Zhihu Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Juhu Incorporated Second 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 would 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 second quarter 2021 financial results conference call. Joining us today are Mr. Zhou Yuan, our CEO and chairman of the company, 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 the definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference will be available on our website at ir.jihu.com. I will now turn the call over to Mr. Sun Wei, our CFO.

Thank you, Jingjing. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder and CEO of Jihuo. Thank you for joining Juhu's 2021 Second Quarter Earnings Conference Call. Our user base continued its rapid growth momentum during the second quarter. Our average MAUs reached 94.3 million, up 46% year-over-year, of which over 96% are mobile MAUs. Meanwhile, we continue to increase our platform's high-quality content offerings. As of June 30, The cumulative pieces of content on our platform reached 420 million, including 368 million questions and answers, representing a year-over-year increase of 48% and 43%, respectively. In the second quarter, our average number of monthly active content creators was 3.6 million. Within this number, we saw a 75% year-over-year increase, in the average number of monthly video content creators. In the quarter, our content-centric monetization approach continues to propel robust growth, evidenced by a 144% year-over-year increase in revenue to RMB 338 million and a 121% year-over-year increase in average monthly paying members to 4.7 million. Our achievements in the second quarter are ultimately an outgrowth of our founding belief, which continues to be our long-term guiding force. By building a high-quality content-centric community, characterized by reliability and trustworthiness, we have been able to fuel healthy user growth and outstanding community engagement. As our user numbers grow, the natural extension of user demand and valuable supplements to our content library in terms of new various formats have expanded our content-centric monetization channels and nurtured the flywheel effect of our ecosystem. In the second quarter, we further upgraded our high-quality community content standards by introducing sense of fulfillment as a new benchmark in evaluating content value on Zhihu platform. As a result of promoting content with a sense of fulfillment and our strong effort to build brand awareness, we saw a remarkable growth in younger demographics from various cities, as well as a significant increase in cross-generational user interaction. We believe our efforts and achievements in the second quarter enhanced our solid foundation for robust long-term development. Our content offerings continue to grow rapidly in the second quarter. In the process of achieving rapid growth, it's vital to continually maintain a high-quality user experience. Towards this end, and as I mentioned in our first quarter earnings conference call, we have continued to optimize our content structure by supporting high-quality content and handling low-quality content. In the second quarter, we further refined our assessment standard for quality content by introducing what we call the sense of fulfillment standard, We believe content with a sense of fulfillment standard displays one or more of the following characteristics, broadening horizons, providing solutions, and resonating with minds. Based on this assessment, we upgraded our distribution algorithm for video as well as graphic and text content to encourage more creation and submissions of content meeting this criteria and ensure that once produced, it achieves higher exposure and a greater traffic allocation. We believe this will not only empower content creators with more views, but also encourage more creation of high-quality content with a sense of fulfillment, thus creating a worship cycle and a self-reinforcing content ecosystem. Aligned with the sense of fulfillment standard, we allocate a high distribution weight to a large volume of unique high-quality science content on Drupal's platform. This further solidifies the science category as a strategic cornerstone content vertical on our platform. In our recently held event, Seeking Answers in Science, subject content received over 10 million interactions and over 100 million page views. Superior content from professionals and experts enables users to truly broaden their horizons and gain a real sense of fulfillment. It's important to note that Content with ability to broaden horizons can be more than just hardcore knowledge. It can also be just interesting and instructive content, such as content that inspires further explanation, as illustrated by those found during our recent Children's Day event. Examples of such items include, what should I do when a giraffe's ears are itchy, and can we catch light, as well as consumption tips, produced by fashion editors answer the question, why are the majority of luxury girls produced in Italy and France? And second, we believe content that helps users solve problems and make decisions also confers a sense of fulfillment. Nowhere is this more evident than in a recent natural disaster in China. This July, Zhengzhou, a city in Henan province, suffered catastrophic flooding that caused tragic loss of life and devastating property damage. In an effort to help, Zheng Haoyuan, a Zhihu user and content creator from the northern city of Harbin, uploaded a detailed self-help manual for rainstorms. It was quickly uploaded, forwarded on Zhihu, and received over 30 million views in just a few days. This manual attracted nationwide attention generated a robust discussion and was also reported by multiple media outlets, such as CCTV News, Observer.com, and others. The instantaneous national exposure of the menu and the collective discussions effectively helped many people in real time in suffering from this disaster. Since then, in-depth discussions have surged a wide spectrum of disaster-related content verticals. including real-time disasters in progress, precautions for post-disaster reconstruction, including commercial insurance claims, how to get clean water with self-made devices, meteorological science-related knowledge, and the popularization of secondary disasters. Through this