Q2 2021 Qutoutiao Inc Earnings Call
At this time all participants are in a listen only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded.
I'll now turn the call over to your host Sightsee Lu. Please go ahead Saatchi.
Thank you very much.
Welcome everyone to the second quarter of 2021 earnings Conference call on the Street Hotel, Inc.
The company's financial and operational results were released via Newswire services earlier today and has been made available online you.
You can also view the earnings press release by visiting the IR section of our website at IR adult she'd hotels dot net.
Participants on today's call will include a CEO, Mr. Eric 10, N O CFO, Mr Schott, who drew.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
Forward looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views expressed today.
Further information regarding 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.
Company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Please note that should hotels earnings press release, and this conference call will include.
Discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.
<unk> press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.
I will start by reading out Eric's commentary on the business first.
Thank you and thanks, everyone for joining today's conference call.
As our recent focus has been on repositioning the business and improving underlying financial health.
We have had a relatively quiet unstable second quarter.
During which both our revenue and the size of our user base have maintained stability there.
Therefore, our monetization efficiency in terms of our pool was also on a stable trajectory despite facing some headwinds in the overall advertising market.
Post COVID-19 in China, the market backdrop has not been on a whole favorable for digital advertising, although we did observe some recovery from the negative effect on advertisers spending.
It is the uncertainty or the lack of visibility going forward that has dictated much of advertising customers budgeting decisions.
We expect second half of the year to continue to be under pressure.
There has not been a sign of a straight upward momentum.
For our business, while we cannot control the wider industry variables, we focus on putting effort into improving operating efficiency and growing media novels, which forms a key part of our growth strategy forward.
<unk> has seen a very positive growth trend with the average.
In the second quarter of this year.
So we are well on track to achieve our full year target.
What is driving me too is our consistent investment into building, a rich content offering and innovative format of interaction to reach users.
Most notably through our proprietary content creation platform and.
There are many drama series, which we believe has more potential to create value with currently obvious.
It is naturally more engaging format and will play an important role in the exploration and the development of IP value off the books, we own copyright two.
Recently, there has been concern among investors and observers regarding the regulatory actions on the internet industry. We.
We see them as a positive on the long term health growth and stability of the Chinese tech industry as well as the country's economy as a whole.
As always we will stick to the highest standards of conduct and compliance with rules and regulations of the land.
Thank you very much.
This concludes Eric's remarks, and I will now turn the call over to our CFO shallow.
Hi.
Thank you.
Again, thank you everyone for joining today's call. Let me first go through financial highlights with you before providing outlook for the last quarter and about half of the year.
Net revenues for the second quarter were RMB $1.202 billion with our pool of RMB 46 cents and of course, the average <unk> of $29 million and May you up $132 million flattish sequentially as we focus on underlying financial house, while pursuing growth very selectively.
Let's look at costs and expenses in a bit more detail. Please note I will be referring to non-GAAP measures, which excludes stock based compensations.
Cost of revenues were RMB 328 million, a decrease of 17% year on year due to more efficient budgeting with our it expenditures despite increasing content procurement costs. As a result, we generated RMB 874 million gross profit of 73% gross margin, which expanded both.
Year on year on a sequentially.
Our sales and marketing expenditures for the second quarter total RMB 901 million broadly flat year on year and as a percentage of revenue. It came to 75%, which represented a 13 percentage point increase from a year ago due to a combination of lower revenue base and increased investment in growing the user base of me two novel.
Yes.
Our R&D expenses were RMB $116 million during the quarter, which was 10% of revenue flat compared to a year ago.
<unk> expenses were RMB $90 million during the quarter, which was over 7% of revenues in line with historical trends.
We made an operating loss of around RMB 200 million pushes we've seen a controlled range.
After breakeven in Q4 last year, our year to date loss has been the result of a ramped up investment in meter novels.
<unk>, which we will profile profitable in Q2 and for three consecutive quarters now.
We also expect our overall business, including me do novels to be operationally profitable in the second half of this year and profitable for the full year.
For the next quarter I E Q3 up in 'twenty, one we expect revenue to be broadly stable ranging between RMB 1.050 billion to RMB, one 1 billion.
Central March 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 one on your telephone to withdraw your question press the pound or hash gang.
Once again, if you wish to ask a question.
Please press Star and then number one on your telephone.
So on keypad.
Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.
Hi, Good evening, Thanks management for taking my questions.
My first question is about the advertising outlook in the second half management now.
Mentioned in the prepared remarks that we.
