Zhihu Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Ji Hu Inc. Fourth Quarter and Full Year 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer 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 fourth quarter and full year 2021 financial results conference call. Joining us today are Mr. Zhou Yuan, Chairman and CEO of Zhihu, Mr. Sun Wei, our CFO, and Mr. Neil Zhang, Head of Community Business Division and Strategic Development. Before we start, we would like to remind you that today's discussion may contain forward-looking statements which involves 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 purposes 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.gu.com. I will now turn the call over to Mr. Sun Wei, our CFO. Okay.

Thank you, Jingjing. I am pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder and CEO of Zhihu. Thank you for joining Zhihu's 2021 fourth quarter and full year earnings call. 2021 was a remarkable year for Zhihu. In March, we successfully completed our IPO amid a challenging market environment and went on to complete the year with sustained robust financial growth. Throughout the year, as part of our continued effort to enhance content quality, we focused on promoting and distributing fulfilling content, or content that we believe broadens horizons, provides solutions, and resonates with minds. Our visualization strategies proved to be effective and brought the diversity of Zhihu's content library to a new level. This enabled content creators to contribute with even greater levels of creativity and strengthen our capabilities to meet the growing content consumption needs of our users. We continue to benefit from our commitment to deliver fulfilling content and enhance our operating efficiency, realizing another year of strong user-based growth and a more appealing content ecosystem for business partners. In Q4, our user base reached a new high in the fourth quarter, with average MAU exceeding 100 million and a year-over-year increase of 36.4%. Our content-centric monetization approach maintained its robust growth momentum with revenue in Q4 increasing by 96.1% year-over-year to RMB 1.02 billion, and the revenue for the full year increasing by 118.9% to RMB 2.96 billion. And the contribution of non-advertising business increased to 62.9% in Q4. At the same time, our average monthly paying members for Q4 further increased, by 102% year-over-year to 6.1 million, and accounted for 5.9% of total MEUs. We believe these achievements are the result of not only the successful implementation of our content-centric growth strategy, but also the joint efforts of all the parties in the Zhihu community. Throughout the year, we relentlessly strive to enhance the quality of the Zhihu content through better understanding of our content creators and deeper comprehension of the Zhihu content. And we focused on promoting and distributing fulfilling content, or the content that we believe broadens horizons, provides solutions, and resonates with minds. This high standard has not only been the benchmark for our diverse content library, but also the cornerstone of the long-term development of the Zhihu community. As of the end of Q4, The cumulative pieces of content on our platform had reached 419 million, representing a year-over-year increase of 39%, of which the number of questions and answers increased to 420 million, representing a year-over-year increase of 33.8%. As of the end of Q4, the average daily production of fulfilling content has increased fourfold compared to when we first launched the algorithm to promote fulfilling content. In 2021, we also adopted a scenario-oriented content operating strategy to further diversify our content offerings. With this in mind, we deepened and refined our operations based on the differentiated consumption demands of various communities across the important calendar events throughout the year. These included seeking answers from science, China's youth day, and the college entrance examination in the first half of the year. Followed by the Tokyo Olympics, the autumn employment season, the 100,000 Ys, the Nobel Prize, the 2021 Zhihu Top 100 list, and the year-end reviewing in the second half of the year. As a result, in Q4, the consumption percentage of fulfilling content in our cornerstone fields and other categories, including education, increased by 3% compared to the same period last year. This demonstrates that Zhihu's fulfilling content is resonating with students and young people in a way that meets their evolving demands for self-development and lifestyle content. According to our recent user survey, over 90% of the monthly active users on Zhihu platform have a strong appreciation for fulfilling content. The enhanced recognition and content consumption coupled with the simulated creating activities sustainably throughout the rapid growth of our content-centric ecosystem. We seek to become a popular destination for timely content, inviting in-depth discussion of trending events, which further encourages a high level of content creation and user engagement. It is also an important category that is well-suited to address the demands of users aged about 30 and helped successfully drive our organic user growth. As of the end of December, the number of users for timely content consumption remained about 40% of total TAUs. Browsing trending event on Zhuhu has gradually become second nature for our users. In the fourth quarter, multidimensional and insightful discussions covering major international affairs, social news, and topics related to people's livelihoods were generated quickly on