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New York Paris
Northern California Madrid
Washington DC Tokyo
S o Paulo Beijing
London Hong Kong
Davis Polk & Wardwell LLP
86 10 8567 5000 tel
2201 China World Office 2
86 10 8567 5123 fax
1 Jian Guo Men Wai Avenue 1
Chaoyang District 22201
Beijing 100004
August 14, 2019
Re: 36Kr Holdings Inc. (CIK No. 0001779476)
Responses to the Staff's Comments on the Draft Registration Statement
on Form F-1
Confidentially Submitted on June 28, 2019
Confidential
Ms. Amanda Kim
Mr. Craig Wilson
Mr. Matthew Crispino
Ms. Barbara C. Jacobs
Office of Information Technologies and Services
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Dear Ms. Amanda Kim, Mr. Craig Wilson, Mr. Matthew Crispino and Ms. Barbara C.
Jacobs:
On behalf of our client, 36Kr Holdings Inc., an exempted company incorporated
under the laws of the Cayman Islands (the "Company"), we submit to the
staff (the "Staff") of the Securities and Exchange Commission (the
"Commission") this letter setting forth the Company's responses to the comments
contained in the Staff's letter dated July 25, 2019 on the Company's draft
registration statement on Form F-1 confidentially submitted on June 28, 2019
(the
"Draft Registration Statement"). Concurrently with the submission of this
letter, the Company is submitting its revised draft registration statement on
Form F-1 (the "Revised Draft Registration Statement") and certain exhibits via
EDGAR to the Commission for confidential review in accordance with the
procedures of the Commission. The Company confirms that its securities have not
been previously sold pursuant to an effective registration statement under
the Securities Act of 1933, as amended. The Company also confirms that it will
publicly file the registration statement previously submitted on a confidential
basis at least 15 days prior to any road show in connection with the offering.
On behalf of the Company, we wish to thank you and other members of the staff
of the Commission (the "Staff") for your prompt response to the Company's
request for comments.
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To facilitate your review, we have separately delivered to you today four
courtesy copies of the Revised Draft Registration Statement, marked to show
changes
to the Draft Registration Statement, and two copies of the submitted exhibits.
The Company has responded to all of the Staff's comments by revising the draft
Registration Statement to address the comments, by providing an explanation
if the Company has not so revised the draft Registration Statement, or by
providing supplemental information as requested. The Staff's comments are
repeated
below in bold, followed by the Company's response to the comments as well as a
summary of the responsive actions taken. We have included page numbers to
refer to the location in the revised draft Registration Statement where the
language addressing a particular comment appears.
In addition to revising the disclosure in response to the Staff's comments, the
Company has also included other information and data to reflect recent
developments.
Subject to the market conditions and the Staff's comments, the Company plans to
make the first public filing of the Registration Statement with the
Commission in September 2019 and to request that the Staff declare the
effectiveness of the Registration Statement in October 2019. The Company would
greatly appreciate the Staff's continued assistance and support in meeting the
timetable.
* *
* *
Our Business, page 1
1. You state that as of December 31, 2018, you provided business services
to 23 of the Global Fortune 100 companies and 59 of the Top 100 New
Economy companies in China. To provide context for these claims,
please disclose the percentages of your 2018 revenue that you derived
from these customer bases
The Company respectfully advises the Staff that it purports to
illustrate its diverse and sophisticated customer base by disclosing that
certain of its
customers are Global Fortune 100 companies and Top 100 New Economy
companies in China. The Company does not intend to emphasize revenue
contribution of these customers, and none of these customers
individually contributed significantly to the Company's revenue in 2018. As
such, the
Company does not consider necessary to disclose percentages of its
2018 revenue derived from these customers.
Our Challenges, page 3
2. Please revise to note that you do not possess certain operating
licenses required by the PRC government and that this may expose you to
administrative sanctions.
In response to the Staff's comment, the Company has revised its
disclosure on page 5 of the Revised Draft Registration Statement.
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The Company further advises the Staff that it plans to apply for the
Internet news information license and the Internet publishing license from the
relevant regulatory authorities through its VIE when it is feasible to
do so.
