Zhihu Inc. (ZH), a leading Chinese knowledge-sharing platform, has reported significant strides towards profitability in its first quarter 2024 financial results. The company has seen growth in its vocational training business and membership subscriptions, while also focusing on enhancing user engagement and AI technology development. Zhihu’s partnership with OpenAI and Google (NASDAQ:) is projected to bring in substantial revenue, and its IP monetization efforts have yielded impressive results.
Key Takeaways
- Profitability is on the horizon for Zhihu with a focus on AI technology and user engagement.
- Gross profit margin improved to 56.6%, marking a 5.1 percentage point increase year-over-year.
- Vocational training business grew by 35.9% year-over-year, contributing significantly to revenue.
- Paid membership remains the largest revenue contributor with 14.8 million monthly subscribers.
- IP monetization revenue soared by 165.7% year-over-year, with a short drama achieving record popularity.
- Marketing services revenue fell by 15.7% year-over-year, but brand advertising rose by 40%.
- Zhihu plans to launch a new AI search feature by end of June and is exploring additional revenue streams through partnerships.
Company Outlook
- Zhihu is on a clear path to achieve profitability by the first quarter of 2024.
- The company will continue to refine its financial policies and maintain a narrow ROI across marketing channels.
- Long-term growth outlook remains positive, especially in the vocational training business.
Bearish Highlights
- Marketing services revenue decreased by 15.7% year-over-year due to product refinement efforts.
Bullish Highlights
- IP monetization and brand advertising revenues have seen substantial growth.
- Company’s cybersecurity capabilities and AI models for content identification and review have been upgraded.
- Zhihu’s content library has grown to 804.2 million items, with 73.6 million content creators.
Misses
- Total operating expenses increased, with selling and marketing expenses reaching RMB478 million.
Q&A Highlights
- CEO Zhou Yuan emphasized the impact of AI publications on user activity and the upcoming launch of a new AI search version.
- Zhihu’s partnership with OpenAI and Google could yield about $60 million in annual revenue.
- The company’s focus on community-driven learning services for its vocational training business was highlighted.
- Zhihu’s stand-alone Yin Yang Story app was launched to optimize the membership business user experience.
- The company plans to enhance performance advertising and leverage its brand premium for increased credibility.
Zhihu Inc. has demonstrated a robust strategy for reaching profitability, with a strong emphasis on AI technology, content quality, and community engagement. The company’s partnership with major tech firms and successful IP monetization efforts indicate a forward-looking approach to growth and market positioning. Despite a dip in marketing services revenue, Zhihu’s overall financial health appears to be on the upswing, with promising developments in its various business segments.
InvestingPro Insights
Zhihu Inc. (ZH) has made notable progress in its quest for profitability, as reflected in its first quarter 2024 financial results. InvestingPro data and tips provide additional insights into the company’s financial health and market performance.
InvestingPro Tips indicate that Zhihu’s management has been actively engaged in share buybacks, a sign of confidence in the company’s future prospects. Additionally, the company maintains a strong liquidity position, holding more cash than debt on its balance sheet, which is a positive indicator of financial stability.
From the perspective of InvestingPro Data, Zhihu’s market capitalization stands at $307.08 million, reflecting its size and market value. The company’s revenue growth over the last twelve months as of Q1 2023 was 16.48%, demonstrating its ability to increase sales. However, the gross profit margin was 54.68%, which, while healthy, is slightly lower than the 56.6% reported in the article. This discrepancy might be due to different methods of calculation or timing of the data.
It is worth noting that analysts do not anticipate Zhihu will be profitable this year and expect a sales decline, which could be a concern for potential investors. Furthermore, the stock has experienced significant price declines over the past year, with the price falling by 51.71%.
For readers interested in a deeper analysis of Zhihu Inc., InvestingPro offers additional tips that can guide investment decisions. With the use of coupon code PRONEWS24, users can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to valuable insights that could inform their investment strategy. There are 17 more InvestingPro Tips available for Zhihu Inc. at which provide a comprehensive view of the company’s financial metrics and market performance.
Full transcript – Zhihu ADR (ZH) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Zhihu Inc. First Quarter 2024 Financial Results Conference Call. At this time, all participants are in the listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Today’s conference is being recorded. At this time, I would like to turn the conference over to Yolanda Liu, Director of Investor Relations. Please go ahead, ma’am.
