Hello, ladies and gentlemen. Thank you for standing by for 36Kr Holdings Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Yang Li, IR manager for the company. Please go ahead, Yang.

Thank you very much. Hello, everyone, and welcome to 36Kr Holdings third quarter 2021 earnings conference call. The company's financial and operational results were released earlier today and have been made available online. You can also view the earnings press release by visiting the IR section of our website at ir.36kr.com. 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 translation. Ms. Wei will then provide details on the company's financial results before opening the call for you questions. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Legislation 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 these and other risks and uncertainties is included in the company's prospectus and other public filings as well with the US 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 includes discussion of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. 36Kr's earnings press release contains a reconciliation 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. Feng, please go ahead.

Thank you. Hello, everyone. Thank you for everyone. Thank you for joining our third quarter earnings conference call. In the third quarter, as a prominent brand and pioneering platform dedicated to serving new economy participants in China, we witnessed the rise of many new industry segments, including hard-core technologies, new consumption, the dual carbon economy, and the metaverse, a hot topic globally. The world of venture capital is as exciting and inspiring as ever. In particular, the establishment of the Beijing Stock Exchange has created a more favorable capital raising environment for small and medium-sized enterprises, especially for those specialized, sophisticated, distinctive, and innovative enterprises in China. Against the backdrop of uncertainties related to COVID-19 resurgences and heavy flooding in some regions of China, we observed many industry leaders actively embracing these changes, quickly adjusting to the challenging macroenvironments and courageously undertaking their corporate social responsibilities. As we have been for the past eleven years, 36Kr was in the thick of it during the quarter, building connections and communities for industry participants and providing our customers and users with a complete ecosystem of innovative services and content. In the third quarter, our total user traffic remained at a historically high level, with average monthly PVs jumping to 849 million, up 50% year-over-year. This marks our 14th consecutive quarter of PV growth, a powerful testament to our content's continued user resonance and our growing brand influence. We have expanded our content presentation formats as well as topical coverage to further broaden our well-rounded platform with unique, innovative product and service offerings. In terms of content strategy, our dual focus on PGC and UGC continued to cater to diverse preferences and meet more user groups' needs across multiple formats, including image, text, audio, short-form video and live streaming. In the third quarter,…

Thank you, Pal. And hello, everyone. We are very pleased to have achieved another quarter of solid financial results across all of our business segments, despite multiple headwinds including COVID-19 resurgences and macroeconomic challenges. As Pal mentioned earlier, our advertising revenues grew steadily year-over-year in the third quarter, with increases in both the number of customers and the average revenue per advertising customer. Also, thanks to our relentless efforts to provide customized and innovative enterprise value-added services, revenues from this segment increased by 57% sequentially. Notably, our ongoing subscription product optimizations resulted in a strong 52% year-over-year increase in our subscription services revenues in the third quarter. In addition, as we continued to shift our resources and focus on higher margin businesses, we saw continuous improvement in both gross profit and gross profit margin, which expanded to 56.1% from 37.9% in the same period of last year. I would also like to highlight that we ended the third quarter with a very strong cash position as we achieved positive cash flow from operations. Going forward, we will continue to solidify our industry presence and expand our monetization approaches to cultivate sustainable, long-term growth. Now, I will walk you through more details of our third quarter 2021 financial results. Online advertising services revenues increased by 4% to RMB 53.4 million in the third quarter of 2021, from RMB 51.1 million in the same period of 2020. 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 third quarter of 2021. Enterprise value-added services revenues were RMB 22.5 million in the third quarter of 2021 compared to RMB 66.4 million in the same period of 2020. The decrease was primarily…

. We have the first question coming from the line of Vincent Yu from Needham & Co.

Vincent, we cannot hear you.

Operator, maybe we'll go to the next question please. And we can go back to Vincent later. Thank you.

The next question comes from the line of Tang Jing from CICC.

