Q3 2020 Qutoutiao Inc Earnings Call
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Hello, Ladies and gentlemen, thank you for a standby for the third quarter 2020, <unk> earnings Conference call a for the Q2 Child, Inc.
At this time, all participants have been a listen only mode. After and management's remarks, there will be a question and answer session. Today's consumer conference call. It's a being recorded a little of out turning the call over a two holes. Please go head true.
Thank you very much.
Welcome everyone and through the third quarter of 20 point the earnings conference calls to the ago, Inc. The.
Companys financial and operational results of the release, the bar and use one subs or the today and has been made available on line.
The the beauty earnings growth.
Press release by visiting the IR section of the website at <unk> Dot and she knows the adult net.
Just a month on todays call will include a CEO and Mr., a time and a CFO and Mr. shall do true.
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 the vote inherent risks and uncertainties.
As such the company as a result was maybe a 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 filed with the U.S. Securities and Exchange Commission. The cover the does not assume any obligation to update any forward looking statements, except as required under applicable law.
Please note that to the earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.
Because of the press release contains a reconciliation of the on the non-GAAP measures to the funnels. The GAAP measures I will start by reading out of his commentary on the business.
[noise] [noise]. Thank you Suzie and thanks, everyone for joining today's conference call. We are delighted to see the city of about business as reflected in the results of the third quarter.
A focus for the year continues to be on the underlying profitability of the business as we go through a tough market and the regulatory backdrop, partly due to the covert pandemic.
We have remained at you as a business, we're facing some uncertainties and changes in the operational environment. This year.
And we are pleased to see a efforts and the person who is bearing fruit and a form of consistently improving the profitability.
This has been a cheap as a result of the combination of and the initiatives.
Firstly, a marketing expenditures have followed a strict ROI requirements to make sure that they are yielding satisfactory returns for this we look at Hughes acquisition and the use of retention and separately and in combination to this a the discrepancies in constant search for a room to further optimize.
This perspective has been the driver behind the amount and timing of a user acquisition.
This is an important part of a very operation we have become a structurally more efficient as a business and this will set a solid footing for a long term growth.
Well, they're not expenses, we have also taking a closer look at other line items, which are relatively small and <unk> and previously had not attracted enough of the tension such as sort of a bandwidth costs as well as I'll pass the thing for headcount.
These have proven to be another meaningful source of the efficiency gain.
And disciplined approach schools. The expenses has been instrumental in protecting our share holder value during tough times and will continue to serve us and we really much as the top line tons.
And the short term it doesnt and some downward pressure on out of the are you and and the you metrics.
We have mentioned in a previous core fast our applications have been briefly.
Taken off the App stores at the beginning of Q3 as a result of the C. D. TV program. Despite being a brief the event didnt make a negative impact on the and number of active users on our platform as well as use the time spent.
Although this is the less a factor in comparison to of busting initiatives behind the week of the are you and and the U. trends.
We took the opportunity to recalibrate, how stressed the towards outcomes and and use the ecosystem development, providing all the T. point has been and effective marketing strategy in attracting use the attention and for us to scale up out of business you know early days the.
It helps increase user activeness and the stickiness, but it is only I think of the take on top of content ultimately, we will and come to be the main tool for our users which is why we have consistently invested into generating better and a more original content was using lot of t. points.
Oh and the average into a smartlink algorithms has also helped us reduce loyalty points rewarded in terms of the absolute dollar amount and on a per the you per day basis, a measure that has half the year on year.
Given the magnitude of sweetness of the loyalty points reduction.
The the are you in Q3, a has experienced a weakness, which we expect to continue into Q4.
However, we are pleased to observe the ARPU has held up reasonably well, suggesting we are capturing and retaining high value customers.
Since last year, and we do has emerged as an important strategic pillar class has made material contribution to our growth and ecosystem building.
We have the focused on consistently improving user experience and investing and the quality and diversity of comp and which has led to improved use the retention.
We successfully explore alternative business models on monetization and for me to.
Such as the membership program and a brand advertising all of which have created chewable incremental revenues.
