36Kr Holdings Inc

NASDAQ:KRKR

Earnings Call Transcript 2023-Q2

[Operator]

Hello, ladies and gentlemen. Thank you for standing by for 36Kr Holdings Inc.'s Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference is being recorded.

I will now turn the call over to your host, Jianen [ph], IR Manager of the Company. Please go ahead, Jianen [ph].

[Unidentified Company Representative]

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings second quarter 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 the 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 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 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, content reconsolidation of the unaudited non-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. Paul, please go ahead.

[Dagang Feng, Co-Chairman & Chief Executive Officer]

[Foreign Language]

Thank you. Hello, everyone. Thank you for joining our second quarter 2023 earnings conference call.

[Foreign Language]

We are glad to note that our primary business segments continue to develop with steady growth in the second quarter of 2023. Our total revenue increased by 3% year-over-year with revenue from our enterprise value-added services up 17% year-over-year, and revenue from our subscription services up 11% year-over-year. Notably, our gross margin rewarded strongly to 55%. We also made great strides in both B2B and B2C [ph] businesses. As we continue to enhance our high-quality multidimensional content metrics and deeper AI empowerment and applications in diverse scenarios across our business segments, we embarked on the new development stage of diversified growth.

[Foreign Language]

First off, content. We tailor new growth areas for our content ecosystem during the quarter and made great advancements on multiple fronts, including greater industry coverage, content asset accumulation, high-quality customer engagement and our broadening multichannel destination network. Furthermore, the number of our contactor articles capping the second quarter; we had 100 articles with Page 6 in 100,000 fully showcasing services insights and industry influence. Our consistent creation of high-quality content enabled us to meaningfully expand our user base and enhance long-term user loyalty. As of the end of the second quarter, we had more than 30 million for, up 21% year-over-year, achieving 9 consecutive quarters of growth.

[Foreign Language]

The vertical media we launched, including wages and the emergency of mutagens achieved continuous impressive outcomes, allowing users to gain deeper insights into booming sectors and equally important for the content in our leadership in the new economic sector. We also further certified our content advantage in our business during the quarter by optimizing the content of Super view, a product type review program and white paper survey report column; we attracted a broad audience through more pulling content offerings on energy live. We also enrich our medium format through the long term or live orcas entitled that affords a fun. We've also been actively working on audit offerings to bring more listeners more up to the managed business intelligence as well as fund ideas and topics to enjoy each day.

[Foreign Language]

I also want to highlight our short video business through an integrated approach to branding, new economic content and content monetization. We have accelerated optimization of our shop radio content metrics, transforming it into a new growth region for advertising and marketing. Some of the short videos were created on training topics was sent over 1 million times, including opine, Wibi encore and Inomec's [ph] must plan on earth, thanks to their diverse ideas and fresh perspectives that kept our users engaged. As of the end of the second quarter, we had over [indiscernible] was up 42% year-over-year, among which more than 2 million were [indiscernible]. We have indeed become a leader among all platform-based official accounts and we stand ready to seize more opportunities for commercialization of cooperation.

[Foreign Language]

We also successfully wrapped up the first season of our first long video show for saving which will to return for a second season and attracted inverse audience attention, bringing us additional commercialization opportunities with leading companies.

[Foreign Language]

As we diversify and strengthening our content landscape with innovative same stand format, we also developed our short video lineup on a wide variety of platforms, including BBBs, Xiaohongshu, Segue and WeChat [ph] video account, Part diverse groups of users with process marketing -- this initiative made our content more engaging and empower more effective, more for communication with users. Recently, we entered into a strategic cooperation with Beijing radio and television stations to promote the full life cycle synergetic development of long videos from project planning and content production all the way to distribution, promotion and IP commercialization.

[Foreign Language]

We also explore more AGC us big cases for our business during the quarter. Through cart production [ph], product innovation, we have been actively integrating pioneering AI technology into our day-to-day operations, including corporate writing translation, keyword matching, image generation and intelligent customer service among other functions in our AI e-commerce store, our first live streaming sales session hosted by digital humans with beta -- with 160,000 views and impressive daily GMV exceeding RMB10,000, it was included in Tabolt of Super imaging coating stores. During the 618 covered shopping first of all, we were featured on China Central toleration. The program was broadcast on multiple channels, including 56.com as well as the CC TV app, our AI marketing success story was again highly recognized by the China content marketing or a testament to our leadership in AI innovation and applications.

