A struggle to convince

Feng Dagang, boss of 36Kr

Shenzhen-based Ping An Insurance is a sprawling conglomerate. So when an advertisement from its media subsidiary Baobo Information said it was going to hire 180 financial journalists, people took note. By adopting the tradename Ping An Toutiao, the newcomer even seemed to be taking aim at Bytedance’s media franchise Jinri Toutiao (see WiC244 for more about the news aggregator).

It turned out that the job posting about the huge hiring round was a prank by a Baobo employee. “We are not a news organisation and do not hold relevant licences that enable us to hire reporters,” the company said in a statement, adding that Ping An Toutiao works more as a content creator for business partners within the Ping An ecosystem.

Staying out of the regular media may be smart strategy on Ping An’s part. Even when a company does relatively well in the sector – well enough to go public in the US, for instance – it can still elicit a sceptical response from investors.

Earlier this month 36Kr, a Beijing-based tech-focused news outlet, had to delay its initial public offering on Nasdaq and cut its share offering by 61%. This meant that the firm, which had initially aimed to raise as much as $100 million, settled for just $20 million. Although 91% of the transaction – priced at the low end of the offer range at $14.5 apiece – was purchased by connected parties, 36Kr’s shares then closed down 10% on its maiden trading day.

Dubbed as China’s Techcrunch, Alibaba-backed 36Kr fares rather better financially than many of the start-ups that it reports on. While many of those tech firms have yet to make a penny, 36Kr grew net income by a factor of four on the year to Rmb40.5 million in 2018, as revenues jumped 148% to Rmb299 million ($42.5 million).

Knowing that investors might be wary of too much dependence on online advertising income, which made up 58% of its topline last year, 36Kr has tried to make a play for value-added sales in areas like consulting and organising events.

“Connection is the essence of the services we offer to enterprises,” Feng Dagang, CEO and co-chairman of 36Kr, explained to Xinhua. “We can connect start-ups with investors, as well as companies with individuals or government departments.”

About 90% of the new-economy businesses in China enjoyed some form of coverage from 36Kr between 2010 and 2017, of which 54% received institutional investment at some point, according to Sohu.com.

Sales of these ‘connection’ services were up 16 percentage points to 50% at 36Kr in the first half of 2019, eclipsing online advertising for the first time.

However, this is also a much less profitable business, with operational costs swallowing up a much larger share of the income than in advertising sales. Indeed, in the first half of 2019, 36Kr made an operating loss of about Rmb5o million, or $7.3 million.

Another unexpected mention in the IPO prospectus was that the company hasn’t secured a licence to operate as an internet news service in China, which could expose it to “administrative sanctions”, it admitted.

36Kr’s co-working venture – branded Kr Space – was not part of the IPO. Early this year it was reported to have defaulted on lease commitments in Hong Kong and Shanghai when a financing round of $200 million – including embattled China Minsheng Investment Group (see WiC441) – failed to materialise, the South China Morning Post said.

36Kr was founded in 2010 by first-time entrepreneur Liu Chengcheng. It only started to expand aggressively after 2016, when Feng Dagang, a veteran journalist who started the top-tier news outlet CBN Weekly and later became a senior executive at venture capital firm Matrix Partners China, joined the company. Alibaba’s sister firm Ant Financial invested in 36Kr’s previous funding round and retains 16.2%.

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