My first question is enterprise value added services cover many items. Which one contributes more to the company's revenue and will be the main growth points in the future? And the second question is, under the current macro environment, how is the housing business in the fourth quarter? Thank you.

This is Lin. I will answer your first question and then Mr. Feng will give you more color on the growth strategies and the second question. Yes, you are correct that our enterprise VAS revenues include basically three subcategories, namely, integrated marketing, consulting and offline events. From the third quarter perspective, you can see that our biggest component for this enterprise VAS revenue actually is consulting and followed by offline events. Consulting services and offline events services account for around 60% and 30% of the total enterprise VAS revenue respectively. And these two revenues also grow on a very fast pace. For example, the consulting services grow actually 14% year-over-year and the offline events revenue grew even faster with a 72% year-over-year growth rate. So, going forward, I think in the near term to mid-term, these two will be the driver for our enterprise VAS revenue. And certainly, we have been mentioning that our enterprise service review portal a few times, and this is a new, very innovative and promising services that we have been incubating since last August. And this quarter, as Feng mentioned, that this business has achieved a very good performance on all kinds of operating metrics. And this business hasn't been really commercialized, only with very minimal monetization. But in the future, I think, once it's ready and once we commercialize this product, it will be another very big and important growth engine for us. And then, Mr. Feng will give you more color on your second question.

So the main growth drivers of our enterprise value-added service will be consulting and off-line events. Our main target clients are enterprises and governments, and we already have a mature and scalable business model. We will continue to optimize and innovate products and service offerings to achieve a higher average revenue per customer. In addition, we will continue to increase the coverage of new industries and new segments to expand our customer base. Our local sites will also play to their regional advantages and penetrate the markets of lower tier cities. It is worth noting that our newly incubated enterprise service review portal is in a process of continuous optimization. We believe it will become one of our growth drivers in enterprise value-added services. As of the end of the third quarter, our portal had 15 major categories and more than 200 segments. Nearly 400 merchants have established a presence on the portal, increased 109% than the second quarter. The portal has showcased nearly 5,000 software applications. The average DAU increased by 109% sequentially and the number of review comments increased by 50% sequentially in the third quarter. All of these operational statistics demonstrated the influence of our platform. In a challenging macroeconomic environment, we remain cautiously optimistic about the fourth quarter. In the third quarter, the entire advertising industry was under pressure as evidenced by the varying degrees of slowdown or decline in our competitors' advertising business. In contrast, despite the overall industry's slump, our advertising business achieved solid growth year-over-year and quarter-over-quarter in both the number of advertising clients and average revenue per customer, a powerful testament to our brand influence and customer recognition. The main growth points of our advertising business will be expanding the customer base and increasing the average revenue per user. We will consistently increase our coverage of new industries and new segments, which will help expand our user base. In addition, we will keep diversifying our content and advertising formats, such as short video and live streaming, while we will benefit our customer, which also continue to raise the ARPU. If there's no large scale COVID-19 resurgence by the end of this year, we believe our advertising revenue for this fourth quarter will continue to grow.

We have the next question coming from the line of Vincent Yu from Needham & Company.

I have two questions. One is, can management share what are our key revenue contributors in terms of industries as we are seeing that, overall, the China online advertising are seeing some weakness due to various reasons? What do we think our revenue stream come from this quarter and for the next few quarters? And my second question is on the enterprise value-added service. So, for the number of enterprise value-added service customers, even though they are lower than last year, but for the past three quarters, we are seeing they're steadily improving. Can management shed some light on what's the driver behind this improvement and what we see these trends in fourth quarter and next year?

