Q4 2020 Qutoutiao Inc Earnings Call
Yes.
[music].
Yeah.
Hello, gentlemen, thank you.
And of course fourth quarter.
The conference call of Park pool.
Great.
On the list.
Uh huh.
After management's remarks.
Yeah.
Today's conference call.
Got it.
I'll now turn the call over here.
Please go on.
That's right.
Thank you very much.
And welcome everybody to the fourth quarter.
2020 earnings Conference call of the Street Hotel, Inc. The.
The company's financial and operational results were released via Newswire services earlier today and have been made available online.
You can also a beauty earnings press release by visiting the IR section of a website at IR on adult Szeto with Yahoo Dot net.
He has joined US on today's call will include a CEO, Mr. Eric 10, and a CFO Mr shallow of a 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 involve inherent risks and uncertainties.
Such the company's results may be materially different from the views expressed today.
Further information regarding these on the other risks and uncertainties is included in the company's prospectus and the other public filings as filed with the U S Securities and Exchange Commission.
The company does not assume any obligation to update any forward looking statements.
Except as required under applicable law.
Please note that shadow of doubt the earnings press release on this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.
The other press release contains a reconciliation of the unaudited non-GAAP measures to the on the unaudited GAAP measures.
I will start by reading out areas of commentary on the business for us.
Thank you Stacy and thanks, everyone for joining today's conference call. This year of 2020 has been transformational for the load as well on it for us.
We have whether the more uncertainties and changes in the operational environment than ever before.
Has tested a resiliency and adaptability and also pushed us to rethink how we should position our business on the product.
At the heart of all of the thinking is how we maintain and improve the unit economics.
That kind of has not changed.
What we're now doing differently is the path, we take to achieve it.
The value we create for US this comes from a quality content distribute it through the power of a smart algorithms naturally there's a proposition is most of the valuable for those who comes out of platforms solely for the purpose of consuming quality content.
We pioneered loyalty points as a marketing strategy to reward our loyal users and the homes use the engagement.
Which has been the affected but the flipside of the same coin is that inevitably there is a proportion of users whose reason for being on the platform. If we don't relate to earn loyalty points.
Not that it is a meaningful amount of money, but rather it is a give me a thought experience. Some people do we enjoy perhaps no less than consuming content.
There was a clear GAAP between the unit economics of users who are coming from the oriented and those who are not.
Well, we have consistently invested into generating better and the richer content.
The better service and the retained the format.
We have also taken a firm and decisive step in the slashing the loyalty points, the Polish waste with the latter.
The overall result, as you can imagine is a use of base of much better quality.
The unit economics has been a structurally improved driven by both a favorable use of mixed shift on the immediate cost savings.
Naturally a D. A U M. A you think of is pointing to a leaner use a base throughout the year as we strategically trying to use a base.
But our revenue in the fourth quarter has shown a strong recovery from the third quarter and it was at a comparable level of the first two quarters of the year.
Comparing with the first three quarters average a pool in Q4 tells the story of this remarkable underlying transformation of a business profile.
That has been on almost a 30% increase.
When you look at the net a pool, which is a headline a pool less user engagement expenses Padilla you per day is even more remarkable at 63% improvement.
That was being equal this goes directly into a much better unit economics.
Partially offsetting the ROI equation is a higher use of acquisition the expense we saw in the fourth quarter.
Essentially being able to generate higher on net of who gives us more ammunition to a bit for high quality of users coming from higher quality channels.
This is how we are driving a virtuous cycle going forward in 2021 and beyond.
Yeah.
Once again this kind of event for us during the quarter was a new round of financing for me do a novelist amounting to 110 million U S dollars.
A consistent investment in content on the collaboration with the industry leaders will see us consistently strengthened a ecosystem the <unk>.
Free to read online literature, a sector being the loss of the Clinton sub sector of did not yet have a clear winner, but still has the room to build a multibillion dollar business is getting more of recognized and understood by the market and we see more general optimism around its long term potential we.
We continue to explore the monetization of the potential of original IP by expanding out in the house IP production through directly Sunny authors on the promotion of the many dramas the results have been encouraging.
We expect you do novels, the double in size by the end of this year in terms of both the U and the revenues.
A pause on the strategic development the operational focus for us in 2020 of has been the underlying profitability of the business.
We are delighted to see the group to operationally profitable in non-GAAP tons in the fourth quarter of 2020 the for.
First profitable quarter since the IPO.
In fact, the relatively more mature part of a business, which excludes me too of novels generation of more than 100 million on M. B operating profit in Q4.
Despite the more challenging environment as a result of the CCTV program and the pandemic impact we remain committed to creating a true value for all users on a building a healthy and sustainable business out.
Of the scene out F of paying dividend.
We expect to maintain and grow a profit from here onwards.
So looking out two of this year 2021 apart from doubling me two novels, we expect a overall use of base at a revenue to expand from the fourth quarter of 2020 run rate, we will be putting the same levers as we have successfully done so far namely continue to invest income to quality.
But the technology and use technology smartly doing the house overall user experience across our entire platform.
