Q2 2023 Zhihu Inc Earnings Call
And we have been seeing the increasing demand from our clients on the, how to say, the effective basis or the ROI basis, the advertising products like CCS, which I believe will be still welcomed in the second half of this year.
And secondly, we are improving our efficiency, as I said earlier on this call, that we are taking actions to phase out some low margin business from our advertising business to enhance our competitiveness to achieve the healthy growth continuously. So that's our thoughts about our marketing services business.
So for now we cannot guarantee that we will achieve year-over-year growth in Q4, but we are confident that this business should be seeing the rebound trend in the second half of this year. Thank you.
The next question the next question comes from Daisy Chen with Hightong International, please proceed
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Speaker 1: Hello, ladies and gentlemen. Thank you for standing by and welcome to the ZHU, Inc. second quarter 2023 Financial Results Conference Call.
Speaker 1: At this time, all participants are in a listen-only mode.
and the international community to be able to provide the best and best information. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Speaker 1: After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Iris Liu, IR manager. Please go ahead, ma'am.
Speaker 2: Thank you, operator. Hello, everyone. Welcome to our second quarter 2023 financial results conference call. Participants on today's call will include Mr. Zhou Yuan, founder, chairman, and chief executive officer of Zhihong, Mr. Li Dahe, chief technology officer, and Mr. Henry Xia, our chief financial officer. Before we continue, please note that today's discussion will contain forward statements made under the public provisions of the U.S. private securities litigation Reform Act of 1995. Forward statements involve inherent risks and uncertainties. As such, the company's results may be materially different from further information regarding these and other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. Securities and
such as the FQ of the curriculum and the promotion strategy. And can management share your outlook for the moment term of the second half and the next year, as well as revenue contributions from our long-term perspective? And also, any strategies, what works and what you think you need to do to achieve those goals? Besides the growth rate, can you share more color and more profitability of this segment? Thank you. Thank you, Daisy. This is Henry. I will help you answer your question. For the second half of this year, we believe that our vocational training personnel will still achieve the year-over-year and the sequential growth for the second half of this year with more than 100% year-over-year growth rate. I think for the full year, that will be two times the growth in comparison with that in last year.
Speaker 2: definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, webcast replay of this conference call will be available in our website at ir.joo-hoo.com.
Speaker 2: I will now turn this call over to Mr. Harisha, the apple of Juhu. Thank you, Harris. I'm pleased to deliver today's opening remarks on behalf of our CEO , Mr. Zhou Yuan. Hello, everyone. Thank you for joining us for Juhu's second quarter, 2023 earnings call.
On the course offerings of the education vocational training business products offerings, I think we have already almost completed the structure of our vocational training business, the allocation on that. By including, for example, national graduate students entrance examination, as well as the ELTS, the English or foreign language teaching courses, as well as, for example, like the MBA courses.
Speaker 3: We continue to accelerate development across our business during the second quarter.
Speaker 3: achieving sustainable growth through effective execution of our community ecosystem-first strategy.
Speaker 3: Furthermore, our limiting efforts to diversify monetization channels and upgrade our service capabilities during the second quarter drove robust growth in total revenue, which increased by 24.9% year-over-year. At the same time, we further enhanced operating efficiency boosting our growth margin to 53.8%. At by 6% of your points year-over-year.
there is one or two more acquisitions will be formed like to provide some like the M&A growth looking forward. And about your question, the probability of looking to like a whole vocational training business, I think we're still in the investment stage. So, for example, I think for this whole year, the vocational training business will still bear loss, like the loss making for the whole group. So that will be between 1 to 200 million RMB hit to our bottom line.
Speaker 3: Our non-GAP net loss narrowed significantly as a result of ongoing operating efficiency improvements. By 49.9%, compared with the same field last year.
Speaker 3: Despite our newly initiated investment in generative AI technology.
That's our answer for our question. The next question comes from Yuan Jiang with Chinese Renaissance. Please proceed.
Speaker 3: Speaking of Generative AI Technology Development.
Speaker 3: Following the launch of our first large language model, Chihai 2 AI in April .
Speaker 3: We are currently conducting internal trials of AI applications.
Speaker 3: aiming to strengthen the vibrancy of our community and further unlock commercial value.
