Zhihu Inc.

Ladies and gentlemen, thank you for standing by and welcome to Chihu Inc's first quarter 2026 financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be 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.

YOLANDA LIU Thank you, Amber. Hello, everyone. Welcome to Zhihu's first quarter 2026 results conference call. Join me today on the call from the senior management team, our Mr. Zhou Yuan, founder, chairman, and chief executive officer, Mr. Wang Han, chief financial officer, and Mr. Zhang Rongle, our chief operating 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 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 views expressed today. Further 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 except as required under active law. Additionally, the discussion today will include both GAAP and non-GAAP financial measures for a consideration purpose only. For a consideration of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our IR website at ir.zhifu.com. Today, Victor Zhou, an AI agent representing Mr. Zhou Yuan, will deliver prepared remarks in English on his behalf. As Victor is still being refined, we appreciate your understanding. Victor, please go ahead.

Thank you, Yolanda. Hello, everyone. and thank you for joining Ji Hu's first quarter 2026 earnings call. I'm Victor Zhou, and I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, our founder, chairman, and the CEO. The first quarter of 2026 marked a strong start to the year as we advanced our high quality growth strategy our community ecosystem continued to thrive, fueled by a more dynamic user base, deeper social connections, and a stronger engagement. Average daily time spent per DAU reached nearly 42 minutes. Our content creators remained highly active and expanded across AI and other specialized domains, further strengthening our trusted expert network. This quarter, professional, authentic, and in-depth content from real people continued to flourish across our community. Its influence extended beyond our platform and reinforced our unique competitive mode in the AI era. We also accelerated the integration of AI capabilities across our platform and business operations, with the social interactions significantly enhanced across multiple use cases. Building on this solid foundation, Jifu has continued to gain momentum along its recovery trajectory. In the first quarter, our total revenues achieved positive sequential growth, and the year-over-year decline narrowed substantially, reflecting our healthier business ecosystem and more efficient monetization. Our core businesses are showing encouraging signs of recovery, while our new initiatives continue to gain momentum and deliver steady growth. Specifically, Marketing services saw a meaningful narrowing of the year-over-year decline, signaling near-term stabilization. Revenue from IP operations delivered robust growth. Capitalizing on our premium IP library, we have significantly elevated both the production capacity and the quality of our short drama and comic drama adaptations. Multiple short dramas and comic dramas garnered billions of views and consistently topped the popularity charts. This success serves as a strong validation of the commercial potential of our high quality IPs. Our expert data solutions have started to gain traction among key clients with early stage monetization opportunities gradually taking shape. Our vibrant community fosters genuine connections and deep user trust assets that are increasingly valuable in the age of AI. This has directly fueled continued growth in user engagement on our platform. In 1Q26, average daily time spent per DAU reached approximately 42 minutes, increasing on both year-over-year and quarter-over-quarter basis. The daily active user coverage of positive interactions also grew year-over-year. Underpinning this momentum, our content ecosystem is scaling at a healthy pace. As of the end of the first quarter, cumulative content volume reached 972 million entries and cumulative topics grew to 4.38 million, up 8.8% and 15.7% respectively from the same period last year. High quality content creation continued to gain momentum. This quarter, daily creation of high quality content rose 18% year over year. with professional AI-related content growing over 30% year-over-year. Against the backdrop of rapid AI evolution, Zhihu's professional ecosystem and high-quality creator network continue to offer distinct, differentiated value. As a hub for frontline developers, researchers, and tech professionals, Zhihu remains the premier platform where cutting-edge industry trends are first discussed rigorously analyzed and professionally evaluated. In the first quarter, we saw heightened engagement from subject matter experts across top universities, leading internet companies and AI labs. They actively participated in deep discussions on topics such as AI self-evolution, next generation, large model development, video generation, model