36Kr Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
December 9, 2021

There are 5 speakers on the call.

Operator

Hello, ladies

Speaker 1

and gentlemen. Thank you for standing by for 36KR Holdings Inc. 3rd 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.

Speaker 1

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.

Speaker 2

Well, thank you very much. Also, now, welcome to 66 KR Holdings' Q3 2020 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 of our website at ir.66kr.com. Participants on today's call will include our Co Chairman, CEO, Mr.

Speaker 2

Da Gang Feng and our Chief Financial Officer, Mr. 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. Mr.

Speaker 2

Lei 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.

Speaker 2

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 perspective and other public filings as well with the U. S. SEC. The company does not assume any obligation to update any forward looking statements except as required under applicable law.

Speaker 2

Please note that 56KR earnings press release and this conference call include discussion of unaudited GAAP financial measures as well as unaudited non GAAP financial measures. Safeguard's earnings press release contains a reconciliation of the unaudited non GAAP measures to the unaudited GAAP measures. And please note that all of our members are in RMB. I will now turn the call over to our Co Chairman and CEO, Mr. Da Gang Huang.

Speaker 2

Paul, please go ahead. Thank you. Hello everyone and thank you for joining our Q3 earnings conference call. In this 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 hot 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.

Speaker 2

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 the specialized sophisticated distinctive and innovative enterprises in China. Against the backdrop of uncertainties related to COVID-nineteen resurgence and heavy flooding in some regions of China, we observed many industry leaders actively embracing these changes, quickly adjusting to the challenging macro environments and tirelessly undertaking their corporate social responsibilities. As we have been for the past 11 years, 56 ks are in the thick office during the quarter, using connections and communications for industry participants and providing our customers and users with a complete ecosystem of innovative service and content. In the Q3, our total user traffic remained at a historically high level with average monthly PVs jumping to 849,000,000, up 50% year over year. This marks our 14th consecutive quarter of TV growth, a powerful testament to our content's continued user renaissance and our growing brand influence.

Speaker 2

We have expanded our content presentation format as well as topic coverage to further broaden our well rounded platform with unique innovative products and service offerings. In terms of content strategy, our dual focus on PGC and UGC continue to cater to diverse preference and meet more user group needs across multiple formats, including image, text, audio, short form video and live streaming. In Q3, 185 pieces of content published on 56 KOs retail visual account had each accumulated more than 100,000 views. More excitingly, the number of content pieces with readership exceeding 200,000 views experienced strong growth, up 124% quarter over quarter. We also continue to expand our content matrix during the quarter and launched digital 56KRO official retail accounts dedicated to digital transformation phenomenon and dynamics.

Speaker 2

In addition, our retail account appealing to younger users or youth for a wide array of trending topic content further diversifying our user group. Recently, China's official media outlets, Global Times, picked up our content for the first time. They exerted and translated our all year report white paper on staying up late and published to foreign media, which demonstrated our content's rising influence. As of the end of the quarter, we have expanded our high quality content offerings have extended to a wider range of areas, including new consumption, auto, real estate, advanced manufacturing, artificial intelligence, new energy, autonomous driving, enterprise services, medical and healthcare as well as primary and secondary markets related content, all providing the suitability, readability, quality and usefulness that cater to users' work needs. We have been working tirelessly to develop our storefront video business, which we believe will be a new growth engine for both commercialization and user base expansion.

Speaker 2

We published dozens of short form videos during the Q3, attracting more than 6,000,000 followers across all around online channels, particularly our short form video on in-depth analysis of China's telecommunications industry demonstrated a standout success, accumulating 10,000,000 video rewards across all channels. It was among Bilibili's most popular videos overall and one of the top 3 hottest video in the knowledge section during the week of this launch. We also created videos in conjunction with all youth, extending the lifestyle of the young generation that attracted an enormous number of video viewership and create Internet bots. We also continue to make positive progress in live streaming. For instance, our new knowledge program launched in collaboration with Kuaishou features finance and business breaking news as well as capital market stories.

