Q1 2021 Qutoutiao Inc Earnings Call

Hello, Ladies and gentlemen, thank you for standing by for the first quarter 2021 earnings Conference Call Force, who Tokyo incorporated a.

At this time all participants are in a listen only mode.

Managements remarks, there will be a question and answer session. Today's call is being recorded I will now turn the call over to your host psyche. Lu. Please go ahead. Thank you.

Thank you very much welcome everyone to the first quarter of 2021 earnings Conference call a few total Inc.

The company's financial and operational results released a via newswire services earlier today and has been made available online you come on.

On the video in a press release by visiting the IR section of a website at.

She's a hotel dot net.

Participants on today's call will include a CEO Mr. At a 10 and our CFO Mr Shao neutral.

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 90.95.

Forward looking statements involve inherent risks and uncertainties as such the company's free those may be a materially different from the views expressed today.

But the information regarding a these and other risks and uncertainties is included in a company's prospectus and 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.

As required under applicable law.

Please note that you do a downside earnings press release on this conference call include discussions of a phone audited GAAP financial measures as well as unaudited non-GAAP financial measures.

So there was a press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures I will start by reading out a terrorist commentary on the business.

Thank you <unk>.

And thanks, everyone for joining today's conference call on.

After a year a adjustments, which we initiated last year following meaningful changes in the operational environment triggered by COVID-19, as well as a thinking in terms of how we can better position the business going forward.

We started 2021 with a healthy on a balanced portfolio of applications at various stages of development.

After several quarters of consistent effort and execution on the business overall is today on a much stronger financial footing to March forward.

We will continue to operate our business more efficiently, while stepping up our growth initiatives.

A very important pillar of growth for us today is mid 2 novel, which has been the pioneer and a leader a free online literature industry.

Following the latest round of financing as we have announced in a lot of the earnings release, we bought on a new face a significant investment integrating them into franchise.

We're now a strategically collaborating with quite a show in many television series or otherwise known as short a drama series.

We leverage a in house produced IP and to create a short clips based on a rich and engaging storylines.

It's an experiment for the expansion of IP value at a weighted for more users to come to know when we do as a brand and a <unk>.

Create the quality of work me through a has to offer.

China literature has been leading the overall online literature industry for years and is reputed for creating a a curating the highest quality literature works, we began to partner with them on a content side since Q4 of last year to expect a diversity on the scope a quality works available to our users.

Given a high quality of China Literature's work on in fact that many have been made available on a free on.

Online literature platform for a first time users are enjoying more engaging a reading experiences and as a result, we have observed better to use a retention trend.

We continue to nurture a in house edits a team to drive differentiated content.

Adding where otherwise lacking.

Part of our overall strategy to provide the most comprehensive on the richest a free on the literature offerings.

Remember last year, we adjusted our product positioning by slashing loyalty points on a parting ways with users who are essentially not content oriented.

It caused a near term impact to our business.

But we know that that underlying economics turned out to be much improved.

To be content led to a content driven has been the overarching shift for us.

Madhu traditionally with litho loyalty points has been at the forefront of the stride and provided us with a strong on engine to accelerate our overall transition.

Having a more unified unclear a target use a profile is also conducive to a user acquisition a strategy, which is handled by the shed mid office.

With better brand recognition better content more effective user acquisition and a better economics.

We're seeing good results coming from it.

Which now has peaked a year you're getting over $10 million in a second quarter revenue doubling on a year on year basis.

Elsewhere in a business has been characterized by operating efficiency and improving margins and profitability.

On a sequential revenue trend that is in fact, a quite a bit better than what we Q1 seasonality would typically dictates.

A leaner operation is going to benefit us longer term as we can now turn on a focused outward to capture opportunities in a marketplace on a leverage on a well structured and efficient corporate infrastructure.

For a full year of 2021, we remain committed to our balanced approach towards growth and profitability.

While we further develop and grow a portfolio of applications.

And we remain confident of achieving full year a group level profitability.

Thank you very much. This concludes eric's remarks on it we'll now turn the call over to our CFO shall do.

Thank you Eric on site.

Thank you everyone for joining on today's call. Let me first go through a financial highlights with you before a providing outlook for the net quarter and the wrap up a year.

Our net revenues for the first quarter were RMB 1.291 billion with our pool of RMB 45.

And a quarterly average day, you of $32 million and I'm, a you up a $133 million rather flattish sequentially as.

As we came off the peak season, a Q4 on Q1 being the traditional low season for advertising due to Chinese new year. This indicates underlying stability and recovery of our overall business.

Let's look at cost and expenses been more detail.

Please note that I'll be referring to non-GAAP measures, which excludes stock based compensations.

Cost of revenues were RMB 380 million, a decrease of 17% year on year.

Due to a more efficient budgeting with our IP expenditures, despite increasing content procurement cost.

As a result, we generated RMB 900, 910 billion gross profit on 71% gross margin, which is a 3% to 4% margin expansion both year on year on sequentially.

Our sales and marketing program has been well managed as we have seen better results with a smaller expenditures for the first quarter. The total amount was RMB $798 million, a 24% reduction year on year and as a percentage of revenues that came to 62% which represented 13%.

As a point improvement from a year ago.

Our R&D expenses were RMB 137 million during the quarter, which was a 11% of revenues in line with the previous quarter and a 4 percentage point decrease in comparison to a year ago.

