Zhihu Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Jehu Incorporated First Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded at this time. I'd like to turn the conference over to Ms. Jingjing Du, Head of Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Hello, everyone. Welcome to our first quarter 2021 Financial Results Conference call. Joining us today are Mr. Zhou Yuan, Chairman and CEO of Zhihu, and Mr. Sun Wei, our CFO. Before we start, we would like to remind you that today's discussion may contain forward-looking statements which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earning release issued earlier today. As a reminder, this conference is being recorded. In addition, A webcast replay of this conference call will be available on our website at ir.juhu.com. I will now turn the call over to Mr. Sun Wei, our CFO. Please. Okay.

Thank you, Jingjing. I'm pleased to deliver today's opening remarks on behalf of Mr. Julia, founder and CEO of Juhu. Thank you, everyone, for joining our first earnings call. I'm pleased to report that Juhu delivered a strong federal result in the first quarter of 2021. Our user base and revenue both experienced significant growth during the period. In Q1, our user base continued to grow rapidly. Our average MAUs reached 85 million, representing a year-over-year growth of 38%. This is an impressive growth momentum we successfully managed to maintain. Even after the significant growth we realized in Q1 2020, during which most users spend more time online due to the COVID-19 pandemic. Our revenue increased significantly, growing 154% year-over-year to RMB 478.3 million. This growth was largely attributable to our commitment to the execution of our content-centric monetization capabilities. Now I will elaborate a little bit of our revenue growth by business line. Most impressively, our content commerce solution, also known as Triplus, continues to deliver expectation-beating results, contributing RMB 121 million in revenue during the first quarter. This compares with the annual revenue of RMB 136 million from the business line in 2020. The strong growth momentum of Triplus was reflective of the market recognition of its high marketing efficiencies, among merchants and brands. The number of customers for the business line experienced a tenfold increase compared with Q1 last year. In addition, our growing merchant and brand portfolio for the business line also represents a much broader industry coverage, such as fast-moving consumer goods, education, beauty, and personal care, as well as daily life services. We see great We see great growth momentum in the business line, delivering optimal marketing efficiency to our customers and contributing great commercial content to our users. Najihu's advertising business continued its rapid growth in Q1 2021, effectively overcoming the negative impact of COVID-19 on the internet advertising sector. In the quarter, our advertising revenue reached RMB $214 million, representing a year-over-year increase of 70%. The increase was mainly due to the growth of brand advertising, which was driven by our growing user base and the brand recognition, as well as our strong capability in offering tailored marketing solutions to our brand customers. We also saw a steady increase in performance-based advertising revenue. We expect the advertising sector will experience a strong recovery as the implications of COVID-19 pandemic continue to weaken. And we will continue to benefit from both a favorable industry trend, as well as our strong recognition among advertisers target audiences, uniquely strong product offering and execution capability. The rapid growth of Zhihu's paying member is another important engine driving the development of Zhihu's content-centric business model. In the first quarter of 2021, Revenue from paid membership was RMB 127 million, representing a year-over-year increase of 127%. The average quarterly paying members reached 3.98 million, representing a 138% increase on a year-over-year basis. The paying ratio reached 4.7% in a quarter. Our paid membership program is a vital component of our community. With great growth potential, we will continue to invest in its growth through offering more premium content and improving our paying members' user experience. In the first quarter, we'll continue to expand the coverage and depth of Zhihu's paid content library. By the end of Q1 2021, items of paid content had increased by 190% on a year-over-year basis, with a broader range of categories offered. In the first quarter, we continue to fine-tune and execute our other counter-centric monetization channels and initiatives, such as recommended goodies. In the first quarter, the GMOA generated by recommended goodies reached RMB 1.5 billion, representing a year-over-year increase of 214%. With our business benefiting from deep ongoing cooperation with our strategic shareholders, such as Taobao and JD, we expect to make further breakthroughs in the e-commerce space. We continue to deepen our monetization in the education sector as we start to enhance the quality and depth of our education content offering, including our self-operated course portfolio, which has expanded from examination to now also cover courses in finance and business. We have also expanded offering to cover more target audience through a variety of partnerships, with offline third-party vendors. We will continue to seek strategic partners in the education sector to offer great growth potential and product synergies with Zhihu's current offerings. Now, let's dig a little bit deeper to review our operations across a couple of our key operating perspectives. Content, content creation, user growth, and monetization capabilities. As a comprehensive online content community, we are dedicated to addressing the needs of people as they seek inspiration, find solutions, make decisions, or help fund. In Q1, we have maintained lifestyle and consumer content category as our most active and popular