While worries float that the United States could change the rules regarding US-listed, China-based companies, it seems that some firms are not heeding market fears. Indeed, China-based 36Kr filed an F-1 document today, detailing its intention to go public on the Nasdaq.
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The company is notable for a number of reasons, not the least of which is that it has some similarities to Crunchbase News’ parent company, Crunchbase. Each has a publishing function and provides data on private companies. There are dissimilarities as well, mind, including some key business model distinctions. But, it was fun all the same to see a company that I somewhat understand file to go public.
Let’s get to know the company, peek at its numbers, and put our finger to the wind.
According to its F-1 filing, 36Kr launched its website (36kr.com) in 2010. The company raised a number of rounds in the intervening years, including a 2011 angel round and a small 2012 Series A. The company’s 2013 venture round and 2016 investment tipped the scales a bit more.
The company’s known venture total is over $100 million; the actual tally is likely larger given that the size of its Series D isn’t known. 36Kr is, therefore, well-capitalized, but not so much that it’s bent gravity. (Bloomberg reports that 36Kr recently raised $24 million. Expect an updated F-1 in a few weeks’ time.)
As noted above, the company publishes and sports a database of private company information. According to its F-1, 36Kr “provide[s] insightful reports on companies, timely market updates, and thought-provoking editorials and commentaries,” while “offer[ing] business services, including online advertising services, enterprise value-added services and subscription services to our customers.”
Ads monetize for the firm on a “cost-per-day basis or a cost-per-advertisement basis.” Its subscription business handles “trainings and courses at fixed fees,” along with “monthly subscription packages of our paid columns to individual subscribers.” Bigger clients can buy subscription products for “fixed periods.”
Finally, 36Kr sells “enterprise value-add services.” What is that? A good question. The company defines them as “integrated marketing, offline events and consulting services” that are often charged “on a project basis.”
How does all that fit together? Here’s a graphic that attempts to make sense out of the company’s product offerings:
If that chart doesn’t make immediate sense to you, don’t worry. It’s merely evidence that you haven’t spent all of 2019 digging through SEC filings. I have, however, so let me help:
- 36Kr’s data and written work (referred to as content above) fuels its advertising business.
- Off the strength of its content and advertising model, the company sells events and consulting. In a related-but-different model, our former sister-company TechCrunch built an events business off of its written work, for example. There is historical precedent for this sort of company.
- 36Kr then takes all of that and layers investor subscriptions on top of its other products. The result of this final step in its model is that it takes the learnings from all its work (More services) and cycles them into its underlying “analytics capabilities” which are then leveraged back into the company’s content, starting the entire flywheel over again.
I’m not entirely sold on the self-reinforcing argument of the image. But I do think that there’s some logic to the rest of it. But more importantly, what does that look like in dollars?
Like many 2019 IPOs, 36Kr is growing quickly and losing money. The firm grew its revenue from 74.4 million RMB ($10.44 million) to 201.9 million RMB ($29.4 million) from the first half of 2018 to the first half of 2019. The company’s H1 2018 revenue result came to just over two-thirds of its full-year 2018 tally.
Don’t think that 36Kr generates software-company-like margins, however. The firm’s gross margin was just 31.5 percent in the first half of 2019, down slightly from its H1 2018 result of 33.7 percent. At those gross margins, the firm’s cost structure is too large to allow 37Kr to generate operating income. Indeed, in the first half of 2019, the company’s operating loss came to 49.9 million RMB, or $7.3 million.
Unprofitability, however, is only an episodic issue for 36Kr. The company generated positive operating and net income in 2017 and 2018, though it did lose money in the first half of 2018.
The timing of 36Kr’s IPO is explained by its cash statement; the company closed out the second quarter of 2019 with just $3.8 million in cash and equivalents, though it also reported $11.4 million in short-term investments at the same time. However, the sum of the two numbers isn’t too large when stacked against the company’s H1 2019 operating cash burn of $13.8 million.
The company needs more money. And it’s turning to American markets to get it. 36Kr lists a $100 million figure on its F-1 filing for its expected raise, a placeholder figure that merely helps us place the company’s IPO size range.
If successful, I believe 36Kr will be the first venture-backed company to file to go public in America after the possible Trump administration-driven change to the listing of Chinese companies on American indices. That makes it special to some degree.
The 36Kr debut will also put another money-losing company with a dual-class share structure on to the market. If it fails to launch, companies with similar income statements could find the public markets more closed than open.
Illustration: Li-Anne Dias.