Yolanda Liu: Thank you, operator. Hello everyone. Welcome to Zhihu’s first quarter 2024 financial results conference call. Joining me today are Mr. Zhou Yuan, our Founder, Chairman, and Chief Executive Officer and Mr. Wang Han, our Chief Financial Officer. Before we get started, 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 Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Other information regarding these and other risks and uncertainties is included in our public filings with the U.S. SEC and Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Additionally, the matter will discuss today will include both GAAP and non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our at ir.zhihu.com. I will now turn the call over to Mr. Wang Han, CFO of Zhihu. Han please go ahead.
Wang Han: Thank you, Yolanda. Hello everyone. Thank you for joining Zhihu’s first quarter year 2024 earnings call. I’m pleased to deliver today’s opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman, and CEO of Zhihu. The first quarter of 2024 marked a significant turning point for Zhihu. Strategically, we concentrated on our core strengths and the most crucial aspects of our development in AI area. This involved a series of tactical adjustments, including resource reallocation and organizational optimization. From an operating perspective, our top priority is the — in the short-term is to achieve profitability. The element of AI has disrupted the traditional Internet business model, which relies on expanding user base behind the user engagement and boosting user add value to gain market share. In AI era, the focus has shifted to high-quality content and user value. Zhihu’s core value lies not only in processing Chinese highest quality content library, but also in our unique content creation mechanism and our communities for fashion atmosphere, which foster continued emergence of new high-quality contracts. Zhihu users are not passive recipients of information, but are active participants in content creation and knowledge sharing. These core strengths provide us with the first-mover advantage in exploring new business models and positioned us uniquely in the market, increasing our pricing power. Following our proactive reduction in community-related user acquisition cost, the size of our user base decline to something great in line with our expectations. However, engagement among our monthly active users increased; core user retention sustained its growth momentum and daily active users’ spend also increased significantly. Furthermore, our efforts to enhance trustworthiness’ within the Zhihu community continued to drive community prosperity. Our strategy for [Indiscernible] scenario-oriented content ensures a continued stream of authentic in-depth, high-quality content based on our users’ own experiences. As of the end of the first quarter, the cumulative business of content on our platform reached 804.2 million, including 611 million Q&As, up 15.4% year-over-year. Cumulative content creators within the Zhihu community reached 73.6 million, an increase of 13% year-over-year. We also observed a notable year-over-year increase in the proportion of highly active users engaged in creation and a percentage of high-level daily active creators. Utilizing the power of AI-driven technology, we continue to equip our content creators with a variety of user-friendly creation tools, offering a professional and supportive environment to help them break financial rewards. In first quarter, the total number of content creators earn income on Zhihu grew by more than 25% year-over-year. Notably, the number of content creators benefiting from our [Indiscernible] plan was nearly fourfold compared to the same period last year. In the AI era, we have continually upgraded our cybersecurity capabilities to ensure better protection of user data privacy and intellectual property rights. At the same time, we fully leverage AI models capability to enhance efficiency of content identification, review, and governance within the Zhihu community. In certain scenarios, AI reviewers can achieve higher accuracy compared to the many identification and review, allowing us to significantly reduce the number of manual reviewers, while maintaining high efficiency. We continue to refine and upgrade our existing systems, [Indiscernible] leveraging our Zhihu 2 [ph] LLM. These improvements have further enhanced user engagement and effectively combat fake traffic leading to a continued decline to users’ negative feedback and propelling Zhihu’s community sustainable development. We’re progressing steadily towards our goal of achieving quarterly profitability within this year. To that end, we have accelerated our loss reduction through two operating tactics. First was to continue to improve employee efficiency, further reducing labor costs. Second was to reduce community-related user acquisition costs. Meanwhile, we have maintained a higher ROI in our pay membership and location training businesses, which extended our reach beyond the Zhihu community. With these efforts, the cost of revenue and total operating expenses in Q1 decreased by over RMB130 million quarter-over-quarter. Notably, we recorded our sixth consecutive quarter of year-over-year growth in gross profit margin and three consecutive quarters of sequential decline in our sales and marketing expenses in the first quarter. Additionally, we have been accelerating the application of Zhihu 2 LLM to further enhance our operating efficiency across every aspect of our businesses, for example, teaching, learning, and research assets for our vocational training business. By integrating our own knowledge library, we have driven notable efficiency improvements in AI teaching assistants, cell services, homework assessment