experience, we saw a beautiful example of how premium content created by Juhu community was used in an instrumental way to help provide solutions, relief, and bring a sense of comfort to those in need during a critical time of disaster. We are proud that through the resources enabled by our platform, we were able to meaningfully contribute to the social responsibilities we uphold, both in times of crisis and on an ongoing basis as a leading corporate citizen. In addition to emergency assistance, Zhihu users are also encouraged to find solutions for their everyday real-life problems, such as common purchasing decisions on a platform. During the recent popular 618 shopping festival held in June, we are encouraged to see the consumption-related content on Zhihu help users of all ages find their favorite items through high-quality content with highlighted professionalism, rationality, high technology, and novelty. While users are having fun on our platform, they also enjoy the journey of discovering the right product for them and at the best price. Strong user resonance is the third important characteristic of content that would meet our sense of fulfillment standard. During the Olympic Games, the question, what do you see in the Tokyo Olympics that is more important than a gold medal? enjoyed vigorous discussion. The most popular answers have surprisingly similar characteristics, such as Iraqi Olympic teams with only four members, the 58-year-old table tennis player from Luxembourg, the only gymnast in the world to have participated in eight consecutive Olympic games, among others. All the stories and messages highlighted the Olympic This content, with a sense of fulfillment, resonated strongly with users and received over 10,000 cumulative interactions in just a few days. And so far, Zhihu users have contributed more than 200,000 pieces of Olympic-related content to our platform. Boasted by this mass of content with a sense of fulfillment, Zhihu garnered media praise as the most sophisticated platform for Olympic-related content. that educates, edifies, and inspires users. Upgrading the content on our platform also helps further cement the trust among users in our community. We have made corresponding revisions on the product side accordingly by optimizing our distribution and the ranking algorithm to enable content with a sense of fulfillment to be more easily recommended and consumed by users. In addition to encouraging production of premium content with a sense of fulfillment through products, technology, and operations, we have also pursued community compliance through proactive community governance and scrutiny of non-compliant content. In the second quarter, we conducted a targeted community governance campaign to ensure the long-term health and prosperity of our community. Why are we paying so much attention to and emphasizing premium content meeting the sense of fulfillment standard? Ultimately, premium content defined by a strong sense of fulfillment standard is what forms the unique DNA of Zhihu's content offering and differentiates us from other platforms. As we continue to improve our technology operational efficiency and upgrade the standard that's detailed on our platform, content with a sense of fulfillment will inspire deeper and longer-term trust among users. This will be a key differentiator for our platform in the market, strengthening our competitive advantage. Now, moving to the users. Driven by premium content with a sense of fulfillment, our monthly active users continue to grow rapidly in the second quarter, with average MAUs reaching 94.3 million, representing year-on-year growth of 46.2%. We are excited to see that the percent of Zhihu active users between 18 and 25 years old increased to 40% from 20% in the past two years, representing an increase over four times in absolute terms. Users under the age of 20, sorry, under the age of 25 accounted for a significant proportion of our new users in the second quarter. As a group, their favorite content articles are education, lifestyle and consumer, as well as science, one of the Zhihu cornerstone content verticals. This clearly demonstrates that Zhihu has become a platform that attracts younger demographics and accompanies them through their life. Geographically, we were pleased to see the percentage of our users in Tier 2 cities and below increase by 4% quarter to quarter to over 51% at the end of second quarter, which demonstrates encouraging progress in lower tier city penetration. The rapid growth of Zhihu's users in the second quarter was driven by continuous output of premium content, increased content consumption, and our investment in branding during the quarter. For example, during the May 4th youth day and college entrance examination period, we launched a number of high production value promotional videos. These videos imparted a sense of fulfillment that resonated strongly with a wide range of ages and attracted additional users to our platform. For this year's Youth Day, we launched a short film jointly with the Communist Youth League. The film was warmly welcomed across the Internet and received more than 100 million views in just three days. It generated cross-generational discussions and resonated deeply with a wide range of people, from students to workers, and from 20-year-olds to 80-year-olds. Within our rapidly growing user base, there is a special group of users that is our creative and active content creator pool. They are the driving force behind Zhuhu. As of the end of June, there were over 49.5 million cumulative content creators on the Zhuhu platform, who contributed more than 420 million pieces of content in various formats. Many video content creators who are active in the field, such as science, career, lifestyle, have already made Zhuhu their primary platform for video content creation and distribution. On Zhuhu, you can see an elderly tailor with over 40 years' industry experience shares his unique and sophisticated insights on fashion through video. You can also hear Xiaolin Shuo, a Wall Street elite, address our users' curiosity and demand for financial knowledge through fun and dedicated videos. You may also be impressed by Shu Gui, the author of fitness notes and an excellent creator who previously expressed himself through graphics and text and has now started to share