Zhihu, creating timely content for users. These questions generated tens of thousands of answers and more than 100 million page views, along with millions of user interactions. During this Winter Olympics, Zhihu users have defended our title of the Master of Skills and Tactics in Chinese, which gained from the Tokyo Olympics. And we continue to provide professional, timely, and broad-based fulfilling content across various formats. Questions like, what are the highlights of the 2022 Beijing Winter Olympics opening ceremony? And which shows impressed you most? Motivated the answer directly from the opening ceremony operation team, including Director Zhang Yimou himself. And they received close to 40 million page views and 100,000 upvotes within a few hours from users. In 2022, we will continue to iterate our timely content recommendation algorithm and the related products to better meet the diverse consumption needs of our users. During 2021, we further integrated video content into our vibrant ecosystem through expanding the library of video-lized answers, providing tools to facilitate text-to-video or joint video creation, In the fourth quarter, the average number of monthly uploaded videos on Zhuhu and the number of video creators increased by 211% and 32%, respectively, compared to the same period last year. Meanwhile, the number of DAUs who consumed videos continued to increase and exceeded 45% in Q4. In Q4, we held Zhuhu's first highly-voted joint creation competition. Less than four weeks, more than 4,000 content creators participated in the competition. From using the authorized 2 million pieces of high-quality graphics and text content in our library, more than 2,000 original video submissions were produced and received. These works covered dozens of diverse topics, including science, history, career, psychology, and extremely imaginative ideas and received over 200 million views. We firmly believe that a healthy content ecosystem is one that revolves around creators and fully supports creator engagement across multiple formats. Moving forward, we will continue to upgrade our products and business strategies and optimize our organization structure as needed to further encourage creation activities. Along with our initiative to further broaden the coverage of fulfilling content on the Zhihu platform, we have upheld community culture through proactive upgrading of the community governance system. In Q4, we strengthened our ability to identify non-compliant content and accounts involving cyberbullying, rumor-mongering, incitement, and violence against children. We dealt with more than 4.6 million pieces of non-compliant content and suspended more than 15,000 accounts. Moving forward, we will continue to uphold our social responsibility, ensuring that the community culture of sincerity, expertise, and respect is maintained for our long-term growth. Our user base continues its rapid growth rate, driven by our healthy and more diverse content-centric ecosystem. In Q4, The average monthly MAUs on the Zhihu platform reached 103.3 million, representing a year-over-year increase of 36.4%. Our average monthly paying members reached 6.1 million, representing a year-over-year increase of 102%. And our average monthly viewers increased by 7.4% year-over-year. We have a math. a fast-growing, diverse, and highly engaged user base. Currently, the vast majority of users are under the age of 30. While users from second- and lower-tier cities accounted for 52% of our user base, the female users accounted for 47% of it. It is worth mentioning that the organic growth of new users continues to maintain a significant proportion in Q4. Also, our efforts in refining operation efficiency further accelerated the consumption in the related verticals, including baby care and the lifestyles, and also boosted the growth of our core users aged in the 30 years old and above. It is encouraging to see that the DAU to MAU ratio in the fourth quarter remained steady, along with the rapid user growth, and the average monthly engagement increased on a year-over-year basis. Creators are one of the most important participants in our community. They not only flourish the community with high-quality content by sharing their knowledge, experience, and insights, but also gain inspiration, respect, and recognition from the community by interacting with other users. Thus, in 2021, we supported creators by improving their experience within the community, launching a series of tools and functions and upgrading incentive plans for them. For example, we made several upgrades to the follow function, including an independent tab, in order to support creators to better attract and interact with followers. As a result, we see a significant rise of average new followers per creator. The one-click PPC generation and the joint creation function enabled creators to utilize a more convenient video creation experience. In addition, our refined operations tailored for different levels of creators effectively encouraged their engagement and the multi-genre creation. Thanks to these initiatives, we saw steady increase in both the average daily activities of the high level content creators and their high quality productions in Q4. We also saw a rising inspiration and encouraged interactions among creators within the community. In 2021, We took great efforts to strengthen our ability to attract new content creators. In the rediscovery sincerity campaign held in Q4, more than 100 annual Zhihu content creators in Chinese were selected from various fields, including science, lifestyle, social sciences, humanities, fashion, and