QTT stock exploded higher in after-hours trading on September 21, 2020, after the company released its Q2 financials.

Qutoutiao Inc. (“Qutoutiao”, the “Company” or “We”) (NASDAQ: QTT), a leading operator of mobile content platforms in China, today announced its unaudited financial results in the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights

  • Combined average MAUs1 were 136.5 million, compared to 119.3 million in the second quarter of 2019 and 138.3 million in the first quarter of 2020.
  • Combined average DAUs2 were 43.0 million, compared to 38.7 million in the second quarter of 2019 and 45.6 million in the first quarter of 2020.
  • Average daily time spent per DAU was 55.2 minutes, compared to 60.0 minutes in the second quarter of 2019 and 62.4 minutes in the first quarter of 2020.
  • Net revenues increased 4.0% year-over-year to RMB1,441.0 million (US$204.0 million), compared to RMB1,411.8 million in the first quarter of 2020, above the high end of the Company’s guided range of RMB1,410 million and RMB1,430 million.
  • Net loss was RMB222.1 million (US$31.4 million), compared to net loss of RMB561.3 million in the second quarter of 2019 and net loss of RMB531.8 million in the first quarter of 2020. Net loss margin was 15.4%, compared to 40.5% in the second quarter of 2019 and 37.7% in the first quarter of 2020.
  • Non-GAAP net loss3 was RMB173.3 million (US$24.5 million), compared to non-GAAP net loss of RMB496.3 million in the second quarter of 2019 and non-GAAP net loss of RMB388.1 million in the first quarter of 2020. Non-GAAP net loss margin was 12.0%, compared to 35.8% in the second quarter of 2019 and 27.5% in the first quarter of 2020.
  • Mr. Eric Siliang Tan, Chairman and Chief Executive Officer of Qutoutiao, commented, “We are delighted to see our operational efficiency improved significantly in the second quarter, as we have maintained a good balance between growth and profitability.”

“We remain motivated by and committed to our long-term vision of bringing rich and diversified online content to millions of users across the country. We feel encouraged by the strategic progress we have been making especially with respect to content and technology and we expect them to be the key pillars supporting our future development.” Mr. Tan concluded.

Second Quarter 2020 Financial Results

Net revenues in the second quarter of 2020 were RMB1,441.0 million (US$204.0 million), an increase of 4.0% from RMB1,385.9 million in the second quarter of 2019.

Advertising and marketing revenues were RMB1,378.1 million (US$195.1 million) in the second quarter of 2020, an increase of 1.5% from RMB1,358.0 million in the second quarter of 2019, primarily due to an increase in the Company’s average DAUs, partially offset by a decrease in average daily time spent by DAUs.

Other revenues were RMB62.9 million (US$8.9 million) in the second quarter of 2020, an increase of 125.0% from RMB27.9 million in the second quarter of 2019. The increase of other revenues was primarily due to the increase of revenues from live-streaming, and, to a lesser extent, the increase of revenues from online games, partially offset by the decrease of revenues from agent services.

Cost of revenues were RMB400.2 million (US$56.6 million) in the second quarter of 2020, an increase of 10.7% from RMB361.4 million in the second quarter of 2019, primarily attributable to increases in content related costs such as revenue sharing with broadcasters and online game developers, and license fees paid to professional medias, reflecting the Company’s long-term vision to build a platform delivering high-quality online content to our users, although these increases were partially offset by decreases from costs of integrated marketing solution services and the nationwide exemption of cultural development fees on the provision of advertising services for 2020.

Gross profit was RMB1,040.8 million (US$147.3 million) in the second quarter of 2020, an increase of 1.6% from RMB1,024.5 million in the second quarter of 2019. Gross margin was 72.2%, compared to 73.9% in the second quarter of 2019. The decrease of gross margin year-over-year was mainly driven by the growth of content related costs.

Research and development expenses were RMB224.2 million (US$31.7 million) in the second quarter of 2020, generally flat with RMB221.3 million in the second quarter of 2019.

Sales and marketing expenses were RMB925.3 million (US$131.0 million) in the second quarter of 2020, a decrease of 30.0% year-over-year from RMB1,321.8 million in the second quarter of 2019. Sales and marketing expenses as a percentage of net revenues was 64.2% in the second quarter of 2020, compared to 95.4% in the second quarter of 2019, continuing to hit record low.

User engagement expenses were RMB457.2 million (US$64.7 million) in the second quarter of 2020, a slight increase of 1.7% year-over-year and a decrease of 9.9% quarter-over-quarter. User engagement expenses per DAU per day were RMB0.12 in the second quarter of 2020, compared to RMB0.13 in the second quarter of 2019 and RMB0.12 in the first quarter of 2020. The decrease of user engagement expenses year-over-year was primarily due to the Company’s ongoing efforts in optimizing user engagement expenses for its loyalty program, as well as the enhanced personalized reading experience facilitated by our AI platform and our enriched content library.

User acquisition expenses were RMB435.7 million (US$61.7 million) in the second quarter of 2020, a decrease of 44.7% year-over-year and 13.2% quarter-over-quarter. User acquisition expenses consist of the costs of both word-of-mouth referrals and third-party marketing. The decrease mainly reflected the Company’s efforts in optimizing its traffic acquisition strategy, and to a lesser extent, the weak advertising market environment. User acquisition expenses per new installed user4 in the second quarter of 2020 were RMB3.3, a decrease of 52.4% year-over-year and 28.3% quarter-over-quarter.