iteration, and open source ecosystems. From computer science scholars at institutions like Tsinghua University to R&D leaders at tech giants and leading AI startups like Alibaba, ByteDance, and Moonshot AI, Kimmy, a growing number of professionals are sharing their frontline insights, technical reproductions, and in-depth analysis on Zhihu. A substantial cohort of core experts from top-tier labs has joined the platform and remains highly active. In addition, updates to mainstream AI products consistently spark systematic technical interpretations and professional evaluations within our community. Notably, this quarter saw substantial in-depth discussions surrounding Deep6 expert mode, Alibaba's new video model, Happy Horse, and developments related to Google's Gemma 4. This high-quality content ecosystem, continuously enriched by frontline practitioners, not only enhances Jihoo's professional credibility, but also further solidifies our core competitive mode in the AI era. Professional creators are the core engine that powers the vitality, trustworthiness, and the uniqueness of our expert network. In the first quarter, the number of verified honored creators on Jihoo grew over 10% year over year. Reflecting our continued commitment to amplifying their industry influence, momentum in AI-related creator activity remains strong. We have aggregated over 19 million AI-focused creators who not only fill our community's high-quality content ecosystem, but also represent a robust pipeline of potential 2B service providers. We also saw a notable influx of top research teams, institutional executives, and core developers in fields like commercial aerospace and frontier technology. Their active participation has further solidified Zhihu's standing as a hub for professional discourse on advanced tech. At the same time, In the film, entertainment, and cultural verticals, we deepened our reach and engagement among upstream IP holders, co-production teams, and dedicated enthusiasts. In May, we hosted the 12th Zhihu Xinzhi Youth Conference, Xinzhi Qingyan Dahui in Beijing. This year's event placed a strong focus on the value of human creativity in the AI era, exploring the irreplaceable worth and core strengths of authentic creators amid rapid technological advancements. Overall, sustained engagement of high-quality creators across diverse verticals not only strengthens our foundation of professional, trustworthy content, but also enhances the strategic value of our content assets. This ecosystem directly accelerates our AI-driven commercialization and reinforces the unique competitive advantages of our trusted expert network. Alongside the deeper professional engagement, our ecosystem is also becoming increasingly social and interactive. In the first quarter, we optimized both the creation and the consumption experiences for our short-form ideas product. This initiative effectively lowered barriers to entry while significantly boosting community vitality. Looking ahead, we will focus on deepening the synergies between ideas and our community-based Circle product. By implementing more refined operations and expanding distribution scenarios, we aim to drive further positive momentum in core user retention and total time spent. Ultimately, this will unlock and expand a wider range of native commercial monetization opportunities. We continue to integrate core AI capabilities across content creation, discovery, consumption, and community interactions. Through our open platform, API and offline events like the AI Hackathon, we empowered developers and the creators to explore AI-native content and the interaction formats, further extending the practical application of AI technologies across the Jihu community. As we embrace AI as a tool for creative efficiency, we further refined our AI-generated content governance framework to rigorously filter out low-quality machine-generated spam. Since the start of 2026, we have removed over 250,000 pieces of low-quality AI-generated content and have penalized more than 11,000 violating accounts. These efforts have meaningfully safeguarded Jihoo's authentic atmosphere and significantly enhanced experience for our creators and users. Now, turning to commercialization. In the first quarter, total revenues grew sequentially and the year-over-year decline narrowed significantly, signaling a clear recovery. Underpinned by a healthier commercial ecosystem, our monetization efficiency continues to improve, with new growth momentum steadily materializing. Let's take a closer look at our performance by segment. First, paid content and IP operations. Starting from the first quarter of 2026, we combined IP-related revenue previously included in other revenues with our existing paid membership revenue into paid content and IP operations revenue. This change more accurately reflects the commercialization potential of our Yanyan Story franchise. This quarter, revenue from paid content and IP operations reached RMB $402.3 