his secrets to health and beauty through creative videos. In the second quarter, We further iterated our video tools, enabling creators to easily arrange video content into segments and match those segments with related topics and questions on the platform. These video-lized answers can greatly increase the interaction efficiency between users and video content creators, inspiring further creation. Our varied and multi-format content with a sense of fulfillment is created filtered and surged through user interactions on our platform. This content has become not only a cornerstone of the Zhihu content ecosystem, attracting more content creators, but also the key driver in further enhancing the vitality of the whole Zhihu platform. Moving into commercialization. The underlying driver for the commercialization of content communities is content sell. Premium content with a sense of fulfillment not only encourage engagement among users, but also improves user experience, as well as brings about more possibilities for commercialization. In the second quarter, Zhihu further optimized its revenue structure as the proportion of total revenue contributed by the content commerce solutions and paid membership continued to increase. This demonstrates our practice of good content makes for good business is on track. Content with a sense of fulfillment not only addresses users' consumption needs for high-quality content, but also meets the commercialization demands of our business partners. In the second quarter, Common Commerce Solutions' revenue reached RMB 207.4 million, accounting for 32% of the total revenue and representing a 15-time year-over-year increase. Paid membership revenue for the quarter was RMB 154.9 million, contributing approximately 24 percent of the total revenue and representing a 124 percent year-over-year increase from the second quarter of 2020. As a percentage of total revenue, advertising revenue decreased to 39 percent in the quarter, despite increasing 48 percent year-over-year from the second quarter of 2020. Before our CFO shares more color on our financial performance, I would like to highlight our efforts to strengthen our monetization capability in the second quarter. We increased investment in our content-centric commercial ecosystem by launching the Cheese platform in Chinese, a commercial service platform for content creators. By connecting creators and business partners, this platform helps content creators to improve their monetization capabilities, as well as meeting the various monetization needs of business partners, from the brand building to sales conversion. For example, one of the content creators on the cheese platform, Li Lei, a doctor of biology and science researcher from the Chinese Academy of Sciences, accepted an invitation from L'Oreal to address the question, how to grow thicker hair? an issue that bothered many young people. Mr. Li started with the ingredients of hair care products and provided a detailed explanation and step-by-step guidance. This was all presented with easy-to-read text and images and in plain but specific language. That not only effectively relieved the anxiety of users but also provided a convincing recommendation for L'Oreal anti-hair loss products. This is a great illustration of how good commercial content can not only become content with a sense of fulfillment, but can also drive business growth for brands and merchants. Every month, we publish a ranking list of Jihoo creators in terms of commercial value, with the aim of recommending our content-creating talent with the most commercial value in various verticals. In our latest top ranking list, creators with the ability to create in both picture and text as well as the video accounted for more than 50%, demonstrating the growth trend of Zhuhu's video commercial content. We believe investment in products and services for our content creation system will lay a solid foundation for the development of content commercialization on our platform at scale. With respect to brands and merchants, we have noticed that in the context of upgraded consumption, we are seeing an increasing number of emerging brands. As a community that brings together the most creative users and content creators, the fields of technology, business, fashion, film and culture, TrueQuest has become an important platform for the younger demographic lifestyle and consumer purchase decision making. Recently, In collaboration with new emerging brands, we jointly launched the growth plan for emerging brands, otherwise known as the Zhihu Boom program. Through this program, we work closely with selected brands to grow together and to increase direct interactions between these emerging brands and users on Zhihu platform through co-creation of community content, special events, and joint marketing of promotional events. By doing so, We encourage user feedback and enable users to see improvements in products and services. At the same time, we provide a chance for merchants and brands to join our quality content community to gain users' recognition and trust and help them to achieve healthy and long-term development. As of the end of July, selected emerging brands covering industries including beauty and personal care, digital technology, and fast food have joined the program. During this year's 618 Festival, Zhihu becomes a grassroots community for our young generation users. Thousands of questions and answers helpful to consumer decision-making constitute a unique Zhihu market. Among a large number of Q&As, consumption-related content in the format of professional evaluation, real user experience, smart shopping recommendations, as well as guidance, have formed a unique shopping model for Zhihu and have become an important search target for many consumers before they shop. In the second quarter of 2021, high-quality content consumption on Zhihu's platform promoted the rapid growth in our e-commerce business, resulting in e-commerce GMV exceeding RMB 2 billion in the quarter, up 115% year-over-year. This demonstrates the consumption power of Chihu users. In addition to the above, we also achieved rapid growth in paying membership and the monetization process of other business lines, which will be discussed in more detail by our CFO. In conclusion, in the second quarter of 2021, Chihu maintained its