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spk03: Ladies and gentlemen, thank you for standing by and welcome to the Jehu, Inc. Fourth Quarter and Full Year 2022 Financial Results Conference Call. At this time, all participants are in a 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. Yolanda Liu, Senior IR Manager. Please go ahead, ma'am.
spk08: Thank you, operator. Hello, everyone. Welcome to our fourth quarter and the full year 2022 financial results conference call. Participants on today's call will include Mr. Zhou Yuan, founder, chairman, and the chief executive officer of Zhugu, Mr. Li Dahai, chief technology officer, and Mr. Henry Shah, our chief financial officer. Before we continue, please know that today's discussion will contain forward-looking statements made under the safe harbor provisions of U.S. Private Securities Legitations Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the view expressed today. Further information regarding these and other risks and uncertainties is included in company's perspective and other public filings as filed with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements except as required under applicable law. During this call, management will also discuss certain non-GAAP financial measures for configuration purpose only. For definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please see earnings relief issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.jufu.com. I will now turn the call over to Mr. Zhou Yuan, founder, chairman, and the CEO of Jufu.
spk06: First of all, I would like to introduce our CFO and new CEO, Xia Dachuan, Henry. Henry joined Zhihu in January this year. He has a lot of experience and experience in the management and capital market of the company. We are very happy to see him join Zhihu and welcome him. Thank you. First of all, I would like to introduce our CFO and Director, Henry Hsia. Henry joined Zhihu in January this year and comes to us with impressive
spk08: corporate and capital market experience. We are delighted to have Henry as part of our senior management team and look forward to working with him to further unlatch Shufu's competitive advantages and to create more long-term value for our shareholders. Now, I would like to invite Henry to give my prepared remarks. Go ahead.
spk06: Hello, everyone, and thank you, Mr. Chou, for the kind words. I joined the JUHU in January this year, and I'm excited to be part of the leadership team. And I'm pleased to deliver this opening remarks on behalf of Mr. Zhou Yan, founder, chairman, and the CEO of JUHU. Thank you for joining JUHU's first quarter and the full year 2022 earnings call. 2022 was a difficult year, presenting multiple challenges, including a COVID insurgence and an economic turmoil. which disrupted operating conditions and profoundly impacted all aspects of society. Despite the headwinds throughout the year, we are delighted with our solid first quarter and full year performance. With solid fusion of our community ecosystem-first strategy, we continue to extend our high-quality content footprint and encourage user engagement across the Chihuahua community. with a broader array of content creator incentive programs. Filtered by these efforts, our average MEU steadily through out 2022 to 101 million by year end. Our cumulative content creators increased to 63.1 million by the end of 2022 with a 14% year-over-year increase. This thriving community ecosystem empowered Zhihu to meet a year's challenge with chance and resilience. In Q4, our total revenues increased by 9% year-over-year to RMB $1.1 billion, representing our third consecutive quarterly revenue increase. Among total revenues, our customer-oriented business, including paid membership and a vocational training business, grew at a faster pace. further diversifying our revenue streams. Revenue from our paid membership totaled more than RMB 400 million in the fourth quarter, with an accelerated year-over-year growth rate of 93%, while the personal training growth rate reached 281%. At the same time, our continued efforts to reduce costs, optimize our organizational structure, and improved overall efficiency over the past several quarters have paid off. For this quarter, we recorded another consecutive quarter with both improved gross margin and narrowed losses. Our adjusted net loss decreased by 44%, and our adjusted net margin narrowed to minus 12% from minus 24% in the same period of last year. With respect to our enterprise-oriented performance compromised of online advertising and the DCF. The pandemic-related disruption and a sluggish consumption of demand in 2022 imposed great challenges on the online advertising market. Zhihong was no exception, particularly as the COVID-19 resurgence hampered our normal operations during the fourth quarter. We responded proactively to the challenging conditions and took steps to streamline our online advertising and DCS products and services to further improve the community's user experience. While online advertising and DCS revenues combined decreased by 23% year-over-year in the fourth quarter as a result, we were pleased to see a 24% sequential revenue increase and a certain of our core vertical achieving a growth both quarter-over-quarter and year-over-year. Turning now to our users and content. As