating need for AI applications, we partnered with top-tier institutions, including Peking University and University, to unveil the global intelligent entrepreneurial initiative, further propelling AI advancement. As a result, 36Kr Business School's IP has gradually emerged as a permanent player in the training sector, enabling recent graduates and AI professionals with live training solutions, empowering them to anticipate and amplify the new economic growth trend. The third and final aspect I want to highlight today is how we have advanced our AI applications in innovative scenarios, coupled with new opportunities. With the emergence of large language models, we strategically integrated technologies throughout our content ecosystem and pioneered the use of AI technology in operations. This significantly improved the efficiency of store operations while reducing relevant costs. During the Asian Games, we innovated by creating an AI-driven Asian Game blogger on Xiaohongshu and teaming up with Alibaba's AI model. This joint initiative marked a significant content creation milestone for us while also underscoring 36Kr's human and outstanding execution capabilities in AI applications. In 2023, by virtue of our outstanding proficiency in creating business and test finance content, we were one of the first companies invited to partner with Baidu within the ChatGPT ecosystem. This cooperation has since evolved into a more in-depth strategic partnership with Baidu, under which we're effectively advancing innovation and the commercialization of AI technology in content production and enterprise services. Further leveraging the synergies between AIGC technology and the content production industry, we maximize the utilization of AIGC technology across content production activities, including information identification, text processing, and image generation. This upgrade effectively reduces costs while enhancing efficiency. Ongoing updates and integrations of AI-powered video tools will also lower video production costs going forward. Moreover, we continued to broaden our business goals by actively promoting AI applications across diverse business scenarios. Our AI-powered solution for financial report interpretation, jointly launched with Synctime, empowers customers with unparalleled insights into corporate financials by harnessing AI technology, ensuring our subscribers receive a superior level of service and value. Additionally, we plan to unveil an area of AI-driven products in 2024, such as corporate briefings and media spotlight seekers, among others. Through the strategic deployment of AI technologies, we broaden the scope and position of our customer outreach initiatives, effectively connecting with a diverse spectrum of enterprises and organizations previously beyond reach due to resource-intensive workloads and manpower limitations. Through our enriched content ecosystem, growing metrics of services and products, and extensive AI empowerment, we have continuously strengthened our commercialization capabilities resulting in solid revenue growth. Now I'd like to take a closer look at the commercialization progress we made in each segment in 2023, starting with advertising. Revenue increased by 8% year-over-year. We continue to craft innovative content marketing strategies and expanded into diverse marketing formats like text, graphics, short- and long-form videos, audio, and live streaming to fulfill client holistic branding needs. Our ongoing service innovation drove a growth of 17% year-over-year. In our industry footprint, we ramped up advertising initiatives in emerging sectors such as new energy vehicles and luxury goods consumption while also broadening partnerships with legacy brands in traditional industries like apparel and food. We also continue to diversify our advertising commercialization channels. Beyond revenue growth across our flagship platforms like the 36Kr website, 36Kr app, WeChat, and Weibo, we made significant headway in monetization like BDB, WeChat channels, among others. Following on to short video, our short video business continued to excel, contributing significantly to advertising revenue. Our short videos attracted a