Earnings Labs

36Kr Holdings Inc. (KRKR)

Q2 2023 Earnings Call· Thu, Aug 31, 2023

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Transcript

Operator

Operator

Hello, ladies and gentlemen, thank you for standing by for 36Kr Holdings Inc.'s Second Quarter 2023 Earnings Conference Call. [Operator Instructions] 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, Jainan [ph], IR Manager of the company. Please go ahead, Jainan [ph].

Unidentified Company Representative

Analyst

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 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 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 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. Pal, please go ahead.

Dagang Feng

Analyst

Thank you. Hello, everyone. Thank you for joining our second quarter 2023 earnings conference call. 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 rebounded strongly to 55%. We also made great strides in both 2B and 2C businesses as we continue to enhance our high-quality multidimensional content matrix and deeply form [ph] AI empowerment and applications in diverse scenarios across our business segments, we embarked on the new development stage of diversified growth. First off, content, we particularly explore new growth areas for our content ecosystem during the COVID and made great advancements on multiple fronts, including greater industry coverage, content asset accumulation, high-quality customer engagement and our broadening multichannel distribution network. Furthermore, the number of our blockbuster articles kept rising in the second quarter. We had 160 articles [ph] with pageviews exceeding 100,000, fully showcasing 36Kr's leading 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 followers, up 21% year-over-year, achieving 9 consecutive quarters of growth. The vertical media we launched, including Waves and the Emergency of Intelligence, achieved continuous impressive outcomes, allowing users to gain deeper insights into booming sectors and equally important, further cementing our leadership in the New Economy sector. We also further solidified our content advantage in our 2C business during the quarter by optimizing the content of Super Review, a product test review program and Youth White Paper, a survey report column,…

Lin Wei

Analyst

Thank you, Pal. 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 RMB84.4 million in the second quarter of 2023, up from RMB81.7 million in the same period of last year. Online advertising services revenues were RMB57 million in the second quarter of 2023 compared to RMB57.8 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 the early stage of recovery. Enterprise value-added services revenues increased by 17% to RMB16.8 million in the second quarter of 2023 as we continuously developed various proactive enterprise level services for our customers. Our offline 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 RMB10.6 million in the second quarter of 2023 compared to RMB9.5 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 RMB37.6 million in the second quarter of 2023 compared to RMB30.8 million in the same period of last year. The increase was primarily attributable to higher fulfillment costs and content costs. Gross profit was RMB46.7 million in the second quarter of 2023 compared to RMB50.9 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…

Operator

Operator

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

Jing Chen

Analyst

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

Lin Wei

Analyst

Thank you, Jing. This is Lin. 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 advertisements usually has lagging effect as the macro economy is still in the early stage of recovery. And if you look at 36Kr, our client pool of advertising, we have both big names, big 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 mid to -- small to medium-sized companies which usually have a more cautious advertising spending compared to those 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.

Dagang Feng

Analyst

Thank you, Jing. 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 commercialization achievements gaining momentum on both fronts. In the meantime, with creative initiatives through events like our All-New Summit WISE and our 2C lifestyle festival, CityLab, will greatly enhance the skill and influence of our offline events. Meanwhile, 36Kr Business School programs were also in full swing as we continue to enrich the content and format of the new online 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 Oxford, driving a vast increase in our ARPU to over RMB42,000.

Jing Chen

Analyst

Thank you.

Operator

Operator

And our next question today will come from [indiscernible] of Industrial Securities.

Unidentified Analyst

Analyst

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

Analyst

Thank you, Jiajun. Let me answer your questions from 3 perspectives. First of all, we're proud of our consistent nuanced understanding and foresight in terms of generative AI technology. Besides launching our vertical sub-media, the Emergency of Intelligence, we also hosted our WISE 2023 AIGC Summit in the second quarter. By continuously offering the latest developments, special 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 copywriting translation, keyword matching, image generation and an intelligent customer service among other functions. By reducing manual efforts and saving time and resources, AI effectively facilitate our cost reduction and efficiency enhancement. I would like to point out that 36Kr was the first ever industry pioneer in using AI technologies to create an e-commerce store on Taobao, launching live-stream sales sessions hosted by digital humans and we were exclusively featured on CCTV with multiple follow-up initiatives. In addition, we recently entered into a strategic cooperation with Baidu, joining hands in broadening AI applications across our media platform, enterprise services and training offerings, driving commercialization and innovation as we empower the manual goals. Our teams are working closely on a diversified AI-powered landscape, including content production, an application marketplace showcasing applications powered by large language model, LLM functions, LLM solutions and training program on AI applications.

Operator

Operator

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

Lingyi Zhao

Analyst

The short video business has been doing really well and what's our plan to further tap into this growth potential?

Dagang Feng

Analyst

Thank you, Lingyi. First of all, we will continue to launch diversified content offerings and further expand our 2C products. At present, our short video lineup covers diverse topics, including technological innovation, business insight and lifestyle delighting users with a variety of content options. In addition, multichannel content distribution remains a key focus for us. In addition to posting on short video media platforms, including Bilibili, Douyin, Kuaishou, Xiaohongshu, Xigua 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 followers surpass 8.3 million, up 42% year-over-year, among which more than 2 million were Bilibili users. Regarding our commercial cooperation for creative brand 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.

Operator

Operator

Our next question today will come from Richie [ph] of Sealand Securities.

Unidentified Analyst

Analyst

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

Lin Wei

Analyst

Thank you, Richie [ph]. 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 cost 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 video program called Broadcasting Foreseeing 2033. That's a long-form video we 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 GP 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-added services as well as our cleaning business will also grow, that will contribute to higher revenue and hence contribute to higher gross profit and GP margin. Hope this answers your question, Richie. Thank you.

Operator

Operator

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

Unidentified Company Representative

Analyst

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

Lin Wei

Analyst

Thank you.

Operator

Operator

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