Zhihu Inc.

Ladies and gentlemen, thank you for standing by and welcome to Chihu Inc. fourth quarter and full year 2024 financial results conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. Today's conference is being recorded and webcasted. At this time, I'd like to turn the conference over to Yolanda Liu, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Amberlyn. Hello, everyone. Welcome to JUHU's fourth quarter and full year 2024 financial results conference call. Joining me on the call today from the senior management team 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 Security Selegation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Full information regarding these and other risks and uncertainties is included in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements as required under the applicable law. Additionally, the discussion today will include both GAAP and non-GAAP financial measures for comparison purpose only. For reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issue earlier today. In addition, a webcast replay of this conference call will be available on our IR website at ir.zhuhu.com. Now I will turn the call over to Mr. Wang Han, CFO of Zhuhu. Han, please go ahead.

Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu's fourth quarter and full year 2024 earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder, chairman, and CEO of Zhihu. 2024 marked a transformative turnaround for Zhihu, where we successfully executed the strategic roadmap laid out at the first of the year and delivered results that far surpassed our expectations. The fourth quarter was a strong finish in 2024, with robust profitability. For the first time ever, we reported adjusted net income of RMB 97.1 million compared to an adjusted net loss of RMB 91.3 million in the same period of last year. Moreover, we swung from an adjusted net operating loss of RMB 165.3 million in the first quarter last year to an adjusted operating profits of RMB 23.1 million this quarter. The strategic decisions made at the beginning of 2024, combined with consistent quarter-after-quarter execution yielded significantly better than expected financial results this quarter, showcasing the strengths of our strategic judgment and execution capabilities. By prioritizing community trust and enhancing the core user experience, we made a deliberate choice to forego some periphery users. This approach not only saved the community user acquisition related expenses by 88% year-over-year, which is one of the key drivers to profitability, it also resulted in notable growth in key engagement metrics, time span, retention, and content creation while maintaining a stable overall user base. AI represents a historic opportunity for Zhihu. As the AI landscape evolves, it is more and more clear that Authentic, professional, and in-depth content created by real individuals and most valuable assets to help AI overcoming hallucinations. And this is the most unique assets that Jihoo has been accumulated for 14 years. In essence, the Jihoo community is a dynamic network of real experts who continuously share knowledge, experiences, and insights. Through rigorous community peer review, content is validated through discussions across diverse fields, driving the creation of high quality and multidimensional content. Just two days ago, Zhida entered another major upgrade. Users can now clearly see the contribution of our professional creators to each piece of Zhida's output. They can also proactively engage with specific Zhihu content creators who are real experts with certificated professional background within the community. Currently, Jira has achieved over 10 million MAU on our app and PC platforms and continues to receive positive user feedback in key areas such as response completeness, accuracy, and reduction of hallucinations. Going forward, we will continue enhancing our product in this direction. further strengthening the synergies between Jira and Zhihu community while reinforcing trust between users and creators through professional, authentic, and in-depth content. Moving to our user and content. During the first quarter, we maintained our focus on improving user engagement, retention, and acquisition efficiency. Average MAUs were 81.4 million, up 0.3% sequentially. A strong result given our strategic decision to decrease community-related promotional expenses by over 45% from Q3 and nearly 90% year-over-year. This focused approach delivered clear results during the quarter with improved user engagement. Time spent per DAU grew 23% year-over-year, while core user retention rates improved both sequentially and year-over-year. Throughout 2024, we comprehensively optimized our community ecosystem through product enhancements, refined content strategies, and algorithm upgrades. This initiative has made high-quality content more discoverable and consumable, inspiring and motivating creators to produce their best work. As a result, we all witnessed the most insightful and dynamic discussions in various professional domains take place in our community. making us the go-to platform for professional and in-depth discussions. Notably, our community has already become a center for AI-related topics long before engaging discussions sparked by DeepSeq's open-source release of the R1 model, and has continued to gain momentum since then. In the first quarter, both AI-related content volume and AI-focused creators grew more than 50% every year. Our community of creators includes many leading entrepreneurs and industry pioneers who engage in multi-dimensional, professional, and in-depth discussions, such as Wang Xinxin, CEO of Unitree Robotics, who has been an active contributor in Zhihu's community since 2016. In early March, we were honored to be selected by DeepSeq as exclusive Chinese content platforms to release the latest details and cost-benefit analysis of their open-source model. This demonstrates that we are the community with the highest concentration of AI professionals and entrepreneurs and the most important discussion hub for AI trends across the Internet. Users join our community for insightful discussions spanning diverse topics. For example, during the U.S. presidential election cycle, our community generated more than 23,000 answers across nearly 200 questions, driving over 140 million page views of related content. We remain dedicated to discovering new high-quality content creators and