Zhihu Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Johor Inc. First Quarter 2025 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 is being recorded and webcasted. At this time, I would like to turn the conference over to Yolande Leos, Director of Investor Relations. Please go ahead, ma'am. Thank you, Heidi.

Hello, everyone. Welcome to Zhihu's first quarter financial results conference call. Join me today on the call from the senior management team are Mr. Zhou Yuan, founder, chairman, and chief executive officer, and Mr. Wang Han, our chief financial officer. Before we begin, I'd like to remind you that today's discussion will include forward-looking statements made under the safe harbor provisions of the US Private Security Legation 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 our public filings with the U.S. Security and Exchange Commission and the 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 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. I will now 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 first quarter 2025 earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, founder, chairman, and CEO of Zhihu. In the first quarter, we carried our momentum of improving profitability forward, delivering another quarter of positive bottom line results in terms of non-GAAP net income that significantly exceeded market expectations. This marks the first time we have achieved a non-GAAP net profit in the first quarter of the year since our IPO. Adjusted net income per quarter was RMB 6.9 million, compared with an adjusted net loss of RMB 135.7 million during the same period last year. This milestone reflects the continued execution and enhancement of our operating strategy, as well as the increased operating leverage enabled by AI integration. They've been engaging discussions across various professional fields and continue to take place on a Juhu platform, expanding the influence of our trustworthy content and contributors within and beyond our community. Our time spent per DAU core user retention rate and creator activities all showed improvements in the first quarter. We're active in a healthy community experts passionate about sharing knowledge, experience, and insights from the foundation and core advantage for our transition into the AI era. Investment in and exploration of AI applications remains a top priority for us. In the first quarter, we launched the contributor attribution feature, a key step for the broader integration of AI with our community. By attributing high-quality content to contributor, this feature further amplifies the influence of our expert network built over years of professional accumulation. This innovative feature helps reduce AI hallucination in specialized domains and has been well-received by users. We believe AI will catalyze our rapid growth and, through its deep integration with our community, enable us to expand the range of our differentiated value proposition, high-quality content, trusted creator network, and AI capabilities to broaden user experience to the audience. In the first quarter, we saw growth in both content consumption and creation, along with a stronger sense of community belonging. Increased engagement was evident in several of our key user metrics. While our monthly active user base remained stable, average daily user time span reached nearly 38 minutes, up 17.6% year-over-year. Core user retention rate improved both sequentially and year-over-year. Chihuahua has long been the go-to platform for in-depth and vibrant discussion across a wide range of professional fields. We're seeing a robust flow of high-quality content that both deepens user trust and drives more exercising interactions. During the quarter, AI-related professional content grew by 46% year-over-year. Our high-quality content continues to rank highly on major search engines and is increasingly cited by large language models and AI-powered search applications. According to Qubit Research Institute, in professional domains, AI assistants cite community platform content 62.4% of the time, with Juhu ranking highest, cited almost four times as much as the number two platform, highlighting the importance of content quality and professional credibility in the AI era. to who is emerging as a leading source of trustworthy professional content. The number of daily active high-tier content creators continue to grow sequentially in Q1, with verified owner-creators increasing 20% year-over-year. Our higher-tier creators include frontline experts in niche topics, in AI, our community not only discusses macro-level topics like LLMs, intelligent agents, but also dives into foundational technologies such as embodied AI, autonomous driving, and motor compression. For example, Ji Yu, founder of XingyunIC, and Yang Shuo, a top robotics contributor and a former Tesla engineer, both chose Zhihu as the first platform to discuss their startup journeys. Xu Huajie, founder of StarMap, and Professor Zhou Boyu of SUS Tech regularly post their technical insights on Zhihu, generating widespread discussion across the broader internet. QoS Parallel Scaling lead author and core ByteDance Trey and Mars co-developers also used Zhihu to share their ideas and development progress. The integration of AI within our community remains our priority this year. The user base for Zhihu Zidai has grown