Speaker 3: leveraging our vast content portfolio, potential applications of discarding edge technology in our community could include more efficient content research and more customized recommendations for our users.
Speaker 3: The AI technology could also help continent creators increase productivity and creativity to further enrich the whole continent.
Speaker 3: Let me now move on to our users and the content.
Speaker 3: In the second quarter, we focused on constant quality enhancement.
Speaker 3: particularly by continuously enriching our professional content library and enhancing users' interaction with professional users.
Speaker 3: To that end, we upgraded our content creator incentive scheme, Haiyan Plan 5.0 in April , providing selected content creators with an array of supportive tools, as well as better user traffic support.
Speaker 3: and financial rewards for their high quality work. With these efforts, we were encouraged to see increased growth momentum in both the volume of content created and the number of content creators.
Speaker 3: By the end of the second quarter, our 66.6 million cultivated content creators had contributed 711.3 million pieces of content covering over 1,000 verticals.
Speaker 3: To further refine the content quality, we also upgraded our professional identity verification functions in this quarter.
Speaker 3: Many of our content creators who have been endorsed by our Blue Medal professional identification veterans in specific industries.
Speaker 3: such as internet, finance, legal, engineering, etc.
Speaker 3: with credentials from well-known enterprises, colleges, and institutions.
Speaker 3: Professional identity status has broadened, enhanced credibility.
Speaker 3: greater recognition of their professional content, and up to 10 times more user interaction post identification.
Speaker 3: A growing number of professional users have collectively contributed content.
Speaker 3: and score in Zhihui's reputation as a professional community with high credibility.
Speaker 3: Our reliable professional and abundant content made the Qihoo a desirable destination for users to search for answers and follow trending topics.
Speaker 3: Discussions on trending topics in valid formats such as Q&A, live streaming and ideas.
Speaker 3: We also enlivened the ZHU community in addition to enjoying our discussion content.
Speaker 3: Consumers are becoming more reliant on Shih-Hoo's detailed and informative commerce content as a decision-making reference.
Speaker 3: Moving forward, we will continue to focus on content quality.
Speaker 3: while expanding our content library, creating value for our user across all aspects of studying and consumption.
Speaker 3: Users have always been the cornerstone of the Juhu community.
Speaker 3: Our content encourages users to stay and grow on our platform, driving our average MAUs to 109.4 million in the second quarter.
Speaker 3: Furthermore, increasing user engagement is critical in promoting the healthy development of our ecosystem. In the near future, frequent users will start their journey on Zhihui when they are students.
Speaker 3: Now, they are between 18 and 40 years old, with higher education and have become new generation professionals.
Speaker 3: They want to share their insights, experience, and stories, and to become key opinion professionals.
Speaker 3: Zhuhu has expanded its content verticals to capture key opinion professionals involving interest accordingly.
Speaker 3: This deepening generational engagement reflects through whose peerless ability to captivate users for the long term and serve them at different stages of life.
Speaker 3: In addition, by leveraging Chihuahua's strong run and awareness, content library and AI power to acknowledge.
Speaker 3: We are confident Zhihuo can further extend coverage in lower tier cities by attracting more professionals, young generations and consumers.
Speaker 3: Meanwhile, we will continue to support the content creators and uphold a high standard of community governance, reinforcing our healthy culture of sincerity, expertise, and respect.
Speaker 3: Now, let me go into the details of our commercialization progress.
Speaker 3: Let's start with our membership of business.
Speaker 3: which is sustained is strong growth momentum in the second quarter.
Speaker 3: Paid membership revenue for the second quarter increased by 65.6% year-over-year, while average monthly subscribing members grow by 65.3% year-over-year, reflecting our dedication to expanding premium content coverage.
Speaker 3: In the second quarter, we continued to enhance the effectiveness of our story creation tools and upgrade our financial reward plans to inspire passion among content creators while protecting their rights and benefits through enhanced anti-piracy measures.
Speaker 3: The number of Jihoo core premium content pieces increased by more than 200% year-over-year during the quarter.
Speaker 3: Also, the number of membership content creators who earn income from a jihu increased by almost 50% year-over-year.
Speaker 3: Thanks to creators' passion and their premium content contributions.