We have affinity.
So.
This point Josh.
Just wanted to get some sense, we got to somehow E P.
In categories like.
<unk> e-commerce and other.
Key category in terms Hausky.
Advertising trends.
Q3 and Q4.
Cause.
Our guidance also.
<unk> some softness on a sequential basis.
Traditionally Q3 should be.
A better quarter versus to two so just want to get some sense about.
<unk>.
Most stringent macro HOA and vitamins in some of those factors and how much that effect.
In Q4, and when should we expect.
<unk> has enjoyed a sequential wells again and then.
Second question is about the sales and marketing.
Looking at the use in <unk>.
<unk> is growing.
Very good progress.
Diego basis on the other hand, we are also seeing.
The acquisition cost is also why is it well very rapidly. So just wanted to get a sense.
About.
The market environment on user acquisition and how we should think about that going forward. Thank you.
Thank you Thomas so regarding our first question so for the.
Also for the AD market in the second half I think overall, we remain very cautious.
Industry and the economy continue to face uncertainties.
<unk>.
Both in terms of economic growth and a recovery in <unk>.
In terms of regulatory environment, So a wave.
Have witnessed.
Our clients are.
Advertising partners has been more.
Conservative in terms of AD spending and budgeting. So I think this will probably continue into the second half.
Although overall I think the recent regulatory.
Campaign by the government is good.
Good thing for the long term health and stability of the Chinese economy and society as a whole and the company. We welcome. This development and I think we will continue to strive to meet the higher standard of compliance but.
However, I think there will be some.
Near term uncertainties and impact on the overall air market, especially in terms of.
Advertiser sentiment so I think that explains the weakness in the.
In the second half, especially in Q3.
In terms of <unk>.
Categories, I think for us because we have been doing some of the.
Upgrade and.
Operating efficiency improvement over the last two years and we have seen.
A key accounts, taking a larger share of our revenue at potash.
Potash our standards, we're onboarding new customers.
Also because our relationships with the case.
Grow over the years and also I think for the second half, especially going into.
Year end the E Commerce season, I think we probably will see increased revenues from the e-commerce players in et cetera in Q4.
So regarding your second question on the sales and marketing.
You have already pointed out our user engagement costs has been down a lot over the last few quarters now it stands at about <unk> <unk> per user per day, and I think that will stand there.
For the foreseeable future, we don't have any plans to increase that and I think right now the amount hub.
Incentives that we give to our users is about right to make sure that they stay with us without incur.
<unk> expenses are loss for us in terms of acquisition cost that mainly due to our increased investment into me too as we said at the beginning of the year, we plan to at least double the DAA of me too.
For 2021 and two.
So far we are well on track.
<unk> average deal you had already been over 10 million in Q2. So I think we are going to see.
12, 13 or $14 million five year year year end, so that's where we have been spending our money and I think that's a good investment because we are getting very good alright, very good users from this marketing campaign on the media front. So this probably will continue for the second half of the year and I.
In terms of our.
Longer period for example, what about next year or the year beyond I think it.
It remains to be seen.
It really depends on whether we are we are.
I still get better ROI and.
Our returns.
From the investment we made on two fronts.
Thank you.
Thank you.
Your next question comes from the line of Vicky Wei of Citi. Please ask your question.
Good evening management, Thanks for taking my question so with.
Management share some color about the latest regulation on data connections security and also elevate some recommendation.
Will this impact the company in the advertising business. Thank you.
Thank you Ricky.
I said in the previous question that I think.
Overall, we will come the development in the regulatory environment I think overall it is.
Good thing for the long term health of the economy and the society and.
For us we have kept up with high standards of combined.
So overall I don't think there will be much incremental impact, especially to those hospitals.
As content industry has been on a tightening cycle over the past two years, we have already taken the opportunity to reposition our openness to including not improving and enhancing our purchase with regards to data privacy and security. So we will.
Continue to closely monitor the development on the regulatory front and make sure we meet our requirements.
And.
We will also update the market accordingly, but as I have said for US we don't see any much incremental impact on this front and we will come in this department.
Thank you.
Once again, if you wish to ask a question. Please press star and the number one on your telephone keypad.
As there are no further questions now I'd like to turn the call back to the company for closing remarks.
Thanks again for your time, if you have any further questions. Please do not hesitate to contact us have a great day.
Thank you.
This concludes this conference call you May now disconnect. Your line. Thank you.
Okay.
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Okay.
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Yeah.
