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.

Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. In the interest of time, please ask one question each time. If you have any follow-up questions, please go back into the queue. Thank you. We will take our first question. Your first question comes from the line of Ziqun Zhang from CICC. Please go ahead. Your line is open.

感谢管理层接受我提问。 管理层在前面的发言中提到了知乎在AI主线上的一些战略规划, 也分享了关于知达的一些指标和用户反馈。 Thanks, management, for taking my question. The management mentioned about Zhihu's strategic AI plans in the prepared remarks and also shared some metrics and user feedback on Zhida. It sounds like JIGA is not only an AI product of Zhihu. So what other AI initiatives can we expect next, both within the Zhihu community and beyond? Thanks.

Thank you for your question. I'm Zhou Yuan. The big background is that the AI of the model in the next two years will continue to improve. Thank you for your question, Shijing.

This is from Zhihu CEO Zhou Yuan. So on macro level, we expect over the next two years, the intelligence selling of AI models will continue rising. So our strategic focus in AI centers around trustworthy content and our expert network. In fact, we believe this can be summarized as a simple formula. Trustworthy content times community expert network times AI capabilities equals to a scalable growth path.

So you just mentioned the direct answer. or a new interface in the community. The current state of things is only part of what we have in mind. In fact, the community users will give us a lot of feedback during the real-time use of the app every day. We actually haven't launched a bunch of new homogenized features. On the one hand, a lot of ordinary new features will be replaced by the improvement of the model's smart top-line. On the other hand, we don't need to customize some functions to verify the model's capabilities. What's important is the long-term value of the user.

As you just mentioned, Zhida truly serves as an AI interface of the entire community of us, or you could say a new entry point to our community. What you are seeing today is only a partial realization of our vision. In fact, how our users are engaging and active with it is providing us with invaluable feedback. We didn't choose to roll out a series of cookie-cutter or repetitive features. On one hand, we believe many of these common functions will soon be overtaken by the rising intelligence selling of foundation models. On the other, we don't see value in customizing features just to showcase model capabilities if they don't provide lasting value to our users.

So, back to the basics, I think there are two things that are more fundamental under the large background of model development.

So fundamentally, I believe there are two more fundamental tasks in the context of what I mentioned, of this rapid model evolution.

The first thing is to integrate more experts, that is, the expert network I mentioned. First of all, we realized the function from the source to the user. This has been fully implemented. The feedback from users is very positive. We will continue to receive it.

First of all, we are integrating more experts. It's what we refer to as the expert network, Zhihu expert network. Our initial milestone here was to enable contributor attribution, or traceability, which is now fully rolled out and has been positively received by our users. We will definitely continue integrating on this front.

Second, we aim to aggregate more high-quality content

So our next step is to launch public knowledge basis, which will help us scale our library of trustworthy content. We plan to introduce expert knowledge basis in different diversified sectors during the upcoming Gaokao, the college entrance examination season in China, providing reliable support for students in making informed decisions.

Looking ahead, both of these two pillars will continue to involve themselves

Today, the expert network primarily manifests through content, but with the development of agent-based technology, the value of the expert network may increasingly extend beyond content itself and enter a new stage of the evolution. Thank you for your question again.

Thank you. We will take our next question. Your next question comes from the line of Lincoln Kong from Goldman Sachs. Please go ahead. Your line is open.

Thank you for taking my question. My question is about user growth and community products and some innovative plans. Could you please share more with us? Thank you for taking my question. My question is about the user and the community.

Thank you for your question. The strategic center of our community is the quality of the environment. From last year to now, we have been very determined in our strategic execution. Currently, the size of the community is stable overall. What is important? The important thing is that the indicators of the health of each user are constantly improving, and the atmosphere in the community is constantly improving. This is in line with our expectations.

Thank you for your question, Lincoln. As you may know, our current priority is the quality of our entire ecosystem. Since last year, we've executed this strategy with strong conviction. While overall community user scale has remained quite stable, what's more important here is that all key user health metrics have continued to improve. and we're seeing a stronger and a more engaged community atmosphere. This is very much in line with our expectations.

We just held the 11th Zhihu Youth Conference last week. At the event, many of the organizers have confirmed the positive changes that have occurred in the community ecosystem from last year to this year. These stages of positive feedback

Just last week, we wrapped up the 11th Zhuhu Youth Knowledge Conference. And on site, we heard a lot of positive feedbacks from long time and the new creators, like including many who've been contributing to Zhuhu for over a decade. This kind of early positive momentum is encouraging. I believe that incremental changes will compound into many-fold breakthroughs and over time we'll see greater returns.