Speaker 2

To this end, we live stream expert discussion on the latest developments in industries such as commercial aerospace, new e commerce, new consumption, film and TV entertainment, which engage a broader user base and generated massive attention to illustrate the number of new followers gained from a single live streaming session of new knowledge program with 30 times higher than our average daily ad of new followers making us an indispensable paying commercial content provider on Kaixiao. High quality content requires omni channel distribution content. This has been our philosophy from day 1. In Q3, we produced multiple blockbuster content pieces with our trending top content on shiho accumulating over 10,000,000 TVs. During the mid autumn festival, we collaborated with People's Daily, the top official media outlet nationwide to produce the HTML 5 piece on human exploration, which garnered 50,000,000 total user exposures.

Speaker 2

In addition to wild norm platforms such as WeChat, Weibo, Zuhu, Douyin and Kaishou, we have also been exploring collaborations with new distribution partners. In the Q3, we cooperated with renowned mobile phone brands such as Huawei, Xiaomi, Oppo and Vivo to enhance our presence on their display channels and news feeds, which helped the cell phone brands expand paying commercial content and increase our user exposure among target customers. We are also making steady progress with our new product, Our secondary market products launched in the Q2 of 2021 continue to perform well in the Q3. Following the new Energy Vehicle Industry Summit, our partnership with Industrial Securities, we teamed up with Zheng Wang, Hongyuan Securities to host a forum theme as e Commerce 4.1, the rise of national brands in the age of new consumption. In addition, one of our new products, 56 ks Capital Pies, features notable domestic security companies such as CICC Industrial Securities and Shenhua Gongyuan Securities to share their investment impact.

Speaker 2

Furthermore, we accelerated our coverage of Meta Awards content in the Q3. On November 24, 2021, at our Duo headquarters in Shenzhen, we held 66KR Sports Matter Awards Focused Industry Conference, leading with discussion on extended reality, ecosystem and value chain, new social networking in the virtual world and AI and virtual beings. The conference attracted a large cohort of MetaWorth followers and facilitated connections and communication between MetaWorth investors and companies. At this conference, we also announced that StatisticsCare will launch limited edition digital collectibles in collaboration with Tencent's Guangzhou app. 1124 lucky users will receive a digital collectible to commemorate November 24, an important milestone in our evolution, the day we start our journey into exciting new MetaWorks concept.

Speaker 2

On the international front, we continue to explore overseas business opportunities through our subsidiary 66 KR Global. In addition to South Eastern Asian markets, 66 KR Global made its first foray into Europe, Australia and New Zealand in the 3rd quarter. These horizon expansions are set to facilitate more new economy and tech companies' entry into new international markets. It will also help boost overseas companies' access to Asian markets, thus promoting deeper commercial collaboration between Asia and the rest of the world. Moreover, following our proprietary content inclusion on the Bloomberg terminal, 66 player Asia content was also adopted by Dot Joint, a testament to our growing influence beyond China.

Speaker 2

In summary, we are delighted to see 66 KR's product and service offerings have powered the entire enterprise lifecycle, spanning from a 15 start up in TR exposure, investment financing, pre listing consultation and IPO to that follows post IPO such as raising stock visibility and building shareholder value, supporting customer acquisition, government incentives and overseas expansion. We have helped 6 major customer communities consisting of the unicorn startups, TMT giants, investment institutions, local governments, traditional enterprises and individual clients connect and succeed On top of our full scale presence and sustained development efforts, more and more entrepreneurs and industry leaders value our brand influence and we have firmly established our position as a leading new economy service provider. Next, I'd like to share our latest updates with respect to commercialization. During the Q3, our 3 major business segments, each delivered solid performance and our innovative new business continue making steady progress. Despite multiple having in the 3rd quarter including COVID-nineteen resurgence and macroeconomic uncertainty, our advertising business demonstrated its resilience and vitality, achieving solid year over year growth in each of the number of advertising customer and average revenue per customer.