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Hello, Ladies and gentlemen, thank you for standing by for the second quarter 2021 earnings conference call for a quick IPO, Inc.
At this time all participants are in a listen only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded I will now turn the call over to your host Sightsee Lu. Please go ahead Saatchi.
Thank you very much.
Welcome everyone to the second quarter of 2021 earnings Conference call that you don't tell Inc.
The company's financial and operational results were released via Newswire services earlier today and has been made available online.
You can also view the earnings press release by visiting the IR section of our website at IR adult she'd hotel adult net.
Participants on today's call will include a CEO, Mr. Eric <unk>, and our CFO Mr shallow too.
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 up 1995.
Forward looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views expressed today.
Further information regarding 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.
Company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Please note that you don't House earnings press release, and this conference call will include.
Discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures.
<unk> press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures.
I will start by reading out Eric's commentary on the business first.
Yeah.
Thank you and thanks, everyone for joining today's conference call.
As a reason focus has been on repositioning the business and improving underlying financial health, we have had a relatively quiet on the stable second quarter.
Two in which both our revenue and the size of our user base has maintained stability.
Our monetization efficiency in terms of our pool was also on a stable trajectory despite facing some headwinds in the overall advertising market.
Post COVID-19 in China, the market backdrop has not been on a whole favorable for digital advertising, although we did observe some recovery from the negative effect on advertisers spending.
It is the uncertainty or the lack of visibility going forward that has dictated Montreal.
Causing customers budgeting decisions.
We expect second half of the year to continue to be under pressure as there has not been a sign of a straight upward momentum.
For our business, while we cannot control the wider industry variables, we focus on putting effort into improving operating efficiency and growing media novels, which formed a key part of our growth strategy forward.
Maybe you would have seen a very positive growth trend with the average.
In the second quarter of this year.
So we are well on track to achieve our full year target.
What is driving me too is our consistent investment into building, a rich content offering and innovative format of interaction to reach users.
Most notably through our proprietary content creation platform.
Many drama series, which we believe has more potential to create value currently obvious.
It is a naturally more engaging format and will play an important role in the exploration and the development of IP value off the books, we own copyright two.
Recently, there has been concern among investors and observers regarding the regulatory actions on the internet industry. We.
We see them as a positive on the long term health growth and stability of the Chinese tech industry as well as the country's economy as a whole.
As always we will stick to the highest standard of conduct and compliance with rules and regulation is off the land.
Yeah.
Thank you very much.
This concludes Eric's remarks, and I will now turn the call over to our CFO.
Hi.
Thank you.
Again, thank you everyone for joining today's call. Let me first go through financial highlights with you before providing outlook for the last quarter in the last half of the year.
Our net revenues for the second quarter were RMB 1 billion to $102 million with our pool of RMB 46 cents and of course, they averaged <unk> 20.
29 million and that May you up $132 million flattish sequentially as we're focused on underlying financial health, while pursuing growth very selectively.
Let's look at costs and expenses in a bit more detail. Please note I will be referring to non-GAAP measures.
Exclude stock based compensations.
Cost of revenues were RMB $328 million, a decrease of 17% year on year due to more efficient budgeting with our it expenditures despite increasing content procurement costs. As a result, we generated RMB $874 million gross profit of 73% gross margin, which expanded both your.
On year on a sequentially.
Our sales and marketing expenditures for the second quarter totaled RMB 901 million broadly flat year on year and as a percentage of revenue. It came to 75%, which represented a 13 percentage point increase from a year ago due to a combination of lower revenue base and increased investment in growing the user base of me.
Two novels.
Our R&D expenses were RMB $116 million during the quarter, which was 10% of revenue flat compared to a year ago G&A expenses were RMB $90 million during the quarter, which was over 7% of revenues in line with historical trend.
We made an operating loss of around RMB 200 million pushes we've seen the controlled range.
The breakeven in Q4 last year, our year to date loss has been the result of a ramped up investment in meter novels.
Excluding which we will profile profitable in Q2 and for three consecutive quarters now.
We also expect our overall business, including we do novels to be operationally profitable in the second half of this year and profitable for the full year.
For next quarter I E Q3 up in 'twenty, one we expect revenue to be broadly stable ranging between RMB 1.050 billion to RMB, one 1 billion.
Thank you much.
That concludes our prepared remarks, and say we are now open for questions.
Operator. Please proceed.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash game.
Once again, if you wish to ask a question.
Please press Star and then number one on your total.
Keypad.