million, increasing 15.8% sequentially, driven primarily by the rapid growth of our IP operations, which reflected strong momentum in unlocking the commercial value of our original content IP. Average monthly subscribing members reached 13.1 million, up 7.9% sequentially with structural optimization. This growth was primarily driven by seasonal content consumption during the Chinese New Year holiday and improved the customer acquisition efficiency with Zhifu's premium short-form paid content continuing to play a key role in attracting and retaining users. We maintain disciplined high ROI standards by proactively optimizing inefficient acquisition channels to drive high quality growth in our subscriber base. Meanwhile, synergies between our AI-powered comic dramas and paid membership businesses are gradually emerging. By distributing JiFu's high quality IP and adapted content beyond our community, we effectively attract new users to in-community consumption scenarios. creating a strong connection with membership benefits. This strategy expands the reach of our IP while driving conversion among potential members, improving overall acquisition efficiency, and enabling us to continuously optimize the returns on our marketing spend. Revenue from IP operations delivered a strong growth momentum this quarter. The number of our IP partnerships grew more than fivefold year over year and more than doubled sequentially. Several of our top titles sold both film and gaming rights, and we signed additional licensing deals in verticals like science fiction. Together, these deals further validate both the depths of our IP monetization capabilities and the pricing power of our IP assets. Supported by our IP library, both the production capacity and the content quality of our short drama and comic drama adaptations remain stable in the first quarter. Multiple short dramas and comic titles achieved billions of views, consistently ranking at the top of various major platforms. Looking ahead, leveraging our strong IP pipeline, we will continue to pursue end-to-end multi-dimensional commercialization and further extend the lifecycle of each individual IP. Moving to marketing services, in the first quarter, Marketing services revenue was RMB 191.4 million, broadly in line with the same period last year. Our disciplined execution across the client mix optimization and the product upgrades continued to deliver results. On client mix, Apple rose sharply both year over year and sequentially in core verticals like gaming and automotive. Our industry mix also continued to improve. with commercial efficiency improving notably across gaming, travel, and transportation. This was supported by the ongoing consumption recovery and a wave of new game launches during the quarter. On commercial products, in March, we launched our technology-themed IP Tech Bytes, Tech Zhishitang, at this year's Appliance and Electronics World Expo, with a focus on the home appliance and consumer electronics sector. At the on-site immersive exhibition zone, Zhihu creators hosted guided walkthroughs to answer consumer questions with professional technical insights. They also shared the latest trends in home appliances and consumer electronics. At the same time, Zhihu reviewers' jury hosted an online discussion forum, helping decode industry jargon and highlight the real value behind product innovation. Turning to other revenues, in the first quarter, other revenues were RMB 57.8 million. As I mentioned earlier, we have reclassified IP-related revenue into our new paid content and IP operations segment, which better reflects how each business is developing. Within other revenues, our expert data solutions business won recognition from leading enterprise clients and began generating revenue this quarter. As a pioneer in defining and delivering high value data solutions, we are now translating our expertise into tangible value for our clients. Our differentiated value has been firmly validated by the top tier AI labs. Looking ahead through the rest of 2026, we remain committed to deepening our services for key clients while expanding our footprint into new industries. To wrap up, The first quarter gave us a solid start to the year. As we move through 2026, our priorities remain clear. We will continue to strengthen operational profitability while leveraging our unique strengths in the AI era to drive higher quality, accelerated growth. We believe the combined power of high quality content times expert network times AI capabilities will further set Ji Hu apart in this new era. Over the next three quarters, we will continue to execute on our strategy with discipline. We expect our core businesses to show an accelerated recovery. In parallel, our AI-related new initiatives should continue to gain traction and contribute meaningfully to growth. With that, I will hand the call over to our CFO, Wang Han, Remarks will be delivered through his AI voice agent. Han, please go ahead.