Our History and Corporate Structure, page 4
3. You state in this section that you expect existing shareholders of
Beijing Duoke to become the shareholders of 36Kr Holdings Inc. under a
shareholding structure that substantially mirrors Beijing Duoke's
current shareholding structure. Please disclose the percentage of 36Kr's
ordinary shares that you expect will be held by existing shareholders
of Beijing Duoke and the percentage to be held by new investors
following the offering.
In response to the Staff's comment, the Company has revised its
disclosure on pages 5 and 71 of the Revised Draft Registration Statement. The
Company respectfully advises the Staff that the size of the proposed
offering has not been finalized yet. The Company will further revise the
Revised
Draft Registration Statement to disclose the percentage of its
ordinary shares that it expects will be held by existing shareholders of
Beijing Duoke
and the percentage to be held by new investors following the offering
when available.
Conventions Which Apply to this Prospectus, page 7
4. Your statements that third party data has not been independently
verified and that it may not be consistent with other information compiled
in or outside China may imply an inappropriate disclaimer of
responsibility with respect to the third party information. Please revise.
In response to the Staff's comment, the Company has revised its
disclosure on page 8 of the Revised Draft Registration Statement.
Use of Proceeds, page 60
5. After you have determined the approximate net proceeds you anticipate
receiving in this offering, please revise this section to state the
approximate percentages you intend to use for each purpose listed.
Refer to Items 4.a. of Form F-1 and 3.C.1 of Form 20-F.
In response to the Staff's comment, the Company has revised its
disclosure on page 62 of the Revised Draft Registration Statement.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations Key Operating Data, page 76
6. You disclose that you generate your online advertising service revenue
through the Cost Per Day and cost-per-advertisement models. Please
tell us how your average monthly page views correlates to and provides
an understanding of these two types of advertising revenues. Please
also tell us how the page views are tabulated between your
self-operated platforms and third party platforms.
The Company respectfully advises that its average monthly page views
positively correlates to its online advertising services revenue. As the
Company's average monthly page views increased significantly from
121.6 million in 2017 to 196.2 million in 2018, its online advertising services
revenue increased by 135.0% from RMB74.0 million in 2017 to RMB173.8
million (US$25.3 million) in 2018. The Company believes that, increase
in page views indicates that more users are accessing, or users are
accessing more frequently, the content offered by the Company, which enhances
the Company's brand awareness and influence in the New Economy market.
The Company leverages such brand awareness and influence to attract
online advertising services customers and enhance pricing power, which
together lead to the growth of its advertising revenue.
However, as the Company has adopted fixed rate pricing models under
which customers pay fixed fees for advertising services irrespective of views,
clicks or other performance measures, each additional page view does
not directly result in a corresponding increase in advertising revenue. As
disclosed on page 86 of the Revised Draft Registration Statement,
under the cost-per-day model, customers pay a fixed fee per each day's
advertisement display, and under the cost-per-advertisement model,
customers pay a fixed fee per each advertisement posted on the Company's
platform.
In response to the Staff's comments, the following table presents a
breakdown of the Company's average monthly page views by platforms for the
twelve-month periods ended the dates indicated:
For the twelve-month period ended
March
June 30, September 30, December 31, March 31,
31, 2018
2018 2018 2018 2019
(in millions)
Self-operated platforms 12.0
13.5 15.0 17.5 18.0
Major third-party platforms(1) 108.9
113.5 130.6 178.7 207.4
Total 120.9
127.0 145.6 196.2 225.4
Notes:
(1) Major third-party platforms include Weibo, Weixin/WeChat, Toutiao
and Zhihu.
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Our ability to further diversify our monetization channels and enhance our
monetization capabilities, page 77
7. You indicate that your financial condition and results of operations
depend, in part, on your ability to convert your users to subscribers.
Please tell us what consideration you have given to disclosing your
number of users and the percentage of users that are subscribers for each
period presented.
The Company respectfully advises that while it plans to focus on
expanding subscription services, it currently accounts for only a small portion
of the
Company's revenue. Subscription services revenue represented 8.4% and
10.6% of the Company's total revenues in 2018 and for the three months
ended March 31, 2019, respectively. With significant growth of user
base, the Company expects to convert more users into subscribers.
The Company respectfully advises that it is unable to provide the
total number of users or the percentage of users that are subscribers for each
period
presented. As disclosed on page 114 of the Revised Draft Registration
Statement, the Company distributes content not only through self-operated
platforms, but also through major third-party platforms. While the
Company is able to calculate the number of users on its self-operated
platforms, it
is unable to obtain user data from third-party platforms. Instead, the
Company uses average monthly page views to measure traffic generated by its
content across both self-operated and third-party platforms.