strong new growth momentum from the first quarter. We successfully surpassed our target for user scale, content coverage expansion, and monetization progress. We owe such success to Zhihu's persistence in following our founding belief of the company. Let me end today's prepared remarks with an excerpt from a speech of mine from 2019. China's internet industry has entered its adulthood when the battle for traffic turned to the battle for quality, premium content, and the health ecosystem become more than a passing phrase, but rather than but rather the core and the key element for the sustainable growth of a company. Let's jointly create a civilized and thriving ecosystem through healthy competition, enabling the Internet to become a powerful driver to accelerate the growth of the whole nation. We firmly believe that those who stay true to their founding beliefs will go the furthest. This concludes the remarks of Mr. Zhou Yuan, our founder and CEO. I will now start with our financial performance review for the second quarter of 2021. As previously mentioned, we delivered an outstanding set of financial results for the second quarter of 2021. We recorded total revenue of RMB 638.4 million, representing a 144.2% increase year-over-year. As our content-centric business model continues to drive the growth of our business, our content commerce solutions and paid membership together contributed over 50 percent to our total revenue. In the second quarter of 2021, our G-plus business contributed RMB 207.4 million in revenue, making G-plus our second largest business segment by revenue contribution in the quarter, representing an increase of 15 times over the same period of 2020. The strong growth momentum of G-Plus reflects the market recognition of its high marketing efficiency among merchants and brands. The number of customers for the business line has increased tenfold since the first quarter of 2020. In addition, our growing business partners and brand portfolio for the business line also represents much broader coverage, including fast-moving consumer goals, vocational education, beauty and personal care, as well as pan-lock services. As we refined and introduced the sense of fulfillment at the new evaluation standards for content in the second quarter, we see great growth potential for G+, as we believe it will continue to unleash the great commercial potential of our platform going forward. Advertising revenue achieved RMB 248.3 million for the second quarter of 2021. representing an increase of 48.4% over the same period of 2020. The key driver of this rapid growth is the increase of advertising spending of our business partners, as many sectors are showing strong past pandemic recoveries. FMCG, e-commerce, and automotive are among the strongest in terms of advertising growth on Zhihu. Our paid membership revenue for the quarter was RMB 154.9 million, growing 123.5% year-over-year, with the average monthly paying members doubling compared with the same period of last year, reaching 4.7 million. Our paying ratio continued to grow in the second quarter of 2021 to 5%, while the average monthly revenue per paid membership users remained stable. We are proud to have witnessed many young talents grow with our paid membership service and we will continue our investment into this service to benefit all participants in our ecosystem. Other revenues including new initiatives primarily contributed by e-commerce and vocational education also performed strongly in the second quarter of 2021 with total revenues increasing by 131% year-over-year to RMB 27.8 million. In this year's 618 event, a large number of consumption-related content formed a unique shopping model for Zhihu and rushed the rapid growth of the e-commerce business with the GMV for the quarter, exceeding RMB 2 billion, up by 115% year-over-year. Our education income which constitutes occupational and postgraduate examination preparation courses only, also made significant progress. We have seen a slightly higher proportion of our occupational courses, among which our occupational skill improvement courses such as writing skills training are overwhelming. And we examined more diversified verticals and courses such as postgraduate examination related and CFA and CPA preparation. will contribute more in the coming quarter. On the cost and expense side, our rapidly growing business dropped a year-over-year increase of 94% in total cost of revenue to RMB 261.8 million for the second quarter. The higher year-over-year increase was primarily due to the increases in our advertising services, execution, and content-related costs. as well as our cloud services and bandwidth costs with a rapid user traffic growth. While the total cost of revenues increased, our margin profile remained strong. Growth margin for the second quarter of 2021 was 59% compared to 48.4% for the same period of last year. Our total operating expenses increased to RMB $727.1 million in the second quarter, driven primarily by investments in marketing, promotional expenses, and human resources expenses for new hack-ons. Our marketing and promotional campaign in the run-up to China's college entrance exam, the Gaokao, helped us to effectively acquire new users and greatly enhanced our brand recognition, which we expect to benefit us both in the short-term and long-term. Our operating margin in the second quarter of 2021 narrowed from negative 60.3 percent to negative 54.9 percent on a year-over-year basis, demonstrating our progressively stronger operating efficiency. Our adjusted net loss, which is a non-GAAP measure that includes share-based compensation expenses with RMB 200.3 million for the second quarter of 2021. As of March 31, 2021, the company had cash and cash equivalent term deposits, restricted cash, and short-term investments of RMB 7,703.1 million. Finally, onto our financial outlook. Looking to the third quarter of 2021, the company expects total revenue to be in the range of RMB 815 million to RMB 820 million. reflecting a year-over-year increase of 112.9 percent to 114.2 percent. As a reminder, this outlook reflects JUCO's current and preliminary estimates and is subject to change. This concludes our earning remarks. Operator, we are ready for the Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Piyush Mubai from Goldman Sachs. Please go ahead.

