Zhihu Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Juhu, Inc. First Quarter 2022 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 first quarter 2022 financial results conference call. Joining us today are Mr. Zhou Yuan, our 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 purposes only. For definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see our earnings release issued earlier today. 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.

Okay. Thank you, Jingjing. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder and CEO of Juhu. Thank you for joining Juhu's first quarter 2022 earnings call. In April, we successfully completed our due primary listing on the Hong Kong Stock Exchange, marking another key milestone following our listing on the NYSE last year. Our due primary listing further cemented our solid foundation for the sustainable and long-term growth of the company. In the first quarter, aligned with our Community Ecosystem Comes First strategy, we continued to cultivate fulfilling content in various verticals, Our sense of fulfillment approach and algorithm, combined with refined analysis of the needs and characteristics of our core user groups, has continued to enhance our understanding of users and help us more precisely meet their needs. At the same time, our iterative tools, creator operations, and support helps further encourage content creation. The combined effect of the above effectively work to boost the sustained vitality and the rational prosperity of our community ecosystem. During the first quarter, our average MAUs grew by 19.4% year over year to 101.6 million, with over 96% being mobile MAUs. Backed by our strategy of creating a better community ecosystem, starting from January, we have continued to improve user experience by optimizing recommendation algorithms. We have also actively implemented initiatives to better manage content, which is incompatible with our sense of fulfillment content standards, including content that is biased, irrelevant, unfriendly, and spamming content. As a result, and as anticipated, we saw a slight pullback in overall user growth in the first quarter compared with peak levels in previous quarters. However, at the same time, we witnessed notable growth in user engagement and retention due to the enhanced user experience on our platform. Our high-quality content and unique content-centric business model have enabled Juhu to achieve increasing brand value and strong financial performance, despite the significant macro headwinds. Our total revenue recorded year-over-year growth of 55.4%, reaching RMB 743 million in the first quarter, beyond the high end of our revenue guidance. And our revenue base was further diversified, evidenced by content commerce solutions and the advertising business, together contributing 59.8% to total revenue, with CCS growing to be the largest revenue contributor in the quarter. We believe these achievements also rely on the joint efforts of all parties in the Zhihu community, and they support our shareholders who share the same vision. The Board is confident about the company's continued growth in the future and announces that we have proposed to obtain a shareholder's approval for a share repurchase program of up to US$100 million, available for the coming 12 months. Now, allow me to further elaborate on our business from content, users, and monetization perspective. One, content. Zhuhu has continued to cultivate various content verticals since last year by introducing Sense of Fulfillment as the content assessment standard and upgrading our multimedia format. We were able to better address users' deep consumption needs for high-quality content. By the end of first quarter, the cumulative pieces of content in Zhihu community had reached 520 million, including 440 million questions and answers, representing a year-over-year increase of 36% and 30%, respectively. Along with the execution of our strategy, we are delighted to see more and more fulfilling content coming from high-ranking creators. High-ranking creators learn their status by continued contributions to the community, measured by an activity level at least 40% higher than the same period last year. Among this group of high-ranking creators, their daily content creations have increased by over 125% year-over-year. This increasing activity and high-quality content creation have enraged the Ichiku Content Library with new and sustainable vitality. During the first quarter, We cultivated fulfilling content in various verticals using a scenario-oriented approach with a focus on our users in the 18 to 36 years old demographic, or we call it the second 18 years of life. Content verticals such as campus life and education, career development, business and internet, science and psychology are highly popular among these users. To better meet their personalized personalized demands, and answer common scenario-oriented questions, we further refined the algorithm to better identify our creators' interests and expertise in topics of high interest and encourage them to create more fulfilling content in this area. Additional popular verticals include postgraduate exam preparation, economics, HR profession, and scientific research. For example, to fulfill users' curiosity about artificial intelligence and encourage those who want to join in this field, in April, we invited Andrew Ong, a noted expert in the field, to answer questions such as how to systematically learn in machine learning. Andrew's time of sharing his thoughts, experience, and insights inspired hundreds of