Zhihu Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Juhu Inc. Second Quarter 2024 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 Yolanda Liu, Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to Drupal's second quarter 2024 financial results conference call. Senior management joining me today are Mr. Zhou Yuan, our founder, chairman, and the chief executive officer, and Mr. Wang Han, our chief financial officer. Before we get started, I'd like to remind you that today's discussion will include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Legitimacy Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. For the information regarding these and other risks and uncertainties, is included in other public filings with the U.S. Securities and Exchange Commission and Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements except as required under Asset Law. Additionally, the matter we will discuss today will include both GAAP and non-GAAP financial measures for comparison purpose only. For a 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.jufu.com. I will now turn the call over to Mr. Wang Han, our CFO. Please go ahead.

Thank you, Elena. Hello, everyone. Thank you for joining Zhuhu's second quarter 2024 earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder, chairman, and CEO of Zhuhu. We're pleased to report another strong quarter. In the second quarter, we achieved robust improvements in operating efficiency, with our gross margin raised by 5.8% of percentage points year-over-year to 59.6%. Our total operating expenses decreased by more than RMB $140 million compared to the same period last year. including a reduction of over RMB 120 million in marketing expenses. Our adjusted net loss declined by 79.9% year-over-year to RMB 44.6 million, marking our lowest quarterly loss since our U.S. IPO. In the second quarter, we made significant strides in enhancing the Juhu's community's trustworthiness and strengthening our core user experience. In addition to introducing an array of AI-powered products and engrossing content initiatives, we proactively refined commercial content distribution and meticulously tailored our services to meet the diverse needs of various user groups. As a result, our community remains vibrant and continues to grow, exhibiting positive trends across key user metrics such as core user retention rates and daily user timestamps. We expanded AI applications across our products and services during this quarter, aiming to provide users and clients with an enhanced experience. In late June, we officially launched Zhuhu Zhida, marking a significant milestone in our AI search initiatives. Since its debut on the PC platform, we have observed a promising increase in user engagement and market reputation, highlighting new growth opportunities for us. Throughout the second quarter, Our laser focus on cornerstone verticals coupled with enhanced support for content creators has led to significant improvements in the experiences of both users and content creators within our community. As of the end of June, the cumulative pieces of content on Juhu reached 830.9 million, a 16.8% year-over-year increase. The cumulative number of content creators within the Juhu community grew by 12.5% to 74.9 million during the quarter. this continued rise in the proportion of highly active users engaged in content creation. To further bolster user engagement, we will continue to foster rational, optimistic, in-depth discussions around prominent social issues and word events this quarter. For example, during the annual Goal Call period, we strategically enhanced the community's support for Goal Call users by elevating the firsthand experiences shared by previous examinees optimizing search functionalities, and refining recommendation algorithms. Accordingly, the volume and quality of the Kakao-related answers rose markedly, with three-day and seven-day question response rate experiencing double-digit growth. The surge in user engagement and community interactions further solidified Zhihu's position as the most trusted platform for young people seeking guidance on pivotal live decisions. whether in the lead up to university or as they prepare to enter the workforce. We also implemented effective initiatives to draw users to our coverage of the Paris Olympics. Within a week of the Olympic opening on July 26, common views related to the event soared to over 600 million with over 500,000 discussions spanning topics such as science and technology, sociology, psychology, and cultural arts. Thanks to these efforts, positive feedback from Juhu users on our high-quality content continued to rise, accompanied by a significant increase in user interactions. Average daily engagements per DAU grew by nearly 40% year-over-year, with the monthly average of upvotes increasing by over 47% year-over-year and more than 13% quarter-over-quarter. As we progress in our development of the cutting-edge technology, We consistently strive to push boundaries and extend application scenarios. The official launch of Zhihu Zhida in late June marks a significant step in our exploration of AI-powered search functionality. Zhihu Zhida's deep integration with the content creators sets it apart from other AI-driven search products. The majority of the content powering Zhihu Zhida is derived from Zhihu's proprietary high-quality content library, which allows