In addition to our strategic cooperation with question on the mini drama series, which we talked about last time. We have also entered into several comes and cooperation arrangement with key content providers and the players and the owner and literature of markets. This will further strengthen our platform and the on the literature, a space and position us well for future growth.
We do is poised to the suit the next stage of expenses and a new year. We will continue to explore the most find monetization avenues to enhance the return profile of the business.
Oh, employing a disciplined and targeted approach towards the U.S acquisition with the goal of nurturing a robust and a healthy ecosystem.
In terms of the outlook for the fourth quarter and beyond we will continue to manage our business prudently balancing sustained growth and the profitability, we expect to the operation a breakeven in the fourth quarter on a non-GAAP basis, which will mark the first time, we break even since IPO.
Although we have consistently improved our unit economics in comparison to a year ago. There is always more to be done we remain squarely focused on driving better returns to our investment with the objective of cheating a full year of profitability next year, we're maintaining a stable use base overall.
As we continue to improve the operational efficiency, we see a balanced and promising path towards growth and the profitability for the coming years.
Thank you for a much. This concludes our EPS remarks, and I will now turn the call over to our CFO of shallow.
[noise] [noise], Thank you, Eric and Factsheet and again, thank you everyone for joining todays call. Let me first review our financial results with you before providing an outlook for the fourth quarter and next year.
Our net revenue seem a so called other were RMB 1.130 billion was an ARPU of RMB sort of one cents.
Or I May you was a 121 million a.
As Eric mentioned the change in our the a and I may use has been the result of several factors, but most notably our actual initiatives to try more operational efficiency and a more robust user and the content ecosystem.
We have sharpened our focus on profitability this year, a way to achieving breakeven.
And this has seen optimization through our entire budgeting process. So let's take a closer look at a cost and expenses.
Please note our refer to non-GAAP measures.
Cost of revenues were RMB 367 million in a sort of caught up and 20, a decrease of 26% from the sort of quarter of 2019 per.
All of this reduction was the direct impact of revenue adjustment and variable comp non carbs, but another part was due to our disciplined approach towards managing the relatively fixed components such as planned with several class.
As a result, our gross profit was RMB 763 million in the quarter, a decrease of 16% year on year, where our growth margin improved the year on year from 65% a year ago to now 67%.
As Eric mentioned, we made significant savings in sales and marketing expenses, which came in at RMB 600.
79 million led the hearth.
Compared to a year ago, both user engagement and use the acquisition expenses. So the same magnitude of reduction and have come down to RMB 265 minutes and RMB. So.
The 386 million respectively.
Overall, our sales and marketing expenses as a percentage of revenues was 60% in the sort of quarter in comparison to a 106 and a year ago, which represents a significant improvement.
[noise] or ARPU in the sort of quarter was RMB sort of one cents.
Largely stable throughout the year against a difficult backdrop mantech.
And turning a similar level of monetization despite much less incentives and loyalty points for AD clicks is evidence that we have been delivering higher quality returns to our other advertising customers, while keeping the users who are satisfied the was the experience on our apps and a truly interested in our content.
Our R&D expenses were RMB 181 million, which represents.
16% of net revenues brought the in line with the past few quarters or a continued but disciplined investment into R&D will be one of the key drivers for a future growth.
General and administrative expenses were RMB, so the six minutes.
Which represented a reduction of 28% year on year. This is another area, where we manage the extra.
That's true savings by running a more efficient and a leaner operation.
As a result of our efforts on both the top line and the cost management, our profit margin all of their best since the IPO with operating loss ratio improved to 9.7% in the quarter a consistently positive trend kind.
Kind of driving this year.
In the context of a moderate revenue base in the third quarter and this is strong testimony to what we have achieved a cast off.
May do continues to be a focus for investment into growing the franchise and the we will push on all fronts in Q4, and next year, including a richer content growth strategic collaborations with our partners strategies to better acquire and retain users as well as new and innovative and there's opportunities.
Taking into consideration of the continued investment in content and a potentially a rump bumping up the pace for the use of position on the media side to try for of the business, we still expect to be operational a breakeven in the fourth quarter. This year.
