Zhihu Inc. Q1 2023 Earnings Call
Speaker 2: Ladies and gentlemen, thank you for standing by and welcome to the ZHU, Inc. First Quarter 2023 Financial Results Conference Call.
Speaker 2: At this time, all participants are in listen-only mode.
Speaker 2: After the speaker's presentation, there will be a Q&A session.
Speaker 2: Today's conference call is being recorded.
Speaker 2: At this time, I would like to turn the conference over to Ms. Iris Liu, IR manager. Please go ahead ma'am.
Speaker 3: Hello everyone. Welcome to our first quarter 2023 financial results conference call. Participants on today's call will include Mr. Zhou Yuan, founder, chairman and chief executive officer of Jufen, Mr. Li Dahe, chief technology officer and Mr. Harisha Thakur, chief executive officer of Jufen.
Speaker 3: our Chief Financial Officer. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include enduring risks and uncertainties. As such, the company's results may be materially different.
Speaker 3: from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus and other public filings as well with the U.S. Securities and Exchange Commission.
Speaker 3: The company does not assume any obligation to update any forward-looking statements except as required under applicable law.
Speaker 3: During todayís call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings rate issued earlier today.
Speaker 3: In addition, a webcast replay of this conference call will be available on our website at ir.jihoo.com. I will now turn this call over to Mr. Harisha, CFO of Jihoo.
Speaker 4: Thank you, Aaron.
Speaker 4: I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yan, founder and CEO of Jihanired 1982.
Speaker 4: Hello everyone. Thank you for joining Zhuhu's first quarter 2023 earnings call. We are delighted to start 2023 with a solid first quarter highlighted by sustained revenue growth and a significantly narrow net loss, beating the market consensus.
Speaker 4: Your starter used conference amount
Speaker 4: as a part of the Schuhu product matrix.
Speaker 4: Yan Yan's story will not only contain content generated from the Qihoo community,
Speaker 4: Yan Yan Story will not only contain content generated from the Shuhu community, but also provide more differentiated content.
Speaker 4: Moreover, the AN story will cover users from different tier cities.
Speaker 4: and support more audiobooks.
Speaker 4: by offering more effective essential trends for content creators. The installations bounce into premium content paired with our widely recognized brand name preparing the number of average monthly subscribing members to a record high of 14.9 million in the first quarter.
Speaker 4: representing 116% year over year and 14.5% sequential growth respectively.
Speaker 4: We also continue to advance our technological development during the quarter through a combination of internal initiatives and joint development efforts as we actively explore the possibilities and potential of revolutionary AI technology.
Speaker 4: ZHU is now equipped with large language model technology that has 20 billion parameters.
Speaker 4: We launched our fifth large language model, or LLN.
Speaker 4: We launched our fifth large language model, or LLM, Venus in April .
Speaker 4: aiming to enable our content creators to generate high quality content more efficiently. Additionally, our users may utilize our LMM summarization function to consume more content and accelerate their readings in a more enjoyable way.
Speaker 4: at the beginning of 2023.
Speaker 4: We optimized our organizational structure.
Speaker 4: by combining advertising and content commerce solutions, or CCS.
Speaker 4: to enhance the overall competence and operational efficiency of our combined marketing services isn't it?
Speaker 4: This upgrade has empowered us to better utilize the resources within the Juho community and provide our clients with more effective and comprehensive marketing solutions.
Speaker 4: as we optimize our marketing services business.
Speaker 4: I will spend more time on the segment and the monetary execution.
Speaker 4: Starting from the recent months, we have already seen a revival of advertisers' engagement in e-commerce and 3C factors.
Speaker 4: We are confident that our marketing services will achieve sequential growth in the second quarter and pick up growth momentum in the second half of the year. Now, let me move on to our users and content.
Speaker 4: where we have made remarkable progress.
Speaker 4: especially in our short form content.
Speaker 4: In the first quarter, we continued to broaden our continent coverage and deepen our penetration across our cornerstone with verticals.