steadily as a result. By the end of March, monthly active users grew over 37% compared to the start of the quarter. with improved usage frequency and user stickiness in high value fields like technology, finance, workplace, and health. One of our next major updates will include a public knowledge base built on top of existing personal knowledge libraries, enabling professional content creators and expert networks to deliver even greater value at scale. Turning to commercialization, we remain committed to balancing commercial growth with protecting the integrity of our community and user experience. Our trustworthy content and active professional creator ecosystem enhanced the commercial appeal of our brand and monetization potential. We believe a healthy and sustainable commercial flywheel will, over time, further drive our use engagement and improve community vitality. In the first quarter, our total revenue was RMB $729.7 million, down 15.1% sequentially. Now, turning to our performance by segment. In the first quarter, revenue from our marketing services business reached RMB 197 million, representing an year-over-year decline of 40.4%. This decrease was primarily due to the adoption of a trustworthy content model, which identifies and distributes both commercial and organic content. As of the end of the quarter, the consumption of low-quality marketing calls declined by more than 90% year-over-year. At the same time, we're optimizing our client mix. Since the beginning of 2025, we have expanded our experts-facing client base, working with partners such as Huawei's HarmonyOS NEC developers and China Mobile Cloud Services, unlocking the commercial value of our high-quality user base and strong brand influence. Leveraging our trusted AI content framework and vibrant professional creator ecosystem, we're also helping brand partners explore new AI application scenarios. At the 2005 AWE and in the theme AI technology, AI life, we partnered with brands such as Hire, Guri, Lock, and Baidu Xiaozhu to create an immersive offline experience within the Zhihu Future Questions store. Based on user interaction data and content insights, we identified five key AI home appliances and AI lifestyle themes. helping brand partners establish credibility and improve the visibility of their next-gen tech products. We're using this experience to accumulate valuable content and data assets for future AI use cases. Top-tier AI-related advertisers also remain active on our platform this quarter. Additionally, leveraging our in-house AI capabilities, we continue to upgrade our marketing products too. In Q1, we maintained AI load as one of the lowest historical level while improving CPM performance across most product categories, driving higher commercial efficiency for brand partners. This overall AI exposure volume remains stable. Our pool increased steadily. As AI rapidly reshapes content distribution and brand marketing, Juhu is emerging as a key upstream node in AI search value chain. driven by our trustworthy content and network of professional creators in specialized fields. We believe our marketing services business has reached a strategic inflection point. One's disadvantages under traditional commercial paradigm is not increasingly transforming into structural advantages in AI era. For our paid membership business, we continue to prioritize ROI in user acquisition, resulting in improved return profile of new members. In this context, We are pleased that our average monthly paid members remained resilient in the first quarter, up by 1.2% on a sequential basis to 14.2 million. Our paid membership revenue was RMB 417.9 million, remaining stable quarter over quarter. We continue to drive paid user conversion and engagement rates through our premium short-form paid content. and are actively exploring new paid content formats and monetization opportunities. A recent highlight is the original audio drama, Love with Ghost King Over Three Lifetimes, adapted from a popular story by Yan Yan Ryder. Upon release, the series quickly rose to the top of our trending charts and led in the weekly streaming rankings. Building on the strong momentum of our short-form content, we've also expanded into longer-form content. On May 8, we launched Season 4 of Yanyan Story Long-Form Writing Marathon, a six-month competition that invites submissions of high-quality long-form stories from across the internet. This season features four creative categories, including historical fiction, mystery, women's fiction, and speculative fiction, with a prize of RMB 100,000 for top risers. Going forward, we will continue to leverage a combination of premium short-form and mid to long-form content to fulfill the needs of a more diverse audience, reinforcing Yanyan Stories' leadership in a paid reading space. Lastly, our vocational training business recorded revenue of RMB 94.5 million in Q1, down 35% year-over-year. This performance reflects our ongoing strategic transformation of the vocational training business, leveraging our high quality content ecosystem and trusted professional creator network. We're streaming away from a traditional subject-based expansion model, which focused on a few core categories towards a more socially interactive and knowledge sharing driven one. This transition expected to further enhance operational efficiency and profitability over time. A core