Zhihu Inc.

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the CHUHU Inc. Third 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 question-and-answer session. Today's conference call is being recorded, and at this time, I would like to turn the conference over to Ms. Yolanda Lau, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Hello, everyone. Welcome to JUHU's third quarter 2024 financial results conference call. Senior management joining me today are Mr. Zhou Yuan, our founder, chairman, and 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 Security 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. Further information regarding these and other risks and uncertainties is included in our public filings with the U.S. SEC and Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Additionally, the matters we will discuss today will include both GAAP and non-GAAP financial measures for consideration purpose only. For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please see the earnings release issue 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, CFO of Jufu. Han, please go ahead.

Thank you, Linda. Hello, everyone. Thank you for joining Jufu's third quarter 24 earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yan, founder, chairman, and CEO of Jufu. We delivered solid third quarter results across key financial metrics thanks to our continued focus on efficiency enhancement and cost reduction. The world's property margin improved by over 10 percentage points year over year, reaching 63.9%, the highest level since our listing. Total costs and operating expenses decreased by more than 35.6%, 3.5% respectively, leading to a net loss of 9 million RMBs. 96.8% year-over-year. Our efforts to optimize the community ecosystem are also yielding positive results. Crypt user engagement in the third quarter propelled a sequential increase in our user base. What's more, we further enhanced content creators' experience across our community, fostering a renewed sense of confidence and driving more active contributions. This, in turn, has cultivated a professional, insightful community atmosphere. imbued with a balanced rational optimism. Furthermore, in line with our commitment to exploring AI applications, we'll launch the professional search feature for Zhihu Zhida at the end of October. This initiative marks a significant step in our differentiated approach to enhancing product capabilities and elevating the user experience, leveraging our massive pool of high-quality data and content. I'll delve deeper into Zhihu Zhida later in the call. Now let me focus on users and content. This quarter marked the third consecutive period of our refined user strategy. We achieved the same improvements across key user metrics, alongside a sequential recovery in user growth. NIU for Q3 bonded quarter to quarter to 81.1 million. We saw our continued reduction in community-related promotional spending. Overall user engagement across Google community also increased sequentially. with core user retention showing significant year-over-year growth. Additionally, daily active user time span rose nearly 20% year-over-year and maintained its upward trend quarter-to-quarter. As we continued to elevate the experience for content creators and core users, we saw a notable rise in both the scale and engagement of high-tier content creators, with the number of income-generating content creators increasing by over 25% year-over-year. Since the beginning of this year, we have given our focus on cultivating new, high-tiered content creators across diverse fields. By offering advanced creative tools and signature initiatives unique to Juhu, we fostered their growth and enriched the Juhu library with the steady influx of diverse, authentic, and professional content. Throughout the third quarter, Juhu delivered highly differentiated, rewarding, high-quality content to Internet users nationwide through in-depth professional discussions on major societal events. For example, the 2004 Juhu Science Season launched in tandem with Nobel Prize announcements sparked a wealth of contributions across the Juhu community, including predictions, insights, and educational content. Among its content, discussions on the 2004 Nobel Prize in Physics alone generated over 1.5 million interactions within the Juhu community. This dynamic engagement earned Juhu the reputation of being the second home of the Nobel Prize. As of the end of the third quarter, Juhu had amassed a cumulative content volume of 854.5 million pieces, representing an annual growth of 14.9%. This includes 641.4 million Q&A entries, an increase of 11.8% compared to the same period last year. The Juho community now boasts a total of 77 million content creators, marking an 11.6% year-over-year rise. As the experience of both content creators and users have continued to improve, the Juho community, distinguished by professional discourse and rational optimism, has grown stronger. This progress is underscored by a steady decline in active feedback from users and a notable increase in positive interactions. Average daily engagement per BAU has consistently rise quarter-over-quarter, with the monthly average of upvote surging by over 25% year-over-year in the quarter. Next, I would like to share some details about