Liquidity and Capital Resources, page 90
8. You disclose that as of December 31, 2018, you had RMB49.0 million
(US$7.1 million) in cash and cash equivalents and a significant portion
of your cash and cash equivalents is held by your VIE and its
subsidiaries. Please disclose the material amounts of cash and short-term
investments disaggregated by currency denomination as of the most
recent balance sheet date in each jurisdiction in which your affiliated
entities are domiciled. For entities within China, disclose material
amounts of cash held by VIEs separately from the amount of cash held by
other entities.
In response to the Staff's comment, the Company has revised its
disclosure on page 97 of the Revised Draft Registration Statement.
Business, page 100
9. You indicate in Note 4 to your Consolidated Financial Statements that
one customer accounted for 19% of your revenue in 2018. Please
identify this customer and disclose the material terms of your
agreements with it. Refer to Item 4.a of Form F-1 and Items 4.B.6 and 10.C of
Form 20-F. Also, tell us what consideration you have given to filing
your agreements with this customer.
In response to the Staff's comment, the Company has revised its
disclosure on pages 28 and 116 of the Revised Draft Registration Statement.
The Company respectfully advises the Staff that this customer is a
third-party advertising agency in China. Consistent with market practice in
China's
online advertising industry, the Company entered into a framework
agreement with the advertising agency. Through its arrangement with such
advertising agency, the Company provided online advertising services
to 10 and 45 companies in 2017 and 2018, respectively, who are the end
customers of our online advertising services. The Company does not
consider it necessary to file its agreement with the advertising agency for the
following reasons. First, the agreement was made in the ordinary
course of the Company's business. Second, the Company has developed stable
relationship with its end customers and does not rely on any
particular advertising agency. The Company's end customers generally engage
multiple
advertising agencies in line with market practice in China, and the
Company may easily switch to other advertising agencies engaged by its end
customers.
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Distribution Channels, page 108
10. Please disclose the material terms of your agreements with the third
party platforms that distribute your content. Refer to Items 4.a of
Form F-1 and 10.C of Form 20-F.
In response to the Staff's comment, the Company has revised its
disclosure on page 115 of the Revised Draft Registration Statement.
Management
Compensation of Directors and Executive Officers, page 137
11. Please clarify, if true, that 2018 compensation was paid to the
executive officers of Beijing Duoke, not those of 36Kr Holdings Inc.
In response to the Staff's comment, the Company has revised its
disclosure on page 145 of the Revised Draft Registration Statement.
Index to the Consolidated Financial Statements
Consolidated Statements of Cash Flows, page F-6
12. You present a line item in the Statements of Cash Flows that refers to
Funding from Shareholders. Please describe to us and disclose the
terms and provisions of such funding agreements. Revise your discussion
of Liquidity and Capital Resources to address disclosure
requirements under Item 5.B.1 and 2 of Form 20-F related to this
funding source. In addition, tell us how your financial statement
disclosures regarding these funding arrangements comply with the
accounting and disclosures under ASC 470.
The Company respectfully advises the Staff that as of the first
confidential filing on June 28, 2019, the Reorganization of the Company was not
completed and the Company had not issued ordinary shares or preferred
shares except one ordinary share issued to the chief executive officer and
another to the founder. Therefore, all the funding from shareholders
together with other equity items was presented as one line item "Invested
equity"
of the Consolidated Balance Sheets as of December 31, 2017 and 2018. As
of August 14, 2019, the Company has completed the Reorganization and
the issuance of ordinary shares and preferred shares, and the Company
further expanded the Funding from shareholders into mezzanine equity and
additional paid-in capital. The consolidated financial statements were
updated and expanded the disclosures to reflect the Reorganization set forth in
Note 1 (c).
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The terms and provisions and related financial statement disclosures of
the convertible redeemable preferred shares have been disclosed in Note 12 -
Convertible Redeemable Preferred Shares per the relevant requirements
under ASC 480.
In response to the Staff's comment, the Company has also revised the
discussion of Liquidity and Capital Resources in connection with such issuance
of preferred shares on page 99 of the Revised Draft Registration
Statement.
