Zhihu Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Juhu Inc. Third 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 Industrial Relations. Please go ahead, Nim.

Thank you, operator. Hello, everyone. Welcome to our third 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 earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.zhuhu.com. I will now turn the call over to Mr. Sun Wei, our CFO. Okay.

Thank you, Jingjing. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder and CEO of Zhuhu. Thank you for joining Zhuhu's 2021 Third Quarter Earnings Conference Call. As one of the largest online content communities in China, we have always been committed to the development of our content-centric ecosystem through continuous community infrastructure enhancements, user base expansion, and monetization capability improvement. Our fast-growing user base is primarily young and cross-generational, infusing our platform with vitality, while our content-centric monetization model differentiates us with sizable growth potential. Against the backdrop of rapidly changing macroeconomic conditions, our distinctive model, vibrant user community, and the continuous accumulation of high-quality content serves as not only a moat in the competitive entertainment arena, but as compounding driving forces, providing long-term sustainable growth of our user base and monetization channel. In Q3, we delivered another solid set of financial and operating results, with our average MAUs reaching 101.2 million, up 40% year-over-year, and average monthly viewers growing to 542 million. As of the end of the third quarter, the cumulative pieces of content on our platform reached 458.9 million, including 398.4 million questions and answers. representing a year-over-year increase of 43% and 38%, respectively. Additionally, our average number of monthly active content creators increased to 3.6 million, of which the average number of monthly video content creators increased 86% year-over-year. Meanwhile, our content-centric monetization initiatives continue to gain traction, evidenced by a 115% year-over-year increase in revenue to RMB 823.5 million and a 110% year-over-year increase in average monthly paying members to 5.5 million. During the second quarter, we upgraded our high-quality content assessment standard by introducing sense of fulfillment. We took further steps in Q3 to update the mechanisms for content creation, distribution, consumption, and platform interaction, and made remarkable progress. High-quality content with characteristics of a broadening horizon, providing solutions, and resonating with minds was widely recognized by both users and content creators and helped drive the growth of our community. In categories which carry more sense of fulfillment content, including engineering, economics, and law. Graphics and text views increased by 136%, 58%, and 112%. And the related user engagement increased by 102%, 134%, and 111%, all within just two months. The views of high-quality video content with a sense of fulfillment on our platform increased by over 140% in the two months. The implementation of the standard of a sense of fulfillment brought users with fulfilling content and prompt higher levels of user engagement on our platform. Before the final announcement of the winner of the Nobel Prize in Physiology or Medicine this year, under the topic of 2021 Nobel Prize Tour, a Zhihu user had successfully predicted the sub-discipline with the highest probability of winning with supporting reasons. In addition to targeting a massive user base, in the quarter, we focused particularly on enriching content that met our new sense of fulfillment standard to appeal to various user communities. For example, in October this year, our published children's popular science cartoon book titled A Hundred Thousand Wives was well received by young parents. Beyond heightening user consumption, sense of fulfillment content also benefits creators by encouraging more user engagement and providing more opportunities for commercial income generation. A good example comes from Shen Shao, one of our veteran digital content creators. He had accumulated more than 1,000 high-quality answers over the past eight years on Zhihu, recently released detailed sharing of entry-level watch selection, which not only yield 13,000 apples but also provided the creator with corresponding commercial income. Content creation on Zhihu's platform has now become an important income source for him. The successful implementation of the new content standard not only provided our users with broadly expanded content coverage but also demonstrated our differentiated value proposition in our ability to influence topic direction and discussion depth. For example, during the Tokyo Olympics, while many community platforms were just celebrating team victories or focusing on individual performances, the Zhihu community was having in-depth discussions on the reasons behind wins or loses. Prominent topics on Zhihu fell under threats like how the Chinese women's volleyball team lost to the United States at 0-3, where various perspectives were shared on strategies, rules, economics, et cetera. It's these types of discussion and the user interest that have given rise to Ji Hu's nickname, Ji Zhan Shu Da Chi, which means master of skills or tactics. After Xu Xin and Liu Shiwen lost the ping pong