comments in multiple dimensions and won more than thousands of approvals. just within a couple of hours. With these efforts, we were pleased to see the monthly content creation in the science vertical increase by 61.3% in March, compared with this January. And the number of average daily active users who consume content in this vertical has increased by almost 30%. In-depth discussion on timely content continue to be highly popular. among Zhihu users and help to drive organic user growth and engagement. At Zhihu, we promote rational optimism. As a social platform and content community, we believe that we have a social responsibility to promote rational, optimistic, and constructive discussions on timely content. During the first quarter, when the pandemic resurfaced in Shanghai, Zhihu users expressed their emotional and psychological distress, and rationally discussed the disruption, cost, and potential solutions. Some programmers even shared mini-program tools they wrote to help with grocery shopping. Similar rational discussions were carried out during the tragic loss of the China Eastern Airlines flight 5735 in April. As of the end of the first quarter, the DAUs who consumed the timely content remained about 40% among all DAUs in our community. And the average PV per user for timely consumption among all MAUs also retained its growth momentum. Since last year, we have been continually iterating our multimedia strategy in the community, allowing users and creators to consume, create, and interact across multiple content formats. Video is an indispensable part of our ecosystem and a popular content format. The ratio of DAOs who consume videos remains stable at about 45% in Q1. On the supply side, we have firmly cracked down on the improper videos in our community and significantly reduced the traffic of the videos, which didn't meet our fulfilling content standard in the first quarter. By doing so, we made Zhuhu videos dynamically better integrated to the entire community ecosystem and have received very positive feedback in a regular user experience survey. While content shared in the formats of questions and answers and videos are currently the most frequently consumed on our platform, we are also working to broaden and upgrade format options available to users and creators to include short-format thoughts and the longer formats such as live streaming. Expanding the content creation format available to our creators will further unlock their creativity and continue to diversify our vast content library. A thriving content community like ours needs not only growing and fulfilling content, but also continuously improve community governance and culture. We are relentless in working to uphold good community compliance and governance that promotes a healthy community culture. Towards this end, in the first quarter, we began publicizing weekly reports in the community that transparently detail our ongoing progress in dealing with low quality and non-compliant content, as well as our measures to protect against cyber crimes and attacks. Thanks to our constantly iterative technical and operational capabilities, our community is able to maintain a healthy and long-term prosperity, underpinned by its culture of sincerity, expertise, and respect. Now, let's move to user section. On the user front, in the first quarter of 2022, the average MAUs of the Zhihu community reached 101.6 million, increasing by 19.4% year-over-year. Among all MAUs, the percentage of MAUs from the Juhu app continues to increase, exceeding 96%. Along with the execution of our community ecosystem comes first strategy. Our users are becoming more interactive with each other. By the end of March, our average monthly engagement per MAU increased by over 18% since the end of last year. Our user base has also become more balanced. As of the end of first quarter, among all our MAUs, users from second tier in the lower cities accounted for over 50%. Users under the age of 30 accounted for 73% of the MAUs in the first quarter. And the number of users aged 30 and above continue to grow fast. User growth among these aged 30 and above is largely driven by the increasing amount of timely content provided in the Zhuhu community. The percentage of female users stayed relatively flat at 47%. Female users show a strong preference for lifestyle-related content and the premium membership content. Now let's talk about creators who have always been a unique user group in the Zhuhu community, acting as an important pillar of our ecosystem. With all of these initiatives we have implemented to effectively improve creators' experience, there has been a notable increase in stickiness among high-ranking creators on verticals such as science and technology and the career. The number of DAUs within this group of creators increased by more than 45% at the end of the compared to the beginning of the quarter. For the same period of comparison, the number of DAOs among creators in the verticals of business increased by 37%. To build on our strong momentum, we recently released the creator support scheme, namely high-end plan 4.0 recently. Our focus is on encouraging creators to go deeper into the verticals in which they have deep knowledge or interest. In particular, we are targeting creators who could be researchers with extensive subject matter knowledge, practitioners with valuable experience and expertise, or even avid hobbyists with deep love and interest in an area. We have upgraded our creator sorting system and the matching algorithm to empower creators with clear direction how to increase