For the full year of 2021 is not without challenge as we are still relatively young as a company.
On the operating environment is highly competitive but with the rise strategy on hopefully a stable macro environment. We believe a go to a full year a group level of profitability is well within reach.
Over the long term, we remain committed to a I'll focus on the lower tier cities in China, which is where the growth potential for smartphone users and disposable income is.
We will grow without a users and provide a high quality content to meet a user's needs.
Thank you very much of that concludes Eric's remarks, and I will now turn the call over to a CFO at Yahoo.
Thank you everyone and again, thank you everyone for joining today's call. Let me first review, our financial and operational results with you before providing also for the next quarter and also all of a thought on a full year on.
Net revenues in the fourth quarter of RMB 1 billion from 102 million with a pool of RMB 44 cents, which is a significant sequential improvement we had a average of 32 million day, a U and the 175 million I'm a U during the quarter.
Our focus for the year of 2020 has been enhancing operational efficiency on the profitability and we have been well on track.
After a consistently improving our cost to income ratios, we turned the profitable on a non-GAAP operational basis for the first time since the IPO in the fourth quarter of <unk>.
On the 20.
So, let's look at the costs and expenses in more detail.
No I will be referring to non-GAAP measures, which excludes stock based compensations.
Cost of revenues were RMB $440 million in the fourth quarter of 2020, a decrease of 12% year on year, driven by our disciplined approach towards managing the fixed components, partially offset by our increased investment into content.
As a result, our gross profit was RMB 863 million with a gross margin and slightly lower year on year at 66%.
A strong reading considering the revenue headwinds, we encountered throw out of the year.
Our biggest expense is sales and marketing, which is mainly composed of user engagement expenses on the user acquisition expenses.
During the quarter, they came to RMB 163 million and RMB 397 million respectively.
The operational mode has produced the material improvement on both of these line items on the saw the total sales and marketing expense more than a hopping year on year in absolute dollar terms to RMB 641 million.
And a significant reduction as a percentage of revenue from 82% a year ago to now for the 9% you.
The other words, our prudent management of sales and marketing activities have produced a three percentage point improvement in our underlying operating margin.
Our R&D expenses were RMB $153 million during the quarter, which was 12% of revenue a small decrease as a percentage of revenue as a REIT.
Out of all of the streamlining of R&D teams.
G&A expenses were RMB 50 million during the quarter, which was just under 4% of revenues in line with the range, we observed through all of the year.
As a result, despite all of the headwinds we have in Europe. We achieved on my first quarterly profit since the IPO, which came in at RMB 40 million a 3% operating margin. It was also the first quarter since the IPO during which our operating cash flow has turned positive.
Which will increasingly drive the strength of our balance sheet and provide a meaningful source of funding to support of our investment in future growth.
I'd like to also comment a bit on our D N a O trend.
Eric has already said this is a result of a aggressively cleaning up the low part of to users and to improve the unit economics of our business.
Low part of the users, meaning users of attracted to a platform mainly or even a purely for the royalty points, but the not for the content and experience we offered to our regular users the.
The low quality users took a lot of the loyalty points, we offered previously.
<unk> contributed a birdie told you all of the advertising customers and two on top of line.
So this has been a ongoing process throughout 2020, as we continue to improve the quality of our content the all.
With them of a recommendation engine on the overall experience we offer a toll users as.
As a result, we have seen significant savings from our user engagement expenses, which now stands at five cents per day per user only about 20% from the previous peak.
And the especially in Q4 2020 weighted the recovery of our revenues. We have also seen a strong improvement in our pool, which is the revenue we get from each users on a per day basis.
This shows that our drive to improve use of quality has been very successful and we have kept the real users that's a matter and screen outs of the low quality users.
As a result, we now have a much better user economics as well as a healthy business model.
The key part of the process of all completed in the second half of 2020, and our Q4 day you average it was not far from the quarter end numbers of Q3 a quick.
Which means that the user base has been stabilized in recent months for Q1 2021, despite the impact from Chinese new year, we expect our day used to be at a similar level as of Q4 2020.
And the for four years 'twenty 'twenty, one we expect a modest user base expansion and also revenue growth for the entire company with improved user economics and overall profitability.
We are also a very pleased to announce a new round of financing for a meet on all of those in the amount of although U S. It's all a 110 million we will.
To be the controlling shareholder of me too after the completion of the transaction with.
We plan to use the proceeds to support the growth of the business across multiple fronts for.
On cooperation with strategic partners in the field to a higher quality on original content to increase on the targeted user acquisition.
We will of course continue to be disciplined with our spending keeping a ROI requirements high.
We expect to double the <unk> as well as revenue Spike fourth quarter of 'twenty 'twenty, one based on our current budget and business plan.
Looking ahead for the first quarter of 2021, we expect a further consolidate on a revenue base of cure for 2020 and the generate revenues in the range of RMB 1.250 billion to 1 billion a $300 million.
Despite the typical seasonality caused by the Chinese new year. This showed a strong underlying trend in top line recovery.
We do expect to see a small non-GAAP operating loss for the group in Q1, 2021 as a result of increased investment into a content on the user acquisition for me is when all of those.