Speaker 4: Optimizing our content composition and format to better satisfy users' evolving needs Use their fragmented time efficiently and obtain information quickly
Speaker 4: To that end, we significantly upgraded our ideal tab on the ATQ, making it a short-form content pool to complement the long-form knowledge base content currently available in the Hoot community.
Speaker 4: We also extended our short-form content library to cover more lifestyle and consumption scenarios in response to users' needs.
Speaker 4: by upgrading an array of tools and functions such as the picture editor and the video caption among many others.
Speaker 4: We provided a more efficient scenario to inspire creativity for new content creation.
Speaker 4: This exciting progress in content successfully drove an increase in the number of users in our community, driving our MAUs in March to more than 110 million. We achieved a reacceleration in MAU growth in the fifth quarter and expect MAUs will grow up to 120 million within 2023.
Speaker 4: to mark another historical hike.
Speaker 4: While we remain dedicated to further solidifying Juhu's leading position as a platform for users to discuss and exchange ideas, we are also looking for ways to enhance our offerings by incorporating AI knowledge within our community. At the Juhu Discovery Conference in April , we were able to gather more than 1,000 people from around the world to explore and explore the world. We are also looking for ways to enhance our offerings by incorporating AI knowledge within our community.
Speaker 4: We introduced our AI strategy along with our first LN, Shihai to AI.
Speaker 4: to introduce our AI strategy along with our first LYN, Shihai to AI, through investment and a joint development effort.
Speaker 4: We are accelerating our progress in integrating AI knowledge across various application scenarios throughout our ecosystem.
Speaker 4: The trending topic summary is our first trial AI function.
Speaker 4: by leveraging AI's language learning ability to collect thoughts and integrate answers.
Speaker 4: The trending topic summary is able to summarize answers.
Speaker 4: and present them to our users in an intuitive and clear manner.
Speaker 4: We are now opening this LLM summarization function to more users via the QHU mobile app.
Speaker 4: by further capitalizing on our unique advantages.
Speaker 4: in both the data layer and the application layer, Xunhui is committed to becoming an important developer and ultimately a leading contributor to the industry's overall development in this area of AI knowledge.
Speaker 4: Next, our membership of business, given by our premium accounting office and continuously expanding brand increase.
Speaker 4: Our paid membership business grew rapidly during the quarter.
Speaker 4: Delivering robust increases on both an annual and sequential basis.
Speaker 4: Paid membership revenue for the first quarter increased by 105.2% year-over-year, while average monthly subscribing members grew by 116% year-over-year to 14.9 million in this court.
Speaker 4: We streamlined content creation procedures to improve efficiency and enforce community compliance to protect the content creators rights and benefits.
Speaker 4: as a part of our multi-brand strategy. We launched our new app, Yan Yan Story, featuring numerous user favorite functions such as story search, audio books, and recommended reading lists. This new app will help us attract more membership subscribers.
Speaker 4: beyond the Juhu community while building a distinct user base seeking for more concentrated reading experience inside the Juhu community cohort.
Speaker 4: We hope Yan Yan's differentiated content will also penetrate massive Internet users from tier 2 and tier 3 cities in China.
Speaker 4: Now, moving on to our vocational training business.
Speaker 4: revenue from vocational training business increased by 117.6% year-over-year to RMB and 7 billion in this quarter.
Speaker 4: We grew our footprint in the vocational training industry value chain by organic growth and business acquisition.
Speaker 4: To see the greater potential in the graduate students entrance examination market, we recently completed the acquisition of MBA Master, a training institution specializing in preparation for MBA entrance exam examination in China.
Speaker 4: Completing the integration of MBA master.
Speaker 4: At first, we enhance our industry competence. We can improve the business structure and enrich the service offers.
Speaker 4: Additionally, we continue to expand our vocational training services across major categories by developing programs that are in high demand in this evolving market.
Speaker 4: including civil service examination, ESG, judicial examination, and story writing, among others.
