Zhihu Inc. Price & Performance (ZH)

Company does not assume any obligation to update any forward looking statements except as required under the applicable law. Additionally, the discussion today will include both GAAP and non GAAP financial measures. For consideration purpose only. For a reconciliation 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.zhihu.com. Now I will turn the call over to mister Wang Han, CFO of Zhihu Han, please go ahead. Thank you, Yolanda.

Hello, everyone, and thank you for joining Zhihu's fourth quarter and full year twenty twenty four earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhihu Yan, Founder, Chairman and CEO of Zhihu. Twenty twenty four 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 surpassed our expectations. The fourth quarter was a strong finish to 2024. With robust profitability. For the first time ever, we reported adjusted net income of RMB97.1 million, compared to an adjusted net loss of RMB91.3 million in the same period of last year. Moreover, we swung from an adjusted net operating loss of RMB 165,300,000.0 in the fourth quarter last year. To an adjusted operating profit profit of RMB23.1 million this quarter. The strategic decision is made at the beginning of twenty twenty four 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 peripheral users. This approach not only saved the community user acquisition related expenses, 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 a content creation while maintaining a stable overall user base. AI represents a historic opportunity for Zhihu. As the AI landscape evolves, 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 you who has been accumulated for fourteen years. In essence, the Zhihu community is a dynamic network of real experts who continuously share knowledge experiences and insights. Through rigorous community peer review, Kotlin is validated through discussions across diverse fields driving the creation of high quality and multi dimensional content. Just two days ago, Jira entered with another major upgrade. Users can now clearly see the contribution of our professional creators to each piece of ZhihuDAS output. They can also proactively engage with specific Zhihu content creators are real experts with certificated professional background within the community. Currently, Juna has achieved over 10,000,000 MAU on our app and PC platforms and continues to receive positive user feedback in key areas such as response complete news, accuracy, and reduction of hallucinations. Going forward, we will continue enhancing our product in this direction.

Further strengthening the synergies between Zhihu 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 maintain our focus on improving user engagement, retention and acquisition efficiency. Average MAUs were 81,400,000. 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 enhancement, refined content strategies and algorithm efforts. 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 a center for AI related topics long before engaging discussions sparked by deep six open source release of the R1 model.

It has continued to gain momentum system. The fourth quarter, both AI related content volume and AI focused creators grew more than 50% year over year. Our community of creators includes many leading entrepreneurs, and industry pioneers who engage in multi dimensional professional [indiscernible] CEO of Unit three Robotics who has been an active contributor in Zhihu's community since 2016. In early March, we were honored to be selected by DIPSEQ 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 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 US President election cycle, our community generated more than 23,000 answers across nearly 200 questions driving over 140,000,000 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 a continuous flow of diverse, authentic and professional content. As of the end of Q4, cumulative content volume on our platform reached 874,600,000 pieces.

An increase of 12.9% year over year. This included 654,800,000 Q and A entries up 10.5% year over year. The Zhihu community is now home to seven seventy seven point seven million content creators, up 8.9% year over year. The growing vibrancy of our content creators community is reflected in a growing daily activities of high tier cotton equators. Income generating increase substantially by over 22% year over year during the quarter, with high tier creditors accounting for the most significant gains. The revenue share of Zhihui plan grew by nearly 20% between September and December 2024. During the quarter, we prioritized 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 thirty days of joining, these creators achieved a daily active rate of over 90% on an average. In late January twenty twenty five, Li Zhihui, 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 War Intangible Culture Heritage Edition Spring Festival and detailed explanations of Zhihuan's holiday costumes sparked a widespread community discussions about regional traditions.

We continue optimizing the creators and user experiences and enhanced community atmosphere, not user feedback has declined consistently while positive engagement has increased. Average daily engagements per DAU rose consistently on a sequential basis throughout the year. With the fourth quarter's monthly average ARPU surging over 30% year over year. A healthy and consistent active community ecosystem remains our core S assets. Providing us with strong competitive advantages in AI area. Moving to commercialisation, Since April 2024, we have prioritized the core user experience and community trustworthiness by actively managing the proportion of commercial content distributed and ensuring differentiate experiences for distinct user groups. This strategy has driven ongoing optimization of our community ecosystem in house trustworthiness of our brand. Well, this approach has short term trade offs including setting lower quality revenue streams. We're confident that a long term value from students and trust in our brand and improved healthy of our community will prove more impact. Impactful. Total revenues during the fourth quarter were RMB 859,200,000.0. With revenues for full year 2024 came in at 3,598.9 million, a decrease of 14.3% from last year as a result of strategic adjustments away from lower quality revenue. 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 pay members were 14,100,000.0 during the quarter, a slightly decrease of 0.8% year over year. While paying membership revenue were RMB420.2 million. Our leadership in premium short form paid content strengthened as our Zhihu Yanian story brand continues to gain user mind share. In December 2024, [indiscernible] the twenty twenty four short story impact night in Buao. Hainan Province. Earning 76 outstanding creators and stories. This event introduced new categories like best audio drama and Rookie Creators of the Year. Expanding the influence of Zhihu Yan's creators across platforms and reinforcing our multimedia short form content ecosystem. With an improved content supply and greater ecosystem, income generating creators for pay members shares by 783% year over year during the fourth quarter.