In terms of total revenue, the top five industries were consumption, lifestyle, investment institutions, entertainment and media, e-commerce and government, totally contributed 57% of total revenue. The top five industries for our advertising clients are consumption and lifestyle, social networking, hardware, e-commerce, and entertainment and media, which contributed a total of 91% of our revenue. No matter from total revenue side or advertising business side, we have a very healthy mix of customers. When you mentioned here some weakness in the overall China Internet sector, not sure if you mean education sector and online game sector. These two industries are very small part of our business and have no impact on us. New economy companies do make up a considerable portion of our customer base, but a significant part of our revenue also comes from Fortune 500 companies and traditional companies such as Intel, Huawei, CATL, Haier, . We have a very healthy mix of our advertising clients. The temporary volatility in one sector or industry segment will not have an impact all across. We will consistently increase our coverage of new industries. Demand for new economy companies emerging from promising industries such as high-end manufacturing and healthcare will be strong and sustained. We will also provide new service and products such as short video, live streaming, and the enterprise service review portal that we mentioned before.

This is Lin. Actually, I will be answering your second question regarding the enterprise VAS revenue. It's understandable that you got a little bit confusion on the number of enterprise VAS customers and ARPU over there. I think if you compare on a year-over-year basis, it's not exactly apple-to-apple comparison because if you find out from our prepared remarks, starting from this year, we actually changed our revenue recognition. Last year, we have a big portion of enterprise VAS revenue, namely integrated marketing revenue, actually, we recognized that on a gross basis. And this year, we recognized on a net basis. And we even introduced the GTV growth transaction value to be a more comparable indicator. But if you see from our earnings release, it's not exactly comparable if you look at the number of customers and the ARPU. But you are also correct that if you are looking at a sequential basis from Q1 to Q2 and from Q2 to Q3, that number, both numbers have been increasing very obviously. That's because we have been shifting away our focus from integrated marketing business, which is a low gross margin business to more higher-margin business, which namely consulting services and off-line events services. And I just mentioned on my answer to the CICC analyst that consulting services and off-line events account for around 60% and 30%, respectively, of enterprise VAS revenues. And these two also grow very strongly. One, the consulting services grew 14% year-over-year. And the other, the off-line events grew 72% year-over-year. So, that's why this sector has been very strong, and we put a lot of emphasis on that. If you are asking about the trend in Q4, I understand you are in the States, so you might not exactly familiar with the situation in China. In Q4, there are some upsurges of COVID-19 again. So, there might be some impact on our off-line events. But, overall, I think Q4 is our strong season. So, we still expect growth in this category. But if you look at next year, the full-year 2022, that will be very obvious. This category will be upward trend again. Especially with our new businesses, enterprise services review portal, once that's been commercialized, there will be additional streams revenues coming from these new businesses. That will be in the enterprise VAS category as well. Hope this answers your question, Vincent.

We have the next question coming from the line of Peipei Qiu from Industrial Securities.

Could management give us more color on the development of the short video and live stream parts? And how much does these two new forms contribute to the advertisement sector? How much is ARPU now of these two new forms?

So judging by the third quarter revenue, our revenue from short video and live streaming, both achieved year-over-year growth. So, given the considerable macroeconomic challenges faced by the entire advertising industry, we are quite satisfied with our performance. Our short video business continued to be a bright spot in the third quarter. So, we helped some customers like Intel promote its product with short form video. Feedbacks are great. And the over RMB 2 million revenues set a record on the short video advertisement average revenue per customer. So, also, other customers like IBM, Ant Financial also start to cooperate with us. So, the short video revenue will be higher than the revenue we earn from the WeChat account. So, in the future, we will be able to raise the ARPU with the short-from video model, and thus to facilitate our penetration among individual customers, also the younger customers and expand our customer base. So, the next, we will let our CFO to answer some of the proportion of the short video form of the revenue.

This is Lin. I think the short form media and live streaming are new forms of advertising and grow very quickly now, but in terms of revenue scale, because it's very new and even not yet a year since we launched these businesses. So, right now, they account around maybe less than 10% of total advertising revenue. But the growth rate, again, is definitely outperforming the average growth rate of advertising revenue. So, in the future, it will grow and it will be a bigger percentage of total advertising revenue very soon.

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

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