users to trace counselors back to their original sources. explore more premium Q&As within the community, and directly connect with content creators. We believe Zhihu Zhida's unique ability to prioritize human elements and emphasize professional and authentic content that embodies collective humanism is especially valuable in an area increasingly dominated by AI-generated content. In July, Zhihu's total visits increased by 430% compared with June as we continued to leverage Zhihu's self-developed LLM to refine Zhihu's performance and user experience. By the end of July, 7-day user retention doubled compared with early July. Zhihu's multi-round response capability also outperformed market peers, earning high praise from professionals. Moving into the second half of the year, we will continue to enhance our user experience on Jirida's PC platforms through our ongoing improvements in product features, algorithms, and performance. Simultaneously, we're set to officially launch and upgrade Jirida tab on the Google app, which will effectively complement the desktop version. Jirida not only provides professionals with effective tool-based scenarios, but also with vast potential for exploration in user interaction and content creation through the power of the TrueHoo community. For our work, we aim to reach a broader audience with Straight On, relying on its performance and reputation rather than extensive advertising and promotion. Our effective strategic planning and execution is reflected not only by our growing user engagement and flourishing community, but also by our significantly improved operating efficiency. In the second quarter, we further optimized operating efficiency across our business lines by leveraging AI technologies, propelling us towards our operational targets for this year. Now, I would love to delve into more details of the progress we achieved across our multiple business lines for the second quarter. First, our marketing services remained under pressure in the second quarter, with revenue totaling RMB 344 million, decreasing by 16.7% year-over-year. However, I want to highlight that within our marketing services, although our CCS is currently experiencing a decline during its adjustment period, both brand advertising and performance-based advertising exhibited robustly growth, increasing by 17% and 28.4% year-over-year, respectively. This performance underscores our effective monetization capabilities and substantial commercial potential for high-value user base within a community. Across all the industries we cover, the IT and 3C categories continue to lead in growth. Additionally, food and beverage, beauty, skincare, sports, and outdoor industries experienced notable increases in the average order volume during the 618 shopping festival, up by 17.4%, 14.1%, and 13.1% respectively, compared with the same period last year. We remain committed to delivering high-quality content that empowers our clients to drive their business growth. We're also supporting mid-tier content creators with substantial commercial potential in achieving their financial goals. In this year's 618 Shopping Festival, the number of commercial content creators on a traditional platform increased more than six-fold compared with the same period last year. As we move into the second half of the year, we'll continue to enhance our marketing services Granted, in the transverseness of our community, our efforts will focus on the following key areas. First, by leveraging our AI LLM capabilities and enhanced data infrastructure, we aim to further boost conversion efficiency for brands and merchants. We're also enhancing our own products and operational efficiency. Second, we will capitalize our community's professional discussion environment and the transverseness among high-value users to assist more emerging verticals. particularly those facing technological barriers to build stronger marketing awareness and commercial credibility. Third, we will foster closer connections with a great number of content creators to enhance their ability to earn financial rewards in line with their capabilities. Turning to our paid membership business, our premium content has continued to distinguish itself with its unique market positioning and compelling stories. attracting many new users in the second quarter. The number of subscribing members grew by 4.7% year-over-year to 14.7 million, while revenue contribution grew to 46%, reaching RMB 432.7 million. In addition to broadening our premium content offerings, we actively explored various new growth channels in the second quarter, including co-branding memberships and distribution channel extensions. For content creators, Zhihu's premium content discovery mechanism not only provides content creators with opportunities for growth, creative fulfillment, and revenue generation, but also fosters an entirely new creation ecosystem within the industry. In the second quarter, the number of Zhihu premium content creators earning income increased by 77.4% year-over-year. We also continue to unlock our high-quality straw-story IP monetization potential. On July 9th, the short drama, Love and a Dream, premiumed on Tencent Video. This marks another successful adaptation from Zhu Hu Yan Yan's story library, following the acclaim of Zhu Bi. Next, I will review our vocational training business. We strategically optimized our