mixed doubles during the Olympics, Zhihu users responded with intellectual curiosity and theories. Rather than emotionally driven discussions, Zhihu's community gave rise to topics such as gold medal theory and Olympic spirit, which became the positive and guiding force of online discussions. As we continue our efforts to improve creation, distribution, and consumption of our content with a sense of fulfillment, we have also preserved community compliance. Through proactive community governance and the scrutiny of long-compliant content, we strive to enhance users' trustworthiness by fostering a community characterized by sincerity, expertise, and respect. In Q3, tightening content timeliness provided users a better platform experience by enabling them to more quickly and easily find fulfilling content with timeliness within our massive content library. This was proven particularly effective with the devastating floods in Henan, which we shared in our previous call. More than 160 topics related to the Henan floods were generated within 10 days on Zhihu's platform, with nearly 150 million page views. After the astonishing news about Wu Yifan broke, Zhihu users carried out national in-depth discussions on associated legal factors under the table rules of entertainment industry. and the fan economy. The average number of pieces of content with timeliness generated on our platform on a daily basis increased by 40% this September versus this April. It is encouraging to see more and more users in our community consuming content with timeliness, with the related DAO penetration rate exceeding 40% at the end of third quarter. To better satisfy user demand for high-quality content in various categories and diverse formats, we encourage creators with different specialties to work together and jointly introduce more content, especially video-like content. In Q3, the number of average monthly uploaded videos increased by 290% year-over-year. The average number of pieces of content consumed per user and over video tab and core Q&A scenarios also continue to increase. As of the end of September, the number of DAUs who consume the video content increased to 37%. In October, we launched a new feature named Join Creation, which allows text creators to authorize video creators to use their original answers as the basis for a video script and share the copyright with them. Initiatives like this not only amplified our high quality content library, but also prompt more user engagement. A video named Looking at the World Through Data, How Far is the Gap Between Su Bing Tian and the Boat? is an excellent case, demonstrating the synergy effect of content visualization through joint creation. This video was adapted from a blockbuster graphic and text content with 10,000 uploads originally. created by Chen Qin, a 10-year Zhihu creator veteran. The video extension of this content was widely spread, receiving over 2 million views across our platform and gaining vast recognition inside and outside Zhihu's platform. Driven by the abundant coverage, diversified formats, and improved timeliness of high-quality content, our user base maintained its high growth momentum. During the third quarter, our average MAUs exceeded 100 million, a record high. Average monthly viewers reached 540 million, and among which the penetration rate of MAUs increased to 18.7%. More than that, the value proposition of our community is steadily attracting users across ages and across regions, making our user base increase in a more balanced and healthy manner. In Q3, the percentage of female users grew to 47% from 44% in the same period of last year. Along with the improvement of content timeliness, our user group of those who over 30 also grew steadily in both numbers and the activities, further solidifying our unique and vibrant community ecosystem. At the same time, expanding our content format capabilities enabled us to satisfy younger generations' demand for learning, life, and entertainment. In preparation for the school season starting in September, we launched a series of programs titled First Lessons for Universities, where graduates were invited to share their valuable experiences and insights. Delving into six relevant topics, the series resonated strongly with younger users, attracting more than 800 million views and prompting massive discussions. Geographically, the number of users in Tier 2 cities or below also continue to increase in Q3. Through expanding content category coverage, providing more content with timeliness, and offering diversified consumption formats, we aim to create an inclusive platform where all users in our community can feel a sense of belonging. Our massive and active user base infuses our communities with energy and constantly reinforces it by generating high quality content, which in return attracts more talented content creators to join us and make contributions. As of the end of Q3, the cumulative number of content creators on the Zhihu platform reached 53.1 million. By providing more and better tools, assistance, and incentives for the content creators based on their differentiated capabilities and needs, we were able to help them improve their creation experience under the new standard and further gain recognition and user trust within our community. In addition to further upgrading the tools, video sectioning and match to Q&As launched last