a leading content-centred community, Zhihu is committed to helping people find answers to their questions. To better increase user time span on Zhihu and encourage their engagement in our community, we concentrated our resources to continually broaden the coverage of fulfilling content and improve our inquiry search algorithm. We also released an array of efficient tools and functions to inspire content creation in the past year and optimize the content creation process to improve both the creation experience and the production quality. As of the end of Q4, the accumulated pieces of content in our community to 649.3 million, including 505.9 million questions and answers, representing a year-over-year increase of 31% and 70% respectively. While Zhihong Inc. greatly values the content with knowledge and expertise they fund throughout our community, their diverse interests are driving growing demand for additional premium and entertainment content including thought-provoking and entertainment-shocked stories among many other formats. To precisely identify and authentify users' varying demands, we enhanced our technical capabilities with other previous recommendations as a result. We also encouraged our creators to expand their creative horizons to cover more consumption scenarios within the Chihu community. while further enhancing our essential mechanisms to reward their efforts. This helped to extend the influence of our top content creators beyond the QHU community and facilitated even broader content coverage among targeted audiences. For example, we hosted our QHU marathon competition for story creation in the second half of 2022. which successfully showcased our content creators' solid writing abilities and elevated our brand influence. On a little note, early in March this year, we launched an independent app, Yanyan Story, centered on our premium content and paid membership services. With this, this immersive service model will bring our users a more personalized and enjoyable reading experience while also benefiting both content creators and our community with effective monetization opportunities. As a result, we are delighted to see many content creators in the QHU community receiving fruitful financial rewards while enjoying the content creation process. In the fourth quarter, the number of our premium content creators who earn income and the average income earned by premium content creators increased by 63% and 18% year-over-year respectively. Also, our paid membership value for full-year 2022 exceeded RMB 1.2 billion with a year-over-year growth of 84%. Moving forward, we will continue to build out our channel network and iterate our algorithm to ensure a more satisfying user experience across different user scenarios. Moving on to our vocational training business. Among people's total user base, over 80% are between 18 and 40 years old. As China is now experiencing profound change in its population structure, major education system reforms, and need for employees to be skilled, we are seeing fast-growing demand for career development and academic enrichment from people aged 18 to 40, which aligns perfectly with the needs of our users' demographics. Daily education-related shifts have continuously increased over the past few years, accounting for a meaningful portion of our total daily shifts in Q4 with ongoing growth momentum. The data shows this increasing demand. We shipped the word from the third-party cooperation for education products and proactively extended our online courses offers to build a co-opted loop education service system from traditional players in the industry. Our course offerings cover three major categories. First, design premium academic programs covering postgraduate entry examination, ,, and . These highly targeted courses mostly serve users aged 18 to 25. Second, to meet the demand from users 25 and older for vocational qualification exam preparation, we released the premium courses covering judicial examination, teacher qualifications, CPA certifications, among many others. Finally, the design and release of tailored products and services that are looking to further develop their career and skills, appealing to a broader user demographic. It's a unique business model that identifies the demands flowing from education-related search inquiries on our platform and empowers us with organic traffic assessments. At the end of 2022, we have completed our preliminary layouts for all three education categories utilizing both organic and M&M filters. Before I walk up, Very briefly, we touched on G50's strategic thinking and planning with respect to large-language models, or known as LLMs, using generated AI technology. We were impressed by the development of such revolutionary technology, led by groundbreaking projects like CHAP-GPP at the beginning of 2022. To further explore and embrace the massive opportunities it may bring, We have already begun investing resources into AI-based LLM and related technology development, evaluating several application scenarios utilizing AI technical capabilities, such as an AI assistant for content creators, among others. As a leading content-centric community, we will continue to enhance and explore capabilities to harness AI's possibilities as we believe our unique content and incremental data