supporting their growth through advanced creation tools and operational initiatives unique to our platform. This commitment ensures a dynamic creator base and a continuous flow of diverse, authentic, and professional content. As of the end of Q4, cumulative content volume on our platform reached 874.6 million pieces. an increase of 12.9% year-over-year. This included 654.8 million Q&A entries of 10.5% year-over-year. The JUGU community is now home to 77.7 million content creators of 8.9% year-over-year. The growing vibrancy of our content creators community is reflected in a growing daily activities of high-tier creators. Income-generating creators increased substantially by over 22% year-over-year during the quarter, with high-tier creators accounting for the most significant gains. The revenue share of Zhizhi plan grew by nearly 20% between September and December 2024. During the quarter, we prioritized the onboarding of new high-tier creators. Notably, many podcasters have demonstrated their ability to develop exceptional visual and reading content that drives strong user engagement with our community. Within 30 days of joining, these creators achieved a daily active rate of over 90% on average. In late January 2025, Li Ziqi, the renowned short video creator celebrated for showcasing the beauty of Chinese culture, officially became Zhihu's Intangible Culture Heritage Officer. During the Chinese New Year holiday, her insights into the first World Intangible Culture Heritage Edition Spring Festival and detailed explanations of Sichuan's holiday costumes sparked widespread community discussions about regional traditions. As we continue optimizing the creators and user experiences and enhanced community atmosphere, negative user feedback has declined consistently, while positive engagement has increased. Average daily engagements per DAE rose consistently on a sequential basis throughout the year, with the fourth quarter's monthly average upward surging over 30% year-over-year. A healthy and consistent active community ecosystem remains our core assets, providing us with strong competitive advantages in AI era. Moving to commercialization. Since April 2004, we have prioritized the core user experience and community trustworthiness by actively managing the proportion of commercial content distributed and ensuring differentiated experiences for distinct user groups. This strategy has driven the ongoing optimization of our community ecosystem and enhanced the trustworthiness of our brand. While this approach has short-term trade-offs, including sunsetting lower-quality revenue streams, We're confident that the long-term value from strengths and trust in our brand and improved health of our community will prove more impactful. Total revenues during the fourth quarter were RMB $859.2 million, which revenues for full year 2024 came in at RMB $3,598.9 million, a decrease of 14.3% from last year as a result of strategic adjustments away from lower quality revenues. diving into our performance by segments. For paid membership business, we focused on maximizing ROI in an environment of rising user acquisition costs and channel expenses. We drove an increase in ARPU of 7% sequentially during the quarter while maintaining a relatively stable membership base. Average monthly paid members were 14.1 million during the quarter, a slightly decrease of 0.8% every year. while paid membership revenue were RMB 420.2 million. Our leadership in premium short-form paid content, strengthened as our Zhihu Yanyan Story brand, continues to gain user mindshare. In December 2024, Zhihu Yanyan Story hosted the 2024 Short Story Impact Night in Boao, Hainan Province, honoring 76 outstanding creators and stories. This event introduced new categories like best audio drama and rookie creators of the year. For expanding the influence of JuHuYan's creators across platforms and reinforcing our multi-media short-form content ecosystem. With an improved content supply and creator ecosystem, income generating creators for paid members shares by 78.3% year-over-year during the fourth quarter. We also further unlocked the monetization potential of YANN Storage IP, driving a nearly 50% sequential increase in IP revenue during the first quarter. Going forward, we'll continue leveraging the strengths of our premium short-form paid content to drive paid membership engagement while exploring new diverse paid content formats and monetization opportunities. Turning to marketing services, in line with our company-wide focus on trust and quality, we're establishing a new baseline for marketing services revenue, which raised RMB 315.9 million during the quarter. Encouragingly, the rate of decline narrowed compared to the third quarter of 2024, with revenue growing 23.1% sequentially. Brand advertising was resilient, maintaining a stable performance despite the high base last year. Key clients increasingly recognize the premium value of our high-quality user base and brand equity. This is clearly seen by year-over-year increase in brand advertiser output during 2024, with standout growth in sectors like e-commerce, IT, and 3C, beauty, and personal care, FMCG, and healthcare. We strengthened our presence in automotive sectors by hosting the first E-Club Xinzhi Technology Conference in Chengdu, where we brought together key industry players like BYD, Chang'an Qiyuan, and Xphone, alongside with our automotive expert network. The event facilitated in-depth professional impartial discussions on EV trends and technologies, generating 630 million online impressions and 30 million video views. For CCS business, content optimization remains our central focus. It reduced low-quality commercial content by over 50% year-over-year and sequentially during the quarter, further enhancing advertisers' trustworthiness for users. This drove a 15% sequential decline in negative user feedback on commercial content. Looking to 2025, we will empower more emerging product categories especially those with technological barriers, to increase their market exposure and credibility, leveraging our professional ecosystem and the trust of our high-value users. At the same time, we will create partnerships, enable them to monetize their expertise and maximize earnings through our platform. Lastly, our vocational training business, where revenue decreased 50.4% every year to RMB 84 million during the quarter, as we streamline the acquired business. Our self-operated