Speaker 2

We have taken a twofold approach to our advertising business. 1st, we leverage our content and brand influence to gain market recognition. 2nd, we continuously explore innovative forms of company promotion to efficiently increase both the number of advertising customers and average revenue for advertising customers. For instance, in the Q3, we helped Intel promote its EVO platform based laptops with short form video. Our short form video team brought the complex technology to live with simple, easy to understand visual language, earning accolades from Intel's global team.

Speaker 2

This collaboration with Intel set a record in our average revenue per advertising customer in a standalone short form video marketing campaign. We believe that a short form video model can support us to raise the approval and draft commercial collaborations with more prominent international and domestic brands. In addition to short form video, we have also been proactively exploring ways to better empower various brands through a live streaming content. Our collaboration with Huabi Crowd in the Q3 is a perfect example. By turning a live streaming technical discussion into what looked like a variety show, the new format utilized fun field discussions to present complicated and off core technologies, facilitating better user competition.

Speaker 2

Meanwhile, we cooperating with Intel to advertise its corporate clients' practical applications of its technology via live streaming interviews with its China partners. This innovative form of live streaming in turn boosts our During the Q3, we also attracted new advertising partners through our Oyu Through account. For example, we worked with Jifu to advertise these new columns and help IPI promote their new video programs, further amplifying each brand's presence in the marketplace. Oyu this terribly as an advertising partner just shortly after its launch, validates our validates our influence on younger generation has well received and recognized by branded customer. Turning to our enterprise value ID services, we maintained steady performance during the 3rd quarter while making meaningful progress in innovative new service offerings.

Speaker 2

Our Q3 off line activities include the September's China Investor Future Summit, which achieved double success in terms of revenue and influence. We invited a distinguished group of mainstream investment institutions to discuss our set of leading industry sectors, including new consumption, hardcore technologies, medical care, carbon neutralization and enterprise services. We also selected 66 extraordinary investors under the age of 66 with our proprietary IP 6636 survey. With our unique IPs, we effectively established our own VC investor community while also enhancing user stickiness and repurchase rates. We also expanded the boundaries of traditional value added services with our new innovation and entrepreneurship competition service model, targeting government clients and large scale industry leaders.

Speaker 2

For example, we collaborated with BYD to offset its developer innovation contest, which attracted numerous applications from talented developers and produced countless new solutions for the smart automobile industry. This contest was BYD's first step in the direction of opening up the innovation process, supporting investors to access BYD's resources and its smart open ecosystem with a winning arrangement. On December 13, we will hold our annualized new economic news conference in Shanghai with Era of Part 4 as is seen. The conference will feature a comprehensive summary and review of the technology and venture capital industry in 2021 with heavyweights from the venture capital growth, unicorns and other well known companies. At the same time, academia and regulatory authorities will be gathering to share their view.

Speaker 2

Not only we are collaborating exclusively with Douyin to promote this conference, Douyin will provide a high level platform, cost promotion, resources package and traffic support including KOL endorsements With 56 KR's leading position in the pan commercial content industry, our premium content matrix and Douyin's massive traffic, we believe that this year's WISE conference will again be a major industry influencer and enhance our brand thickness and commercialization capability. In addition to offline events, consulting service businesses are an important component of our enterprise value added services, 66 KR Research Institute assisted government and corporate clients in targeted industry research and provides customized solutions based on science needs. On the corporate side, we released a smart mobility report in collaboration with Alibaba and helped leading high-tech companies such as Baidyan and Xiaomi issue industry research reports. On the government side, we produced research reports on investment promotion and new development zone construction planning for local governments in Chongqing, Shenzhen and Wunan, among others providing enhanced decision making support. Notably, in late November, our 66 KR Research Institute become a member of the Arithmetic Research Alliance, which is composed of the People's Data, Boston Consulting Group, Kantar Group, Citi's Construction Investment Research Institute, China International E Commerce and GiantEngine.