assets will be a valuable knowledge reserve for promoting the development of AI technology in China. Furthermore, as we enter the AI-empowered stage, we are confident we possess the capabilities and technology it may require in terms of content assessment and risk control measures. In summary, as we move to 2023, we will continue to invest in content astrology and upgrade our algorithm systems, further growing our user base and improving user experience. Meanwhile, we will continue to strengthen our multiple growth engines by elevating our premium experience to attract new paid subscribers and often enhance the marketing products and effective advertising solutions. By leveraging our refinement algorithm, we can boost the advertising ROI to serve brands and advertisers better. Given the massive potential opportunity and achievement to unique strengths, vocational training has become the anchor for our second growth strategy. We will continue to explore our core users' needs and develop our offerings along the entire educational service chain, training, examinations, improvement, vocational qualification, examination preparation, and career and skill development. We believe that with our users as an organic entry point, we can further optimize the value of our closed-user ecosystem from course development, customer acquisition, and cost delivery to teaching and data analysis. We remain confident in this business segment's potential and its synergies with G2's community. Finally, while providing all the support necessary to encourage interaction across our community, we will continue to adopt the cost control measures and investing widely in AI-based LRM and related technology. Based on a reasonable long-term ROI, at the same time, we will continue to enhance our multiple growth engines and refine our operating efficiencies. This concludes Mr. Zhou's remarks. Okay, this is Henry. I will now turn to our financial details in the fourth quarter for a review of our full year 2022 results. Please see our earnings released earlier today. As our CEO remarked, 2022 was a challenging year. However, we believe challenges come along with new opportunities. Our efforts to explore and fulfill our users' needs with refined products and service offers, while inspiring engagement from all parties in the Chihu community, continue to bear fruits across various metrics. Despite the pandemic's impact in the fourth quarter and the macro headwinds, our fourth quarter's total revenue reached under 1.1 billion. up 9% year-over-year and 72% quarter-over-quarter, representing another resilient quarter of growth in 2022. Looking more closely at the drivers behind the revenue growth, our user-oriented business, which consists of paid membership and vocational training services, has increased a lot of needs and contributed a great portion to our total revenue in the first quarter. A leveraging of a broad and premium content coverage, and online course offerings. We are confident we will continue to grow our user-oriented business in 2023. Our paid membership and vocational training service contributed 36% and 8% of our total revenues respectively in this quarter. Our paid membership revenue in this quarter was around $400 and $2.5 million. an increase of 93% year-over-year driven by continued growth in the number of squadron members. The average number of our squadron members increased to 13 million in 2014, up 130% year-over-year as we improve our intent and diversify our premium content offerings and extend the children's grant image. We are confident we will continue to harness this segment's potential growth opportunities. The traditional training value in the digital corporate is R&D 24.6 million, a significant increase of 281% from R&D 22.2 million in the same period of 2021. This jump was primarily due to the increase in the slate of offers we provided to both self-developed and business acquisition approaches, which greatly elevated the attractiveness of our services. In 2003, we were actually able to get the view out of our education platform by further enhancing our technical capabilities, including the CIM system, database, and integrated service offerings. We have been able to meet our students' demands with more diversified online courses. Moving to our enterprise-oriented services, which primarily include our advertising and our CCS customers. Due to the pandemic's impact and the challenging environment throughout the past year, the overall advertising market remained soft in the first quarter of 2022. Our sales revenues from advertising and our CCS increased year-over-year by 23% to R&D and $72.4 million in the fourth quarter, while we witnessed continued corporate growth momentum in some industries, such as IT and 3D and other models. Growth process for Q4 was R&D 600 and $22.5 million, up 31% from the same period of 2021. Growth monitoring also achieved a fairly consecutive quarterly increase, reaching 56.4% due to our enhanced monetization efforts and improved efficiency and balance and further utilization. Total operating expenses for Q4 were around $800 and $44.8 million, compared with around $855.1 million in the same period of 2021. Sales marketing expenses for Q4 were R&D $509.2 million of 80% year-over-year from R&D $470.2 million in the same period of the last