Speaker 3: Our users were able to enjoy a larger content library with superior quality.
Speaker 3: In the second half of this year, we will further differentiate ourselves with our content and membership products from those of our competitors and expand our content categories to cover the evolving needs of both male and female members.
Speaker 3: We will also expand our content distribution channel by partnering with more platforms, such as Huawei, among smartphone manufacturers.
Speaker 3: What's more?
A web drama series adapted from a novel in Shih-Hoo Content Library was recently launched on Tencent Video Platform.
disseminating our premium content to a broader audience in a visual format.
We anticipated that more of our premium storage will be adapted, unlocking our IP value going forward.
Next, our vocational training business.
which continued to deliver excellent results with its revenue increasing by 213.3% year-over-year and 35.1% quarter-over-quarter.
Following the acquisition of MDA Master in the second quarter, we were able to further optimize our program offerings.
Meanwhile, by encouraging professionalism and his sincerity in our community for young professional users.
We increased their interest in sharing and learning vocational skills on Zhihu, driving organia growth across our proprietary vocational training offerings.
While our vocational training business is still in the early stage, we will continue to invest in human resources and technology infrastructure to build a solid foundation.
As a leading content-centric community,
Ju Huzi's unique proposition enable us to deeply understand our users' involving learning demands, then satisfy those demands through well-selected targeted programs.
Moving on to marketing services. Back in the first quarter of 2023, we combined advertising and content commerce solutions or CCS into marketing services.
This change helps to optimize our organization structure and synergize the resources.
by strengthening our service capabilities and optimizing the service offerings.
we are able to provide more precise, comprehensive marketing solutions and improve operating efficiency.
In Q2, we recorded a sequential quarterly revenue increase of 5.3% with expanded gross margin.
among the various industries we serve.
ITN3C and home appliances stood out.
growing significantly by double digits both year-over-year and sequentially.
By defeating from increasing ROI across the related sectors within Chihu community.
Going forward, we will continue to streamline our marketing service offerings and optimize recommendation algorithms to meet advertising clients' evolving needs.
Overall, as we move into the second half of 2023,
We will focus on enhancing our efficiency to further narrow our losses and advance our progress in terms of our profitability.
while prioritizing healthy and sustainable growth across all of our business segments.
Before I conclude, I would like to specifically highlight our progress in generative AI technology. As I mentioned earlier, Zhuhu has been focusing on innovatively applying large language model knowledge into our services and products over the past several quarters.
We are currently exploring AI's potential application to enhance users' content search experience.
optimize algorithms and improve content creation efficiency.
For instance, we aimed to develop search tools that analyze our Q&A content pool to present more precise and better summarize the results, thereby improving both the accuracy and efficiency of content searching.
In addition to these breakthroughs, we have been empowering our internal operating system with AI technology to further increase its data monitoring and operational capabilities.
Moving forward, we will continue to invest prudently in generative AI technology to create new AI-powered functions that can improve the content creators' creation experience as well as enhance our service capabilities. We firmly believe that AI-powered technology's true value lies in the
empowering human beings across all aspects of life as extension of our innate capabilities.
This concludes Mr. Zhongyuan's remarks.
Now I will turn into our financial details for the second course.
for review of our second quarter 2020 history results.
Please see our more practical release issued earlier today.
We delivered the study results for the second quarter of 2023 on a huge of a strong first quarter.
Our total revenues for the second quarter increase by 24.9% year-over-year.
which is in line with the management guidance.
Our growth margin further expanded by 6 percentage points, and our non-GAP net-loss margin narrowed by 32 percentage points, both on year-over-year basis.
Thanks to our executive on going cost control measures.
guided by our community ecosystem first strategy.
We continue to expand our premium content library and simulate content-in-creative passion for creation.
Preparing, cross-prearry across struggles of vibrant community.
Both of our paid membership and the vocational training services continue to grow robustly.
Increasing by 65.6%, and 200, and 13.3% respectively, on a year-over-year basis.
We also further improved our operation efficiency with streamlined organizational structure and product offerings.
As a result, while our quarterly marketing service revenue decreased by 13.7% a year over year, it picked up a sequential rate for a growth of 5.3% a quarter over quarter.