I will now go over our first quarter 2026 financials. For a complete overview of our results, please refer to our press release issued earlier today. The first quarter marked a strong start to the year, with our operations and financial performance both improving. Building on the full year non-GAAP profitability achieved in 2025, we delivered a strong sequential return to profitability in the first quarter, supported by continued gross margin recovery, disciplined cost management, and focused resource allocation. These results reflect the cumulative impact of our multi-quarter structural optimization and provide a strong foundation for continued growth as we move through 2026. Now turning to the financial highlights of first quarter 2026. At the non-GAAP level, we are pleased to report that adjusted net profit turned positive in the first quarter of 2026, reaching RMB 17.2 million, compared with an adjusted net loss of RMB 39.4 million in the fourth quarter of 2025. Our total revenue for the quarter reached RMB 651.6 million, compared with RMB 729.7 million in the same period of 2025. The year-over-year decline reflects our continued efforts to optimize revenue mix and to prioritize high-quality services. More importantly, revenue grew on a sequential basis, driven by strong revenue contribution from our paid content and IP operations segment. Our marketing services revenue for the quarter was RMB $191.4 million compared with RMB $197 million in the same period of 2025-2022. The stabilization in marketing services reflects our proactive and ongoing refinement of service offerings, with a notably improving sequential trend. Paid contents and IP operations revenue was RMB 402.3 million, compared with RMB 420.9 million in the same period of 2025. Average monthly subscribing members were 13.1 million, an increase of 7.9% on quarterly basis. We continue to focus our resources on strengthening user engagement and monetization opportunities. In addition, revenue growth from our IP operations served as an earnings driver supported by expanding IP initiatives. Other revenues were RMB 57.8 million compared with RMB 111.8 million in the same period of 2025. The decrease was primarily due to strategic refinements of our vocational training business. Our gross profit for the quarter was RMB $388.3 million. Compared with RMB $451.1 million in the same period of 2025, gross margin was 59.6% compared with 61.8% in the same period of 2025. Notably, gross margin improved sequentially from 53.6% in the fourth quarter of 2025. This improvement was attributable to prudence cost controls across content and cloud operations. Our total operating expenses decreased by 10.4% year over year to RMB 451.2 million in the first quarter of 2026 compared with RMB 503.7 million in the same period of 2025. The decrease in total operating expenses was in line with revenue. Supported by management's careful cost controls, R&D expenses fell by 22.4% year-over-year, while selling and marketing expenses also decreased by 11.1% year-over-year. Selling and marketing expenses decreased by 11.1% year-over-year to RMB 285.1 million from RMB 320.6 million in the same period of 2025. The decrease was primarily due to more disciplined marketing spending and a decrease in personnel related expenses. Research and development expenses decreased 22.4% year over year to RMB 110.1 million from RMB 141.9 million in the same period of 2025. The decrease was primarily driven by ongoing improvements in our research and development efficiency. General and administrative expenses were RMB 56 million compared with RMB 41.2 million in the same period of 2025. The increase was primarily attributable to an increase in the allowance for expected credit losses on trade receivables. Accordingly, our net loss narrowed by 15.6% to RMB 8.5 million from RMB 10.1 million in the same period of 2025. On a non-GAAP basis, adjusted net income increased by 147.2% year over year, to RMB 17.2 million from RMB 6.9 million in the same period of 2025. As of the 31st of March, 2026, the company had RMB 4.5 billion in cash and cash equivalents, term deposits, restricted cash, and short-term investments. As of the 31st of March, 2026, the company has repurchased 34.8 million Class A ordinary shares on the open market for an aggregate value of US$70.7 million on both the New York Stock Exchange and the Stock Exchange of Hong Kong. During the first quarter of 2026, the company repurchased 3.7 million Class A ordinary shares for a total consideration of US$4.2 million. The share repurchase program continues to deliver value back to our shareholders. Building on the solid momentum achieved in the first quarter, we expect 2026 to be a year of high quality growth. We remain focused on strengthening operational profitability and improving execution efficiency, while further leveraging the unique advantages from our high quality content, expert network, and AI capabilities. As these three pillars continue to evolve in unison, they will further highlight our distinctive value in the AI era. Looking ahead, we will continue to execute our established strategy with discipline and focus. driving sustainable growth and long-term shareholder value. This concludes my prepared remarks on our financial performance for this 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. To ask a question, please press star 1-1 on your telephone and wait for the link to be announced. To withdraw your question, please press star 1-1 again. In the interest of time, please ask one question each time. If you have any follow-up questions, please go back to the queue. We will now take our first question. And our first question comes from the line of Xueqing Zhang of CICC. Please ask your question, Xueqing. Your line is open.