Thank you for taking my question. My first question is about your MAU, which has grown very nicely. Could you just take us through the dynamics of what has led that to happen, and how close are you to the magic number of 100 million? And as you look at your third quarter guidance, could you give us a sense of where that MAU number will be that's going to drive the revenue guidance that you provided for third quarter? The second question concerns the mix in revenue between content commerce solution and advertising. How have you managed to grow your content commerce solution so nicely in the quarter? If you could just take us through the dynamics that have led to that. And I just wondered on the regular, on the performance advertising side, there's been a slight weakness. What is the cause of that? If you could just take us through those two questions, that would be great. Thank you. Then I'll have a follow-up question.

Two questions from Goldman Sachs. The first question is about our user growth, especially the user growth of MAU. We see that the performance of this quarter is very good. So what do we look forward to in the third quarter of MAU growth? When can we achieve a bigger goal of one billion MAU? The second question is about our business revenue source. Thank you.

OK.

This is the CEO and founder of Zhihu, Mr. Zhou Yuan. As for the user growth, if you're familiar with our business, you may understand that a large proportion of our new users are actually attracted organically to our community by user-created content.

Our team has always believed that OK.

And naturally, you understand that good content impose direct and genuine impact on our users and create attractiveness to these new users. And in different scenarios, in different demands, these kind of attractiveness to users displayed seasonality and cycles, which is very prominent. And I can explain in greater details now.

Let us take Gaokao Examination as an example for this.

just two months ago, we had this Gaokao exam in China nationwide. And during that period, over 35 million users have consumed Gaokao-related content in our community. And these 35 million users are three times higher, three times as that of those who actually sat in the Gaokao examination. And we know that a lot of them are actually not only the high school graduates who take the examination, but also their parents, their teachers, and those who used to take this examination in the past.

So this showcases a very obvious cycle of user activity or seasonality as we call it.