Speaker 2

Being part of this alliance is a testimony to our professional research capabilities with recognition from professional authorities. Next, I'd like to share the latest updates on our new business, 66 Care Antibacterial Service Review Portal. Since its launch in August 2020, we have made continuous efforts to expand into China's top enterprise service review platform tailored to company's digital transformation needs. As of the end of September 2021, we have grown the platform to power nearly 5,000 software applications, greatly broadening its diversity and inclusion. We also launched new features for the review portal in September, allowing more chance to manage product profiles, publish content, view lease data and contract prospective customers.

Speaker 2

As of the end of the quarter, close to 400 merchants had established a presence on the enterprise service review portal, including well known manufacturers such as Tengen, Kinstock Office and Basin. The merchant oriented features essentially transform us from a content producing portal to a marketplace platform as more merchants and third party participants and are contributing currently to our platform, which is facilitating our scale of efforts and commercialization. Looking at operating data metrics, average daily active user increased by 109% sequentially and the number of review comments increased by 57% sequentially in the Q3, primarily due to our platform software expansion and complementary engagements. During the quarter, we published a research report on social customer relationship management, private domain traffic operation and marketing design, which showed that customer of the products covered in our reports were on average of 10x more willing to leave their personal information on the portal than customer of products not covered in our reports. In 3rd quarter, the average conversion rate of potential customers that provided their personal information rose from 0.08% to 0.24%, a 200% increase.

Speaker 2

To date, the conversion rate for leads generated on the review portal is already twice than that of leads from public domain traffic. We are convinced that future refinement of the platform will improve customer acquisition efficiency for enterprise and help them better optimize their products based on the growing number of Weibo user reviews. Last but not least, let's turn to our subscription service. Throughout our 11 year history, we have both observed and provided exceptional service when you're in the business development. Now we hope to leverage our expertise and customized service offerings to expedite entrepreneurs' empowerment.

Speaker 2

To this end, we continue building our comprehensive training system for enterprises and individual entrepreneurs during the Q3, recording 52% subscription revenue growth with a 14% year over year increase in the number of institutional customer and a 48% year over year increase in average revenue per customer. Harnessing our commercial experience, we have been working refine our training systems as well as our premium knowledge content library for institutional and individual subscribers. We offer online courses to individual users to improve their professional expertise in management, social finance business and sales development. We also offer very specialized training program for institutional subscribers. For example, we launched venture capital plans at the end of October to provide a learning platform that accelerates enterprise empowerment and helps enterprises to become industry roadrunners.

Speaker 2

In an era of rapid technological change, despite the evolving impact of COVID-nineteen, business will never stop innovating and growing. As a witness to this era, Zixkylr has been fortunate to accompany a multitude of Internet companies on their development and expansion journey, and we will continue to grow alongside them as we bear witness to the advance of the age of digitalization, hardcore technology and event awards. The Beijing Stock Exchange will provide a better capital environment for specialized refined differentiated and innovative companies, facilitate their growth with a broader playing field and raise the ceiling of the new economy service sector. As an outstanding brand and innovative platform serving new economy participants, we believe that 60 safe care is well positioned to capitalize on trends in the new era ahead and unlock commercialization potential as we empower more and more new economy enterprises. We are confident that we will help our industry partners ride this wave to future success.

Speaker 2

With that, I will now turn the call over to our CFO, Mr. Yu Mei, who will discuss our key financial results. Please go ahead, Lin.

Operator

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-nineteen resurgences and microeconomic challenges. As Paul mentioned earlier, our advertising revenues grew steadily year over year in the Q3 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 optimization resulted in a strong 52% year over year increase in our subscription services revenues in the Q3.

Operator

In addition, as we continue 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 Q3 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 Q3 2021 financial results. Online advertising services revenues increased by 4% to RMB53.4 million in the Q3 of 2021 from RMB51.1 million in the same period of 2020.