Thanks management for taking my question and my question is about AI. Can management share some of the latest strategic thinking and roadmap around AI? For example, in terms of integrating AI with the Zhihu community, what's your latest plan and progress? Thank you.

Thank you, Xueqin, for your question. My name is Zhou Yuan. As for the relationship between the community and AI, I now understand that it is neither AI plus or plus. As my agent just mentioned, the market of our community active users has achieved from a relatively significant growth. This change, first of all, comes from the core strategy of the community ecosystem that we surround with high-quality and reliable community. In other words, the discussion and communication between people in the community itself is becoming more active. Even without AI, this kind of activity will still happen. Because in the community, What this user really needs is not the AI itself, but the real connection between people and people. So, building a high-quality, reliable real-life community is what this team has been doing since the first day of creation. Whether it's the mobile Internet era or today's AI era, Thank you for the question, Xueqin.

I believe the relationship between the community is not AI plus or plus AI. So as I mentioned earlier, average daily time spent per DAU increased. And I recommend it's mainly seen from our persistent core strategy over the past period, which centers on building a high quality, trustworthy community. So in other words, the interpersonal connections are becoming more active. And this vibrancy would still occur even without AI. So what users truly need is not the AI itself, but rather cognitive enhancement, experience sharing, and real connections. So building a high-quality, trustworthy community is what GFU has been doing since day one. Whether navigating the internet era or today's AI era, our underlying mission has never changed.

um therefore rather than viewing the community community as an ai application scenario we focus on how to leverage technology to better serve people um There are actually a lot of workshops and coffee chats related to AI and giant intelligence. In fact, there are a lot of activities that have nothing to do with AI. We have a lot of hand-made rooms, sports fitness and gourmet events. In fact, everyone has come here for the sake of people. The new knowledge in the New Knowledge Youth Conference is not just new knowledge, but more new awareness and new connections between people. This is exactly the most appropriate value for the community. We have always believed that the community ecology of the community is not a form of ecology with a slight level of attention, including some of the user interactions mentioned earlier, and the frequent improvement. The user group it corresponds to is not a blurred group of people, but the entire high, middle, the behavior of the user group and the changes of the contract. Therefore, our core work is to continue to build Zifu into a law enforcement system that can help people to improve their awareness and establish new connections. In the past two years, we have mainly done four things. The first is to continue to invest in community ecology. The second is to talk about product experience. Take the Xinji Conference as an example.

This year, on-site attendance exceeds 80,000, which is setting a historical record. We have over 100 partners on-site and featuring numerous workshops and coffee chats related to AI. And there's also non-AI activities, such as handicraft workshops, fitness areas and food markets. So, ultimately, people gather together for the engagement. And the meaning of Xingzhi does not merely represent the new knowledge, but the new cognition and the new connections. And this is precisely the core value of the Jihus community. And we have always believed that Jihoo's community ecosystem is not built to serve like shadow attention and the increasing time span corresponds not to a concept of like everyone, but to the active growth of a need to tie attention user cohort. So our core priority is to continuously build Jihoo into a positive feedback system. that helps people elevate the cognition and establish connections. And to achieve this, we have executed four initiatives over the past two years. So the first one would be the sustained investment in the community operations. And second would be the simplification of the product experience. And third one would be the long-term investment in the underlying technical infrastructure. And the last one would be the advancement in AI innovation and efficiency.

We hope to combine AI Search with community content. so that the answer is not only from the model, but also from the real person and real experience. So today, we have entered the second stage. On the one hand, we are building a data platform. This data platform actually contains high-level data that the community has accumulated over a long period of time. At present, we have already developed and used it for developers through MCP and Skills. On the other hand, we are also building an open platform. This is based on the data platform. We are further opening up the API in the community to open up this capability. We have actually already held the first opportunity to open up the platform, Hikamatsu. Today, we will gradually turn this exploration into a long-term open platform. Its purpose is to let more new generation of creative engineers and creators Regarding AI, we have one principle.