their ranking and channel more traffic towards their content. In addition, we refined a more comprehensive monetization scheme to better reward creators financially. Talented creators who may have already earned income through our cheese platform and paid membership program can now also be rewarded for their continuous contribution of non-commercial but fulfilling content through our Zhizhi plan. This name literally means salute knowledge. And we target to make available a total of 100 million RMB to creators who provide fulfilling content through chief platform and Zhizhi plan. Last year, we had over 30 creators who earned incomes exceeding 1 million RMB from the paid membership program. This year, we are determined to identify over 100 creators who can earn over 1 million RMB under the creator support scheme. What's even more gratifying is that the total income earned by JUCO creators through multiple channels for the first quarter of 2022 increased by over 70% compared to the same period of last year. This again proves that our content-centric business model provides benefits to participants throughout the ecosystem. Meanwhile, we will continue to improve creators' experience through further enhanced products, creator operations, and support services. Now, let's go to commercialization. Turning to commercialization, in the first quarter of 2022, our total revenue reached RMB $743 million. representing year-over-year growth of 55.4% amid a challenging macroeconomy. At the beginning of this year, we restructured our sales team by industries to better understand and serve the needs of brands and merchants. This has enabled us to effectively expand the customer base in certain industries and increase their spending by providing a more comprehensive product offering. We have already seen notable results coming from our IT and 3C industry, where both the number of customers and the average customer spending have increased. Since March, the COVID-19 resurgence in China has caused multiple supply chain disruptions and reduced business activities across most industries. Online vocational training, internet services, and gaming are among those less affected. whereas e-commerce, FMCG, and other physical goods industries have been more adversely impacted. While the short-term headwinds are expected, we are committed to strengthening commercialization capabilities in our ecosystem and investing for long-term growth. New infrastructure improvements, such as cheap platforms and tools like Toast and Youshu, are an example of this. and are all upgraded on a regular basis to support our brands and merchants. In the first quarter, the number of commercial content creators who contributed to CCS and generated financial income increased by 96.5% compared to the same period of last year. Let's now move to our membership and vocational training services. By offering abundant high-quality content and effectively improving the user experience, we have been able to significantly raise our brand awareness among the users and established closed-loop monetization capabilities. On the supply side, with premium content, we continue to search for talented creators and inspire them with our knowledge of users' needs and fast-growing financial reward opportunities. Total pieces of premium content exceeded 3.9 million as of the end of Q1 2022. The high-quality premium content attracted more paying members, and in return provided more financial rewards to the creators. As mentioned in the Haiyan plan, we had over 30 creators whose income exceeded 1 million RMB last year, and many more creators in the future will be able to join benefits derived from our paid membership services. On the development side, pertaining to our vocational training services, we are pleased to see that revenues contribution exceeded 5% in the first quarter, representing a 12-fold increase compared to the same period last year. The cost offering formed by two core product lines, examination and workplace skills improvement, have been curated to address the needs of user groups aged between 18 to 36 by improving their professional skills and enhancing their competitiveness. Vocational training is very important to expand our services to users and diversify the commercialization of our ecosystem. We plan to continue to enhance our technical capabilities and further expand vocational training course offerings by utilizing our strong brand awareness, strengthening our internal operations, and carefully evaluating M&A opportunities. We have already taken meaningful steps in this regard. In 2021, we completed the acquisition of a vocational training brand specializing in CSA and CPA qualification exams, and a well-known brand focusing on English training. In doing so, we added valuable content to better meet our users' needs, grew our user base, and further broadened our CRM capabilities. In the future, we aim to develop an independent vocational training brand that will be aligned with JUGU's core values and can operate as a natural complement to our operations and the extension of our mission. In terms of user clearance, our monthly renewal rate remains steady in the first quarter at 65%. We closely monitor this metric and believe it serves as a working proxy of overall user experience satisfaction. Moving forward, we will continue to further enhance our infrastructure, including the sales management system and the service delivery to continually improve our user experience and consumption satisfaction. In closing, I firmly believe that on top of this strong business value we provide, Zhuhu