Notes to Consolidated Financial Statements
1. Nature of Operations and Reorganization, page F-8
13. In your table of ownership structure, the column heading labeled
Percentage of Direct or Indirect Economic Ownership suggests you have
equity interest in Beijing Duoke, your VIE. However, Beijing Dake, your
wholly owned subsidiary in China, will enter into a series of
contractual arrangements with your VIE and its shareholders to convey
economics and power to you. Please remove the references to
"Direct or Indirect" to clarify the contractual nature of your
arrangements as opposed to ownership arrangements.
In response to the Staff's comment, the Company has removed the
references to "Direct or Indirect" to clarify the contractual nature of the
arrangements on page F-9 of the Revised Draft Registration Statement.
14. Please include a description of the recognized and unrecognized
revenue-producing assets that are held by the VIE. These assets may include
licenses, trademarks, other intellectual property, facilities or
assembled workforce. We refer you to ASC 810-10-50-5A.d.
The Company respectfully advises the Staff that the Company's
involvement with the VIE is through the contractual arrangements disclosed in
Note
1. There was no business acquisition took place in the history of the
Group and the Reorganization is accounted for in a manner similar to a common
control transaction because of the high degree of common ownership, and
the fact that the Reorganization is determined lack of economic substance.
As a result, there are no recognized revenue-producing asset held by
the VIE as of December 31, 2017 and 2018. Unrecognized revenue-producing
assets held by the VIE include the Internet Content Provision License,
tradename of 36Kr, the domain names of 36kr.com, 36Kr mobile application,
36Kr official account on social networks, customer relationship
relating to online advertising and enterprise value-added services, customer
lists
relating to subscription services and assembled workforce.
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In response to the Staff's comment, the Company has added the
disclosure on page F-16 of the Revised Draft Registration Statement as "The
Company's involvement with the VIE is through the contractual
arrangements disclosed in Note 1. All recognized assets held by the VIE are
disclosed in the table above. Unrecognized revenue-producing assets
held by the VIE include the Internet Content Provision License, tradename of
36Kr, the domain names of 36kr.com, 36Kr mobile application, 36Kr
official account on social networks, customer relationship relating to online
advertising and enterprise value-added services, customer lists
relating to subscription services and assembled workforce."
2. Significant Accounting Policies
(h) Short-term investments, page F-20
15. You disclose a significant amount of Short-term Investments that
include investments in Wealth Management Products issued by China
Merchants Bank, which are redeemable by the Company at a periodic term
or any working day. Please include the information required by
ASC 320-10-50-1A through 3 by major security type. Revise your
discussion of liquidity and capital resources on page 90 to expand and
clarify the disclosure of these products comprising your short-term
investments.
The Company respectfully advises the Staff that all the wealth
management products the Group purchased were all with similar terms and
characteristic issued by China Merchants Bank except for different
expected yield rates within a narrow range and different maturities dates
within
one year. All such short-term investments were the same security type
in terms of (shared) activity or business sector, vintage, geographic
concentration, credit quality and economic characteristic per the
required considerations of security type by ASC 320-10-50-1B. Per the
requirement
of ASC 320-10-50-3 to disclose the maturity grouping, the Company has
updated the disclosure on Page F-20 of the Revised Draft Registration
Statement as "Short-term investments include investments in wealth
management products issued by China Merchants Bank, which are redeemable
by the Company at a periodic term or any working day within one year"
to clarify the maturity category.
In response to the Staff's comment, the Company has revised the
discussion of Liquidity and Capital Resources in connection with the short-term
investments on pages 98 and 99 of the Revised Draft Registration
Statement.
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(n) Revenue recognition, page F-19
16. You disclose that you display advertisements such as full screen
display, banners, and pop-ups provided by or produced for customers on the
36Kr Platforms over a particular period of time. You also disclose that
under the cost-per-advertisement model, you recognize revenue at a
point in time when you posts the advertisements initially as all the
economic benefit enjoyed by the customer can be substantially realized at
the time the advertisements are initially posted. Please tell us the
period of time you typically display these advertisements and how you
determined that point in time revenue recognition is appropriate. We
refer you to FASB ASC 606-10-25-23 through 25-30.