And we are very happy to see that there are a lot of young users and users from different generations who are very active during certain period and have a lot of interactions with one another.

OK.

So at certain time of the year, we will organize specific activities according to different user groups and their specific demands, not only during Gaokao period, but also in other periods of the year, we will do so and to create more uses and check them to our community. 举例来说,我们在过去的两个月呢,

We also launched a scientific activity to answer the scientific questions. Within a month, more than 800,000 creators started to create science fiction. The content consumption of the month was more than 2.4 billion. For example, during the May 4th Youth Festival, we collaborated with the Communist Youth League to release a re-released microfilm. And also in the past two months, you see that we have launched a campaign called Seeking Answers in Science, where we have attracted over 800,000 creators

on our platform to produce public education materials in science, and these materials have gained over 2.4 billion page views in total. And another example is a short video film that we have created to celebrate the Youth Day, the May 4th, which is called The Reunion, and they are attracting uses from various generations, including those who were born as early as in 1950s and those who were born as late as after 2000.

So thanks to our deep insights into our users,

we have very nice outcome and nice efficiency in terms of user acquisition as a result of our campaigns and events. And you see that one thing that remains unchanged is that our content remained the main driver for us to attract users organically, and they are able to seek values in our community when they join us. Thank you.

Thank you.

And we are also very happy to see that young users as a percentage to our total user base is on the rise. And our new users recruitment in new first-tier cities and second-tier cities kept a very healthy trend. And that will give us a steady user increase going forward in the future. Thank you. And I'll have our CFO, Mr. Sun Wei, to make additional comments, please.

OK. We are very close to one billion. We think that in the next two to three months, one billion is very possible. But our core goal So our analyst asked about when will we hit the target of 100 million active users?

Well, we are now doing $99 million, and that is very close to our big target of $100 million. But I should say that our ultimate goal is to attract those users and make them stay and make them active in our community. So I think with all sorts of efforts that we are making, we have the right confidence to say that we could hit the target of 100 million in Q4 and to make them stay and active in our circle. Thank you.

Okay. Okay. So as to the question of G-plus business, why we had such a stellar quarter,

It's because that our user on this regard has increased by over 100% in the last quarter. 并且在客户快速增长同时, 芝加作为一个非常高效率的商业产品, 它的商业效果非常稳定, 它的CTR一直保持得非常高, 同时呢,

Because we have a 500% increase of the clientele, our mechanism of G-plus became much more efficient.

and the outcome looks quite positive. As you can see, the indicators such as CTR look very good, and also CBC under our bidding system increased as much as 20%.

Despite the fact that our G Plus business is growing very fast and healthily, we still think that G Plus has huge potentials to unleash going forward.

Because right now we only have less than 50,000 pieces of content commerce solution content. Compared with our total content library of 420 million pieces of our content, this is still a very, very small or tiny proportion. 刚才应该还有问题是关于监管的问题,请您。

So if I'm not mistaken, I think there was a question about regulation.

Would you maybe specifically ask what kind of areas do you want to know more about the regulation?

We just want to know the impact of the sectors that have seen a slowdown on account of regulation. What is your exposure to those sectors?

uh, uh, uh, uh, uh, uh, OK, thank you.

Well, as for those specific areas that are heavy-handedly treated by the government recently, I think that our client makes the exposure where the percentage of the client in those areas are not very high. And therefore, our business exposure to regulatory crackdown is controllable. And we believe that for the long term, this is a positive sign for the Internet industry. So we are part of it for the longer term. So we are positive about that. Thank you.

Thank you very much.

The next question comes from Alex G. from Credit Suisse. Please go ahead.

Hi, management. Thank you for taking my questions and congratulations on a very strong quarter. My first question is about your video initiatives. So would you please elaborate more about the optimization of the structure in your video? Do you have more data points to show the impact of your adjustments? And when do you expect the optimization process to be completed? And what about the outlook of video penetration in the second half? The second question is about your major content-driven user acquisition events in the second half. So in the first half, we have seen a very successful impact from your 10th year anniversary as well as the Gaokao event. What will be the key events that we should look for in the second half? Thank you.