large following, with high-quality content positioning us as a standout among corporate accounts across various platforms. Notably, our short video covering the automotive sector has garnered widespread acclaim within the industry for its top-notch content. This drove ongoing expansion for content partnerships with leading auto brands, including BMW, Mercedes-Benz, and others. This highlights our competitive edge in the short-video sector and lays a robust foundation for future expansion. Now let's turn to our value-added services. Throughout 2023, 36Kr remained committed to verticals such as new technology, new energy, and new consumption, posting approximately 20 industry summits to empower enterprises directly and efficiently. We extended our reach to younger demographics with our all-new Waves, integrating venture capital, technology, culture, and music themes to focus on young business founders and investors. This celebration of entrepreneurship amassed over 83 million views. Meanwhile, more than 300 distinguished commercial, economic experts, scholars, businesses, and investors joined us at our year-end flagship summit, the Wise 2023 Kings of Business. The event sparked vibrant discussions and new ideas for innovation. We enhanced this year's conference with certain functional upgrades to amplify its networking potential and foster even more social engagement among users. In addition to offline initiatives, we continue to make strides in our consulting services and other enterprise service offerings. Throughout 2023, we fortified 36Kr Research Institute's expertise in industry research, regularly issuing top-notch research reports with valuable insights across various topics like new energy, global expansion, automation, smart agriculture, and enterprise SaaS while forging in-depth alliances with leading companies like Lenovo, Alibaba Cloud, Baidu, and others. Furthermore, this year we aimed to deepen our engagement with the government and the public service sector, drawing upon a comprehensive grasp of government structures at different levels. Our wealth of service expertise will offer customers an integrated suite of services, including facilitating industry-specific partnerships and investment inflows, addressing their varied needs with precision. Now, regarding subscription services, we continue to refine our membership system and subscription product offerings, achieving significant year-over-year revenue growth of 21%. One good example is our optimization of 36Kr Business School services as part of our innovative approach to craft a permanent business training IP. In addition to consistently refining our premium training courses, including funding acceleration camps, we also dove deeply into developing international degree-based programs. This now features lectures from distinguished leadership scholars and professors covering a wide array of exciting topics. As a result, our subscription services surged to over RMB140,000, reflecting a notable improvement in our holistic commercialization capabilities. In short, 36Kr sustained a solid growth trajectory throughout 2023. We achieved a full year revenue of RMB340 million, up 5% year-over-year, thanks to our peerless content creation capabilities, robust IP assets, actively engaged users, and a diversified product offering. As of the end of 2023, we had over 32.7 million followers, a surge of 14% year-over-year that marked our 11th consecutive quarter of growth. 2023 also ushered in the era of AIGC, as large language models are reshaping and redefining nearly every sector of the economy, including content production and driving a new wave of technological transformation. 36Kr actively embraced the AI boom, further optimizing content production and commercialization efficiency through visionary AI applications. Stepping into 2024, as a provider and facilitator of advanced productivity, we aim to hone our competitive edge in content creation, broaden the reach of our product and service offerings, and harness AI technology to empower high-quality development among new economy stakeholders. With that, I will now turn the call over to our CFO, Lin Wei, who will discuss the financial results.