Operator

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 Q3 of 2021. Enterprise value added services revenue were RMB22.5 million in the Q3 of 2021 compared to RMB66.4 million in the same period of 2020. The decrease was primarily due to our continuous shift in focus towards higher margin businesses. Starting from the Q1 of 2021, we ceased to act as a principal in certain low gross margin businesses and acted solely as an agent.

Operator

As a result, revenues of such businesses were recognized on a net basis from the Q1 of 2021 onwards. To increase comparability of operating results and help investors better understand our business performance and operating trends, we introduced gross transaction value as a supplemental metric to describe our business. Gross transaction value of enterprise value added services was RMB66.3 million in the Q3 of 2021 compared to RMB66 400,000 in the same period of last year. In particular, our consulting services revenues and offline events revenues increased by 14% and 32% year over year respectively, reflecting our expansion efforts in enterprise value added services have gradually paid off. Subscription services revenues were RMB9 1,000,000 in the Q3 of 2021, representing 52% growth compared to RMB6 1,000,000 in the same period of 2020.

Operator

The increase was primarily attributable to our continuous efforts to offer high quality subscription products to our subscribers. Total revenues were RMB84.9 million in the Q3 of 2021 compared to RMB123.5 million in the same period of last year. Taking into consideration of the aforementioned change in revenue recognition for our enterprise value added services where there was a RMB 43,100,000 variance between net revenues and gross transaction value, investors can actually find out that our overall business trend is upward and demonstrated solid year over year growth on a comparable basis. Cost of revenues were RMB37.3 million in the Q3 of 2021 compared to RMB76.6 million in the same period of 2020. The decrease was primarily due to our continued shift in focus towards higher margin businesses and recognition of certain revenues on a net basis.

Operator

Gross profit was RMB47.6 million in the Q3 of 2021, compared to RMB46.8 million in the same period of 2020. Gross profit margin was 56.1% in the Q3 of 2021, compared to 37.9% in the same period last year. The increase was again primarily due to our continued shift in our focus towards higher margin businesses as well as recognition of certain revenues on a net basis. Operating expenses were RMB80.3 million in the Q3 of 2021, compared to RMB63.2 million in the same period of 2020. Sales and marketing expenses were RMB35.5 million in the Q3 of 2021, compared to RMB31.6 million in the same period of 2020.

Operator

The increase was primarily attributable to an increase in payroll related expenses. G and A expenses were RMB30.9 million in the Q3 of 2021 compared to RMB20.5 million in the same period of last year. The increase was primarily attributable to an increase in the allowance for credit losses and payroll related expenses, partially offset by the decrease in share based compensation expenses. Research and development expenses were RMB13.9 million in the Q3 of 2021 compared to RMB11.2 million in the same period of last year. The increase was primarily attributable to the increase in payroll related expenses as we bolstered our research and development capabilities.

Operator

Share based compensation expenses, merchandising cost of revenues, sales and marketing expenses, research and development expenses as well as G and A expenses totaled RMB4.9 million in the Q3 of 2021 compared to RMB4.6 million in the same period of 2020. Other income was RMB1.5 million in the Q3 of 2021 compared to other income of RMB2.5 million in the same period of 2020. The decrease was primarily attributable to a decrease in the amount of government grant received in the Q3 of 2021. Income tax expenses were RMB14000 in the Q3 of 2021 compared to income tax expenses of RMB21000 in the same period of last year. Net loss was RMB31.3 million in the Q3 of 2021 compared to RMB14 1,000,000 in the same period of last year.

Operator

Non GAAP adjusted net loss was RMB26.4 million in the Q3 of 2021, compared to RMB9.3 million in the same period last year. Net loss attributable to 36KR Holdings owners shareholders was RMB30.5 million in the Q3 of 2021 compared to RMB14 1,000,000 in the same period last year. Basic and diluted net loss per share were both RMB0.03 in the Q3 of 2021 compared to RMB0.1 4 in the same period last year. As of September 30, 2021, the company had cash, cash equivalents and short term investments of RMB178 1,000,000 compared to RMB149.6 million as of June 30, 2021. The increase was mainly attributable to cash inflow from operating activities.