and more. As a leading content-centric community, Zhihu sets as a lending platform where professionals engaged in the most extensive and in-depth discussions on AI-related topics. Since the beginning of this year, the amount of AI-related content and the number of creators have continued to surge by double-digit year-over-year growth. Specifically, the number of AI creators certified by Blue Label has increased by 130% year-over-year. Moreover, tens of thousands of specialized terms related to AI are being discussed within our community. In 2024, our exploration of investment in AI will shift to focus on application layer. Our advancement in AI enables us to enhance operating efficiency across our existing businesses as well as a lot of emerging potential beyond the Zhihu community, albeit on the foundation of [Indiscernible]. Since the launch of our AI-powered search feature in March, we have observed double-digit growth in app active days, user retention rate, and user engagement — amount of users who are using our new AI search feature. Now, I would like to dive into more details on the progress we achieved across our multiple business lines for the first quarter. First, our vocational training business continued to grow robustly with the revenue increasing 35.9% year-over-year to RMB145.4 million. Its contribution to our total revenue also grew, surpassing 15% for the first time. As of the end of the first quarter, we established more than 30 sub-category courses through both self-operated business and acquisitions. Notably, our self-operated offerings are closely connected to Zhihu community, allowing us to address users’ needs richly and precisely, while yielding higher profits. Our acquired offerings on the other hand, meet specific demand and cater to a broader market. Together, this courses complement each other and broadening our offerings and driving the rapid and sustainable growth of our vocational training business. In the first quarter, our self-operated offerings grew rapidly, particularly AI, AG, and self [ph] exam portions, demonstrating excellent profitability and rapid growth. Formally, our program tutors are also content creators within the Zhihu community. With this dual role , tutors are deeply involved in the course development while maintaining ongoing interactions with students in the community about real course experiences, skill improvement, and other topics. This approach effectively addresses the ever-growing new demand of our new users. Growth from our acquired offerings remained steady during this quarter further elevating our brand name awareness and service advantages. In April of this year, one of our subsidiaries, [Indiscernible] Education, hosted a dedicated live broadcast inviting executives from the CFA Institute. They provided professional insights into CFA exam reforms, offering first-hand preparation guidance and expert analysis. This initiative gathers significant attention and sustained feedback from both the industry and examinees. Our paid membership business remained our largest revenue contributor this quarter, reaching RMB449.7 million. As of the end of this first quarter, our average monthly subscribing members stood at 14.8 million, showing a slight decrease of 0.8% year-over-year, but an increase of 4.1% quarter-on-quarter. Average revenue per user remained stable compared to the same period last year. Leveraging the support of Zhihu community and our unique positioning, our premium short stories continue to calculate the revenue with our users. In April, 123 historically chart-topping business, including Zhihu’s exclusive story [Indiscernible] were included in the national library digital collection. Zhihu’s premium content library, including short stories, continue to expand in the first quarter. The total volume of premium content increased by 14% year-over-year, attracting new subscribers, while encouraging increased consumption among existing subscribers. On the content creator side, we are delighted to see our creators building a solid market reputation and achieving financial rewards on our platform. In first quarter, the number of content creators’ income increased by 78% year-over-year. In addition to top creators earning substantial income, many mid-tier and long-tail content creators within our community also earned significant income through high-quality content creation this quarter. And as a market leader, Zhihu continues to unlock the monetization potential of our vast array of premium short story IPs, spearheading our expansion into the short drama market and consistently setting new industry benchmark for growth. In the first quarter, IP monetization revenue increased by 165.7% year-over-year. In April, another short drama [Indiscernible] be adapted from story in Zhihu’s content library, achieved a new record high for popularity on its debut day on Tencent’s Micro drama platform. In the long run, the ongoing expansion of our premium content and diverse content consumption formats will continually drive growth in the lifetime value of subscribing members. Let’s now shift to our marketing services. In first quarter, marketing services revenue were RMB330.5 million, representing a decrease of 15.7% year-over-year. Within this total, revenue from our brand advertising business increased significantly by 40% year-over-year, while our performance-based advertising business returned to growth on a quarter-over-quarter basis. Our key clients in cornerstone verticals continue to demonstrate healthy improvements in retention rates, consumption, and ARPU. Apart from IDFC [ph] industry, which maintained its year-over-year growth rate of over 40%, the fast-moving consumer goods sector also experienced high double-digit year-over-year growth. We’re