We also further unlocked the potential of Yin Yang Storage IP driving a nearly 50% sequential increase in IP revenue during the fourth quarter. Going forward, we'll continue leveraging the strength of our premium short form 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, whereas establishing a new baseline for marketing services revenue. Which reached RMB315.9 million during the quarter. Encouragingly, the rate of decline narrowed compared to the quarter of twenty twenty four. 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 ARPU June twenty twenty four. With standout growth in sectors like e commerce, IT and 3C, beauty and personal care, FMCG and healthcare. We strengthen our presence in automotive sectors by hosting the first E club Xinji Technology Conference in Chengdu where we brought together key industry players like BYD, [indiscernible] alongside with our automotive expert network.

The event facilitated in-depth professional in partial on EV trends and technologies generating six thirty three thirty million online impressions and 30,000,000 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 a trust of our high value users. At the same time, we will deepen greater partnerships enable them to monetize your expertise and maximize earnings through our platform. Lastly, our vocational training business where revenue decreased 50.4% year over year to RMB84 million during the quarter as we streamline the acquired business. Our shop 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 sub operated business was driven by our strategic focus, a high performing focus high performing courses categories like AGI and film post production which remained highly popular during the quarter.

Deep community integrations continues to foster a loyal user base with an extended life cycle. Operating efficiency initiatives drove further ROI improvements during the quarter. With over 80% of our courses now delivering returns exceeding 2x. Letting you 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% 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 [indiscernible] When we compare to the manual processes we previously deployed. Going forward, our priorities include deeper integration, our vocational training business across our community, developing additional proprietary high margin courses that address evolving user demand and fostering greater greater engagement. Simultaneously, we will expand the deployment of AI to enhance operational efficiency and accelerate our power to sustainable long term profitability. In the fourth quarter of twenty twenty four, we not only drove a turnaround in both net income and operating profit, 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 involve short term losses. We view this investment as crucial steps towards achieving long term profitability and maximizing our competitive advantages in AI area. From an operational standpoint, we will focus on reinforcing the trust and credibility that underpin the community and unlock the commercial opportunities by carrying to evolving needs of high value users and consumers. We believe this will solidify our unique position and competitive advantage in area as we continue to explore innovative AI applications that effectively leverage who's distinct strengths. This concludes Mr. Zhihu's remarks. Now I will review the details of our fourth quarter financials. For a complete overview of our fourth quarter twenty twenty four results, please refer to our press release issued earlier today. The fourth quarter of twenty twenty four was a true milestone for us. An inflection point that underscores our strategic focus and strong execution. But first time we achieved positive operating profit and net income on both GAAP and non GAAP basis. A clear testament to the strength of our approach and the momentum we have built.

Total revenues for the quarter were RMB 859,200,000.0, compared with RMB $1,138,300,000.0 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 RMB315.9 million. Compared with RMB465.2 million in the same period of 2023. The decline was mainly driven by our proactive and continuous optimization of service offerings strategically aimed at enhancing margins. Paid membership revenue was RMB420.2 million, compared with RMB 455,900,000.0 in the same period of 2020. While our average monthly subscribing members saw a slight year over year decline. Our premium pay content continue to maintain high engagement rates. Well, among paying users. Well, our pool declined year over year is grew at 7.3% sequentially. Vocational training revenue was RMB84 million. Compared with RMB 169,300,000.0 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. Other revenues were RMB39.1 million. Compared with RMB48 million in the same period of 2023. Our gross profit for the fourth quarter was RMB540.7 million, compared with RMB673.1 million in the same period of 2023, driven by improved operational efficiency our gross margin expanded further year over year reaching 62.9%.