of this transformation is our goal to empower professional creators Product development will increasingly focus on integrating paid knowledge content with social interactions. For example, our column product can not only better address the learning and knowledge needs of users, but also enable creators to publish in-depth, expertise-driven content while building their own communities and amplifying their personal influence. Going forward, we will continue to build on this new business model, expanding our product and service offerings while further unlocking the value of Chihuahua's high-quality content and trusted computer network. As we move further into 2025, we remain determined to capitalize on historic opportunity created by AI. Building on a strong foundation of community trust, we will further enhance connections and engagement among our high-value user base. By accelerating this synergistic evolution of high-quality content, a trusted creator network, and AI reasoning capabilities, we aim to continuously strengthen Zhihu's competitive advantages and deepen our competitive advantages in the AI area. We believe this strategy will position Zhihu for sustained leadership in the next generation of intelligent content platforms. This concludes Mr. Julian's remarks. Now I will review the details of our first quarter financials. For a complete overview of our first quarter 2025 results, please refer to our press release issued earlier today. In the first quarter, we achieved a non-gap probability and expanded our gross margin as we continue to execute strongly and enhance operational efficiency. We're encouraged by the progress we made to start off the year and remain firmly focused on building upon this momentum to lay a stronger foundation for simple growth. Our total revenue for the quarter were RMB 729.7 million compared with RMB 960.9 million in the same period of 2024. The decrease reflects the ongoing adjustment to our business and our strategic focus on improving revenue quality and mix. Our marketing services revenue for the quarter was RMB 197 million compared with RMB 330.5 million in the same period of 2024. The decrease was mainly driven by our proactive ongoing optimization of service offerings to strategically expand margins. Payment merchant revenue were RMB 417.9 million, compared with RMB 449.7 million in the same period of 2004. While average monthly subscribing members declined slightly year over year, they increased by 1.2% sequentially. Notably, user engagement with premium content remains strong throughout the quarter, reinforcing the value of our current ecosystem. Occasional training revenue was RMB 94.5 million compared with RMB 145.4 million in the same period of 2004. The decrease was primarily due to our strategic refinement of acquired business as we continue to prioritize faster growing self-operated programs. Our revenues were RMB 20.3 million compared with RMB 35.2 million in the same period of 2004. Our gross profit for the quarter was RMB 451.1 million compared with RMB 543.5 million in the same period of 2024. Supported by improved operational efficiency, our gross margin expanded by 5.2 percentage points year-over-year, reaching 61.8%. Our total operating expenses for the quarter declined by 34.4% year-over-year to RMB 503.7 million. This decrease reflects better cost management and ongoing efficiency improvements driven by technological innovation. Salary and marketing expenses decreased by 32.9% to RMB 320.6 million from RMB 478 million in the same period of 2004. The decrease was primarily due to the more disciplined promotional spending and the decrease in personnel-related expenses. R&D expenses decreased by 28.1% to RMB 141.9 million from RMB 197.4 million in the same period of 2024. The decrease was primarily driven by more efficient spending on technological innovations. G&A expenses decreased by 55.6% to RMB 41.2 million from RMB 92.9 million in the same period of 2024. As a result, our gap net loss per quarter narrowed by 93.9% year-over-year, On a non-GAAP basis, we remain profitable for the second consecutive quarter, recording adjusted net income of RMB 6.9 million, compared with an adjusted net loss of RMB 135.7 million in the same period of 2024. As of March 31st, 2025, we have a cash and cashier equivalent 10 deposits, restricted cash and short-term investment of RMB 4.8 billion. compared with RMB 4.9 billion as of December 21st, 2024. As of May 26th, 2025, we purchased 31.1 million Class A ordinary shares for an aggregate value of USR 66.5 million on open market. We also repurchased a total of 17.8 million Class A ordinary shares or aggregate value of US dollar 26.9 million through the trustee of the company. In addition, the board has approved the new 2005 share repurchase program, which will be effective until June 25th, 2026, with a maximum repurchase size of 10% of total issued shares, subject to shareholder approval at our upcoming annual general meeting. Looking ahead, we will continue strengthening our commercialization capabilities and capitalizing on a long-term growth potential within our community. Our goal remains clear to drive sustainable growth and profitability and to deliver lasting value to our shareholders. This concludes my prepared remarks on our financial performance for the quarter. Let's turn the call over to the operator for the Q&A session.