AI is not the end goal, but people are. And so like in the phase one for Zhihu Zhida, we aim to integrate AI search with our trustworthy community of content, ensuring answers not just generated from the models, but could be tracked back to real people and experiences. And the phase two, which is our current stage, we are advancing in two areas. So firstly, we are building on a data platform. aggregating the high-quality, long-term community data that have been cleaned and credibly ranked. It's open to develop via MCP or skills. And secondly, we are building an open platform, which is our community APIs. And we hosted our first open platform-based hackathon. Now, it's currently project-based, and will turn into a product in the long-term open platform. to enable the engineers and AI creators to continuously innovate. Therefore, integrating the community and AI is not simply dropping into, it's about to leverage open platform to empower more creators to generate new value.

Of course, our exploration is not only about this. If we say that this open platform is released by the creator of the developer, AI Manjue is the value of the IP generated by the community. The community's real-time discussion has generated the business of selection of members. Members can be understood as a kind of out-of-the-community. The development of members has generated the business of story-telling. Today's AI Manjue is actually a kind of out-of-the-community. This is a typical process in the community, not only in the community. Our exploration extends further

If the open platform unlocks creativity, AI short dramas or the comics unlock the value of our IP. Our paid content in story and today's AI dramas are all organic extensions of our authentic discussions. These exemplify our strategy of starting from and extending beyond the community. A community creates content and content generates IP. which leverages the new technologies to reach broader users. As the AI drama industry shifts from the volume growth to quality, we believe the value of our IPE will further unlock.

Finally, I would like to say that Zhihuo Group is a company with long-term goals. In the past two years, we have made some progress. It is not a matter of scale. Our core strategy It hasn't changed in the past. It is a deep-rooted community, focused on people, and using AI to innovate better services and resources for people. Constantly pushing business into a positive cycle that is not only for the community. Of course, such a change will not happen in a quarter, nor will it be completed in a year. The result we see today comes from our past two years of persistence. Finally, Zhihu believes in long-term.

Our current progress is not driven by skill-focused tactics. Our core strategy remains unchanged. Deeply cultivate the community and focus on people, and leverage AI innovation to better serve and empower people, and continuously drive the positive cycle or starting from the community and extending beyond it. Such transition cannot materialize within a single quarter or even a full year. Our current results think from consistent execution over the past two years, while our ongoing efforts are laying groundwork for structural improvements in the next three years. Thank you.

Thank you.

Thank you.

We will now proceed to take our next question from the line of Vicky Way of City. Please ask your question, Vicky. Your line is now open.

Thank you. Thank you. So thanks, management, for taking my question. We noticed that starting from the first quarter, the company merged the original paid membership revenue with membership-related copyright licensing and IP derivative revenue into a single category. Does this change reflect a new strategy we think by management regarding the market potential and growth drivers of this business? And third of all, how should we think of Zihu's advantages and opportunities within this newly defined market space? Thank you.

Thank you for your question. I'm Zhang Rongle. I'll answer this question. Indeed, the adjustment of this income segment reflects our strategic thinking about paid content and IP business. In the past, the market has more understood our paid content business as a member's subscription income. But in fact, as the largest high-quality short film original platform of the Chinese Internet, as the entire product division and reading, as well as the continuous development of the story content ecosystem, we have already seen a high-quality story. Its commercial value is not only reflected in the member subscription at the front end, but it can also further extend to the entire short drama, slow drama, and even long-term film and television, including game adaptation, and more content. At the same time, we also see a lot of storytellers in the community who have started to upgrade from storytellers to screenwriters, and even AI comics creators. Therefore, from the first quarter of 2026, we started to show the original version of other income, such as the copyright and IP income, and the original paid membership income, and the new paid content and IP operation income. We hope to show the market more accurately Thank you for the question, Vicky.

This is from Zhihu's COO, Zhang Rongle. This revenue reclassification indeed reflects a strategic operate in how we view our paid content and IP operations. Previously, the market saw our paid content as just membership revenue. But as China's top premium short-form original platform, the growth of Yanyan's story has unlocked far broader value beyond the subscriptions. Our IPs now monetize through short dramas, comics, film, or TV shows and games. Creators are already becoming writers and producers. So effective since the first quarter of 2026, the re-classification aims to better showcase the full lifecycle value of our content and IP.