psychology. Moving to 2022, we will continue to provide effective and professional support to the creators based on their own needs and specialties. At the same time, we will further encourage the production from new creators and continue to improve their retention rates. By fostering both existing and new creators, we are confident and excited to inject even more vitality into our community ecosystem and provide multi-scenario content-centric solutions to our brand partners. In spite of many uncertainties in the macroeconomy during 2021, we have focused on building a high-quality, content-centric ecosystem as the foundation for our healthy and long-term business development. Our total revenue for 2021 reached RMB 2.96 billion, representing a year-over-year increase of 118.9%, while our underlying revenue structure was further improved and optimized. As a percentage of revenue, non-advertising revenue further grew to 60.8% in 2021 from 37.6% in 2020, of which content commerce solutions revenue for the year increased to 32.9% from 10% in 2020. Our paid membership business remained stable and accounted for 22.6% of our total revenue in 2021. And other revenue which primarily contributed by e-commerce and the vocational training related business increased by 196.3% year-over-year to RMB 155.9 million. In 2021, we have further improved our commercial content ecosystem through the following steps. The first step was to solidify the infrastructure of the commercial content by launching our chief platform and connecting content creators with business partners we helped creators to improve their own monetization capabilities while satisfying the marketing demands of business customers all the way from brand building to actual transaction conversion. Other tools like Toast and Youshu were launched to further improve the efficiency of commercial content creation so as to further encourage content production. As of the end of December 2021, The total number of content creators who generate financial income through our content and commerce solutions exceeded 15,000. Secondly, we helped build the content pool for brands and merchants. Through a series of brand content marketing campaigns, such as Auto Lab, Curiosity Lab, and Jihoo's Top 100 list, we assisted our business partners in guiding their customers along the journey from brand name awareness to decision making, and finally, gaining user trust and sustaining business growth. In 2021, our advertising revenues achieved a yearly growth rate of 37.7%. Furthermore, we continue to explore various potential vertical content ecosystems to elevate Zhuhu's overall commercialization capabilities. Vocational training is one of them. Its related content on Zhihu platform is perfectly matched to the demands from core users aged from 18 to 36 years old. We call it the second 18 years of life, indicating a huge potential commercialization opportunity. Moving forward, we will continue to improve our technical capabilities to develop more user-favored paid educational courses and related content by leveraging the advantage of our Zhihu brand. On top of rapid revenue growth, we also continue to improve our operational efficiency by adopting a smart and rational planning strategy and a continuous technology improvement plan. We can achieve both quality and effective customer acquisition and further develop our commercial ecosystem by leveraging our abundant user base and a solid technical infrastructure. Our acquisition costs Per additional MAU for full year 2021 was approximately RMB 60, which remains relatively low compared to the whole industry. In 2022, we will continue to recruit excellent R&D talent as we work to improve our recommendation algorithm, strengthen the construction of our data system, and solidify the technical foundation that drives the ongoing development of our community. Meanwhile, we will further enhance Zhihu's brand name awareness by creating powerful IPs, such as an adventurous evening with answers in Chinese, an annual Zhihu content creator ceremony, to achieve our goals across brand building and high-quality user growth. As of December 2021, cash and cash equivalent term deposits and short-term investments were RMB $7.4 billion, which gives us strong financial resilience to power our future development. Stepping into 2022, through prioritizing the healthy development of our community and adhering to our fulfilling content standard, we will be able to further improve the experience for users and creators and inject our whole community with both trustworthiness and a sense of belonging. For example, Following the improvement of products and functions across training topics, top searches, live streaming, and videos, users were able to enjoy a better consumption experience for timely content. Here is another case for content related to the Winter Olympics and the ongoing Russian-Ukrainian war, where high-quality discussions were aggregated across various formats, including graphic and text, live streaming, and videos. allowing users to consume content according to their own preferences. We committed to further upgrading our recommendation algorithm to ensure that fulfilling content can be introduced to users more accurately. On our creator community side, we will enhance our initiatives to refine operational efficiency to help creators achieve their goals, both in user recognition and financial income. we believe a healthy and vibrant community will lead to more efficient and organic user-based growth. In addition to the above, we will continue to explore more commercialization opportunities within vast verticals in our content library and among our users' diverse and varied demands. Our emerging vocational training business is a good example, which can help us to both further diversify our business ecosystem and contribute to drive our long-term growth. 