Other sales and marketing expenses were RMB32.5 million (US$4.6 million) in the second quarter of 2020, a decrease of 61.5% year-over-year and 50.1% quarter-over-quarter. The decrease was mainly due to decreases in brand campaigns and sponsorship to TV shows.

General and administrative expenses were RMB105.5 million (US$14.9 million) in the second quarter of 2020, an increase of 66.1% from RMB63.5 million in the second quarter of 2019, mainly due to an additional expected credit loss provision of RMB48.8 million recorded in the second quarter of 2020 under ASC 326, Measurement of Credit Losses on Financial Instruments.

Other operating income was RMB24.8 million (US$3.5 million) in the second quarter of 2020, compared to RMB10.8 million in the second quarter of 2019, primarily due to an increase in our tax deduction as a result of a new tax regulation effective on April 1, 2019.

Loss from operations was RMB189.4 million (US$26.8 million) in the second quarter of 2020, compared to RMB571.3 million in the second quarter of 2019. Operating loss margin was 13.1%, compared to 41.2% in the second quarter of 2019.

Non-GAAP loss from operations was RMB140.6 million (US$19.9 million) in the second quarter of 2020, compared to RMB506.2 million in the second quarter of 2019. Non-GAAP operating loss margin was 9.8%, compared to 36.5% in the second quarter of 2019.

Non-operating loss for the second quarter of 2020 was RMB32.4 million (US$4.6 million), compared to a non-operating income of RMB9.4 million for the same period last year. Non-operating loss for the second quarter of 2020 mainly included a RMB22.8 million loss associated with fair value changes on long-term investments, and a net interest expenses of RMB6.9 million.

Net loss was RMB222.1 million (US$31.4 million), compared to net loss of RMB561.3 million in the second quarter of 2019. Net loss margin was 15.4%, compared to 40.5% in the second quarter of 2019.

Non-GAAP net loss was RMB173.3 million (US$24.5 million), compared to non-GAAP net loss of RMB496.3 million in the second quarter of 2019. Non-GAAP net loss margin was 12.0%, compared to 35.8% in the second quarter of 2019.

Net loss attributable to Qutoutiao Inc.’s ordinary shareholders was RMB234.3 million (US$33.2 million) in the second quarter of 2020, compared to RMB564.3 million in the second quarter of 2019. Non-GAAP net loss attributable to Qutoutiao Inc.’s ordinary shareholders was RMB185.5 million (US$26.3 million) in the second quarter of 2020, compared to RMB499.2 million in the second quarter of 2019.

Basic and diluted net loss per American Depositary Share (“ADS”) was RMB0.81 (US$0.11) in the second quarter of 2020. Non-GAAP basic and diluted net loss per ADS was RMB0.64 (US$0.09) in the second quarter of 2020. Each four ADSs represent one Class A ordinary share of the Company.

Cash and cash flow

As of June 30, 2020, the Company had cash, cash equivalents, restricted cash and short-term investments of RMB930.3 million (US$131.7 million), compared to RMB1,652.5 million as of December 31, 2019. Net cash used in operating activities in the second quarter of 2020 was RMB216.2 million (US$30.6 million), compared to RMB621.3 million in the second quarter of 2019.

Our liquidity to meet our future working capital and capital expenditure requirements is based on our ability to enhance user engagement and retention by offering higher quality and diversified contents while closely control the content costs, and optimize the user loyalty programs and the traffic acquisition strategy to efficiently control and reduce these user related costs. We will further preserve liquidity and manage cash flows by reducing discretionary expenditure including advertising expenses and general and administrative expenses. Our liquidity is also based on our ability to obtain capital financing from equity or debt investors. Currently, we believe that we have sufficient cash and other financial resources to fund operations for at least the next 12 months.

Recent Development

On July 16, 2020, China Central Television (“CCTV”) reported in its Annual Consumer Rights Show (“3.15 Consumer Night”) that certain advertisements placed by third-party advertising agents on Qutoutiao exaggerated the health benefits of certain food and diet products and promoted activities that may involve online-gambling (the “CCTV Report”, or “the Report”).

In response to the issues raised by the Report, the Company promptly took appropriate measures such as immediate suspension of all employees involved in these advertisements, including the person in charge of advertising operations, stricter management of all third-party advertising agents, enhancement of content management capabilities in identifying misleading or inappropriate advertisements, and the launch of an easy-to-use and easy-to-find complaint channel on the home screen of Qutoutiao so that users can file their complaints with us on any advertisement placed on our app. The Qutoutiao app was temporarily removed from several major Android-based app stores in China after the CCTV Report but was reinstated on July 31, 2020.

The Company has observed negative impacts on its business operation and financial performance due to the above incidents in the third quarter of 2020 and is still evaluating the extent of such impacts. The Company highly appreciates the importance of strict compliance with all applicable laws and regulations and believes the measures taken by the Company are critical to protect the interests of its users and investors in the long term.

Business Outlook

For the third quarter of 2020, the Company currently expects net revenues to be between RMB1,130 million and RMB1,150 million, representing a decrease of 18% to 20% year-over-year. The Company also expects loss from operations to be narrowed significantly on a year-over-year basis and flat on a quarter-over-quarter basis. This outlook reflects Qutoutiao’s current and preliminary view including preliminary assessment on the potential impacts from the CCTV Report, which is subject to uncertainty.

finviz dynamic chart for  qtt