[Foreign Language]

On a related note, we recently entered into a strategic cooperation with Baidu. So enhancing data application from our media platform, atop services and training, driving commoditization and innovation as a and Power Mutual Group, our teams are working closely on a diversified AI-powered landscape, including content production and application marketplace show leasing applications powered by large language model, LLM functions, RLM solutions and training programs on AI applications.

[Foreign Language]

In summary, as we persistently advance and empower our content ecosystem with AI technology, we profiled our business steady growth, laying a solid foundation for continuous performance improvement. Next, elect to review our commercialization progress earlier in the second quarter.

[Foreign Language]

In the second quarter of 2023, our total revenue increased by 3% year-over-year to RMB84.36 million. Notably, our advertising revenue reached RMB57 million, basically on par with the same period last year, our advertising pool increased to RMB310,000, up 14% year-over-year.

[Foreign Language]

36Kr provides customers with differentiated content offerings and creative services tailored to the features of each and every brand. Our one-stop marketing solution centered on lending and efficacy provide utmost precise effective marketing promotions targeting diverse customer growth in the second quarter to actively address the need of our customers, we depend cooperation with global giants such as Alibaba and Huawei [ph] and added new accounts to broaden our industry reach. We also signed an event, our first luxury brand and designed an innovative, engaging and compete. Furthermore, we created diverse promotional content for Joan 3 flash post-hold [ph] applicants in the form of graphics, taxes, videos as well as test reviews and promoted them across nodes online channels through our new media metrics, our multidimensional targeted approach helped Juan effectively reach their target holders winning us rise from the time.

[Foreign Language]

Next, our short video business, which delivered another quarter of stellar results in the second quarter of 2023 as Tencent's advertising business partner, we were invited to kinds and offer extensive on-site coverage at the Cana lines International, first of all, of creativity. Meanwhile, we will shop from TV commercial with bone to tell its low carbon story showcasing strong ESG commitment. Regarding the auto contact metrics we launched earlier this year, our WeChat video account [indiscernible] delivered a short video promotion for BMW during the second quarter, featuring the evolution of the auto industry in the circular economy. With our short video business, we have established a virtuous cycle where our primary content attracts users and increases their stickiness, driving an overall increase in traffic. We then leverage our massive traffic to attract greater advertising interest from even more lending partners.

[Foreign Language]

With respect to Andrea’s value-added services, our revenues were up 17% year-over-year to RMB16.8 million we greatly increased the number and skew of our events during the second quarter as consumption of line regains team. We hosted the autonomy [ph] integrating venture capital, technology, culture and music teams to create open and relaxed social networking scenarios for a younger generation, further enhancing 36Kr's brand away and influence. In the meantime, as part of our continued efforts in global expansion and sustainable development, we hosted the Wise2023 [ph] Globalization Value Conference opportunity for vibrancy. In addition to our TV business, we continue to election reach more high-quality us in our PC business, contently attracting a wide range of young customers with our lifestyle. First of all, city life, we have also was meeting for forest in developing and expanding our regional business escalate various sharing session, featuring established items in KPS shopping malls across Beijing, Chengdu and San during the quarter, fully reflecting our ability or innovation among our large enterprise customers.

[Foreign Language]

Next, our consulting -- as a short absorb providing insight into industry than, 36Kr Research Institute has always been dedicated to in-depth research on cutting-edge technologies, innovation trends and business tax development, leveraging massive data analysis and business insights. We provide informed opinions and the guidance on industrial transformation and innovation. In the second quarter, we joined the hands with Nest Cloud Music [ph] in releasing the post 20,000 generation long-form audio consumption trial report, providing a valuable reference for the audio content industry as well as strong support for our commercialization in long form office.

[Foreign Language]

As for subscription services, we made great strides in training programs, substantially increasing our revenue by 11% to RMB10.6 million in the second quarter. KR business grew cooperated with the University of Oscar to long-based the cable college for doctor research program. This program brought top-tier learning experiences to our users through a combination of online and off-line initiatives, driving a bus increase in our pool to over B2000 Meanwhile, we continue to enrich the high-quality training courses offered through our venture capital class and the funding of solutions, further providing high ones growth and drawing in place from a wide array of order.