business maintained robust momentum, delivering double-digit growth year-over-year and achieving a turnaround in operating profitability. The strong increase in revenue from our self-operated business was driven by our strategic focus on high-performing courses categories like AGI and film post-production, which remained highly popular during the quarter. Deep community integrations continues to foster a low user base with an extended lifecycle. Operating efficiency initiatives show further ROI improvements during the quarter, with over 80% of our courses now delivering returns exceeding 2x, learning a clear path towards profitability for our vocational training business. The integration of advanced AI is accelerating these gains in operating efficiency. During the quarter, AI drove conversion efficiency gains by 10% and reduced costs by 20% for our proprietary live streaming platform. We also piloted a new AI-driven sales model during the quarter, which is already making solid progress. For example, the customer service to user ratio for our proprietary writing course tripled when we compared to the manual processes we previously deployed. Going forward, our priorities include deeper integration of our vocational training business across our community, developing additional proprietary high margin courses that address evolving user demand and fostering greater engagement. Simultaneously, we will expand the deployment of AI to enhance operational efficiency and accelerate our path to sustainable long-term profitability. In the first quarter of 2024, we not only drove a turnaround in both net income and operating profits, but also achieved a double-digit net margin, demonstrating our profitability potential. AI presents a historic opportunity for growth, and our substantial cash reserves gives us the flexibility to invest in strategic initiatives that will evolve short-term losses. We view this investment as crucial steps towards achieving long-term profitabilities and maximizing our competitive advantages in AI era. From an operational standpoint, we will focus on reinforcing the trust and credibility that enterpene the Juhu community and unlock the commercial opportunities by caring to evolving needs of high-value users and consumers. We believe this will solidify our unique position and competitive advantage in AI area as we continue to explore innovative AI applications that effectively leverage Shuhu's distinct strengths. This concludes Mr. Julian's remarks. Now I will review the details of our fourth quarter financials. For a complete overview of our fourth quarter 2024 results, please refer to our press release issued earlier today. The fourth quarter of 2004 was a true milestone for us, an inflection point that underscores our strategic focus and strong execution. For the first time, we achieved positive operating profits and net income on a both gap and non-gap basis, a clear testament to the strength of our approach and the momentum we have built. Total revenues for the quarter were RMB $859.2 million compared with RMB 1,138.3 million in the same period of 2023, reflecting our strategy to prioritize trust, quality, and return on investment. Our revenue mix has become more diversified, with pay membership and vocational training contributing over 62% of total revenues. Our marketing services revenue for the quarter was RMB 315.9 million, compared with RMB 465.2 million in the same period of 2003. The decline was mainly driven by our proactive and continuous optimization of service offerings, strategically aimed at enhancing margins. Pay membership revenue was RMB 420.2 million, compared with RMB 455.9 million in the same period of 2003. While our average monthly subscribing members saw a slight year-over-year decline, our premium paid content continued to maintain high engagement rates among paying users. Well, our pool decline year-over-year has grew 7.3% sequentially. Vocational training revenue was RMB 84 million compared with RMB 169.3 million in the same period of 2023. The decrease was primarily due to our strategic refinement of acquired business with a continued focus on prioritizing the fast-growing self-operated programs. Our revenues were RMB 39.1 million. compared with RMB 48 million in the same period of 2003. Our gross profit for the first quarter was RMB 540.7 million, compared with RMB 673.1 million in the same period of 2003. Driven by improved operational efficiency, our gross margin expanded further year-over-year, reaching 62.9%. Driven by disciplined cost management and enhanced efficiency from technological innovation, Our total operating expenses per quarter declined by 37.9% year-over-year to RMB 528.8 million. Selling and marketing expenses decreased by 40.1% to RMB 316.2 million from RMB 527.6 million in the same period of 2023. The decrease was primarily driven by more disciplined promotional spending and a decrease in personnel-related expenses. Research and development expenses decreased by 37 percent to RMB 146.6 million from RMB 232.6 million in the same period of 2003. The decrease was primarily attributable to more efficient spending on technological innovation. General administrative expenses decreased by 27.5 percent to RMB 66 million or RMB 91.1 million in the same period of 2003. As of December 31st, 2004, the company has cash and cash equivalents, term deposit, restricted cash, and short-term investment of RMB 1.9 billion, compared with RMB 5.5 billion as of December 31st, 2003. Since our Hong Kong IPO up until December 31st, 2004, we repurchased 31.1 million plus ordinary shares for an aggregate value of US dollar 66.5 million, on the open market and subsequently canceled them. We also repurchased a total of 11.1 million Class A ordinary shares for an aggregate value of US dollar 17.8 million to be utilized upon investing of restricted shares in future. In addition, we repurchased another 33 million Class A ordinary shares for an aggregate value of US dollar 38.5 million via general offers, which we completed on November 8, 2014. In total, the company purchased 75.3 million Class A ordinary shares for an aggregate value of US dollar 1.2 billion. Looking ahead to 2025, we will focus on continuously enhancing the trustworthiness of our community while strengthening our profitability, fostering a mutually reinforcing journey of shareholder returns and enterprise value growth. 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.