Operator

Lastly, let me provide some updates on our share repurchase program. On May 6, 2020, the company announced that its Board of Directors authorized a share repurchase program under which the company may repurchase up to a total of 1,000,000 of its American depository shares, each representing 25 Class A ordinary shares. As of September 30, 2021, the company had repurchased approximately 786,000 ADSs for approximately RMB17.5 million under this program. This concludes our prepared remarks today. We will now open the call to questions.

Speaker 1

Ladies and gentlemen, we will now begin the question and answer session. You. We have the first question coming from the line of Vincent Yu from Needham and Co. Please go ahead. Our first question comes from the line of Vincent Yu from Needham and Co.

Speaker 1

Please go ahead. Pardon the interruption. Hi, the line of Vincent Yu. Your line is open. Please ask your question.

Speaker 2

Vincent, we cannot hear you.

Operator

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

Speaker 1

Certainly. The next question comes from the line of Jing Zhang from CICC. Please go ahead.

Speaker 3

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 point in the future? And the second question is under the current macro environment, how is the advertising business in the 4th quarter? Thank you.

Operator

Hi, Changbin. Thank you for your question. This is Lin. I will answer your first growth strategies and the second question. Yes, you are correct that our enterprise VAX revenues include basically 3 subcategories, namely integrated marketing, consulting and offline events.

Operator

From the Q3 perspective, you can see that our biggest component for this enterprise VAS revenue actually is consulting and followed by off line events. Consulting services and off line event services account for around 60% 30% of the total enterprise VAS revenue respectively. And these two revenues also grow on a very fast pace. For example, the consulting services grew actually 14% year over year and the offline events revenue grew further even faster with a 72% year over year growth rate. So going forward, I think in the near term to mid term, this too will be the driver for our enterprise VX revenue.

Operator

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 Paul mentioned that this business have achieved a very good performance on all kinds of operating metrics. And this business haven't been really commercialized, only with a very minimal monetization. But in the future, I think once it's ready and once we commercialize this product, we will it will be another very big and important growth engine for us. And then Mr.

Operator

Feng will give more color on your second question. Thank you.

Speaker 2

So the main growth drivers of our enterprise value added service will be consulting and offline 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 size will also play to their regional advantages and penetrate the markets of lower tier cities.

Speaker 2

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 driver 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 or increased 100 and 9% than the Q2. The portal has showcased nearly 5,000 software applications.

Speaker 2

The average DAU increased by 109% sequentially and the number of review comments increased by 50% sequentially in the 3rd quarter. All of these operational statistics demonstrated the influence of our platform. In a challenging macroeconomic environment, we remain cautiously optimistic about the Q4. In the Q3, 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 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.

Speaker 2

The main growth points of our advertising business will be expanding the customer base and increasing the our average revenue per user. While 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 video and live streaming, while we will benefit our customer, which also continue to raise the approval. If there is no large scale COVID-nineteen resurgence by the end of this year, we believe our advertising revenue for this Q4 will continue to grow.

Speaker 1

Thank you. We have the next question coming from the line of Vincent Yu from Needham and Company. Please go ahead.

Speaker 4

Thank you, management, for taking my question. 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? Where do we think our revenues stream come from this quarter and for the next few quarters? And my second question is on the enterprise value added service.

Speaker 4

So for the number of enterprise value added service customers, even though they are lower than last year, but for the past 3 quarters, we are seeing they are steadily improving. Can management share sunlight on what's the driver behind this improvement and what we see these trends in Q4 and next year? Thank you.

Speaker 2

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 5 industry 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 there some weakness in the overall China Internet sector, Not sure if you mean education sector and online game sector. These 2 industries are very small part of our business and have no impact on us.

Speaker 2

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 solution companies such as Intel, Huawei, CATL, Haier, Elite and Media. We have a very healthy mix of our advertising clients. The temporary volatility in one sector or industry segment will not have an impact on us. 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.