By disciplined cost management and in house efficiency, from technological innovation or total operating expenses per quarter declined by 37.9% year over year to RMB 5 and 28,000,000. Selling and marketing expenses decreased by 40.1% to RMB $316,200,000.0 from RMB 527,600,000.0 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% to RMB146.6 million from RMB232.6 million in the same period of 2023. The decrease was primarily attributable to more efficient spending technological innovation. General and administrative expenses decreased by 27.5% to RMB66 million or RMB91.1 million in same period. Of 2023. As of 12/31/2024, the company has cash and cash equivalents term deposit, restricted cash and short term investment of RMB4.9 billion compared with RMB5.5 billion. As of 12/31/2023. Since our Hong Kong IPO up until 12/31/2024, we repurchased 31,100,000.0 plus ordinary shares for an aggregate value of US66.5 million on open market and subsequently canceled them. We also repurchased a total of 11,100,000.0 class A shares for an aggregated value of US17.8 million to be utilized upon vesting of restricted shares in future. In addition, we purchased another 33,000,000 class oriented shares for aggregate value of US38.5 million via general offers, which we completed on November 8, 2024.

In total, the company purchased 75,300,000.0 Class A ownership for an aggregate value of US1.2 billion dollars Looking ahead to '25, we'll focus on continuously enhancing the trustworthiness of community while strengthening our profitability for staying mutually reinforcing journey of shareholder returns and enterprise value growth. This concludes my prepared remarks. Our financial performance, for this quarter. Let's turn the call over to the operator for the Q and A session.

Thank you. We will now begin the question and answer session. In the interest of time, please ask one question each time. If you have any follow-up questions, please go back to the queue. Once again, that's star one one for questions. We will now take our first question from the line of Xueqing Zhang from CICC. Please ask your question, Xueqing. Congratulations on the first profit quarter on both GAAP and non GAAP basis. My question about Zhihu Zhihu, could management share your insights regarding the your size data of ZhihuZhihu. How about it benefits the overall Zhihu community ecosystem Additionally, an industrial industrial perspective, there any concern that with the investments in LLM inference capabilities, Zhihu could be replaced by AI? Thank you. Thank you, Zhihuqing. This is from Zhihuqiu, Zhihuan. Thanks for your long time support. For the company. So I will just start by addressing you first question. Over the past six months. Do that user base data grow healthily. And the MAU have grown from the scale of about 1,000,000 to 10,000,000. And we believe this strong organic growth has been driven by the high repeat visits and the positive word-of-mouth. And to your second question, how do that benefits our overall community?

So, Zhihu community has an irreplaceable and unique position over the whole Internet. With this network of experts. This network is increasingly crucial because the expansion of the AI generated content and AI hallucination has made trustworthy content and environment a rigid demand. Although many AI products have already existed today, the lack ability to generally connect with real people especially experts.

Add in your And we believe this question may be answered in an alternative way. [indiscernible] we have a very latest update have perfectly address this need. And we can see now the PC platform fully rolled out and in our Drupal app is already in the gray scale testing now. In this update with introduce two new ways to view this connection within the community through AI. Firstly, the inquiry of results of Zhihu Zhihu can now directly be traced back to the actual community contributor And secondly, you can directly mention special contributor. [indiscernible] into users interaction, personal knowledge base. [indiscernible] We are very glad to see Leslie Zhihu Dao's received many positive feedbacks from our own content creator, sorry. I just come across an excellent content this afternoon. This is from one of our content creators. Scotty. Who specialize in single player games. Painting and art topics. Scott, he just mentioned, if the pre update Zhihujita was defined as an efficient AI search tool, Then the post upgrades has now become a form of human to human connection. This is very Angel Food style. And I will just quote from another Dhruvu content creator. This creator said, I used to think industry leaders were out of reach but now with this ads feature, I can stand on the shoulders of giants This updates has truly take knowledge accessibility to the extreme.

So, I will just pause here a little bit and you are all welcome to try it out more. Now, just to address your third question is about whether AI could replace Zhihu. We believe [indiscernible] AI will significantly enhance to whose development In an AI driven era, We believe trustworthiness is paramount making an expert network very essential Zhihu has the strongest expert network available. And second, Zhihu's expert network has attract pioneers from diverse industries. Who lead cut edging transformations and industry evolutions. As they embrace and use new technology including AI technologies, they embody a seamless integration of human and AI capabilities. So far from being replaced by AI, the value of the top tier experts, for example, the top 10% with their respective industries will actually be amplified As more and more experts join and engage with our community, Our content ecosystem will become even more credible and trustworth. With the credibility and trust as our foundation, we can leverage AI to further improve the efficiency of high quality content production. And dimension dimension nation and attracting and serving an even wider range of users. Thank you. Thank you for your question. Thank you. Our next question comes from the line of Thomas Chong from Jefferies.

Please ask your question, Thomas.

Thanks management for taking my question. My question is also about AI. What other changes and innovation can we expect on the product side this year? Are there any new directions about AI integration? Thank you.