But excluding the do the rest of the rest of the company is expected to see a similar level of profitability as the last quarter.
We are confident that after the strategic initiatives, we successfully executed in 2020, which has put our business on a former unhealthy or a footing. We will continue to build on a high quality user base on higher monetization efficiency, we expect to grow our full year revenue from here on the generate non-GAAP operating profit that's the way.
Well as well as the positive operating cash flow for the entire group.
Including the two in 2021.
That concludes our prepared remarks, a day, we are now open for questions. Operator. Please proceed.
Ladies and gentlemen, we will now begin the question and answer session.
I wish to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press the pound or hash key.
Once again, if you wish to ask a question it is star and the number one on your telephone keypad.
Yeah.
Your first question comes from the line.
Please ask your question.
Hello could.
But even the management and for life.
Congratulation on the first class claw.
So my question is about so what does management think of long term opportunity.
On profile for debt free.
On Monday.
In China.
And for me for sector.
With me in 2020, one what is the specific user acquisition strategy.
The children Stone's third party, a database and what does it imply for the operating margin profile for a me too in 2021.
And regarding to the first quarter guidance, what is the base case assumption for the revenue contribution.
Thank you.
Thank you have a gig.
<unk>.
Regarding the longhorn margin on.
Of course, that's all for the.
The free to read model I think it's still too early as a.
We are still in a relatively earlier stage of this business. However, if you look at the overall group a the more mature part of our business.
As we have already achieved like on a profit.
Profitability in Q4 last year, a we see that.
Level to a continued to increase for 2021 and I think of all I. It's possible that we can achieve a operating profit margin to be over 100%. So may do basically is in a similar.
Process as we are also in a.
The AD supported the business model and without the loyalty points I think when we do we'll be able to achieve at least a similar level of profitability over the longer term question, which is over 20%.
And the second question regarding our user acquisition strategy as we have said during the prepared remarks that we plan to at least double <unk> and a revenue by Q4 2022, <unk> hundred one compared to a year ago. So I think for a full year 'twenty 'twenty. One we will continue to invest in <unk>.
So all of the year.
On the use of acquisition side as we have said before that we want to be disciplined we want to get the right. How I for all of the margin dollars were spent and I think we will continue the as the this approach as we have done in 2020, and so far a given the recovery of a revenue, especially a.
On the middle side.
In terms of both revenue on a pool a waste.
I think that's where we'll be able to get very good our eyes in terms of our marketing program for 2021.
In terms of the.
Revenue contribution and also a margin impact for me too.
In Q4 last year of 2020.
Excluding me do a the overall business the rest of the company generated over 100 million RMB in terms of oxy of operating profit and for Q1, we expect the the rest of the company to generate at least.
Similar level of operating profit.
So.
On the ways, we do expect on a small loss at the group level, mainly due to the increased investment for me too and I think this level of investment a will continue throughout the Ah.
For the rest of the year although.
Given the current trend and a huge raise the low seasonality for Q1 due to Chinese new year, a wasting thats overall of the <unk>.
Tire company will turn a profit.
For the full year 2021.
Which means that we will be profitable for the next three quarters Q2 to Q4 in the Roman.
On the off the year. Thank you.
Thank you.
Once again here for you wish to ask a question. Please press star and the number of walking on your telephone keypad.
Your next question comes from the line of Thomas Chong of Jefferies. Please ask your question.
And congratulations management and the asking on behalf of for Thomas I got a question on bolt.
The advertising industry net demand to come on to all of that.
How did you have the landscape for the advertising market.
Yeah.
Thank you. So I think we can you know a man.
He speaks for.
From our own perspective, so if you look at a look back at year 2020.
We took a balanced approach between profitability on the growth. So a way took a more disciplined approach towards the investment.
Especially on the marketing side, However, we do see a.
And of the recovery, especially on the top line.
Yeah.
In the second half of 2000 from the Australian campaign.
And I think this trend will continue in 'twenty 'twenty, one and.
We have seen a very strong demand from our E Commerce partners in the second half of 2020, and App downloads and other web services of which.
Is the top category for us in Q1, so far this year is also a graduate of getting back as well.
We also have seen some recovery in terms of a branding.
Which is another area that's a.
It was weak in 2020, I work and of our lack of exposure in this area in previous years, we have made some breakthroughs in 2020 and a we think this will continue to contribute to our top line from 'twenty 'twenty. One. So overall I think the landscape is gradually getting back.
And a way.
We believe our strength in performance based ads will help us to cash flow difficult times, our customers are increasingly looking for a direct and more measurable results. So of all I think we are quite confident in terms of the overall AD market in kind of Honeywell.
Thank you.
Once again.
Ask a question you May press.
And the number one on your telephone.
Yeah.
As there are no further questions now I'd like to turn the call back over to the company for the closing remarks.
Thank you all very much for joining us today and thank you again for your time. If you have any further questions. Please do not hesitate to contact us a thank you and have a good day. Thank.
Thank you.
Yeah.
This concludes this conference call you may now disconnect your lines. Thank you.
[music].
Yeah.
[music].