The Company respectfully advises the Staff that under the Cost Per Day
model, the period of time the Group typically displays the advertisement is a
few days within a month. Under the cost-per-advertisement model, the
Group writes articles based on the customers' requests, and posts the articles
on prominent position of the 36Kr Platforms to help promote the
customers' products and enhance their brand awareness. The articles are
displayed
on the prominent position within a very short period of time, usually
within one day, and then it will be replaced by other articles. The articles
can
only be accessed later by search, otherwise it could not be seen
easily. Additionally there is no obligation for the Group to display the
articles on
prominent position again after the first posting, nor the customers
requested for it.
With respect to the cost-per-advertisement model, the Company
considered that its performance obligation was to write and post articles on
prominent position of the 36Kr Platform for its customers. The Company
does not have any obligations to maintain the articles on prominent position
of its platform or to post the article again after the initial posting.
The Company determined its obligation to write and post articles should be
recognized at a point in time according to ASC 606-10-25-27 through
25-29 as follows:
(i) the customer could not receive or consume the benefits until the
Group posts the articles on its platform. In addition, as the period to display
the
articles is very short after posting, almost all the economic benefit
enjoyed by the customer would be realized at the time the articles are posted;
(ii) the Group's performance does not create or enhance an asset that
the customer controls since the Group controls the articles until the article
is
posted publicly on 36Kr Platform;
(iii) the Group's performance does not create an asset with alternative
use to the Group; however, according to the contract and the business
practices,
the Group has the right to payment when the article is posted, but not
the right to payment for its performance.
Therefore, the revenue generated from the cost-per-advertisement model
does not satisfy the criteria to be recognized over time, it is satisfied at a
point in time per ASC 606-10-25-24.
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In addition, according to ASC 606-10-25-30, to determine the point in
time at which a customer obtains control of a promised asset and the entity
satisfies a performance obligation, the entity shall consider the
guidance on control of the assets. Before posting the article on the platform,
no
economic benefit from the article posting service has been transferred to
the customer. Upon posting the article at the agreed place on the platform,
the customer presently is obliged to the payment. At the same time, the
significant risks and rewards of the ownership of the article is transferred to
the customer, as the customers will benefit from the promotion through
the article or sustain damage and loss from the negative impact from the
article, which indicates that the control has been transferred to the
customer once the article is posted.
Therefore, based on the analysis above according to the relevant guidance
of ASC 606, the Group considers that point in time revenue recognition of
cost-per-advertisement model is appropriate.
17. You disclose that in certain circumstances, you subcontract some of your
services to other third parties. Please tell us in further detail, how
you: control and take responsibilities for such services before the
services are transferred to the customer; have the right to direct the
subcontractors to perform the service and control the goods or assets
transferred to its customers; and combine and integrate the separate
services provided by subcontractors into the specified marketing or
business consulting solutions to its customers. Please also tell us who has
control over discretion in establishing prices. We refer you to ASC
606-10-55-39.
The Company respectfully advises the Staff that in connection with the
enterprise value-added services, the Group usually engages certain suppliers
to help fulfil some of the services. For instance, if the Group has been
contracted for an integrated marketing service with a customer, which usually
comprises of providing marketing plan, finding marketing event
organization, finding public relations companies as well as the execution of
the
market plan, and so forth, the Group would perform most of the key
services, such as the creation and design of marketing plan, coordination and
organization of the events, writing articles and posting on 36Kr
Platforms, etc. On top of these, the Group would find suppliers to perform
services to
execute some parts of the plan, for example, setting up the stage in the
field of the event, inviting guests to attend the event, photo and video
shooting
and advertising on other third party platforms.
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The Group determines it is the principal that controls the services
provided by the suppliers before they are transferred to the customers, since:
The Group's overall commitment to the customer in the enterprise
value-added service arrangement is to transfer a combined integrated
marketing or business consulting solution, to which those individual
services performed by the suppliers are inputs to the whole arrangement.
The Group is primarily responsible for fulfilling the promise to
provide the integrated services according to the contracts to the customer. For
any adverse effect caused by those services performed by the
suppliers, the Group, rather than the suppliers, will be held responsible by
the
customer. The Group controls the services provided by the suppliers
before they are transferred to the customers. As the Group creates the
overall marketing or business plan, the Group has the ability to
direct the use of the services aiming to complete the whole solution and
service
to deliver to the customer by deciding what kind of services the
suppliers to deliver, supervising the whole process, accepting the services
provided by the suppliers and asking for remediation when necessary.