quarter, we iterated the function to generate PPT videos through OneClick. The joint creation feature launched in October was designed and aimed to help creators improve their creation capabilities by allowing them to focus on what they do best. For example, a high-quality answer about the brain with 41,000 uploads generated by a Zhihu user, Xie Xiong Maojun, was adapted into a video by a video creator, Da'an Shiwu Suo, and it received more than 4 million views. Supported by high-quality text content, The video named How Big is the Impact of College Entrance Examination on Future Income and How to Quantify the Long-Term Impact of Poor Scores in College Entrance Exams received more than 2.59 million views and more than 3,000 uploads on our platform since its launch. By the middle of November, thousands of graphic and text creators had participated in content authorization through joint creation. with the total accumulated authorized content exceeding 1.8 million pieces, which demonstrated that this is the right strategy to meet content creators' most real and pressing needs. Driven by the richness of high-quality content with a sense of fulfillment, the commercial value of our community and our young and cross-generational user base both maintain their growth momentum, further solidifying our community ecosystem. In recognition of our increasing branding value in October, Zhihu was once again named in brand Z list of top 100 most valuable Chinese brands for 2021, ranking seven places higher than last year. Enterpained by Zhihu's increasingly prominent brand and unique content-centric monetization model, our commercial efficiency has continuously improved. More brands and business partners are recognizing Zhihu as an important platform to gain visibility. As more content creators joined Zhihu's ecosystem, we were able to cooperate with a huge number of commercial content creators in different specialties and together make achievements and share the benefits by expanding user coverage and improving commercial efficiency. In Q3, revenue from CCS increased by more than five times compared to the same period last year. reaching RMB 278 million. Average monthly paying members reached 5.5 million, representing 110% year-over-year growth. And the revenue from paid membership increased by 96% to RMB 178 million year-over-year. Moving forward, we plan to further enrich high-quality content and strengthen our content-centric monetization solution, especially in categories including e-commerce and vocational education, further enhancing our closed-loop ecosystem, as well as increasing our value as a business partner. Before our CFO provides highlights and additional color on our financial results, I would like to share with you some major progress we have made centering around our content ecosystem in Q3. To better serve our content creators and to improve their commercial and community influence. In September, we updated our CHIS platform by using composite influence index and formally released the ranking of content creators on CHIS platform. This platform is aimed to help content creators improve their monetization capability by providing a transparent transaction model, multitasking mode, and effective data indicator assessment. In the third quarter, the number of creators who achieved commercial income tripled compared to the same period of last year. Our creators may now increase their commercial income to six diversified channels, including commercial content, paying membership content, recommended goodies, and consulting solutions, et cetera. The experience of , one of our selection authors, is a great example of this. Through his Urban Story series, which attracted nearly 160,000 users, he was able to realize close to 1 million RMB income during the third quarter. As an important platform influencing the young generation's lifestyle and consumption decisions, we have become the desirable platform with effective content-centric commercial solutions for thousands of brands and merchants. in the fields of beauty, cosmetics, personal care, e-commerce, FMCG, vocational education, et cetera. In the third quarter, the number of brands and merchants that used our content commerce solution increased 200% compared to the same period of last year. And GMV on our platform reached a new high of nearly RMB 5 billion, representing a year-over-year increase of 92%. as of the end of third quarter. We released our 2021 Zhihu Top 100 list at the end of October. The list comprises 100 products across various categories, including clothing, food, housing, and travel, selected by participating Zhihu users based on their professional and personal experience, as well as our big data analysis. Users were not only impressed by items like the payload with the most apples, most eat snail powder, and the handiest cookware, but also enjoyed fulfilling content while reading through the selection experience, leading to a mutual gain for both users and the creators. High-quality content with a sense of fulfillment is not only a key factor in inspiring the trustworthiness among users, content creators, and the Zhihu community, It is also a statement in strengthening Zhihu's industry-leading position. As we forge ahead, we will continue to encourage content creators to produce more high-quality and fulfilling content and help brands and merchants achieve healthy