2022 may prove not to be an easy year. However, we believe that we are all well-prepared and in a better position for the journey. As we continue to unlock the value of our unique content-centric ecosystem and benefit from growing scale, we will continue to enhance our operating efficiency, the financial health, as well as fulfill our responsibilities to the society. This about concludes the remarks of Mr. Zhou Yuan. I will now talk you through our Q4 financial performance in a little more detail. As discussed, we achieved another solid quarter of performance in Q4 2021 despite the unpredictable headwinds. In the fourth quarter, we recorded our total revenue of RMD 1.02 billion, representing a 96.1% year-over-year increase. This increase benefited from our very unique content-centric business model. Our fulfilling content library was further expanded and diversified in Q4. This contributed to the continuous prosperity of our community and also to the sustained growth of our user base. Our average MAUs reached 103.3 million in the quarter, representing a year-over-year increase of 36.4%. Worthy of note in Q4 2021, our non-advertising business, which mainly includes our content commerce solutions and paid membership, enjoyed accelerated growth, contributing 62.9% to the total revenue in Q4, compared to the 38.6% in the same period last year. This demonstrated not only the remarkable success of our content-centric monetization model, but also the scalability of our content commerce solutions, as well as the robust growth in demand for our other services, such as paid membership and vocational training. In Q4, the revenue contribution of our content commerce solutions increased to RMB 367.3 million, representing a year-over-year increase of 380.2%. Our client base of CCS became more diversified compared to the same period in 2020, We are also excited to see that more and more content creators are empowered by our diversified commercial platform and the tools such as Chief Platform. As of the end of Q4, the number of content creators who have joined our Chief Platform nearly increased 50% compared to the number in Q3. Our paid membership contributed RMB 208.8 million to total revenue in the quarter. representing an increase of 100% compared to the same period last year. At the end of Q4, our average monthly paying members reached 6.1 million, with a paying ratio of 5.9%. The robust growth rate of this business line was solidly underpinned by the increasing vitality within our creator community. Meanwhile, our advertising business achieved solid growth in Q4, despite of the weaker market. In this quarter, advertising revenue recorded RMB 377.8 million, representing a 18.4% year-over-year increase, of which the display-based advertising grabbed a greater percentage. Revenue from e-commerce, internet services, FMCG, consumer electronics, and vocational training were the top five contributors, bolstered by our diversified content library and highly engaged community. Our advertisers find it is natural and effective to guide their targeted customers during the whole decision-making process and to build brand trust in the long term. Other revenue, mainly comprising of vocational training and e-commerce, achieved year-over-year growth of 230.5% in Q4, increasing to RMB 65.4 million. It is worth mentioning that our vocational training business had a very strong quarter and achieved multiple times year-over-year growth. Stepping into 2022, by leveraging Zhuhu's deep understanding of users' needs and our brand name recognition, combined with further increased operation efficiency, we believe these new business lines will be able to continue to achieve strong growth momentum. As a UGC-based content platform, we enjoyed the benefits of having a healthy gross margin of 47.1% in the first quarter and 52.5% for the full year. Meanwhile, we have been investing in building a healthy content ecosystem in order to broaden and enhance content offerings for all of our users. However, we will be very conscious of maintaining high efficiency on our cost structure. Our total operating expenses of RMB 855.1 million declined as a percentage of total revenue on both a year-over-year basis and a quarter-over-quarter basis. Our operating expenses in the quarter were primarily composed of sales and marketing expenses and the investment in human resources. Driven by the abundant content coverage and the diverse content formats of the Zhihu platform, the organic growth of new users continued in Q4. and effectively promoted the healthy and long-term development of the Zhihu community as a whole. As a result of all the above, our non-GAAP adjusted net loss, which primarily excludes share-based composition expenses, was RMB 240.8 million in the fourth quarter of 2021. While focusing on improving our cash flow management as of December 2021, the company had cash and cash equivalent term deposits and a short-term investment of RMB 7.4 billion, compared with RMB 3.1 billion on December 2020. So I will conclude with our overall financial outlook. Looking to the first quarter of 2022, the company expects total revenue to be in the range of RMB 720 million to RMB 740 million. Please do note, however, that the above outlook reflects Juhu's current and the preliminary estimates, and it may be subject to change. Okay. This concludes our prepared remarks.