In particular, our cornerstone vertical of our advertisement business, IT and 3C and the home appliance are performed with a high double digit year-over-year increase.
Our paid membership revenue for the quarter was RMB 449.1 million, up 65.6% from RMB 271.2 million in the same period of 2022.
This increase was attributable to the rapid growth of our prescribing members. For the second quarter, our average monthly prescribing members reached 14 million, increased by 65.3% a year over year. In Q3, we anticipated the pay membership revenue we achieved both sequential and a year over year growth.
Our vocational training business revenue for the second quarter increased by 213.3% year-over-year.
reaching RMB 144.5 million from RMB 46.1 million in the same period of last year.
As we continue to enrich our program offerings through both M&A and self-developed products, as well as enhance our service capability with cutting-edge technology.
We are confident we can harness even more of this industry's massive potential.
Our marketing service is a rameal for the quarter with RMB 412.7 million.
Compared to the RMB 400 and the 78.1 minute in the same period of the last year.
During the quarter, we focus on better utilizing our resources and face down some low margin marketing services and products.
all of which contributed to the module improvement of the quarter.
We expanded these strategic adjustments in marketing services business to generate a recover growth and increase our resilience in the face of a macroeconomic uncertainty.
in the second half of this year.
Growth profit for the second quarter increased by 40.7% year-over-year to Mb 562.1 million, with gross margin expanding to 53.8% from 47.8% in the same period of 2022.
demonstrating the effectiveness of our refined the monetization efforts, as well as our improvements in cloud services in the bandwidth utilization efficiency.
Total operating expenses were RMB 889.3 million in the second quarter.
compared to RMB 860.3 million in the same period of last year.
Selling and marketing expenses increased slightly to RMB $540.6 million from RMB $532.4 in the same period of 2022.
as we continue to invest in promoting our product offerings and branding, while remaining prudent in our overall marketing-related spending.
Research and development expenses increased to RMB 200 and 36.2 million from RMB 200 and 23.6 million in the same period of last year.
The increase was primarily attributable to our increased spending in technology innovation as we believe such investment will better position us in the competitive landscape over the long term. General and administrative expenses increased to RMB 100 and 12.5 million.
from RMB 100 and a 4.3 million in the same period of 2022. Due to the increased share-based compensation expenses.
I want going efforts to control costs and improve operational efficiency continued to bear fruit.
Our Gap Net loss for the quarter was RMB 279.1 million, down by 42.7% on a year-over-year basis.
Our non-GAAP adjusted net loss, which primarily excludes share-based compensation expenses.
and monetization of intentable assets resulting from business acquisition with RMB 200 in 22.3 million for the second quarter.
decreasing by approximately 50% from the same period the last year.
Now got that last margin want to go above 47
21.3% narrowly significantly by 32 percentage points from a year ago.
We will still prioritize loss reduction for the rest of the year.
Our net cash used in operating activities was RMB 58.3 million for the first half of 2023, a significant reduction from RMB 400 and 15.1 million for the same period of last year.
highlighting our improved operation efficiency and the shift in our revenue structure. As of June 30th, 2023.
The company had cash and cash equivalents, termed deposits and short term investments of approximately RMB 6.2 billion, compared with RMB 6.3 billion as of December 31st, 2022. This concludes my prepared remarks.
on our financial performance for this quarter. Let's tend to call over to the operator for the Q&A section. Thank you.
We will now begin the question and answer session. As a reminder, if you do have a question, please press star then one on your touch tone phone.
If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then 2. We will now pause momentarily to assemble our roster.
His first question comes from Zheanjing Zhang with CICC. Please proceed.
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Thanks for taking my question and congratulations on the story. My question is related to AI. You mentioned in the prepared remarks that you had some progress on AI in power technology.
Could management share with us more colors? What specific applications and narratives are involved? What's your advantage in AI-empowered technology compared to others? Also, what trends will the utilization of AI bring to Juhu? Thank you.
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Thank you for the question. This is Da-He Li, CTO of Jifu. Jifu community has a founded language, Chinese language database. And in this AI technology evolution, we have unique competitive advantages.
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VNN technology has a wide range of generic applications in our community to enhance our user experience and enhance our operating efficiency.
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We are now training about 20 playing parameters for our large language model.