business structure in the second quarter with a focus on efficiency enhancement, concentrating on self-operated offerings and align closely with our community to provide greater certainty and profitability. Also recorded gains on certain adjustments to our acquired business in this quarter, achieving high margins. As a result of these effective measures, operating efficiency within the vocational training segment improved significantly despite a slight decrease in the total revenue, which amounted to RMB 133.6 million per quarter. GMB for our vocational skills and interest programs achieved over 50% year-over-year growth this quarter, with AI and AGI-related programs, and she continued to receive positive user feedback. Additionally, in response to students' evolving needs during the graduation season, we expanded our offerings to include career planning and overseas study advisor programs. In turn, this expansion encouraged valuable user contributions with beneficiaries enriching the community with high quality content and innovative creations as they shared their insights and experiences. Moving forward, we will continue to strengthen our absolute advantage in specialized subject offerings. We will also utilize AI technology to enhance operating efficiency and accelerate our progress towards profitability. In summary, our strong second quarter performance showcases our understanding of strategic planning and execution capabilities. As we move into the second half of 2024, we remain confident in and committed to achieving quarterly profitability targets. Meanwhile, we will continue improving our segment and engaging user experience and enhancing the Google community's trustworthiness to grow and nurture our user base. We will also advance our AI development initiatives, enriching our product capabilities and facilitating operating efficiency improvements across the board. By fully leveraging our unique value proposition, we will further develop to whose growth and commercialization potential driving the economy's long-term sustainable development. This concludes Mr. Zhou Yuan's remarks. Now I will review the details of our second quarter financials. For a complete overview of our second quarter 2014 results, please refer to our press release issued earlier today. Throughout the second quarter, we made significant strides in refining our core structure and optimizing operating efficiency, while maintaining discipline, spending, and proactively pursuing high ROI across our business lines. We accelerated our exploration of AI-powered technologies, substantially enhancing our products and services. As a result, we achieved notable improvements in both gross margin and adjusted net loss. Remarkably, this quarter represents our lowest quarterly loss since our UIS IPO. Our marketing services revenue for the quarter was RMB 304 million, compared with RMB 412.7 million in the same period of 2003. This decline primarily reflects our deliberate ongoing requirement of service offerings to strategically focus on margin improvements. Main membership revenue for the second quarter decreased slightly by 3.7% year-over-year to $432.7 million, primarily due to a marginal decline in our average revenue per subscribing members. However, our average number of monthly subscribing members grew by 4.7% year-over-year this quarter, demonstrating the effectiveness of our user growth strategies and promotions. Vocational training revenue for the quarter was RMB $133.6 million compared with RMB $144.5 million in the same period of 2003. This decrease was mainly due to our strategic refining of acquired business, prioritizing self-operated programs that offers high margins and greater profitability. Our gross profit for the second quarter was RMB 556.5 million, compared with RMB 562.1 million in the same period of 2003. Thanks to our enhanced operating efficiency, the gross margin has improved year-over-year for seven consecutive quarters, reaching 59.6%, the highest level since our U.S. IPO. Our total operating expenses for the quarter was RMB 740.4 million, a 16.7% decrease from RMB $889.3 million in the same period of last year. The volume of marketing expenses decreased by 22.9% to RMB $417 million, down from RMB $540.6 million in the same period of 2003. This reduction was primarily driven by more disciplined promotional spending and a decrease in personnel-related expenses. Our research and development expenses for the quarter decreased by 11.4% to RMB at 209.3 million, down from RMB 236.2 million in the same period of 2003. This reduction was primarily attributable to more efficient spending on technological innovation. General and administrative expenses were RMB 114.1 million compared with RMB 112.5 million in the same period of 2003. That consecutive gap net loss and non-gap net loss for the second quarter has both narrowed substantially, decreasing by 71.1% and 79.9% year-over-year respectively. As of June 30, 2004, the company has cash-in-cash equivalents, term deposits, restricted cash, and short-term investment of RMB 5.1 billion, compared with RMB 5.5 billion as of December 21, 2003. Profitability. At the same time, we would diligently explore innovative avenues to deliver enduring value to our shareholders. This concludes my prepared remarks on our financial performance for this quarter. I'll now turn the call over to the operator for the Q&A session.