好 这里有两条问题 第一条问题是有关于我们视频内容结构的一个调整以及优化 有没有一些数字可以跟我们分享来展示出我们视频内容的这样的优化的效果 以及我们什么时候能够完成 下半年的话 我们的video视频的一个渗透率目标大概是多少 The second question is about user growth. In the first half of the year, some of our customers' activities were very successful, such as the 10th anniversary of Zhihu, or the college entrance examination. In the second half of the year, are there any major events that we can look forward to? Thank you. Okay, let me answer the video question first.

Zhihu's video creation and sales are very active. If we compare the number of video creators in the second quarter with that of the Japanese army, as I said when I was explaining, it increased by more than 75%. The upload volume of the Japanese army increased by about three times.

Yes, as we explained in the opening remarks that our video content creators have been increasing dramatically by 75% monthly video creators in the second quarter, and the daily upload volume increased by three times.

OK.

So I think that behind those nice numbers is our emphasis on the ecosystem because we think that video business is not just a standalone business. We believe that video content is part and partial of our content library at Zhihu. So in reality, I think the increase of video content is and the active content creators of videos and consumers of videos are actually a reflection of the changes in our ecosystem, in our community.

So, let me first briefly share with you a change in the overall number, that is, from the overall content system. It has both picture and video changes. So, we can see that in engineering technology, Okay.

So our content creators and consumers are becoming active in consuming both the text and images as well as the videos. Maybe I can show you some numbers. For instance, in the area of engineering, technology, economics, and laws, the consumption of text and image increased by 136%, 112%, and 58% respectively. And the interaction increased by 102%, 111%, and 134% respectively. As for video consumptions, it has been also very active, and the top areas are health as well as humanities and digital devices. The actual numbers of the video consumptions and interactions. as the school year, the new school year is about to start pretty soon, and we will continue to encourage content creation and interaction, encouragement in the form of a video with the help of our newest benchmark on the sense of fulfillment. we will focus on certain areas such as humanities, economics, career development, and et cetera.

The next question comes from Yan Yan Zhao from CICC. Please go ahead.

Thank you, Mr. Guan, for giving me the opportunity. Congratulations on the long-term plan. My question is about... In the second half of the year, we can see that the overall sales fee rate is still at a relatively high position. Especially for the sales fee rate in the second half of the year, as well as the specific direction of the investment fees. My question is about the guidance on the second half expenses, operating expenses, especially for the sales and marketing. Could you give us more color about the specific investment directions for the sales and marketing expenses? Thank you.

Okay. Let me answer this question. When we are in Q2, operating expenses, It's about 7.27 billion yuan. Among them, our Sousa Marketing and our RMB accounted for nearly 80%. For our Sousa Marketing, our MAU at this stage has increased by 46%. If we calculate it, our average MAU in the second quarter is 9,430,000. This is actually more than our previous MAU's target. That is to say, the increase is more than our expectation.

So as for operating costs in Q2, we had operating costs totaling at 727 million RMB. And sales and marketing R&D put together are contributing to 80% of that expenses. Well, as for sales and marketing specifically, I should first of all point out that our MAU increased by 46% year-on-year, standing at 94 million users, which is actually beyond our target set for this quarter.

所以按这个quarter新增的MAU来算,我们每新增一个MAU的成本差不多是不太到48元人民币。 And the cost we spend on each new MAU is less than 48 RMB, which is sitting at the lower end of the spectrum.

of the Internet industry. So this proves that our sales and marketing activities are quite successful, and we're seeing very good ROI out of our sales and marketing expenses. So we will keep an eye on our CAC and our retention rate, and we'll continue to spend our sales and marketing money to acquire more MAUs and grow that number. Thank you.

Then the other part of the cost is our R&D. Since this quarter, we have been continuously increasing the investment of high-quality talents, which includes a lot of high-level research and development talents. Although our R&D has increased by about 40%, our revenue has increased by 144%. So overall, our efficiency is constantly improving.