Thank you, Paul. Now I'd like to walk you through more details of our fourth quarter and fiscal year 2023 financial results. Please note our numbers are in RMB unless otherwise stated. Total revenues were RMB103.3 million in the fourth quarter of 2023, a 7% increase from 96.6 million in the same period of last year. Total revenues for the full year of 2023 were RMB340.2 million, a year-over-year increase of 5.5%. Online advertising services revenue were RMB68.6 million in the fourth quarter, an increase of 10% compared to the same period of last year. For the full year of 2023, our online advertising services grew by 8% year-over-year to RMB238.7 million. The increase was primarily attributable to more innovative marketing solutions we provide to our customers as well as proactive sales strategies we adopted during the year. The average revenue per online advertising customer in 2023 was RMB489,000, a 17% increase year-over-year. Enterprise value-added services revenues were RMB26.3 million in the fourth quarter of 2023, a 4% increase from the same period of last year. For the full year 2023, our enterprise value-added services revenue was RMB67.3 million compared to RMB72.6 million in the previous year. The 7% decrease was primarily due to the transition of our integrated marketing services, partially offset by the growth of our app enterprise value-added services in 2023. Subscription services revenues were RMB8.4 million in the fourth quarter of 2023 compared to RMB8.9 million in the same period of last year. The slight decrease was primarily attributable to the structural changes to our institutional clients in China, partially offset by the increase in individual subscription services. For the full year 2023, our subscription services revenue was RMB34.2 million, representing an increase of 1% year-over-year. The increase was primarily due to our continuous efforts to offer high-quality subscription products to our subscribers, especially individual subscribers. Cost of revenues was RMB45.8 million in the fourth quarter of 2023 compared to RMB47.6 million in the same period of last year. The decrease was primarily attributable to the optimization of personnel-related costs. For the full year 2023, our cost of revenues was RMB158.2 million compared to RMB137.8 million in the previous year. The increase was primarily due to higher content costs and fulfillment costs. Gross profit was RMB57.6 million in the fourth quarter of 2023, increasing by 18% from the same period of last year. Gross profit margin was 56% in the fourth quarter of 2023, up 5 percentage points from 51% in the same period of last year. For the full year of 2023, our gross profit was RMB182 million compared to RMB184.6 million in the previous year. Gross profit margin for full year 2023 was 54% compared to 57% in the previous year. Operating expenses were RMB30 million in the fourth quarter of 2023 compared to RMB69 million in the same period of last year. For full year 2023, operating expenses were RMB276.2 million compared to RMB229.2 million in the previous year. Sales and marketing expenses were RMB30.3 million in the fourth quarter of 2023, a decrease of 8% from the same period of last year. This is primarily attributable to the decrease in payroll-related expenses, partially offset by the increase in marketing expenses. For full year 2023, sales and marketing expenses were RMB127.5 million compared to RMB122.1 million in the previous year. The slight increase was primarily attributable to the increase in marketing expenses and promotion fees during the year. G&A expenses were RMB35.3 million in the fourth quarter of 2023 compared to RMB21.7 million in the same period of last year. The increase was primarily attributable to the loss of credit losses. For full year 2023, G&A expenses were RMB107 million compared to RMB52.1 million in the previous year. The increase was mainly due to the allowance for credit losses as well as certain one-off expenses, including severance payments as we optimized our organization and office lease termination fees as we moved our headquarters office in fiscal year 2023. Research and development expenses were RMB4.4 million in the fourth quarter of 2023, a 70% reduction compared to RMB14.5 million in the same period of last year. For the full year 2023, our R&D expenses were RMB41.7 million, 24% down from RMB55 million in the previous year as we proactively embraced AI technology and streamlined our research and development teams, resulting in a decrease in payroll-related expenses. The total share-based compensation income recognized in cost of revenues, sales and marketing expenses, R&D as well as G&A expenses totaled RMB0.4 million in the fourth quarter of 2023 compared to SBC expenses of RMB4.6 million in the same period of last year. This fluctuation was primarily due to the reversal of share-based compensation expenses related to the future in Q4 2023. For the full year of 2023, the total amount of share-based compensation expenses was RMB4.7 million compared to RMB13.9 million in the previous year. Other expenses were RMB5.1 million in the fourth quarter of 2023 compared to other expenses of RMB1.2 million in the same period of last year. For full year 2023, other income was RMB4.9 million compared to other income of RMB67.5 million in the previous year. The decrease was primarily because the company recognized RMB38 million gain on disposal of subsidiaries and RMB16 million of long-term investment income in 2022, but recognized RMB8.1 million fair value loss of long-term investments in 2023. Net loss was RMB17.7 million in the fourth quarter of 2023 compared to a net loss of RMB21.5 million in the same period of last year. For the full year of 2023, our net loss was RMB89.2 million compared to net income of RMB22.6 million in the previous year. Non-GAAP adjusted net loss was RMB18.1 million in the fourth quarter of 2023 compared to non-GAAP adjusted net loss of RMB16.9 million in the same period of last year. For the full year 2023, non-GAAP adjusted net loss was RMB84.6 million compared to non-GAAP adjusted net income of RMB36.5 million in the previous year. Net loss attributable to 36Kr ordinary shareholders was RMB18.8 million in the fourth quarter of 2023 compared to net loss attributable to 36Kr ordinary shareholders of RMB20.8 million in the same period of last year. For the full year of 2023, net loss attributable to 36Kr ordinary shareholders was RMB90 million compared to net income of RMB21.9 million in the previous year. Basic and diluted net loss per ADS were both RMB0.45 in the fourth quarter of 2023 compared to net loss per ADS of RMB0.50 in the same period of last year. For the full year 2023, basic diluted net loss per ADS were both RMB2.16 compared to basic and diluted net income per ADS of RMB0.53 in the previous year. As of December 31, 2023, the company had cash, cash equivalents, and short-term investments of RMB117 million compared to RMB160 million as of September 30, 2023. This concludes all of our prepared remarks today. We will now open the call to questions.