[Foreign Language]

Last but not least, I'd like to share an update on the suite enterprise review platform, while continuously refining core product information, we rolled out multidimensional rankings based on our lenses of data across the platform. Through AI applications and environment, we provided users with more precise and efficient overall product information and decision-making support and enable more interactive user flat intelligent customer service. As of the end of the second quarter, the cumulative number of reviews increased by 99% year-over-year. The cumulative number of products on the platform was up 40% year-over-year as the number of merchants on the platform increased by 43 points year-over-year.

Commercially, the 36 PR plan pre service review platform has won lasting customer trust with its high-quality products and services, securing long-term cooperation with SaaS manufacturers in various fields, including Wondershare Pinjin, IHR and CM. Looking ahead, the enterprise service review platform will continue to address our customers' needs to better support their digital transformation, making both marketing and customer acquisitions either for enterprise customers, we will play an even more active role in AI integration and application to attain more sophisticated intelligent operations.

[Foreign Language]

To sum up, for the second quarter, we delivered solid financial results once again with total revenue of RMB84.4 million, maintaining growth momentum both year-over-year and quarter-over-quarter. Our gross margin also rebounded to the above 55% level. Moreover, we continue to enhance our content influence and build our competitive advantage in the Norton sector. The number of follow stated $3 million on a wide on-quarter straight. We believe the boom of generative AI and LM has revised tremendous opportunities on the content industry, our consistent commitment to innovation and leveled technology foresight and the thorough cooperation with global giants will further empower us as we progressively integrate AI into our business scenarios profiling long-term, high-quality growth across all our sites segments.

With that, I will now turn the call over to our CFO, Mr. Wei, who will discuss our key financial results.

[Lin Wei, Chief Financial Officer]

Thank you, Paul. Now, I'd like to walk you through more details of our second quarter 2023 financial results. Please note, all amount numbers are in RMB, unless otherwise stated.

Total revenues increased by 3% to $84.4 million in the second quarter of 2023, up from $81.7 million in the same period of last year. Online advertising services revenues were $57 million in the second quarter of 2023 compared to $57.8 million in the same period of last year. The slight year-over-year decrease was primarily attributable to the lagging effect of the macro economy, which is still in early stage of recovery. Enterprise value-added services revenues increased by 17% to $16.8 million in the second quarter of 2023 as we continuously develop various proactive enterprise level services for our customers. Our off-line events business achieved notable growth during the quarter as the reopening continues, and we hosted several successful conferences and summits.

Subscription services revenue increased by 11% to $10.6 million in the second quarter of 2023 compared to $9.5 million in the same period of last year. The increase was primarily attributable to our continuous efforts to offer high-quality subscription products to our subscribers. Cost of revenues was $37.6 million in the second quarter of 2023 compared to $30.8 million in the same period of last year. The increase was primarily attributable to higher fulfillment costs and content costs. Gross profit was CNY46.7 million in the second quarter of 2023 compared to $30.9 million in the same period of last year. Gross profit margin was 55% in the second quarter of 2023 compared to 42% in the previous quarter and 62% in the same period of last year.

As we forecasted on our Q1 earnings call, our GP margin rebounded strongly as expected and was back to the above 55% level. On a year-over-year basis, the slight decrease was primarily attributable to the resumption of off-line events and offline tuning courses, which early occur higher costs. Operating expenses were $65.1 million in the second quarter of 2023, slightly increasing by 1% compared to $64.6 million in the same period of last year. Sales and marketing expenses were $33.9 million in the second quarter of 2023, an increase of 24% from $27.4 million in the same period of last year. This was primarily attributable to the increase in payroll-related expenses and business travel-related expenses.

G&A expenses were $17.7 million in the second quarter of 2023, a 26% decrease compared to $23.8 million in the same period of last year. The decrease was primarily attributable to the decrease in payroll-related expenses, share-based compensation expenses, professional fees and allowance for credit losses. Research and development expenses were $13.6 million in the second quarter of 2023, slightly increasing from $13.4 million in the same period of last year. This was primarily attributable to the increase in peso related expenses as well as bandwidth and server expenses, partially offset by the decrease in share-based compensation expenses. Share-based compensation expenses recognized in cost of revenues, sales and marketing expenses, research and development expenses as well as G&A expenses totaled $1.8 million in the second quarter of 2023 compared to $2.6 million in the same period of last year.