category on our platform. This was closely followed by the entertainment category and the cornerstone categories, including natural science, engineering, psychology, and politics, et cetera. which form the bedrock of our content library. Active content creation, especially those focusing on high-quality content, is a vital factor in driving strong growth of our user base and monetization capabilities. To this end, we continuously strive to enhance the breadth and depth of our content offering with strong product development and refined operational initiatives. During Q1, We also concentrated on strengthening the timeliness of content created in response to trending events and enriching the format of our content offerings to include more videos carrying strong Zhihu content features and styles. Trending topics in Zhihu communities are also attracting an increasing number of views. In-depth discussions on trending topics have generated significant organic traffic and word-of-mouth recommendations Zhihu training topics in Chinese Zhihu Reba has become a favorite place for in-depth discussion following the current major event. In the first quarter, more than 23,000 training topic events were discussed on Zhihu. Discussions of these topics increase user activity and interaction on our platform. This further strengthens Zhihu's brand recognition by encouraging users' participation in both spontaneous content creation and in-depth discussion. Through our 10 years of operation, we have successfully developed a comprehensive system for attracting users and increasing their interactions on our platform. In order to cater to the various demands of users, we encourage our content creators to generate a diverse spectrum of content, making full use of the rich media format our platform has to offer. We also launched creative online campaigns for targeted demographics. Highlights of these included content creation workshops specifically organized for younger and amateur users, and open forums focusing on certain specialized areas for a certain group of users. All these events were well received by users and generated a great volume of content creation and engagement activities. We are focusing on offering a broader range of such events to a great category and have received satisfying results. By the end of the first quarter, our content library measured by accumulated content pieces on Zhihu platform grew about 60% year over year. Now I will spend a little bit of time on our regionalization initiative, which is rapidly becoming a core part of our business. Daily time spent on video by video viewers has increased by 1.6 times in the quarter, compared to the same period of last year. We saw very impressive growth in the volume of uploaded mainframe videos in the quarter, increasing 17 times on a year-over-year basis. We believe that leveraging our rich content pool, Zhihu is well-placed to capitalize video's increasing dominance in online content consumption. By adopting a visualization strategy for our platform, our accumulated library of premium content will be consumed by ever larger groups of users, further accelerating our user growth. As part of our visualization strategy, we launched various video creation utilities and toolkits for our video content creators and have also introduced a dedicated video tab on the app homepage. Going forward, we believe our premium video content will differentiate Zhuhu in the market and will be a key driver of growth for the segment. To facilitate our strategy, we will continue to invest in product innovation and introduce more monetization channels for video content services. As we move to the next stage, we are committed to providing more made-from-video content with a differentiating sense of fulfillment for our users. Our content creators continue to be highly active on our platform. In the first quarter, there were 3.4 million active content creators per month on average, representing an increase of 100,000 from the first quarter of 2020. Our creator community contributed more than 12.8 million pieces of content in March 2021 alone. These achievements reflect our continuous efforts in improving the ecosystem for our content creators. We provide our creators with a sophisticated and dedicated platform encompassing various effective creativity toolkits and utilities, such as AI-powered video creation functionality that greatly simplifies the process of making video content. We also offer full service assistance to the video content creators through a project we call Project Haiyan, which includes training courses on video creation, traffic support, cash incentive plans, and connectivity with the merchant partners for content monetization. We are excited to see that these efforts have led to a rapid increase in video creation volume over the past 12 months. As I just mentioned, made from videos increased 17 times in the quarter on a year-over-year basis. Notably, we are seeing more and more video content created, not only by our top content creators, but also from medium-level and new content creators, encompassing an increasing coverage ratio among our content creators. Our continuously solidifying partnership with a growing group of new talented creators will help us further accelerate the visualization of our business. In addition to supporting operations and content creation, we have also provided our content creator community with multiple channels for recognition and ways to monetize their contribution. An example of this is our recent New Generation of Knowing ceremony in Chinese 新知青年大会. Here, we are recognized, awarded, and honored 187 outstanding young people who provided premium answers to high-quality topics on our platform. By continuously building partnerships with younger generations and new content creators, we are fortifying our ecosystem by building a pipeline of future premium content to the benefit of our entire community. Shuhu has maintained its industry leading position in terms of user acquisition efficiency by adopting a content and technology-driven growth strategy. The acquisition cost per new MAU for Q1 was RMB 37, which represents an optimal level of cost efficiency among other players in the online content community industry. Going forward, we will continue to grow our user base while maintaining user acquisition efficiency. On our 10th anniversary in January this year, we launched a series of branding campaigns to further improve Zhihu's brand awareness in a marketplace centered around our new tagline. If there's a question, there will be an answer. In Chinese, 有问题就会有答案。 