Okay.
Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.
Hi, Good evening management.
My questions are.
My first question is about the advertising Oh loyalty in the second half.
Management now I have mentioned in the prepared remarks that there'll be stability is not so.
This point.
Just want to get some things we got to somehow.
Key advertising categories like.
<unk> e-commerce and other.
Key category in terms of the.
Advertising trends.
Q3 and Q4.
Cost.
Our guidance is showing some softness on a sequential basis.
Traditionally Q3 issue.
A better quarter versus Q2, so just want to get some sense about.
The most <unk> environment in some of the centers and how much that I'll say Q.
And when should we expect.
To enjoy a sequential well again and then my second question is about the sales and marketing.
Looking back.
User engagement.
Flowing.
Very good progress per Teu basis.
On the other hand, we are also seeing.
The acquisition costs.
So why is it well very rapidly so just wanted to get a sense about oh.
The market environment on user acquisition and how we should think about that going forward. Thank you.
Thank you so much so regarding our first question.
So for the.
Although also for the AD market in the second half I think overall, we remain very cautious as the.
Industry and the economy continue to face uncertainties.
<unk>.
Both income economic growth on a recovery NFL.
In terms of regulatory environment, So a wave b we have witnessed.
Our clients are.
Advertising partners has been more.
Conservative in terms of AD spending and budgeting. So I think this will probably continue into the second half.
Although overall I think the recent regulatory.
Campaign by the government is a good thing for the long term health and stability of the Chinese economy, and the society as a whole and the.
The company we welcome this development and I think we will continue to strive to meet the higher standard of compliance but.
However, I think there will be some.
Near term uncertainty and impact on the overall air market, especially in terms of advertisers.
Advertiser sentiment so I think that explains the weakness in.
In the second half, especially in Q3.
In terms of categories I think for us because we have been doing some of the.
Upgrade and.
Operating efficiency improvement over the last two years and we have seen.
Key accounts, taking a larger share of our revenue.
Potash.
Our standard one boarding new customers.
Also because our relationships with the case.
Grow over the years and also I think for the second half, especially going into.
Year end the E Commerce season, I think we probably will see increased revenues.
From the e-commerce players in et cetera in Q4.
So regarding your second question on the sales and marketing.
So you have already pointed out our user engagement costs has been down a lot over the last few quarters now it stands at about 6% per user per day, and I think that will stand there.
For the foreseeable future, we don't have any plan to increase that and I think right now the amount hub.
Incentives that we give to our users is about right to make sure that they stay with us without incur.
<unk> expenses are loss for us in terms of acquisition cost that mainly due to our increased investment into me too as we said at the beginning of the year, we plan to at least double the DAA off me too.
For 2021, and so far we are well on track.
<unk> average deal you had already been over 10 million in Q2. So I think we are going to see.
12, 13 or $14 million by year on year year end. So that's where we have been spending our money and I think that's a good investment because we are getting very good alright very good users from this marketing campaign, let me do fronts. So this probably will continue for the second half of the year and I.
In terms of our.
Longer period for example, what about next year or the Europe beyond I think it is.
I meant to be seen.
It will really depend on whether we can.
Can still get better ROI and returns.
The investment we made on two fronts.
Kim.
Thank you.
Your next question comes from the line of Vicky Wei of Citi. Please ask your question.
Good evening management. Thanks for taking my question, so with management share some color about the latest speculation on data connections security and also El Gorica Zuckman basin, how will this impact the company in the advertising business. Thank you.
Thank you Ricky.
As I said in the previous question that I think.
Overall, we will come the development in the regulatory environment.
Overall it is a good thing for the long term health of the economy and the society and.
For us we have kept up with high standards of combined.
Sure.
So overall I don't think there will be much incremental impact besides rates, who chose us doing this.
As content industry has been on a tightening cycle over the past two years, we have already taken an opportunity to reposition our openness to including not improving and enhancing our practice with regards to data privacy and security. So we will.
We continue to closely monitor the development on the regulatory front and make sure we meet our requirements and.
We will also update the market accordingly, but as I said.
For us we don't see any much incremental impact on this front and we will come in this development.
Thank you.
Once again, if you wish to ask a question. Please press star and the number one on your telephone keypad.
As there are no further questions now I'd like to turn the call back to the company for closing remarks.
Okay.
Thanks again for your time, if you have any further questions. Please do not hesitate to contact us have a great day.
Thank you.
This concludes this conference call you May now disconnect. Your line. Thank you.