has a leading social and community-based content platform also provides important social value to our users and the greater communities we serve. Perhaps now in a time with so many unprecedented challenges and uncertainties, I am convinced of this more than ever. I am proud of the role Zhuhu can play in the lives of people at this time. We will continue to stay true to our founding beliefs and are committed to helping more people to find their answers and in doing so, also help relieve anxiety and reduce fear. This concludes Ms. Zhou Yan's remarks. I will now walk you through our Q1 financial performance in a little more detail. We are delighted to report another solid quarter of performance in Q1 2022, with total revenue up 55.4% year-over-year, reaching RMB $743 million Continuing to benefit from our dynamic community ecosystem and increasing content creation, our revenue structure was further optimized and diversified in the first quarter. Our content commerce solutions have become our most powerful growth engine and contributed 30.5% of total revenue, closely followed by paid membership and advertising revenue, which contributed 29.8%. and 29.2% to the total revenue, respectively. Occasional training, one of our new initiatives in diversifying commercialization capabilities, has now demonstrated a promising growth trajectory, with this quarterly revenue contribution exceeding 5% for the first time. During the first quarter, CCS continued to gain market shares by providing highly efficient marketing solutions The total revenues of CCS reached RMB 226.8 million, up by 87.7% year-over-year. This benefited from both an increased customer base and additional spending by each customer. The revenues generated from categories such as vocational training, FMCG, ITM3C products, and internet services were more resilient and among the top in terms of revenue contribution. Meanwhile, our advertising business recorded RMB 217.3 million in revenue, representing a 1.7% year-over-year increase, despite of a soft demand caused by the resurgence of COVID-19. Our IT and 3C brand advertising revenue achieved over 100% increase year-over-year, while top advertisers from FMCG e-commerce remained resilient with a double-digit growth. However, as the supply chain disruptions began to expand beginning in late March, we anticipated a potential slowdown in our advertising revenue in the short term. We will continue our investment in advertising infrastructures to improve the efficiency and the effectiveness of our products and ultimately deliver greater value. Thanks to the continuous effort in diversifying revenue structures, our revenues generated from other content-centric business lines are more resilient against software consumer demand. Our revenue from membership service was RMB 220.7 million and achieved a yearly increase of 75.1%. Average monthly paying members in the first quarter reached 6.89 million, with a 6.8% paying ratio to average MAU. Our vocational training business continued its robust growth momentum in Q1, with revenue increased 12-fold year-over-year, and contributing over 5% of total revenue for the first time. Vocational training is a business grown from natural expansion of our users' needs. With the acquisition of two companies that are valuable in their respective fields, we have collectively created greater synergy. Going forward, we will continue to expand the coverage and enhance the quality of cost offerings through both self-operations and M&A, and further enhance our infrastructure to improve sales and CRM management capabilities. While our content-centric ecosystem and the business model have been pacified by strong revenue growth, we believe the balance between investment for future growth and the well-managed cost control practice is also vital for the long-term development. As we maintain high and diverse revenue growth, our gross profit margin for the quarter was 45%, remaining at a high level relatively to the wider industry. Following our remarks in the last quarter of conference call in late March, we have continued to review our costs and making improvements in our operating efficiency. As a result, we have controlled the non-GAAP operating expenses for daily business and reduced it by around 2% since Q4 last year. However, in the first quarter, we incurred one of listing expenses of over 30 million RMB and some G&A related SBC expenses in association with the Hong Kong IPO. Consequently, our total operating expenses for Q1 were RMB 984 million and non-GAAP operating expenses were RMB 743 million. Going forward, we will continue seeking ways to further improve our operating efficiency. As a result of all the above, our adjusted net loss which primarily excludes share-based compensation expenses, was RMB 367 million in Q1. And as of March of 2021, the company had cash and cash equivalents, term deposits, restricted cash, and a short-term investment of RMB 7.1 billion. And lastly, as mentioned by Julia, on April 22nd, we specifically listed on the main board of Hong Kong Stock Exchange under the stock code 2390 with a global offering of 26 million Class A ordinary shares. In compliance with the local regulation and following the common practice adopted by public companies in the Hong Kong market, we will no longer provide financial guidance on net revenues going forward. We remain deeply committed to delivering sustainable growth of business and the community and driving shareholder value in the long term. This concludes my remarks on our financial performance. Operators, we are ready for T&A session. Thank you.