We believe this branding concept clearly reflects Zhihu's values and mission and will enable us to attract a wider range of users to our Compton community. In the quarter, we launched events such as an Adventurous Evening with Answers and an online New Generation of Knowing Ceremony aimed at encouraging excellent answers and recognizing them for their contribution to our community. These branding campaigns have enhanced Chihuahua's brand identity and the recognition among common community users. In future, we will continue to invest in our brand, which is a key asset to driving long-term user growth. The foundation of our closed-loop ecosystem is trust. Trust in our community enhances the partnerships among common creators, brands, and merchants, encouraging an integrated approach to answering user acquisition and fulfilling their needs In the first quarter, the number of content creators that received income on the Zhuhu platform increased by 296% compared to the same period of last year. This is a solid evidence of how the growing maturity and the success of our content-centric monetization approach has incentivized our content creators. In conclusion, we are very pleased with Zhuhu's solid growth in the first quarter. In the past 10 years, we have become China's largest Q&A-inspired online content community. Going forward, our growing user base, enriching premium content, expanding content creator base, and diversifying monetization channels will continue to make Zhihu well-positioned to capitalize opportunities in China's rapidly expanding online content sector. Okay, this concludes the remarks remarks of Mr. Julian, our founder and CEO. I will now start with our financial performance review for the first quarter of 2021. As a quick review, in the first quarter of 2021, our total revenues experienced solid growth. Our total revenues amounted to RMB 478.3 million, representing a 154% year-over-year increase compared with the same period, 2020. This was driven by our strong user growth and the fast-evolving content-centric monetization model. In the first quarter, our new monetization channel continued to grow and contributed a more balanced portion to our total revenue. For example, content commerce solutions represented 25.3% of our total revenue in the quarter. compared with 0.6% in Q1 2020 and 10% in 2020, full fiscal year. While the contribution of advertising revenues decreased to 44.7% from 66.8% in the same period of last year, paid membership accounted for 26.5% of our total revenues, compared to 29.6% in Q1 2020. And other revenues accounted for the remaining 3.6% for the first quarter 2021. Growth profit for the quarter was RMB 272.7 million, up 248% year over year. Our growth margin was also significantly enhanced to 57% in the quarter. compared to 42% in Q1 of last year, benefiting mainly from our change in revenue makes, with higher contributions from business contributing significantly higher margins, such as a common commerce solution. Moving on to the cost and expenses, our cost increased in line with our growth of our business scale, though at a relatively lower pace, delivering a higher growth margin, in particular, Increased advertising execution and content-related costs dropped much of our 87% year-over-year increase in cost of revenue, which were RMB $205.6 million for the quarter. We also saw increases in cloud services and bandwidth costs incurred in support of the significant increase in user traffic and activity on our platform. As an illustration, Our average MAU increased by 38% in the quarter on a year-over-year basis, and we experienced a 138% year-over-year increase in average monthly paying members. Our total operating expenses also increased in support of our growth, with the total expenses amounting to RMB $615.1 million. As a percentage of total revenues, It decreased to 129% in the quarter, compared with 154% during the same period of last year. This shows a continuously enhancing operational efficiency, which we focus a lot in association with driving our growth. The main driver of operating expense growth in the quarter was selling and marketing expenses. reflecting various marketing and branding events and campaigns we launched during the same period. We also experienced higher personnel and share-based compensation costs as we continue to invest in talent to support our growth. Loss from operations was RMB 342.5 million compared to RMB 210.9 million for Q1 2020. And net loss for the quarter was RMB $324.7 million, compared to RMB $201.3 million for the same period of last year. Our adjusted net loss, which is a non-GAAP measure that includes share-based compensation expenses, was RMB $193.6 million for the first quarter of 2021. Proceeds from our IPO continue to enhance our balance sheet. As of the end of March 2021, the company had cash and cash equivalent term deposits and short-term investments of RMB 7,960.4 million. I will make a brief remark on our financial outlook. Looking into the second quarter of 2021, the company expects that our total revenue will be in the range of RMB 622 million and RMB 627 million. This only reflects our current and preliminary estimates and is subject to any change due to factors including those that are beyond our control. This concludes our earnings remarks. We will take questions from the audience. Could the operator please open the line and let the That will commence our Q&A session.