business growth. We believe that the meaningful interplay between users, content, and monetization is the driving engine in advancing our robust community ecosystem. reaching new heights and achieving sustained long-term growth. This concludes the remarks from Mr. Zhu Yuan. I will now review and provide more details of our financial performance for Q3 2021. As just mentioned, we achieved another strong quarter, recording total revenue of RMB 823.5 million, which represented a year-over-year increase of 115%. Our unique content-centric business model is increasingly showing its strength and ability to drive our business growth, keeping pace with our fast-growing and vibrant user base. In the third quarter, Content Commerce Solutions and paid membership combined to contribute over 55% of the total revenue. Our commitment to our Content Commerce Solutions strategy has continued to gain market awareness. In Q3, Content Commerce Solutions contributed RMB 278.4 million to total revenue. This five-fold year-over-year increase cost Content Commerce Solutions as a percentage of total revenue to grow significantly. It is further underpinned by the continuous improvement of our commercial content ecosystem, as well as increasing recognition and growing demand from our diverse business partners and merchants. the number of our CCS customers tripled in the third quarter compared to the same period in 2020. As we broaden our coverage to encompass over 20 industries, moreover, we also saw a significant increase in content creator participation in this business line, facilitated through our Chief Platform, which launched in late May this year. In the third quarter, the number of creators who have joined our Chief Platform and achieved commercial income exceeded 10,000. We believe this demonstrates that we are on the right track in helping our content creators reach their commercial goals. Advertising in the third quarter maintained its strong momentum, despite ad industry headwinds. In the quarter, advertising revenue was RMB 321.1 million, representing a 39% year-over-year increase. underpinned by our advantage as a comprehensive content platform. An increasingly wide range of advertisers now consider us as a must-have marketing platform due to our ability to connect their adwords with our broad user base. In the third quarter, companies from the fields of e-commerce, personal care and cosmetics, automobiles, IT and 3C were our strongest growing contributors. Our paid membership contributed RMB 178.3 million to total revenue in the quarter, representing an increase of 96% compared to the same period of last year. As of the end of the third quarter, our average monthly paying members reached 5.5 million, with a paying ratio of 5.4%. The strong momentum in this business line also benefited from enhanced content creator commercialization capabilities, Other revenues mainly comprising e-commerce and vocational education achieved year-over-year growth exceeding 200% in the third quarter, increasing to RMB 45.7 million. Our e-commerce business continued its rapid growth momentum, with GMOE exceeding RMB 1.4 billion in the quarter. As Joanne just mentioned, we made further strides to enhance our recommended goodies business By bringing more fulfilling content and a greater engagement to our commercial ecosystem, we can better meet our users' needs and create synergies with our other content-centric monetization approaches. Our vocational education services business, which primarily provides online vocational and professional training for adults, has had great success with its self-paced courses, including those covering video production skills, and postgraduate entrance exam preparation. We maintained a strong gross margin of 52% in the third quarter while remaining dedicated to continuous investment in our content ecosystem. The third quarter also witnessed improvements in operating efficiency as our total operating expenses of RMB 747.3 million declined as a percentage of total revenue. On both a year-over-year and a quarter-over-quarter basis. Our operating expenses in the quarter were primarily composed of sales and marketing expenses and investments in human resources. Our user acquisition strategies leveraging our high-quality content library have proven themselves to be of great economic benefit. We've seen that content with timeliness, including content related to the Tokyo Olympics and the topics related to the start of the academic year, and the college recruitment, not only drove organic incremental user growth, but also effectively encouraged user interactions in the Chihu community. As a result, our non-GAAP adjusted net loss, which excludes share-based compensation expenses, was RMB 112.4 million in the third quarter of 2021. As of September 2021, the company had cash and cash equivalents term deposits, restricted cash, and short-term investments of RMB 7.6 billion, compared with RMB 3.1 billion as of December 2020. Finally, on to our financial outlook. Looking to the fourth quarter of 2021, the company expects total revenues to be in the range of RMB 1.01 billion to RMB 1.03 billion. reflecting a year-over-year increase of between 94.3% and 98.2%. As a reminder, this outlook reflects Jehu's current and preliminary estimates, and its subject could change. This concludes our prepared remarks. Operator, we are ready for the Q&A. Thank you.