Thank you for your question Thomas. This is from Zhihuo CEO Zhou Yuan. So, this year our focus is on strengthening social interactions and enhancing our brand as a trusted content platform. We have already seen very encouraging developments since the start of this year. So, in the product [indiscernible] direction, we have been developing social circles and new ideas suitable for the short, shorter form and high frequency content. [indiscernible] for longer form content and the subscription plans. Establishing this as important values for community engagements and content consumption. So in terms of content branding, [indiscernible] Zhihu renewal jewelry and Ian Club and a science season will be key area of focus this year. We also plan to expand into more specialized verticals and introduce new original IPs. [indiscernible] position as a trusted content brand while creating new commercial opportunities. So, this era, we believe the influential experts, contributors, and trusted content brand are most valuable than ever. This is where we stand out. We have very clear cuts advantage here and our priority is to maximize the value of these assets. [indiscernible] Workflow So, believe your, as you mentioned, you want to know more about our plan. To better integrate AI with our entire community.

So our AI related initiatives, well, take these questions to the next level. And we will advance on two fronts [indiscernible] the latest version of we have implemented completely new ways for AI to integrate with our community. We will continue deepening this integration to amplify the impact of our expert network. And second, AI will empower many of our community workflows boosting the efficiency of high quality content creation and distribution. We believe this is a new beginning for us In the era of AI, we are exploring and experimenting with many new possibilities. Believe that thanks to Zhihu continuous accumulation of high quality content, we're well positioned to better embrace this new era. Thank you. Thank you. Our next question comes from the line of Daisy Chin from Haitong International. Please ask your question, Daisy. Good evening, management. For taking my question. You just had mentioned that you have you just have talked about the AI and the [indiscernible] [indiscernible] yeah. And the inference about the inference on the Zhihu's community. My question is about how can the AI and the mass network model benefit Zhihu's online marketing product? Do you have any example or data case [indiscernible] Thank you.

Thank you for your question, Zhihu. This is from Zhihu CFO, Wang Han. AI is changing the monetization model of advertising and the most industry players are now staying in the exploration stage But I can share some of our current thinking. I don't know whether you may notice or not what were one thing as the challenges for Juuku in traditional internet era has now become our biggest competitive advantage and are in the most AI native way. In the past, Zhihu has been recognized for is highly knowledgeable users and in-depth content features which were maybe regarded as difficult to monetize in the traditional Internet paradigm that prioritize high traffic and lengthy user engagement And these may often favorite entertainment focus However, this era, in the AI era, this has completely reversed and AI LLMs now prioritize the most high quality answer generated by top tier experts. Traffic is increasing down towards the highest up. Quality content. I can give you an example here. For example, this example comes from the chat box. Many popular AI chat bots rely heavily on Zhihu's real expert generated content. For their index [indiscernible] [indiscernible] So, for advertisers, they are becoming increasingly focused on the content marketing and the brand reputation management on our platform.

Previously, the industry well, also mentioned, well, often mentioned on the SEO search engine. Optimization. And today, this is shifting towards geo or generative engine optimization to gain visible in AI generated answers. So, if you aim to maximize business opportunities and monetization efficiency within AI generated, [indiscernible] Actively managing their content. You should actively managing your content on our platform.

Thank you. Thank you for your question. Thank you. Our next question comes from the line of Wei from Citi. Please ask your question, Vicky. Congrats on a very solid quarter. My question is regarding to the long term margin profile. So how should we think of the long term profitability of Zhihu? And how should we think of the 2025 margin outlook for this year? And how should we think of the cash utilization? Thank you. Thank you for your question, Vicky. This is from Zhihu CFO, Wang Han. This Q4, we achieve profitability for the first time in our history with a double digit non GAAP net profit margin of 11%. If we look broadly across the global landscape of the the UGC platform, user generated content platform, We believe that net margins, the type range from 25% to 40% or even higher to 50%. This reflects the fundamental advantage of UGC platforms over maybe media platforms, which incur copyright related costs. Looking ahead to our profitability outlook for 2025, we believe AI represents a historical opportunity for Zhihu and also given our strong cash position, we may chose, we may choose to maintain a slightly over overall loss temporarily to continue pursuing and capturing the potential opportunities arising from deeper integration between Zhihu and AI.

So, cash utilization, although our market value has increased in recent months, it still remains significantly below our net cash position at this clear undervalued stage. Will continue to conduct open mark buybacks at appropriate times In fact, looking back over the past period, we have been one of The US listed Chinese companies with the highest share repurchase ratio.

Yeah, that's it. Thank you.

This concludes our answers. 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, operator, and thank you all again for joining us today. If you have any further questions, please contact our IR team directly or Chris Sison Adversary. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.