The Group enters into the contract with the customer directly, then
enters into contracts with suppliers separately. The Group has the control
over discretion in supplier selection and establishing prices, and
negotiates with counterparties on its own based on the costs and expected
margin of the Group.
The Group has inventory risk before the specified service has been
transferred to a customer as the Group needs to pay the suppliers once their
services are accepted by the Group. There are risks that the customer
may refuse to pay for such services delivered, which will cause losses to
the Group.
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Therefore, the Group considers it should recognize revenue as a principal
in the gross amount of consideration to which it is entitled in exchange for
the specified services transferred per ASC 606-10-55-39.
In response to the Staff's comment, the Company has updated the
disclosure on page F-23 of the Revised Draft Registration Statement as "In
certain
circumstances, the Group engages third party suppliers to perform part of
the aforementioned services in fulfilling its contract obligation. In these
cases, the Group controls and takes responsibilities for such services
before the services are transferred to the customer. The Group has the right to
direct the suppliers to perform the service and control the goods or
assets transferred to its customers. In addition, the Group combines and
integrates
the separate services provided by the suppliers into the specified
marketing or business consulting solutions to its customers. Thus, the Group
considers it should recognize revenue as a principal in the gross amount
of consideration to which it is entitled in exchange for the specified services
transferred."
18. You offer institutional investor subscription services, a service package
to institutional investors, which consists of creating the investor
yellow page on 36Kr Platform, publishing articles about the investors and
their investees on the 36Kr Platform and priority access to 36Kr's
offline activities, etc. Please disclose how such revenue is recognized.
We refer you to ASC 606-10-25-23 and 25-27.
The Company respectfully advises the Staff that the contract of
institutional investor subscription services includes multiple performance
obligations
as disclosed on page F-23, and the Group determines the timing of the
revenue recognition based on each distinct performance obligation. For
example, the revenue generated from creating the investor yellow page and
displaying on 36Kr Platforms is recognized on a straight-line basis over
the period of display. The revenue generated from publishing articles
about the investors (being the customers of the Group) and their investees on
the
36Kr Platforms or priority access to 36Kr's offline activities are
recognized when the articles are published or when the activities are held.
In response to the Staff's comment, the Company has added the disclosure
on page F-24 of the Revised Draft Registration Statement as "The revenue
has been recognized over the period when such services are delivered or
when the services are rendered based on the transaction price allocated to
each performance obligation." per ASC 606-10-25-23 and 25-27.
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19. You disclose that you distribute content through established overseas and
local media companies in setting up overseas and local stations
including a variety of major third-party platforms. You also disclose on
page 16 that third-party professional content constitutes a
meaningful part of your content offerings. Tell us how your channel,
third-party platform and third-party content terms and arrangements
impact your revenue recognition and are accordingly reflected in your
revenue recognition disclosures. In addition, please tell us how you
assessed whether you were the principal or agent in your arrangements
using third-parties and disclose whether you reported the related
revenue on a gross or net basis. We refer you to ASC 606-10-55-36 through
55-40 and 50-12(c).
The Company respectfully advises the Staff that the third-party platforms
the Group refers to are the Group's own official accounts on other social
networks, including but not limited to Weibo, Weixin/WeChat, and Toutiao
as disclosed on page F-22 of the Revised Draft Registration Statement.
According to the contracts with such platforms, the Group has the right
of use in the official accounts on those third-party platforms, and the Group
is
responsible for all the content on such accounts. The third-party
platforms are principally responsible for background checks when a user opens
the
account, maintenance of the platform and scrutinizing any fraudulent and
illicit content. Opening the accounts and publishing content on the accounts
on these platforms are free of charges. Thus, such official accounts of
the Group on other third-party social networks are deemed as the same as our
own channel and are collectively refer to as "36Kr Platforms" on page
F-22 of the Revised Draft Registration Statement. The revenue recognition for
the advertising revenues generated from our own channel and on these
third-party platforms are the same as disclosed on page F-22 of the Revised
Draft Registration Statement.
With respect to the third-party content, the third-party content are only
purchased to enrich and enhance the general content and information on 36Kr
Platforms, such as financial news and industry report. There is no
third-party content purchased for any services delivered to the customers. The
consideration for the third-party content has been recorded as cost of
revenue as analyzed in comment #20 below, and it does not impact the Group's
revenue recognition.