We expect our a total revenues to recover to RMB 1.23 to 1.25 billion in the fourth quarter, while we keep our standards high and quality growth and that day with the unit unit economics.
We remain committed to further improving our operational efficiency as we have achieved a consistently over the past several quarters and the we expect this trend to continue in the fourth quarter of 2020, and the B and.
This concludes today's prepared remarks again, thank you very much well now open for questions. Operator. Please proceed.
Thank you so much ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question you will need to pass and star and one on your telephone and weight per unit to be announced if you wish to cancel the re class for these past the ski.
Again, it's a star and your line.
I wish to ask a question.
And our first a question comes from the line of.
Keep me from Citi Vicki a line is now open.
And the money management. Thanks for taking my question My question about the two so what that management think of that.
And we'll talk as far out of that 2020, and you take the line and also what is the management deal on the competition landscape of the on line leading industry. Thank you.
Thank you every day and so.
Regarding the guidance and outlook for me, though I think we will see a a quite stable user base and improved monetization in the second half of this year and a as we took a more balanced approach falling car company between growth and profitability I think there's more of that apply to me too as well, although we do have the go plans for me too.
For Q4, and next year and a the year and target is to get to over an eight to 9 million India used for me too and stable ARPU in line or slightly better than the rest of the company and this year were made a significant investment income and.
It's actually a proprietary content as well as collaborations with other content providers. So as we plan to keep investing as we believe that only a healthy content ecosystem kind of return of the users over the longer term.
And a proprietary platform enables us to further impact with our users and to use the in a real time user data for part of the analysis and took a real time feedback to the authors so of the quality of the content and the right, Matt Sharpe authors content and readers and.
Other key to true to our long term success for any content based business. So and competition wise I think we are seeing more players get into the free literature market. This year, but this further proves the value of the sector and the we welcome more players a to make this a robust and a healthy industry and the as the we have.
Before we believe the the the free literature, a marker is much bigger compared to the traditional pay to read the model. So there will always be competition from the Inc income and as well as new commerce fiber of our has started and experiencing use of positions monetization and a healthy Inc.
Content ecosystem.
Make us uniquely position in this market and the way we will continue to be one of the leading players in this market.
And get.
Thank you.
Thank you so much.
Ladies and gentlemen, if you wish to ask a question, it's a star and one on your cash so.
And your next question comes from the line of the top.
A strong from Jefferies.
Your line is now open.
The money management and thank you for taking my question and ask them.
Can management share your view.
On the other price and like I said and.
And just on the fed and maybe.
Yeah on the.
Hi, This is Dan thank you.
Okay. Thank you I think for the and second half of 2020, we have seen the market a start to a pickup.
Pick up in the compared to the first half and we expect this trend to continue.
For us the way away because of the the CCTV incident of earlier in Q3 of.
The cause our applications to be taken off the air force of about two weeks and so we have a observed some negative impact on our business operationally and financially a due to the us in Q3, but are we do have seen strong demand and.
From our and no advertising partners a across our different in the sectors Apociii, a free and Q4 as we have said in the prepared remarks, we see of revenue continue to recover and going into Q4. So a lot I think the the market is gradually picking up and back to the level we have seen.
Last year of back to the level of before the pandemic and I think.
And this trend will continue in Q4 and the property going into next year and the as we have said before I think our strengths in the form a space that will help us to cash flow difficult times as our customers are increasingly looking for a direct and a more a measurable results. So thats why we are quite confident that we will continue to.
See our revenue recovery and the growth in Q4 and the next year. What's your total thank you.
[noise]. Thank you.
Thank you so much once again, ladies and gentlemen, if you wish to ask a question, it's a style and one on your telephone keypad.
And there I know for the question now I'd like to turn the call back over to the company the clubs and me Mike.
Yes.
Thanks again for joining today's call and if you have any further questions. Please don't hesitate to reach out to any of us. Thank you and goodbye.
This concludes today's conference call you May now disconnect your line.
Thank you.
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