year. The increase was primarily due to our increase of promotional planning to strengthen people's brand and service offerings. Research and development and expense for Q4 slightly increased by 2% to R&D $212.5 million from R&D $208 million in the same period of last year. The increase is primarily driven by the high-end salaries and the welfare expenses of research and development personnel, together with the employee service costs in 2004, which was associated with our optimization of organization structure. General and administrative expenses with IMD 100 and total 3.1 million, decreasing by 30% from IMD 100 and the 76.9 million in the same period of 2021. Percentage-wise, GDNA's growth has decreased to 11% of total revenue from 17% in the same period of 2021. The decrease was mainly due to lower share-based compensation expenses especially offsets that increase employee service costs associated with our organizational structure optimization in this period. Our continued cost control measures over the past several quarters combined with organizational structure optimization and overall efficiency improvements accelerated the level of our loss in the first quarter. Our gap operating loss margin narrowed by 17 percentage points and 11 percentage points year-over-year and a quarter of a quarter respectively. Our gap net loss in the quarter was R&D 100.9.5 million, narrowing by 53.2% on a yearly basis and about 40% sequentially. Accordingly, our loss margin increased by 21 percentage points and 17 percentage points year-over-year and quarter-over-quarter respectively. Our adjusted net loss on a non-GAAP basis, which primarily excludes share-based composition expenses and amortization of intellectual assets resulting from political acquisition, was down to $134.1 million for Q4, down by 44% from the same period last year. with the adjusted net loss margin of 12%. Moving to our balance sheet, as of December 23, 2022, the company had a cash and a cash increment of $10.12 and a short-term investment of RMB $6.3 billion. Also, as of December 31, 2022, we had repurchased the $6.5 million Class A ordinary at a total cost of just $16.7 million. This concludes my prepared remarks on our financial details this quarter. Let's turn the call over to the operator for Q&A session. Thank you.
spk03: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. The first question today comes from Steve Key with GS. Please go ahead.
spk00: Good evening, Ms. Guan. Thank you for accepting my question. Zhihuo is an open and high-quality content platform in the Chinese network. It has a very important position in the model training with Chinese as the basis. In the Preparation Remarks, the management floor also mentioned some combinations of the future commercial model and the large-scale model. The Kvoten management floor extended the management floor for us. In terms of the large-scale model, 2B includes the cooperation with upstream manufacturers, and then a self-developed model, and 2C includes AIGC negative energy creators, and then generate the content of CCS, or the content of software sales. This is a strategic layout for the future. Good evening, management. Thanks for taking my question. So, Zhihu has a very unique positioning within the China tech space with very high-quality tech space content and has a very unique positioning, especially for the training of Chinese-based large language model. So, during the prepared remarks, management has also mentioned the future integration between the Zhihu's current business model as well as the large language model. So could management elaborate more on Juhu's specific strategies on both the 2B front as well as the 2C front? On the 2B front, will we cooperate with some of the upstream large language models and also strategy on a self-developed large language model? And on the 2C front, how do we plan to utilize AIGC to empower our content creators, especially for the creation of content common solution content, as well as the membership content? Thank you.
spk06: Thank you for your question, Mr. Henry. We invite our chief technology officer on this call to answer your question. Da Hai, please. Chihuahua is a very open company. We are currently evaluating the technology of AIGC and asking for external cooperation and direct use of open API in the market in many ways to help our products and our creators.
spk07: Hello, I'm Dahai, CTO of Zhihu. Zhihu is actually an open company. We're actually doing kind of evaluation of self-development and also cooperative with many other third parties to see which one works better to empower our accountants in our community.
spk06: Zhihu community's data advantage, especially in the professional content field,
spk07: 我们这些领域里面的内容积累, 势必会让我们在 AIGC 的技术革命里面拥有我们自己独特的定位。 To who has our own advantage in the data area, especially in the vertical and professional fields, we believe this accumulated data will place us in a unique position in the AIGC technology revolution. 我们目前在
spk06: We are currently exploring in those model layers and also application scenarios, hoping to bring our users a differentiated and fresh user experience.
spk07: in terms of the QA and content consumption driven by the technology innovation. That's all. Thank you.
spk03: The next question comes from Vicky Y. with Citi. Please go ahead.