R&D is another key element to our operating expenses as we keep recruiting great talents, especially R&D talents, to support our business growth in Q2. The R&D expense increases 40% year-on-year, whereas the revenue increases 144%, which is by far higher than the rate of the R&D expenses growth. So that is a proof that we have been quite efficient in terms of R&D expenses. So entering into the second half of the year, we will keep spending on getting more users and getting better talents to join our business. And we will make sure that the expenses are reasonable, necessary, and effectively used. and to have a stringent monitoring system on by rolling accounting methods to make sure that we spend the money wisely. Thank you. That's the end of my answer for OPEX. Thank you.

The next question comes from Geru Chang from 86 Research. Please go ahead.

Geru Chang from 86 Research. Please go ahead. Geru Chang from 86 Research. Please go ahead. or advertising content, including data security, whether there are stricter requirements and regulations, or is this a potential risk? How should we look at these aspects to influence the service platform? The second is, I want to quickly ask about some data related to our second-degree active users. Can the management team give some comments on the trend of active users? For example, our DAU market, Good evening, management. Thank you for taking my questions. I have a follow-up question on the regulatory front. I'm wondering have you seen more step-up by the regulators on paying attention to the media content the company within the S of data security, or this will be a potential risk going forward, and what could be the impact on Zhihu from these aspects. My second question is a follow-up question on the user metrics for the second quarter. If you could share the sequential trend for the DAU and time span, also any updates on the retention of the EM-plus users, and how should we expect the trend of user engagement traffic metrics on Zhihu in the future. Thank you.

Thank you for your question. I want to answer the first question. Regarding data and content security, whether it is data or content, in general, it is beneficial to the industry and the overall long-term health development of the Internet.

Well, Mr. Zhou Yan will address the first question about the regulatory issues and data security. What we believe that the government's policy with regard to content and data compliances for the long-term health and safe development of our business and our industry at large.

From my point of view, our data security OK.

As for data security, we have been investing a lot in terms of the technology and management approaches by upgrading our standards and better management of the data and et cetera to safeguard the security of the data that we have. And when it comes to content, well, we are also taking up some measures to make sure that the content are of high quality and are, you know, properly produced in our community in Zhihu.

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And we have also conducted some industry survey to make sure that we are in a leading position in terms of the data security in our area. And we are also in constant communications with the competent regulators to make sure that we will shoulder our responsibility fully and properly.

Thanks. I would like to add one more thing, especially in terms of content. As you can see, there are a lot of topics or issues in the current content. There are also a lot of Chinese media on Zihu. They are active and involved in it, and they have played a very good role of positive guidance. It can make content consumers more rational and comprehensive in understanding the current situation. Okay.

And in terms of content, I should say that under some topics and discussions that are highly popular in our community, we can also see the voices from the central media to participate and make contributions as well. So as the user of our communities will be able to understand some certain issues or current issues in a reasonable and comprehensive way.

Okay, Zhou Yuan just answered the first question. Regarding the second question, I will answer the user's situation. In the second quarter, the growth of users is very rapid. But we can see more clearly that, whether from the user's activity or from the user's market, there is actually no significant change. Our Japanese app market has remained stable. In the past consecutive years, the market of 8-9 Qs has been very stable. It has not been diluted due to the rapid growth of users. Our activity rate, whether it is the activity rate of DAU over MAU at the whole end or the activity rate of DAU over MAU at the app end, in the entire Q2, it is stable at about 25%. We even saw that in July, this data is still increasing. This is about the activity of MAU. You just asked about our paid users. The number of paid users has increased very fast. The average number of users in the entire Q2 is close to 5 million. However, from the point of view of our fee rate, whether it is the main card or the base card or the half-year card, the overall fee rate is in a stable state as before. There is no decline.

As for user metrics, this is from CFO Sun Wei. So for Q2, our users keeps growing very well, and the time spent on app remained very stable compared with the past consecutive eight to nine quarters. And in terms of activity levels, you see that the ratio of DAU versus MAU remained 25%, which is quite stable, even We saw a slight increase in July. When it comes to paid membership, in Q2, we are nudging towards 5 million members, paid members, and the renewal rate for either monthly subscription or six-month subscription both remained very stable. So they're looking very well.

Due to time constraints, that concludes today's question and answer session. At this time, I will turn the conference back to Jingjing for any additional or closing remarks.

Thank you all once again for joining us today. If you have any further questions, please contact our IR team directly or TPG Investor Relations. Thank you. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.