Your first question comes from Shan Jiao with CICC.

Congratulations on solid growth in the revenue in 2023. How does the management view the advertising revenue trend in the first quarter and 2024?

Thank you. Despite persistent macroeconomic changes in 2023, our advertising business demonstrated solid growth momentum, achieving 8% year-over-year revenue growth. This success is attributable to our ongoing commitment to enhancing content influence and our continued client base expansion across diverse industries, particularly among top-tier and midsized advertisers. The steady growth trend in ad spending by our advertisers propelled a year-over-year increase in our pool of 17%, attesting to 36Kr's robust business resilience. In addition, we have been actively exploring and harnessing AI technology to enhance marketing and craft innovative strategies including personalized advertising content generation, advertising placement, and live streaming featuring digital influencers, etc. As such, we are providing our customers with marketing solutions that are smarter, more efficient and innovative. We are cautiously optimistic about our advertising growth trajectory for 2024, aimed at the ongoing macroeconomic rebound, sustained stimulus policies, and new development strategies such as advanced productivity as a leading service provider and facilitator for new economy and advanced productivity stakeholders. We expect robust growth in our advertising business in 2024, particularly in sectors such as demand from the AI business sector as well as the need to market advanced technologies from traditional industries.

Your next question comes from Zhao with SWS Research.

What is the latest progress on both long- and short-video business? What are the plans for further exploration of growth potential? And what is the company's layout and further development plan in generative AI?

Thank you for your question. Our short video segment enjoys wider customer acceptance and higher ARPU compared to other advertising formats providing the majority of the company's overall advertising revenue in 2023, leveraging our peerless content creation and substantial influence across major platforms. This generated revenue totaling around 20% of the company's total advertising revenue. Meanwhile, our engaging content across finance, economics, and useful lifestyle garnered website traction across major platforms like BDB, etc. As of the end of 2023, our short-video followers reached 9 million, including a significant 2.2 million on BDB alone. Regarding long videos, throughout 2023, our long video talk show series 'Say in 2033' featured distinguished guests and in-depth analysis, a rarity within the industry. Our show rapidly captured audience attention and achieved substantial monetization success while receiving growing reviews as our episodes amassed over 350 million views. We are also excited about the two programs of our upcoming series for 'Say in 2034' which is in full swing. In 2024, we will deepen both segments, stepping up our investments in content creation and service customization while exploring a wide array of innovative formats. As we all know, 2023 ushered in the era AIGC as a new economic content creation platform, and 36Kr skillfully leverages the inherited synergies between content creation and AI technology. We rolled out the emergence of intelligence, a specialized account focused on providing high AIGC tech content. We also further integrated AIGC with content production, actively harnessing AIGC technology for content creation across script writing, translation, image generation, and more, reducing cost and inefficiency. In addition, leveraging our keen acumen in visual AI technology, we pioneered the process of opening a Taobao store exclusively using AI. During the Asian Games, we innovated once again by creating an AI-driven Asian Games blogger on Xiaohongshu and teaming up with Alibaba's AI model. We have also advanced AI applications across scenarios and unveiled a range of AI-driven perspectives, such as AI financial report interpretation, launched in collaboration with suitable companies, delivering insights and analytical intelligence.

Your next question comes from Peipei Qiu with Industrial Securities.

I will translate my question. The subscription service business is growing faster than expected. So what are the main factors behind this? And what are the new growth strategies for this segment in the future?

The growth of our subscription services was primarily driven by the launch of our specialized content mentioned earlier. Throughout 2023, as we diligently optimized our premium training courses, including the venture capital class and funding acceleration camp, we also collaborated with global top-tier institutions to deliver world-class programs for corporate executives. Our subscription services surged to over RMB140,000. Moreover, responding to the increasing need for AI expertise and applications, we partnered with top-tier institutions, including Peking University, to unveil the global intelligent entrepreneurial initiative, enabling participants to advance their AI awareness and utilization through hands-on training. In 2024, we will continue to diversify our core course offerings and welcome more institutions and partners, continually inviting new opportunities for growth.

Your next question comes from Ricky with Sealand Securities.

What are the growth prospects for 2024?

Looking back on 2023, despite macro uncertainties and shifting external dynamics, we delivered solid results with 5.5% year-over-year revenue growth. We are cautiously optimistic about 2024 and we expect to sustain revenue growth and improved profitability. For one thing, we will further enrich our content ecosystem and reinforce our products and services. We will also actively minimize the utilization of AIGC technology across content production initiatives and launch additional AI-driven products to engage with a diverse spectrum of enterprises and clients previously beyond reach due to resource-intensive workloads and manpower limitations. Moreover, the introduction of the notion of advanced productivity has fostered a strong sense of confidence across the company, giving our comprehensive offerings that support a diverse spectrum of businesses. We are well-positioned to capture greater commercialization opportunities arising from this new strategy. Furthermore, with the optimization of our organizational structure and systematic CapEx in cost and expenses, we are poised to achieve goals involving cost-reduction and efficiency enhancements which will further bolster our operating leverage, driving overall profitability to new heights.

As there are no further questions, I'd now like to turn the call back over 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 Investor Relations through the contact information provided on our website.

This concludes this conference call. You may now disconnect your lines. Thank you.