This also means that we are upgrading our business from a single subscription transformation to an IP-only network operation and development. Member subscription is still a very important basis for our entire business. It helps us continuously verify the attractiveness of content, including the user's will to pay and the potential of the story IP. Based on this, very high-quality content can continue to release its commercial value in the form of copyright cooperation, script adaptation, short stories, and AMI dramas. In other words, we hope to form a comprehensive barrier between content creation, member consumption, IP selection, and copyright development.

This means it's upgrade from a single subscription model to the full chain IP operation and development. It remains as a crucial foundation helping us validate the content creation, the user willingness to pay, and IP potential. Building on this, content could unleash commercial value through the IP partnerships, script adaptions, short dramas, and et cetera. and we aim to form a complete closed loop from the content to consumption, to consumption, and to the IP screening and multi-format monetization.

In the new market space, we believe that the opportunities and advantages in this field can be reflected in four aspects. First of all, the Yanyan Story under Zhihu is the pioneer and pioneer of the short story track of the Chinese Internet. Yanyan Story has accumulated a lot of high-quality short film content for a long time. And short film stories naturally have very concentrated plots, clear character relationships, conflict points, high density. These characteristics are very suitable for these new content styles such as short films, slow films, and so on. Compared to the whole content from scratch, the short film IP based on the existing content is changed. In this new market landscape, we believe Jiuhu has four competitive advantages.

Our Indian story is the leading player in the short story track. It has accumulated a vast library of premium short stories over time. Short stories naturally feature concentrated plots, clear character relationships, and high-density conflict. making them highly suitable for the adaption into new content. Compared to incubating content from scratch, adapting the existing IPs deliver high efficiency in both content screening and monetization conversion.

The second advantage is the creator ecosystem that we continue to grow. Through the creator competition, incentive mechanism, and platform operation, we continue to dig and encourage of the Chinese Medicine Department. Not only have these creators provided us with a lot of text-based channels, but also through novel creation and script adaptation, we have been able to help high-quality creators achieve a longer business return. We are also very happy to see that creators, in addition to having the ability to create novels and edit scripts, We continue to strengthen our creator ecosystem through the incentive mechanism

we discovered the big tie mid-tier creators and extend their life cycle by enabling the transition from novel writing to script adaption. Meanwhile, our creators are showing high potential in utilizing AI for content inspiration and video gen models. So in first quarter, total creator earnings surged 5.6 times year over year. and further demonstrating the IP monetization.

The third advantage is the development of the entire AI manga industry, which has led to the transformation of the entire IP and is entering a stage of accelerated development. In the first quarter, our copyright cooperation total increased by 564%, and the return increased by 248%. This shows that the market is rapidly improving its recognition of the high-quality original content. It also testifies the deep commercialization of our entire platform and content assets. We also observed that there are some changes in the AIM industry in China. In fact, the industry will pay more attention to the whole content and its originality. This trend is actually the same as our previous judgment. We also believe that the competition of the AIM industry will eventually return to the competition of the content itself. As the industry develops, we also believe that

AI short dramas are really speeding up our IP monetization. So in the first quarter, our total IP partnerships surged like 564% year-over-year and 248% quarter-over-quarter, fully validating the commercial dip and the premium pricing power of Zhuhu's content assets. and computation will ultimately return to the quality of the content. As the industry evolves, the lifetime value of individual IPs will be further unlocked.

The fourth point is the improvement in the production efficiency and profitability of AI for the entire industry. The emergence of AI greatly increased the production capacity of the entire AI management system. We can see that the market situation is the long-term content of the market storage. the consumption is already very high. The form of the short film is naturally suitable for the adaptation of the comic. Its content absorption rate is higher. As we participate more comprehensively in its adaptation, production, and release chain, and combine AI in the setting of roles, screen generation, script support, and these production efficiency improvements, the overall production cost of the content is expected to be further optimized. The profit rate will also have a chance to reach a better level. AI has increased the production capacity.

Our short-form IPs offer natural high yield advantages for adoption. As we deepen our participation Leveraging AI for storyboarding, image generation, scripting, and distribution. And we anticipate the lower cost and higher margin. Ultimately, AI doesn't just increase output, it empowers creators.