Speaker 4: As I mentioned earlier, we are integrating AI technology into our course offerings as we look to enhance the overall quality and user experience.
Speaker 4: Encouraged by the positive feedback we have received on our first new AI-empowered program, we will continue to deepen our exploration of innovative technologies.
Speaker 4: Before I conclude, I'd like to provide a brief update on our ESC efforts. We published our ESC annual report for 2022 last month.
Speaker 4: presenting Xuhu's last standing commitment to social responsibility.
Speaker 4: As a leading online content community in China, our top priority and the greatest asset is, and will always be our people.
Speaker 4: our employees, our content creators, our users, and our society.
Speaker 4: Therefore, we strive to holistically improve our ecosystem for each of these stakeholders throughout 2022.
Speaker 4: with initiatives including upgraded leadership development systems for employees, our high-end campaign 4.0 incentive plan for content creators, an array of programs to protect and serve our most vulnerable users including minors, those with disabilities, and seniors.
Speaker 4: We also leveraged our wealth of knowledge content.
Speaker 4: to promote childhood education, particularly in new areas, as we believe education equality and the growth and the development of China's young generation are critical to the fight for progress.
Speaker 4: Going forward, we will remain committed to our stakeholders, improving their lives as we seek new ways to create value for our society and our planet sustainably.
Speaker 4: Looking ahead to the rest of 2023, we will remain focused on both monetization and user growth.
Speaker 4: Marketing services and paid membership have become our major revenue drivers.
Speaker 4: During our continued expansion of the vocational training business and the LLM development, we will further expand the discussion and the search scenarios in the Juhu community as we leverage our resources and the refined experience to study and respond to the evolving needs.
Speaker 4: thereby better serving both users and clients. Thanks to our organizational optimization and operational efficiency improvement.
Speaker 4: In the first quarter, our non-GAAP net loss narrowed to RMB 120 million with adjusted net loss margin narrowed to 12.1%.
Speaker 4: We expect our business growth will continue accelerating and we are confident we will achieve 20% year-over-year increase in MAU as we strive to make innovative breakthroughs. We also believe our passion for progress and dedication will continue to empower our students.
Speaker 4: and resilience as we grow in this exciting and dynamic industry.
Speaker 4: This concludes Mr. Zhou Yan's remarks.
Speaker 4: I will now turn to our financial details in the first quarter for review of our first quarter 2023 results.
Speaker 4: Please see our press release issued earlier today.
Speaker 4: We were excited to commence 2023 with a strong first quarter.
Speaker 4: Both our top line and the bottom line lead to the street consensus, while our operating cash flow turned positive for the first time since our initial public offering.
Speaker 4: Total revenue for the first quarter increased by 33.8% year-over-year to reach R&D $994.2 million effectively beating the market consensus.
Speaker 4: I will pay the membership and the vocational training services.
Speaker 4: continued to exhibit robust growth during the quarter, increasing their contribution to total revenue to 46% and 11% respectively.
Speaker 4: However, as a variety of market factors continue to affect the overall online advertising market,
Speaker 4: and advertising spending remains sluggish.
Speaker 4: in the first quarter. To mitigate the impact, we optimized our organizational structure during the quarter, enabling us to better utilize our community resources and enhance our service capability by integrating brand advertisements and CCS.
Speaker 4: Starting from the first quarter, our pricing business is now combined with CCS into marketing services to align with our new strategy and upgraded business structure. Our paid membership revenue for the quarter was RMB 454.8 million.
Speaker 4: of 105.2% year over year from RMB 221.7 million in the same period of 2022.
Speaker 4: Our average monthly subscribing members grew by 116% year-over-year to 14.9 million, which is a record high.
Speaker 4: Our appealing premium content and outstanding user experience continue to attract a broader user base even beyond our Jufu community.
Speaker 4: We are encouraged to see some recent signs of recovery in our marketing services in the recent months. And we expect our marketing services business to gain faster recovery during the second half of this year.