Our beta testing results is significantly improved and now we are expanding our large language model to about 80 byline parameters and reach 100 byline parameters.
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We have been trying to identify the implied deep meanings of our large language model and we have made significant progress in terms of content categorization and same identification.
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In the future, the AI technology will be used in our community and I will give some examples to the specific applications in our community.
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For example, in terms of content creator empowerment, in the future, AI technology will help content creators to enhance their productivity and enhance their quality of creation, especially to, for example, recommending different...
writing styles according to the scenario, and also writing correction. We will further enhance high quality content.
lowering the barrier for content creation.
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Thank you for your attention.
Next is for our content recommendation. AI technology will empower our content recommendations according to the scenario user relationship and help us to realize more accurate and more efficient content recommendations for our users to enhance their engagement and stickiness.
our commercialization efficiency. Next is for our application scenarios in our different business. AI will also further increase our operating efficiency. AI will also take some examples on that front.
Yes, my guess is what? AI infrastructure can only be provided for the expansion process at most. That's the request of the IaaS apparatus officer. You see that my specifics are like this. Just in case anything is wrong, my I have a question for you. I have a question for you. I'm sorry.
For our paid membership business, AI technology will empower the front covers and pictures in our short stories.
and also enhance the quality and efficiency for our picture generation.
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Next is for our vocational training business.
AI technology is going to promote the digitalization and intelligence, the intelligence business of our vocational training, and also help our users to get more customized course recommendations and coaching solutions.
Another thing is that AI will help us to correct the essays and homework for our users.
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So to summarize our AI applications, we believe that AI evolution is actually a very important opportunity, a once in a lifetime opportunity for Zhihu. And we are trying to use our Zhihu2 AI technology, which is released in April this year, to help students Ada and jackson
to obtain better user experience and help us to increase the commercialization efficiency.
Okay, I see you guys are there.
Thank you very much. That's it for my answers.
And this is a area that's therefore by the company. I will help to supplement the answer from that height. And as to the second question raised by the CICC. Actually we believe that we have a very obvious that items are diminishing at points.
with the other large language model competitors on the market that we are in Zhuhu we have a large number of the data accumulated in the past 10 years, which the answers and data contributed by our user, more than 100 billion MAUs.
So we believe that in the simplified Chinese language environment, our user data and our content has its scarcity value. And we are doing a lot of work in the anti-coronal technology and we are very, how to say, resistant to those data abuse actions.
on the market that we are defending ourselves from our competitors on data side.
that we are defending ourselves from our competitors on data side. Thanks. That's my answers to Xiuqing.
Next one. Thank you. Thank you.
The next question is from Steve Seo with Goldman Sachs. Please proceed.
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This quarter, we have seen very strong membership growth from a year-on-year perspective. But the number of subscribers were facing some issues quarter over quarter, given the pirating issue. So could management share with us your outlook on the membership revenue growth for the second half, as well as your thoughts on the long-term growth route?
such as collaboration with Weixin or perhaps Q2Reading, as well as your thinking of how to extend the lifetime value of the users beyond just charging the membership fees. Thank you.
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Thank you for your attention. This is CEO of Juhu. I'm going to discuss about this question through both our short-term and long-term
and we believe that we are forming a clear competitive advantage or different from other traditional online reading platforms on this branch. For example, our stories are very short and cater to the evolving needs of users.
especially to use the user's recommended time in terms of their reading.
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Another thing is that, as mentioned in our previous learning call, we have released our Yan Yan story application and this forms as another channel for our user acquisition for our paid membership business.
And inside this Yan Yan Story application, our users can get more immersive and differentiated reading experience.
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And also for our NIS DARIF, we are extending to form more partnerships with other platforms. And recently we have formed partnerships with Huawei Reading to enlarge our user base and our users'
different content providing channels. We're starting that with all these efforts. In the second half of this year, our membership business is
will keep the momentum and increase at a very high trend in the future.
will keep the momentum and increase at a very high trend in the future.
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In the future, I think the paid membership business will enhance its LTV through three fronts. Firstly, it's through our AI applications in paid membership business, as mentioned by our CTO Li Da Hai just now. Secondly, it's through the upgrade of different distribution channels.