spk05: Good evening. Thank you for accepting my question. 我有一個小問題 就是想請問管理層可不可以跟大家分享一下 我們知乎2023年的戰略重點有哪些 我們投資的方向 我們應該怎麼看呢 我自己翻譯一下 Thanks, management, for taking my question. Will management share some color of what is the priority for the company in 2023? How should we think of the investment focus for 2023? Thank you.
spk06: Hello, everyone. This is Joanne. I do have several key points to share with you. First of all, moving forward,
spk07: We'll continue to stay with our ecosystem come first strategy. In year 2020, we'll see that we'll make a lot of achievements by adopting this strategy.
spk06: In the year 2020, we'll see that we'll make a lot of achievements by adopting this strategy.
spk07: To help you better understand our business, in 2023, we have actually separate our business models into two parts. One is the first revenue driver of like community business. The second driver is come from education-related business.
spk06: to maintain the growth of e-commerce. In addition, the first line of our community, it actually includes our content, with this content commercialization solution, and advertising-based marketing B-stage income, and membership-based C-stage income. These two multidirectional income
spk07: For our first revenue driver, the community business, we expect MAU of this business will maintain a healthy growth in the year. The community business consists of our CCS and advertising business, which is for like a BN. And also, it includes on the C-end services, which is the paying members. Both of these two services will be the major drivers for the improvement of this business line.
spk06: Our second trend, professional education, in the past year, has made a significant progress in our entire business. The size of the school and the size of the school, both are at a different level.
spk07: In the past year, our second revenue driver, education-related business, also achieved sharing achievements, both in the uses and also the revenues.
spk06: In the past year, our second revenue driver, education-related business, also achieved sharing achievements, So in 2023, we believe that's our second revenue driver.
spk07: we achieve faster and higher quality growth. We have already have like internal evaluation and the strategy planning for the next two to three years. We'll stay with our development on pace and strategy to grow this business.
spk06: I believe everyone has already seen the report data, which is the part where we talk about education. I believe that you have seen the data for the business line in our
spk07: recently released earnings release. We believe that driven by our further upgrades for technology and also our corporate third parties together with our self-developed programs, the quarterly revenue for this business line is expected to break through RMB 100 million in coming quarters.
spk06: In the coming year, we will continue our investments in their technology part because we believe as a technology-driven company,
spk07: this upgraded technology will not only improve our operational efficiency, but also will bring more growth opportunities to us. Thank you.
spk06: Well, just to hear me, I will have a, let me supplement our CEO's answers for you. CEO's estimation about our education, our vocational training, business, The next question comes from Ashley Zhu with Credit Suisse. Please go ahead.
spk09: My question is related to the recent trend in the recovery of our advertising and CCS business. Could management share more color about the performance in key verticals. Thank you.
spk06: Thank you, Ashley. This is Henry. I will help answer the question. I think for the several next quarters, the recovery of the cutting business still highly depends on the recovery of the macro economy in China. So I would believe that it still will take some time. also apply it to the verticals within both CTS and branding and department. Thank you.
spk03: The next question comes from Thomas Chong. The next question comes from Thomas Chong with Jefferies. Please go ahead.
spk04: Good evening. Thank you, Manager Cheng, for answering my question. I saw that when we were in the C-segment, our GP margin was also very bright. After that, I also saw that our loss was also much lower than everyone expected. I would like to ask how we should look at the future interest rate trend and our break-even trend. Thank you. Thanks, management, for taking my questions. If you're looking into Q4 GP margin, it comes in better than expectations, and the losses is also less than consensus estimate. So I'm just wondering how we should think about the GP margin and the break-even timing, if there's any cut on that front. Thank you.
spk06: Thank you, Thomas. Good to hear you. I will help answer these questions. So I think the GP margin is about 56%, which is improved sequentially and also year over year in comparison with the last year. The major reason is that the content and operational cost was saved. during this quarter because I think during our efficiency improvement, the advertisement execution cost is also optimized. As well as the server and bandwidth cost, the server utilization was improved. The bandwidth cost was also saved during this quarter. We believe that we still will have some room for cost saving in the server and bandwidth utilization in this year. But we believe that in Q1, you know, our business is also a very high seasonality. Q4 is a high season all over the year. So we believe that the Q2 margin in Q1, Q2 cannot be comparable with like that in Q4. And also, I want to remind the investors that our one-year strategies also get changed in the past one year. And now the two-seasoners, including membership subscribing, as well as the education business, they're also growing very fast with a faster pace than our advertising and our CCS business. So this will also have some impact on our GP margin. But we believe that our GP margin will be around like 50% on average. This concludes my answers for you. Thank you. Thank you so much.