Other income was $4.8 million in the second quarter of 2023 compared to $22.7 million in the same period of last year. The decrease was primarily because the company recognized approximately $18.5 million of investment income arising from fair value change of long-term investments in the second quarter of last year. Net loss was $13.7 million in the second quarter of 2023 compared to net income of $9 million in the same period of last year. Non-GAAP adjusted net loss was $11.9 million in the second quarter of 2023 compared to non-GAAP adjusted net income of $11.6 million in the same period of last year. Net loss attributable to 36Kr ordinary shareholders was $13.9 million in the second quarter of 2023 compared to net income attributable to 36Kr on our shareholders of $8 million in the same period of last year.

Basic and diluted net loss for ADS of both, $0.335 in the second quarter of 2023 compared to basic and diluted net income per ADS of $0.195 in the same period of last year. As of June 30, 2023, the company had cash, cash equivalents, restricted cash and short-term investments of $136.5 million compared to $169.8 million as of March 31, 2023. The decrease was mainly attributable to net cash outflow from operating activities, which include approximately $10 million cash payments related to the company's move of its headquarters to a lower rental office building in Beijing.

This concludes all of our prepared remarks today. We will now open the call to questions. Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question today will come from Jing Chen of CICC.

[Jing Chen, CICC]

[Foreign Language]

I have 2 questions. The first is how is the advertising market and the company's business recovered in the third quarter? And what is the outlook for the recovery trend afterwards? And the second question is, as off-line activities return to normal, what the company's plans of upgrades to off-line activities...

[Lin Wei, Chief Financial Officer]

Thank you, Jen. This is Lynn. I will answer your first question on advertising. We think as the market recovers, the demand for advertising as expected gradually increase. And the growth of advertisement era has a ligand effect as the macro economy is still in the early stage of recovery. And if you look at 36 KR, our client pool of advertising, we have both big names, companies, including the Fortune 500 as well as the giant of the Internet names and the big brands. But also on the other hand, we have mostly a lot of new economy clients and usually, they are the need to small- to medium-sized companies, which orally have a more cautious advertising spending compared to these big names. If you look at our Q2 results, actually, our number of advertising customers decreased compared to a year ago, but our advertising ARPU grew strongly compared to a year ago. So net-net, the advertising revenue is basically on par from a year ago; so that's the Q2 results.

And if you look at -- if you are asking our Q3 outlook or the guidance for the rest of the year, we think because we already observed the recovery of the macro economy, and we think we have an optimistic view, although we might have a cautiously optimistic view, but still optimistic for the rest of the year. And we think our advertising will go back to the upward trend, meaning we will still achieve year-over-year growth for the next 2 quarters for 2023. And hopefully, that answers your question. Thank you.

[Jing Chen, CICC]

[Foreign Language]

[Dagang Feng, Co-Chairman & Chief Executive Officer]

Thank you, Jen. Let me answer your second question. This year, we designed a launch a variety of offline events. We were pleased with the number of events we hosted as well as the centralization achievements, gaining momentum on both fronts. In the meantime, with creative initiatives through events like our all new cement wings and over to see sell Festival City Lab will greatly enhance the skill and influence of our offline events. Meanwhile, 36Kr business pool programs were also in filling as we continue to enrich the content and format of the new company courses offered through our venture capital class and funding acceleration camp. We launched an all-new degree-based program in partnership with the University of [indiscernible], driving a vast increase in our ARPU to over RMB42,000.

[Operator]

And our next question today will come from Jon Hang [ph] of Industrial Securities.

[Unidentified Analyst]

[Foreign Language]

The management just mentioned about the business opportunity brought by AI. So, I want -- could you give us more color about more relevant plan about your AI internal use product offering and cooperation with the AI enterprise.