Speaker 2

We will also prep new service and products such as for videos, live streaming and enter this review portal that we mentioned before.

Operator

Vincent, for your second question, 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 confused on the number of enterprise versus customers and ARPU over there. I think if you compare on a year over year basis, it's not exactly an apple to apple comparison because if you find out from our prepared remarks, starting from this year, we actually changed revenue recognition. Last year, we have a big portion of enterprise VAS VAS revenue, namely integrated marketing revenue.

Operator

Actually we recognize that on a gross basis. And this year we recognize on a net basis. And we even introduced the GTV gross 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 ended up. 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.

Operator

That's because we have been shifting away our focus from integrated marketing business, which is a low growth margin business to more higher margin business, which namely consulting services and offline events services. And I just mentioned on my answer to the CICC analyst that consulting services and offline events account for around 60% 30% respectively of enterprise BOS revenues. And this will also grow very strongly. 1, the consulting services grow 14% year over year and the other, the offline event, grew 72% year over year. So that's why this sector has been very strong and we put a lot of emphasis on that.

Operator

If you are asking about the trend in Q4, Q4, as you I understand you are in the States, so you might not exactly familiar with the situation in China. In Q4, there are some out you know, outsurgences of COVID-nineteen again. So there might be some impact on our offline events. But overall, I think Q4 is our strong season, so we should have been 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 an upward trend again, especially with the our new businesses, enterprise services reboot 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.

Operator

Hope this answers your question, Vincent. Thank you.

Speaker 4

Yes, very clear. Thank you.

Speaker 1

Thank you. We have the next question coming from the line of Pepe Qiu from Industrial Securities. Please go ahead.

Speaker 3

I will translate my question. Could your management give us more color on the development of the Share Video live stream part? And how much does these 2 new forms contribute to the ad advertisement sector? And what's how much is the Pune of these 2 new forms? Thank you.

Speaker 2

So judging by the 3rd 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 Q3. So we have some customers like Intel promote its product with short form video feedback upgrade and the over 2,000,000 revenue set a record on the short video advertisement average revenue per customer. So also other customers like IBM and Financial also start to cooperate with us.

Speaker 2

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 app with the short form video model and facilitate our penetration among individual customers, also the younger customers and expand our customer base. So next, we will let our CFO to answer some of the proportion of the short video form of the revenue.

Operator

Hi, Pepe. This is Lin. I think the short form video and live streaming are new forms of advertising and grow very quickly now. But in terms of revenue scale, it's because it's very new, even not yet a year since we launched this business. So right now, the accounts are around maybe less than 10% of total advertising revenue.

Operator

But the growth rate, again, is definitely outgrowing outperforming the average growth rate of advertising revenue. So in the future, it will grow and will be a bigger percentage of total advertising revenue, Marius Duan. Thank you.

Speaker 1

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

Speaker 2

Thank you once again for joining us today. If you have further questions, please feel free to contact 56KR's Investor Relations through the contact information provided on our website.

Speaker 1

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

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Key Takeaways

  • Strong resilience in advertising with new formats: record average revenue per customer in a standalone short-form video campaign for Intel and growing live-streaming ad offerings.
  • Average monthly pageviews jumped 50% YoY to 849 million in Q3, marking the 14th consecutive quarter of traffic growth and expanded engagement across text, audio, video, and live streams.
  • The newly launched enterprise service review portal now features nearly 5,000 software apps, over 400 merchants, and saw a 109% sequential increase in DAU along with a 57% rise in review comments, positioning it as a future growth engine.
  • Subscription service revenues grew 52% YoY and gross profit margin improved to 56.1% (from 37.9%), while the company generated positive operating cash flow and ended Q3 with RMB 178 million in cash and equivalents.
  • Despite revenue growth and margin expansion, net loss widened to RMB 31.3 million in Q3 from RMB 14.1 million a year earlier, driven by higher operating expenses.
AI Generated. May Contain Errors.
Earnings Conference Call
36Kr Q3 2021
00:00 / 00:00