Since the Group's accounts on third party platforms are the same as the
Group's own channel and the acquisition of third party content is not for
fulfilling a promise to the customers, using these third-party's content
will not impact the revenue recognition and trigger the assessment of principal
or agent according to ASC 606-10-55-36.
In response to the Staff's comment, the Company has added the disclosure
to clarify on page F-22 of the Revised Draft Registration Statement as
"The Group has developed capabilities in generating and distributing its
own and third-party high-quality content on 36Kr Platforms, there is no third
party content for fulfilling a promise to the customers for the years
ended December 31, 2017 and 2018."
20. In addition, tell us how you account for development and acquisition of
your content and reference the authoritative GAAP you rely upon for
the related accounting and disclosure.
The Company respectfully advises the Staff that the Group develops their
content through its in-house content creation team, and sometimes acquires
content from selected third-party professional content providers. The
content usually include New Economy-focused industry reports, market updates,
columns, interviews and so forth, which are all focused on the latest
news and hot topics of New Economy. Those contents are usually read by users
within a short period of time after they are published, as they will soon
be replaced by other latest news or topics. As to the content provided by
third-
party professional providers, the Group sometimes solicit content
contributions from key opinion leaders ("KOL") with in-depth knowledge in New
Economy sectors to cover some current hot topics when needed and pay them
for the content provided.
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With reference to 350-30-25-3, costs of internally developing,
maintaining, or restoring intangible assets that are not specifically
identifiable, that
have indeterminate lives, or that are inherent in a continuing
business or nonprofit activity and related to an entity as a whole, shall be
recognized as
an expense when incurred. As the content developed internally by the
Group has indeterminate lives due to their timeliness, and they are inherent in
a
continuing business activity, therefore the costs to develop such
content of the Group are expensed when incurred.
According to 350-30-25-4, the costs of acquisition of intangible
assets are usually capitalized. However, according to timeliness feature of the
Group's content, the costs of acquiring the content of the Group are
also expensed when incurred as the period for such content to bring economic
benefit to the Group are usually very short. For the years ended
December 31, 2017 and 2018, the costs of acquisition of the content were
immaterial.
In conclusion, the Group considers it is appropriate to expense the
costs incurred by the Group to develop and acquire the content and recognized
as
"cost of revenue" as it is related to the core business activities to
generate the revenue for the Group.
General
21. Please provide us with a copy of the CIC report for our review. Clearly
mark the specific language in the report that supports the statements
in your prospectus.
In response to the Staff's comment, the Company encloses as Annex A
hereto the industry report dated July 2019 commissioned by the Company and
prepared by China Insights Consultancy (the "Industry Report"). The
Company also encloses as Annex B hereto the relevant statement of the industry
and market data disclosed in the Revised Draft Registration Statement
along with their corresponding support from the Industry Report.
22. Please supplementally provide us with copies of all written
communications, as defined in Rule 405 under the Securities Act, that you, or
anyone authorized to do so on your behalf, present to potential
investors in reliance on Section 5(d) of the Securities Act, whether or not
they
retain copies of the communications.
In response to the Staff's comment, the Company encloses as Annex C
hereto the written materials that were provided to potential investors in
reliance on Section 5(d) of the Securities Act.
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23. Please supplementally provide us with copies of any graphical materials
or artwork you intend to use in your prospectus. Upon review of
such materials, we may have further comments. For guidance, refer to
Question 101.02 of our Securities Act Forms Compliance and
Disclosure Interpretations.
The Company respectfully submits that it has not prepared any graphical
materials or artwork it intends to use in the prospectus as of the date hereof.
The Company will provide the Staff with copies of such graphical
materials or artwork to the extent any such materials are prepared.
* *
* *
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If you have any questions regarding this submission, please contact Li He at
+852 2533-3306 (li.he@davispolk.com) or Ran Li at +86 10-8567-5013
(ran.li@davispolk.com), or Jihong Liang at +86 136-1122-3950
(liangjihong@36kr.com).
Thank you for your time and attention.
Yours
sincerely,
/s/
Li He
cc: Mr. Dagang Feng, Chief Executive Officer
Ms. Jihong Liang, Chief Financial Officer
36Kr Holdings Inc.
Mr. Chris Lin
Simpson Thacher & Bartlett LLP
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