Given our streamline R&D teams.

G&A expenses were RMB 16, 1 million during the quarter, which was just under 5% of revenues in line with a range we observed in recent quarters.

Since we broke even during the fourth quarter of 2020, which was the first quarterly operating profit since IPO. We have maintained good cost discipline and for the first quarter, a 'twenty 'twenty 1 we incurred a small operating loss of RMB 54 million with operating loss ratio of just 4.2%.

Coming off the Q4 peak season, and despite the increased investment and they do this is a strong result, and gives us confidence towards our financial outlook for the.

For the whole year.

We continue to see improving unit economics.

Me too, which historically has offered a little loyalty points.

The rest of the business has achieved a both better our pool on a significantly reduced the user engagement expenses.

Another result of a mechanical reduction of loyalty points awarded but rather our strategic repositioning of the business.

We believe is a much stronger and healthier a basis to push forward.

On me do as Eric mentioned it is a key part of our growth strategy and we have entered a new phase a and enhanced investment immediately after the latest round of financing.

The relevant segments represent great long term runway for us we are investing more into every aspect of it from content and IP creation to use a position together with our strategic partners, which are a leading players in their respective fields, we are seeing promising trends and results meeting our expectations.

Monetization efficiency in terms of our pool has consistently improved better content and algorithms have allowed us to generate improving user retention rates.

Which are key to the virtuous cycle, we are nurturing from me too.

We will maintain a disciplined approach with the all necessary investments into me do as we have with a financial amendment with the rest of the business and we are confident that we will be able to double me those revenues and day you by year end.

After successfully executing a combination of a strategic and financial initiatives over the past few quarters.

We feel well positioned with a current profile as a business, we expect a business in terms of the a and revenue to be stable for the rest of the year, albeit with some movements due to seasonality and we expect underlying profitability. Excluding me to continue the improving trend.

Thank you very much that concludes our prepared remarks today. We are now open for questions. Operator. Please proceed.

As a reminder to ask a question you will need to press star 1 on your telephone to withdraw.

A question that's the fountain.

Once again, if you wish to ask a question you May press star and a number 1 on your telephone keypad.

Your first question comes from the line of Thomas Chong. Please ask your question.

Hi, good evening LAPIS a.

Management for taking my questions.

I have a question about the cool pool, a revenue guidance a can management comment about a.

How we should think about the appetite are you seeing a momentum Inc.

Coming quarters and in particular caused a trend.

Of course, a key.

Industry categories.

Actually seeing on any slowdown in any particular vertical and a lot of the tools we've got.

It's a me too Okay management, a week away again, what's.

Our kpis a pocket.

In terms of the user.

The revenue and any.

A color on the API a would be grateful. Thank you.

Thank you Thomas So regarding your first question regarding the Q2 revenue guidance as we have said in the prepared remarks.

We took a balanced approach this year towards investment and growth.

Especially on the marketing side. So we await do require a very good alright for every marketing dollar of expense so.

This year, we expect to have a.

Somewhat stable user base on a revenue base.

That being said I think in Q2 in particular, we do see some weakness in the advertising market, especially in March a.

From March to May.

Because some of the regulatory.

Actions taken by the government regarding the entirety.

United Industry and also in particular for sectors like online education, I think we do see the mood.

To be dampened a bit in the.

In late Q1 on the early Q2.

We do see a strong demand for advertising.

For the June 18th E Commerce.

Activities. So I think overall, we see this the.

The recovery trend in advertising market to continue for 'twenty 'twenty, 1, but we do see some certain weakness in Q2, but so far we think it's still being limited in certain sectors and that does not change our outlook for the full year. So regarding your second question for me.

As we have said before a we want to double a and we do see a U and its revenue by year end.

So last year Q4, <unk> was around $7 million to $8 million, so which means this year on year end target will be over $50 million.

As a witness we said.

In may.

Last may.

So just a while 2 weeks ago. The peak day, a year for me too has already surpassed the $10 million. So I think we are.

Right on track to achieve that year end target go for me too and also as we said.

A pool the monetization rates for me 2 is actually also improving at the same time, so I think for the revenue target a way.

In a more confident to achieve.

Thank you.

Thank you.

Once again, if you wish to ask a question. Please press star and a number 1 on your telephone keypad.

Your next question comes from the line of Leaky way. Please ask your question.

But even in things management for taking my question.

Following up on them.

On your comment about a.

Thank you.

Well a management provide some color about the acquisition strategy.

In part yes.

Thank you.

Sure. Thank you.

Okay.

So for me do I think.

Always to get to on over $50 million in terms of EBITDA by year end. So.

We do want to make sure that we get to that number.

That being said, we also will take on.

Disciplined approach to make sure that we get a good hour is for all of the marketing dollars. We spend on me 2 and so far as a result are quite promising because as we have said before the <unk>. The monetization rate is also improving for me too and we are getting better user retention rate as well so I think.

That's a way to believe that May do so.

A lot and good runway and we are making very good investment.

In this business and we will continue to do that for a wrap up the year.

Thank you.

Okay.

Once again, if you wish to ask a question. Please press star and a number 1 on your telephone keypad.

Yeah.

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

Thanks again for your time and if you have any further questions. Please do not hesitate to contact us and have a very good day.

This concludes today's conference call you may now disconnect your lines. Thank you.

Okay.

Okay.

Sure.

Okay.

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