Speaker 4: Our vocational training person's revenue for the quarter reached RMB 107 million, representing a year-over-year increase of 170.6% from RMB 39.5 million in the same period of 2022.
Speaker 4: Moving forward, we will continue to enhance our service capabilities and advance our footprint in the industry through both organic growth and business acquisition.
Speaker 4: Gross profit for the first quarter increased by 52.7% year over year to RMB $512.2 million.
Speaker 4: First margin expanded to 51.5% from 45.1% in the same period of 2022, representing more than 6 percentage points expansion thanks to our enhanced monetization efforts and the improvement of our cloud services.
Speaker 4: and bandwidth utilization efficiency. We were particularly happy to see our investment in research and development rewarded us with savings in cloud service utilization.
Speaker 4: Total operating expenses for the first quarter were RMB 729 million, down by 25.9%, from RMB 983.7 million in the same period of 2022. The total operating expenses decreased by 12%.
Speaker 4: to RMB 445.6 million from RMB 506 million in the same period of 2022.
Speaker 4: The decrease was primarily due to our distinction in the promotion, spending, and the decrease in salaries and welfare expenses for sales and marketing related personnel.
Speaker 4: In the meantime, the number of Jupyter MEUs recovered significantly to 110 million in March.
Speaker 4: We will remain dedicated to driving user growth through our ongoing content and ecosystem-first geolocation strategies.
Speaker 4: Research and development expenses increased RMB 183 million from RMB 166.5 million in the same period of 2022.
Speaker 4: The increase was primarily applicable to the increase in the salaries and the welfare of research and development personnel, as well as the increased expenditure in Q-POT's large language model training for this year's largest technology upgrades. Our large language model will gradually serve a broader user base.
Speaker 4: in the same period of 2022.
Speaker 4: primarily due to the lower share-based compensation expenses recognized and the decrease in professional service fees. This series was recorded during our 2020 cheaper-to-band lens. Thank you for your attention. This session will continue at 12 a.m. Glory be to God packets.
Speaker 4: benefiting from our ongoing operation efficiency improvement and cost control strategy.
Speaker 4: We greatly narrowed our net loss into one.
Speaker 4: Our gap net loss in the quarter was RMB 179 million, narrowing by 17.9% year over year. Our adjusted net loss on a non-gap basis, which primarily excludes the share-based compensation expenses and amortization of intangible assets.
Speaker 4: resulting from business acquisition with R&D $120.2 million for the first quarter, down by 67.3% from the same period of last year.
Speaker 4: with an adjusted net loss margin of 12.1%. In this quarter, we generated RMB's 69.9 million operating cash flow, marking the first time we have achieved positive operating cash flow with our IPO.
Speaker 4: This milestone demonstrates Shubhoot's revenue diversification and the business model can similarly generate positive cash flow from its operations and represents an additional step towards becoming a profitable company.
Speaker 4: Now moving to our balance sheet. As of March 31, 2023,
Speaker 4: The company had a cash and a cash equivalent, term deposits and a short-term investment of approximately RMB $6,258 million compared with RMB $6,262 million as of December 31, 2022.
Speaker 4: had a cash and a cash equivalent term deposits and a short-term investment of approximately RMB 6,258 million compared with RMB 6,262 million as of December 31, 2022. Also as of March 31, 2022.
Speaker 4: 2023, we have repurchased approximately 6.9 million Class A ordinary shares at an aggregate price of US dollars 17.8 million.
Speaker 4: This concludes my prepared remarks on our financial performance for this quarter. Let's send a call over to the operator for the Q&A session. Thank you. Yes, thank you. At this time, we will begin the question and answer session.
Speaker 2: To ask a question, you may press star then 1 on your touchtone phone.
Speaker 2: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker 2: To withdraw your question, please press star then 2. At this time we will pause momentarily to assemble the roster.
Speaker 2: And the first question comes from Vicki Way with Citi.