In the first quarter, we saw a significant increase in the growth rate of the new leader and the small blue marker certification, including the easy certification covered by the maritime plan. The influence of professional creators within and outside the community is also constantly increasing. The number of people and the average interaction between creators has increased by more than 45% and 90%.

In the first quarter, the number of our professional creators honored under our key programs such as Outstanding Contributors, Rising Contributors, Blue Label Professionals, and the Navigators grew significantly year over year. These creators are expanding their influence both within community and beyond. with evidence that by interactions per creator and per post, surging more than 45% and 95% year-over-year respectively.

In terms of community products, we have upgraded and launched a new series of projects and ideas. It has also successfully accepted the long and short creation scenarios of professional creators and provided them with better interactions and benefits. Since March, the new column has achieved rapid growth in column creation and user consumption over the past two months. The number of ideas created by professional creators has also grown rapidly in a quarter, and has also shown very strong user interaction. Thank you.

We also upgraded our column and idea features to better support both long and short form content, professional content creation, and offered improved channels for interaction and monetization. Since the roll out of new column feature in March, we achieved two consecutive months of rapid growth in both content creation and user consumption. Likewise, the volume ideas generated by professional creators search in the first quarter showing exceptionally user engagement.

Thank you. Thank you. We will take our next question.

Your next question comes from the line of Thomas Chong from Jefferies. Please go ahead. Your line is open.

Thank you, Director, for answering my question. My question is to ask Director to share with us the revenue trend and profit outlook of each business in 2025. So I transfer myself. Thanks, Nancy, for taking my question. So my question is, could management share some color on the revenue trends for each business segment in 2025 and the profit-building outlook? Thanks.

Thank you for your question. Thank you for your question.

This is from Zhifu CFO Wang Han. So 2025 is another very important year of business model optimization for us. Our key focus is to further align our community ecosystem with our commercial operations, while enhancing the Zhihu's brand commercial value and the pricing power to build a more sustainable long-term business flywheel.

Although our QE revenue is still declining, there will be some new changes in the health of all users this year.

Although our Q1 revenue declined year-over-year, but each of our business streams is entering a new phase of growth with involving monetization models.

In terms of marketing services, we have already seen that low-quality marketing content consumption has begun to shrink to a very low level. Our customer structure optimization and current marketing product promotion have also entered a healthy development period. In fact, AI has given us a new opportunity for marketing products.

For our marketing services, it has been evidence that relatively low quality marketing content consumption has dropped to a very low level. And we are now seeing accelerated momentum in both client mix optimization and commercial product updates. On top of that, AI is unlocking new marketing product opportunities. In terms of our pay membership, we are broadening our content offering to include a mix of a premium short form and made to long form content. This strategy strengthens our competitive edge in this sector. For our vocational training business, we are transitioning from a traditional model to a more socially engaging knowledge-sharing model that better leverages our community's strength.

And then in terms of innovative exploration, we will combine our own advantages and maintain the ability

On the innovation front, we remain disciplined with our investments, particularly in AI-driven initiatives that align Zhihu's core strengths in content and community.

Our ongoing ecosystem upgrades and AI initiatives come with both opportunities and challenges.

With continued operational refinement and a more granular management execution, we are confident our financial performance will exceed our initial expectations for the year. Thank you. Thank you for your question.

Thank you. Once again, if you wish to ask a question, please press star 1, 1 on your telephone, and wait for your name to be announced.

We will take our next question.

Your next question comes from the line of Vicky Wei from Citi. Please go ahead. Your line is open.

Thank you, Manager. This is my question. Congratulations on the success of this transition period. Can you please share with us some of the things Thanks, management, for taking my question and congrats on a stronger than expected quarter. Would management share some color in your thoughts about the shareholder return program this year? Thank you.

Thank you for your question, Wiki.

This year, we remain committed to enhancing shareholder returns through our share repurchase plan. Earlier today, our board approved the 2025 buyback plan authorizing a repurchase of up to 10% of our issued and outstanding shares.

Thank you.

So we will execute the buyback in the open market on the best effort basis. We believe the current share price does not fully reflect the value of our company, and this well underscores management's confidence in our long-term success. Thank you. Thank you again.

Thank you. That concludes today's Q&A session. At this time, I will turn the conference back to Yolanda for any additional or closing remarks.

Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or Christensen Advisory. Thank you. Thank you so much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.