[Dagang Feng, Co-Chairman & Chief Executive Officer]

[Foreign Language]

Thank you, Jan. Let me answer your questions from 3 perspectives. First of all, we're proud of our consistent nuance understanding and forced in terms of generative AI technology besides launching our vertical submits, the emergency of intelligence. We also hosted our Wide 2023 AIG Commit in the second quarter by continuously offering the latest development that show reports and in-depth interpretation of AI, we have inspired the public with a steady stream of insights and stimulating ideas. Second, we have been actively integrating pioneering generative AI into our day-to-day operations, including corporating translation, keyword matching, image generation and intelligent customer service among other functions by reducing manual efforts and saving time line resources, AI effectively facilitate our cost reduction and efficiency investment I would like to point out that CDK was the first ever industry pioneer in using AI technologies to create a e-commerce store on Taba, launching live stream sales sessions hosted by digital humans, and we were exclusively fated on CCT with multiple follow-up initiatives.

In addition, we recently entered into a strategic cooperation with Baidu so enhance in broadening AI applications across our media platforms, enterprise services and training offerings, driving commercialization and innovation as we power the manual goals. Our teams are working closely on a diversified AI-powered landscape, holding content production and application marketplace showcasing applications powered by a large language model, LF1, LLM [ph] solutions and training for an on AI applications. Thank you.

[Operator]

Our next question today will come from Lingyi Zhao of SWS Research.

[Lingyi Zhao, SWS Research]

[Foreign Language]

Now what's on -- you're going to ship in we don't if you don't face on the -- how you take a year how you think both Tinier will find on England. The short video business has been doing really well. And what's our plan to further tap into this growth potential...

[Dagang Feng, Co-Chairman & Chief Executive Officer]

[Foreign Language]

Thank you, line. First of all, we will continue to launch diversified content offerings and further expand our TC products. At present, our shop video lineup covers diverse topics, including technological innovation, business insight and lifestyle, delighting users with a variety of content open. In addition, multichannel content distribution remains a key focus for us. In addition to posting on short video media platforms, including Bilibili, Doi Kuaishou, Sega and WeChat video account. We also actively expanded our reach across social media platforms. We are pleased to see the number of our short video forwards plus $8.3 million, up 42% year-over-year, among which more than 2 million were bit users. Regarding our commercial cooperation for creative marketing, we signed additional customers from a wide array of industries. Revenue from this segment doubled year-over-year, accounting for more than 20% of our total advertising revenue. next question.

[Operator]

Our next question today will come from Rui Yin of Sealand Securities.

[Rui Yin, Sealand Securities]

[Foreign Language]

How did the company achieve results in gross profit margin this quarter?

[Lin Wei, Chief Financial Officer]

Thank you, Rui. This is Lin. I will take your questions regarding gross profit margin. I think the rebound is mainly attributable to our seasonality of our business nature as well as the economy of scale. We have mentioned several times on our previous calls that our cost structure is largely fixed. That means when our revenues grow, there is not such a linear relationship between our revenue growth and cost growth. So if you look at our Q2 revenues, our sequential revenue growth was almost 52%. That's a very big jump. But if you look at our cost, actually, our costs only grew by 5%. That's a very obvious economy of scale. So that's basically the seasonality and the economy of scale contributed to the sequential strong rebound of our GP margin. And also, we -- in Q1, we started off several new content initiatives. For example, we launched our first long-form view program called forecasting for sin33.That's long-form view started to produce in the beginning of the year. So in Q1, we basically haven't started off the commercialization.

But in Q2, this program has been very well received by both the audiences and also the -- our advertising customer. So in Q2, we have achieved revenue to cover the cost -- production cost of this program and actually more than cover the cost of this program. So that's why that's another reason contributing to our GP management growth. And looking ahead, we think our GT margin, we will be able to maintain at a high level of 55% or even between 55% to 60% because as we said, we believe our advertising revenue will continue to grow and advertising revenue is a relatively high-margin business. and our enterprise value add services as well as our cleaning business will also grow that will contribute to a higher revenue and has contributed to higher gross profit and GP margin. Hope this answers your question, Rui?

[Rui Yin, Sealand Securities]

Yes. Thank you.

[Operator]

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

[Dagang Feng, Co-Chairman & Chief Executive Officer]

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

[Operator]

This concludes the conference call. You may now disconnect your line. Thank you.