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Speaker 3: For evening management, thanks for taking my questions and congrats on the stronger than expected corner. Will management share some color on the company AIGC technology strategy? And how should we think of the AI investment and the future monetization potential? Thank you. Thank you, Dikki. I think your AIGC relates to the strategy.
Speaker 4: questions will be answered by our chief technology officer and I will have to answer your questions about this budget.
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Speaker 3: CTO of the company. To answer your question, Zhi Hu is having unique positioning in terms of Chinese-based database in China. And we are uniquely positioned in the artificial intelligence revolution in China, especially in a lot of different verticals.
Speaker 3: for professional field content accumulation. Zhihu is open-minded towards AI revolution. And in early April , we have released Zhihai to AI, our large language model. We released Zhihai to AI through both internal investment.
Speaker 3: and joint development with other companies. These have largely enhanced our speed of development and also brought along team and knowledge flow between different teams.
Speaker 3: Now we are having about 20 billion parameters in terms of our latest LLM, and we are planning to reach about 100 billion parameters for our large language model towards the end of this year. Thank you.
Speaker 4: Hi, Vicky. The second question about our investment in this area. I think
Speaker 4: Still, I think we are in the progress of doing the new plan for this large language model training, which is one of the most important knowledge development projects for this year. But I think the impact on P&L, that will know more than the 300 million RMB as an answer to the question. Thank you Vicky for that. Thank you.
Speaker 5: Good evening management. Thanks for taking my questions. Congrats on the positive operating cash flow as well as the MAU crossing the 110-meter milestone.
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Speaker 3: This is Zhou Ren, CEO of the company. In the past year, we have made a lot of remarkable progress in terms of content ecosystem first strategy.
Speaker 3: This also helped us to grow our MAU through a robust growth. And during the first quarter of this year, MAU has also experienced steady growth. Program in TIibly will show the latest results of the second quarter of 2021.
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Speaker 4: I will help translate Mr. Zhuoyan's answer to you. So first one that our user acquisition strategy would execute well. The efficiency of the user acquisition is improving in the past quarter. And second we have some like adjustment of the product and the content.
Speaker 4: As I presented during the remarks in the course before, we are now focusing on the short form content, as you may know. So we have a long form, very large space of the long form knowledge.
Speaker 4: And now we are going to provide more short form content which is very welcomed by our users. The third one that we are more focusing on the people between the age between 18 to 35 years old.
Speaker 4: with a job in maybe tier 1, 2, 3 cities in China. This large group of users we estimated will be beyond around 300 or 400 million people. This is a large population at the large potential.
Speaker 4: Lastly, but also importantly, we believe the AI driven technology, the large-angle model of the technology will be applied to more scenarios on Jiohoo's mobile app. This we believe will help improve our user experience and the growth of our user growth going forward.
Speaker 4: Thanks for the question. And back to your question about the user behavior changing and reason. I have some numbers to be shared with you. The first one about the user engagement and user time spent on mobile apps has been unchanged in comparison with the Q4 last year.
Speaker 4: was still between 27 to 28 minutes per user per day. And our membership, the people who are describing our membership can spend even more longer time, like 15 minutes per user per day.
Speaker 4: between 27 to 28 minutes per day. And our membership, you know, the people who are grabbing our membership and spend even more longer time, like 15 minutes per user per day. This is my answer to the question.
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Speaker 5: Thank you.
Speaker 2: Thank you. And the next question comes from Yuqing Zhang with the CICC.
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Speaker 7: wondering the company's consideration for the adjustment.
Speaker 4: Thank you, Xuxin. This is Henry. I will have to answer the question. So the first one, we have seen some rebound or recovery in the second quarter, but we believe that the headwind of the marco was still there.
Speaker 4: from the 3C and the e-commerce sector. So we think the obvious recovery should be seen in the second half of this year.
Speaker 4: But a second question, because we have a business upgrading our advertising products, and according to our company levels new strategy, we believe that this adjustment about the CCS and advertising sites is the second largest asset in Washington D.C.