spk03: The next question comes from . The next question comes from or CICC. Please go ahead.
spk02: My question is related to paid membership in Nice. The membership business once again demonstrates strong growth this quarter, and we noticed the launch of an independent app, Yanyan Story, recently. So, just wondering what's the strategy for this business, and how do you see the growth in 2023? Thank you.
spk06: Yeah, this... In the past few years, there have been several different In the past quarters, in the past few years, we actually have some accumulation experience across various areas.
spk07: including content creators and content consumers, as well as rich marketing know-how.
spk06: The two-minute experience actually we see
spk07: It's a new trait of the current novel reading market. We see that currently the premium novels in their consumption scenario is the current market trend for this business. We believe that our accumulation in this market and know-how and also the number of customers will give us a solid position for the further growth for the year 2023.
spk06: I believe that our accumulation in this market and know-how and also the number of customers You just mentioned in your question that wrote out, this is kind of like a task exploration we just released, but behind of this exploration,
spk07: we have like a plan for the investment in two areas.
spk06: First of all, definitely we can invest in their creation ecosystems.
spk07: this creator ecosystem will be like the major folks, will continue to be the major folks for us in their year 2023.
spk06: The second one is on the consumer side. We actually have tried several explorations and the new and independent like the APP's development is one of that.
spk07: which will provide a unique and better experience for the users to give them, like, a more price recommendation.
spk06: Thank you.
spk07: Thank you.
spk06: To supplement our CEO's answers for you, we believe that the membership, subscribing membership business will still achieve a high growth in the coming quarter and in 2023. Thank you. Next question.
spk03: The next question comes from Huyen Yang with China Renaissance. Please go ahead.
spk01: Thank you for your question. My question is about the education industry. I want to ask what is the goal of China Renaissance? And how should we consider the size of investment? So my question regarding with our second growth driver, the education segment, what's our medium to long-term goal? And how should we think about our investment scale? And for the growth driver, is it driven by, mainly driven by organic or MA driven? Thank you.
spk06: Thank you. Second, I just mentioned that in the past year, this business has made significant progress in the business feeling.
spk07: Education-related business has actually become our second growth driver. In the past year, it has achieved remarkable achievements.
spk06: We believe this is a very big market. So we are very optimistic about this market.
spk07: We believe this is a very massive market with a lot of opportunities. We're very optimistic, so we will continue to do the investment and also upgrade this business line centered on our current offerings.
spk06: From the point of view of our development, we will introduce the concept of professional education and our investment and acquisition. In the end, it forms a competitive and fast-growing educational category.
spk07: From the development strategy, we think that for the vocational education business, both the organic and M&A approach are both very important. I think that to grow this business through this two approach will be our strategic planning for the future.
spk06: We will continue to work on the technology and the content of the community.
spk07: And we will continue to invest in the technology as well. We will continue to invest in the content and plus the community-driven technology. Thank you.
spk06: Thank you, our CEO, and Mr. Henry, I will also supplement our CEO's efforts with you, Elon. Two points. The first one, when we are evaluating those M&A opportunities in the vocational training sector, we are evaluating the targets rightly and we emphasize on this ROI on each of the M&A projects. And for now, we don't have like a significant, like a large plan, a significant investing on this segment or on this industry. But I think it has all like a small, like an investment for our company in terms of the consideration of pay. Second is about, one more thing is about the regulation. We believe that the professional training business should be encouraged by the government
spk03: This concludes today's question and answer session. At this time, I'd like to turn the conference back to Yolanda for any additional or closing remarks.
spk08: Thank you. Thank you once again for joining us today. If we have any further questions, please contact our IR team directly or PSN Financial Communications. Thank you very much.
spk03: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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