Overall, the adjustment of the income classification is not a simple change in a quick way. It mainly reflects the new definition of the commercial value of our story and the original IP. In the future, we will continue to surround the original content and the creator's ecosystem, promoting the paid content of the call, copyright authorization, short drama, A&M drama, and more IP development forms. We will continue to improve the value of the life cycle of each IP, and the entire paid content and IP operation

Therefore, the revenue reclassification isn't just an accounting adjustment. It reflects how we redefine the commercial potential of E&E Story and our original IPs. Going forward, we will drive deeper synergies across paid content, IP licensing, short dramas, AI comics, and other formats. And this allows us to maximize the LTV of each IP and turning the paid content and IP operation into a growth driver. Thank you.

Thank you. We will now proceed to take our next question from the line of Lu Ting, Joe of Goldman Sachs. Please ask your question, Lu Ting. Your line is open.

So thanks management for the opportunity. My question is regarding the AI investments. Can management elaborate more on the specific areas of allocation of your AI investments? How do you plan to balance those new investments with the group's long-term overall profitability goals? Thank you.

Thank you for your question. I'm Bao Han. We will definitely integrate AI into the company's various businesses, but I feel that you and the market are most concerned about when we can have AI-driven revenue to allow us to grow again, right? So we still insist on the previous judgment, which is that the two reasons for AI short-term management and AI data are still the same. Because these two, the former may be the content of AI production that users are most willing to pay for, and the latter is for the development and sale of the AI industry. So if you balance the situation of new business investment and profit, these two choices should be in all AI business. Thank you for the question, Lo Ching.

This is from Zhihu CFO Han Wang. We're certainly integrating AI into all aspects of our operations. However, I understand that the market is likely most concerned about when AI-driven revenue will accelerate our growth. We maintain our previous strategic focus specifically targeting two fields, the AI short dramas, comic dramas, and the expert data solution. The former represents the AI-generated content that users are most willing to pay for, whether the latter serve as the selling water and shovels to the AI industry. Therefore, regarding how we balance new business investments with profitability, These two selections represent some of the healthiest cash flow profiles among all AI verticals, and Zhihu holds distinct competitive advantages here.

Of course, these two industries have their own challenges. From the industry competition to the market environment, we still need to invest in them from a long-term perspective. But please rest assured that we will not lose our momentum.

Of course, there's challenges ranging from industry competition to the macro environment, which would require a medium to long-term perspective. However, we will not pursue a strategy of burning cash to chase growth. Our investments will focus on building core long-term capabilities to deliver fundamentally superior products. Thank you.

Thank you. We will now proceed to take our next question from the line of Daisy Chun of Haitong International. Please ask your question, Daisy. Your line is open.

Thank you, Guanli Chun, for accepting my question. That's management board taking my question. Zhihu's profits have shown significant improvement in Q1. Does management have any update to the shareholder return plan such as the methods and the payout scale? Thank you.

Thank you for your question. To put it simply, we insist on large-scale repurchase. Once again, as you can see, in the past two years, we have always been one of the companies with the highest repurchase rate in China. Since 2022, the company has accumulated a total of 63.5 million A-class common shares in the public market, costing a total of 1.13 billion US dollars. From the beginning of 2026 until now, the company's main body has accumulated a total of 46.1 million A-class common shares. Thank you for the question, Daisy.

We remain firmly committed to our shared approaches. We believe Zhuhu has been one of the most active Chinese ADRs in terms of buyback intensity over the past two years. And since 2022, the company has repurchased a cumulative 63.5 million Class A original shares in the open market, with a total cost of US dollar $130 million. And year-to-date in 2026, the company has repurchased 4.61 million shares for over the cost of US dollar for $5.06 million, representing $1.6 74% of total shares outstanding, and shares repurchased during the first quarter of 2026 have all been fully canceled. Thank you.

Thank you. That concludes today's question and answer session. At this time, I'll 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 for Chris Jensen's advisory. Thank you. Thank you all.

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