Speaker 4: will increase our marketing and competitive competence to increase our power of the whole integrated marketing solution for our clients. So and also can support our more longer term growth. So that will make the change. That answers to your question.
Speaker 7: Thank you. And the next question comes from Eileen Lin with China Renaissance.
Speaker 3: Thanks management for taking my question. I have a question regarding Zhiqiu's new app, Danyan Story. Can management share more details about future plans, long-term growth potential, and likely monetization method other than membership? Thank you.
Speaker 3: Genya Story is our newly released application. We have received a lot of positive feedback from the market for this new Story application. And we are generally optimistic about the future trend, future growth of this application.
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Speaker 3: The Yan Yan storage application compared with our original ZHU Yan selection has a lot of clear differentiation and the Yan Yan storage application is focused on premium short time up.
Speaker 3: stories and it provides immersive and concentrated reading experience for users. It also helps us to attract more users from the Yan Yan story outside the Qihoo community.
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Speaker 3: We believe that for this year, the yen selection will continue its healthy and robust growth in terms of those year-on-year growth and the sequential growth.
Speaker 3: And in the future, we believe that with the improvement of the general macroeconomic conditions in China, we will also generate IP gains from the application.
Speaker 4: And to supplement CEO's answer to you, first, I believe that Nian will be positioned at maybe different to tier status users in China. And Nian's content will not be all the same as the people's content will get the appreciation. And second, from the product level, for example, Nian will provide that like audio books.
Speaker 4: or the flying booty chat function. These are very welcome functions by our users, which is quite different from the Google mobile app. That's our answers for you.
Speaker 7: Next. Thank you. The next question comes from Jay Jay Chen with Haitong International. Hello everyone.
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Speaker 8: Thank you, Dacey, for your question. Vocational training is one of the second growth drivers that we have been building on recently. And we think who is naturally unique vocation to do the occupational training business.
Speaker 8: First, it is because our usability is have a lot of overlap with the target to their population's vocational training. And secondly, is that our content to our vocational training services have a close loop.
Speaker 8: And thirdly is that our technology and data has increased the efficiency of our professional training.
Speaker 8: We have made a lot of tremendous progress in the last year.
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Speaker 8: Fact on the high end of goveronia should shen't have a solryour not Su goal for location trilling dises is ta enhance of efficiency and clarity for the industry and how we have been focusing on two directions firstly is that.
Speaker 8: We are diversifying to provide comprehensive services for our clients. Secondly, we will utilize our data and technology to enhance efficiency to provide better services for our customers.
Speaker 4: the reason the development of the project knowledge to be applied to the old education or professional training industry. And we believe that our large-language model training will also empower our professional training persons in the future.
Speaker 7: Thank you. The next question comes from Thomas Chong, whichever is. Thank you, Guanyin. I'll get to the question. I just want to ask you a question. We're going to come to the future of our GP Margin and our break even time. So I'll change myself.
Speaker 8: Thanks, management, for taking my question. So my question is, how should we think of the GP margin outlook and the timing to reach break even? Thanks. Thank you, Ren. So my answer to your question requires a straightforward. At the first one, we are seeing some progress in the gross margin improvements.
Speaker 4: in this year and in this quarter. So, but we believe that it's too early to say that what kind of the gross margins will be achieved within the next few quarters. But believe us that we are doing the strict like the cost control strategy as well as improving our efficiency. So we believe that we are on the way to improving our...
Speaker 4: The second question is that because we have the new investment and the R&D development for our large language model training. So this also has some impact on our TML for.
Speaker 4: for the rest of the year. So we believe that our breaking moment point will be the sum quarter next year, two thousand fifty. That's our end to the world.
Speaker 2: Thank you. And this concludes the question and answer session. I would like to return the call to Iris Lou for any closing comments.
Speaker 2: Thank you. Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or please send financial communications. Thank you very much. Thank you. The conference has now concluded. Thank you for attending today's presentation. We now just country lines.