the progress we have made with Zhuhu Zhudai. We have capitalized on Zhuhu Zhudai's extensive content library and robust source tracking capabilities to achieve rapid traffic growth and earn an excellent reputation across the industry. According to newly released data from Simulweb, Zhuhu Zhida's traffic reached 4.7 million in September, a remarkable increase over 180% compared to August. In Befinance AI product rankings for September, Zhuhu Zhida ranked third among Chinese products in terms of sequential page view growth. Additionally, it claimed its second position on the domestic web growth leaderboard. during a spot in the top three for two consecutive months. In October, we introduced Professional Search for Zhugu Zhidan, a new feature meticulously crafted to meet the evolving needs of a wide range of users engaged in academic research and professional work. Integrated over 50 million Chinese and English academic articles from specialized content sources such as Wikipedia and Zhuhu were enhancing Zhuhu's accessibility to fulfill users' searching queries with high-quality content. Professional Search also supports file uploads and comprehensive document parsing, providing tools like single-article in-depth reading and source-specific Q&A to address users' academic research and professional needs. Moving on to our business performance by segment. Our paid membership business continued to demonstrate steady growth momentum in third quarter. The number of prescribing members rose by 11.5% every year to 16.5 million, while the segment delivered revenue of RMB 469.4 million, increasing its revenue contribution to 54%. In late August, content creators on Zhu Hu Yan's story produced a series of derivative works inspired by Journey to the West, a classic Chinese tale that also forms the core of season's most popular domestically produced 3A game. These works presented a more interpretation of the classic saga. Also, building on game's momentum, we launched a Journey to the West special series featuring multiple stories that compare Asian and modern perspectives to highlight a classic story's timeless lure, a release that has resonated strongly with our users. Turning to marketing services, in the third quarter, rounding from our marketing services was R&B $266.6 million, a 33% decline over the year. Although brand advertising and CCS decreased compared to last year, we encourage our key clients growing recognition of Juhu's brand and the high value they attribute to our users. This progress validates our commitment to optimizing our commercial ecosystem and enhancing the Juhu's community's trustworthiness as a strong and viable growth path for our marketing services. According to the iResearch report released in late October, Chihuahua has established itself as the most trusted content community for consumer decision-making. Furthermore, the survey's findings indicated that nearly 50% of users reported making purchases after reading product recommendations on Chihuahua. In this year's W11 event, we also established the Chihuahua reviewers' jewelry in the Recommended Goodies 100 campaign. providing consumers with professional, authentic, and timely answers to their purchasing questions. This quarter, brand advertising delivered a solid year-over-year performance in IT and 3C and e-sports. Top clients in the automotive and fast-moving consumer goods sectors also ramped up their advertising spending on Juhu. International FMCG brands in particular noted that Juhu's high-quality user base aligns well with their target demographics. Consequently, despite tighter budgets across the broader advertising network, it's up to increase our allocations on Drupal. In addition, our ongoing improvements in data analysis and operational efficiency have generated positive returns on investment for this premium plan. For our CCS business, after a rigorous crackdown on low-quality content, we have gradually integrated high-tier content creators from the Drupal community into our CCS program. driving a steady increase in premium content contributions. This quarter, customer satisfaction and repurchase rates have significantly improved compared to the beginning of the year, while content creators have benefited from increased earnings. Next, our vocational training business. We continue to streamline this segment's structure and strategy this quarter. We transitioned from a wide array of niche offerings to a focused lunch and shop high-performing categories where we hold a competitive edge. Overall revenue declined by 27.4% over year, mainly due to our streamlined acquired business. Our self-operated course has demonstrated strong year-over-year growth, along with notable improvements in profitability sequentially. Our self-operated business, closely connected to our community, continues to perform strongly with increasing predictability and profitability. Programs in BI categories, such as media production and film post-production, remain extremely popular among learners, reflecting long lifecycle potential. What's more, our business structure optimization is a quarterly enhanced overall ROI, allowing us to strategically allocate resources toward high-efficiency program categories, thereby supporting greater operational stability. Moving forward, we'll focus on narrowing this business segment's losses and aim to achieve break-even as soon as possible. In summary, the third quarter highlighted our unwavering commitment to strategic refinement and execution, delivering financial results that once again exceeded our expectations. Commercial and operational efficiencies have been critical metrics during our operations, empowering us to optimize our user-accompanied resources. Looking ahead, we will remain dedicated to enhancing the user experience and strengthening the trustworthiness of our community, while strategically refining our operational model to unlock the full potential of Zhihu's brand and high-value user base. With robust fundamentals and a steady focus on achieving profitable growth, we are confident of creating value and delivering meaningful returns for our shareholders. This concludes Mr. Julian's remarks. Now I will review the details of our third quarter financials. For a complete overview of our third quarter 2004 results, please refer to our press release issued earlier today. Our commitment to enhancing operational efficiency through discipline and cost control drove a significant margin expansion in this quarter. These efforts also led to narrowing losses, propelling us even closer to profitability. which achieved our lowest quality loss since our US FTO in this quarter, demonstrating our momentum in building a more resilient business and sustainable trading value. Our market services revenue for quarter was RMB $256.6 million, compared with RMB $308.8 million in the same period of 2003. This decline is largely a result of our strategic ongoing optimization of service offerings, with a focus on margin improvements. Pay membership revenue for the third quarter was RMB 459.4 million, slightly decreased from 466.8 million in the same period of last year. Notably, our average number of monthly subscribing members sustained its growth trajectory both year over year and sequentially. This progress was propelled by the growing quality of Juhu's premium offerings, which are consistently attracting new pay members from both within and beyond the Juhu community. The initial training revenue per quarter was RMB $105.1 million, compared with RMB $144.8 million in the same period of 2003. This decrease was primarily due to our strategic refinement of acquired business, with a focus on prioritizing the faster-growing, self-operated program. The gross profit per quarter was RMB $540.1 million. compared with RMB for 548.5 million in the same period of 2003. Both said power enhanced operating efficiency, a gross margin also further improved year-over-year, reaching 63.9% of record high. For total operating expenses per quarter, RMB 624.5 million, a 30.5% decrease from RMB 898.6 million in the same period last year. Italian marketing expenses decreased by 27.4% to RMB 388 million, down from RMB 534.3 million in the same period of 2003. Trade action was primarily driven by more disciplined promotional spending and a decrease in personnel-related expenses. R&D expenses per quarter decreased by 28.2% to RMB 179.3 million, down from RMB 249.7 million in the same period of 2003. This reduction was primarily attributable to more efficient spending on technological innovation. Q&A expenses decreased by 50.1% to RMB 57.2 million from RMB 114.6 million in the same period of 2003. Decrease was primarily attributable to lower share-based composition expenses Consequently, our GAAP net loss was recorded narrow significantly, decreasing by 96.8% year-over-year. Our adjusted net loss on non-GAAP basis was RMB 13.1 million, compared with RMB 225.3 million in the same period of 2003. Our adjusted net loss margin decreased more than 20% this year-over-year to 1.5% in this quarter. As of September 30th, In 2004, the company has passed cash equivalents, term deposit, restricted cash, and short-term investment of RMB 5 billion, compared with RMB 5.5 billion as of the December 2020. From our Hong Kong IPO until September 13, 2004, we had repurchased 31.1 million Class A ordinary shares at an aggregate price of US $56.5 million on the open market and canceled such shares. We also repurchased a total of $10.1 million plus eight ordinary shares at an aggregate price of $16.5 million to be equalized upon investing of restricted shares in the future. In addition, we had repurchased another $33 million plus eight ordinary shares at an aggregate price of $38.5 million via tender offer, which were completed on November 8, 2004. In total, the company has purchased 74.2 million plus day auditor shares for a total price of US $121.5 million. As we approach the end of 2024, we'll continue to elevate content quality and enhance the experiences of both users and creators across the Google community by harnessing the power of innovation and technology. We remain committed to optimizing resource allocation advancing towards profitability, and unlocking the potential of true risk brand and high-value user base. By building a more dynamic platform, we further foster our user engagement and support common creator success, firming our position as a leader in the knowledge sharing and community value. This concludes my prepared remarks on our financial performance for this quarter. Let us turn the call over to the operator for the Q&A session.