currently in the process of upgrading our CCS product, including proactively enhancing content governance and reducing the distribution of commercial content that negatively impact user experience. As we are striving for quality profitability by the first quarter of 2024, we are giving our efforts to narrow our losses. Meanwhile, we firmly believe the emerging potential of our AI search and the value we continue to unlock across Zhihu’s trustworthy community will provide price momentum for our sustainable growth and a clear path to profitability for the remaining quarters of this year. This concludes Mr. Zhou Yuan’s remarks. Now, I will review the details of our first quarter financials. For a complete overview of our first quarter 2024 results, please see our press release issued earlier today. We have continually optimized our cost structure over the past several quarters. As a result, we recorded our sixth consecutive quarter of year-over-year growth in the gross profit margin. On the expense side, we significantly reduced community-related user acquisition costs, while maintaining a prudent level of investment in cutting-edge technology, including AI. This initiative has effectively optimized our fixed costs, enhancing our commercialization efficiency. With this proven strategic adjustments, we are confident of achieving quarterly profitability in 2024. Our marketing services revenue for the first quarter were RMB330.5 million, a decline of 15.7% year-over-year. This decrease was primarily due to the ongoing refinement of our CCS product to strategically focus on margin improvement. However, we have observed a recovery in our brand advertising segment in the first quarter. Performance-based advertising also demonstrated a sequential growth, notably [Indiscernible] as well as fast-moving consumer growth, that is growth by vertical. Pay membership maintained a stable trend in the first quarter, reaching RMB449.7 million. The number of subscribing members grew to 14.8 million, up 4.1% quarter-over-quarter. Vocational training revenues for the quarter were — was RMB145.4 million, increasing by 35.9% year-over-year. Our self-operated offerings, particularly AI, AG, and software exam has delivered robust growth, while our acquired business also retain solid momentum. Benefiting from enhanced operating efficiency, our gross profit for first quarter increased by 6.1% year-over-year to RMB543.5 million, propelling a gross profit margin improvement of 5.1 percentage points year-over-year to 56.6%. Our total operating expenses for the quarter were RMB768.2 million compared with RMB729.0 million in the same period last year. Selling and marketing expenses increased to RMB478 million from RMB445.6 million in the same period of 2023. Moving forward, we will maintain our prudent financial policies and rigorously narrow ROI across marketing channels. Our research and development expenses for first quarter increased to RMB197.4 million from RMB183 million in the same period of 2023. The increase was primarily due to our increased spending on technology innovation. G&A expenses decreased by 7.5% to RMB92.9 million. The decrease was primarily due to lower share-based compensation expenses combined with improved operating efficiency. As a regard of — our GAAP net loss for the first quarter narrowed by 7.4% year-over-year to RMB165.8 million. Our non-GAAP net loss for the first quarter was RMB135.7 million. As of March 31st, 2024, the company had cash and cash equivalents, term deposits, and short-term investment of RMB1.2 billion compared with RMB5.5 billion as of December 31st, 2023. In the first quarter, the company repurchased 4.8 million plus A ordinary shares for a total price of $8 million. In summary, as we continue to optimize our cost and expense structure, our operating efficiency is steadily improving. Throughout the remainder of 2024, we’re confident that our strong strategic execution will provide a solid foundation for achieving our quarterly profitability goals in the near future. 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.
Operator: Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Xueqing Zhang from CICC. Please go ahead.
Xueqing Zhang: [Foreign Language] Thanks management for taking my question. My question is about the breakeven package, could management update with us on your timetable to achieve a quarterly breakeven and what’s the latest progress? Thank you.
Wang Han: This is Wang Han, CFO of Zhihu. Our profitability target remains unchanged. We expect to achieve a quarterly non-GAAP net profit in the fourth quarter of this year. At the end of the first quarter and the start of the second, we strategically refined and restructured our approaches, driving a notable reduction in losses. Starting from the second quarter, you will see more pronounced improvements across other matrix. The core philosophy behind this lease adjustment is what we shared at last earnings. We will always prioritize user quality over user scale. We are dedicated to protecting and elevating our core users’ experience and ensuring continuous flow of high-quality content or Corvus. We believe that our industry is undergoing a fundamental shift as we move from the Internet era to the AI era. In the Internet era, the dominant logic here is to maximize user engagement through large user bases and metrics like AD load and ECPM. But currently, in AI era, advancements in LLM and compute power are amplifying the importance of top-tier users and high-quality content. So, the most crucial factor for Zhihu going forward are first of all, having sufficient capital to invest in high-performance chips; second, having the highest quality content and data; and third, having the highest quality and productive content creators. So, Zhihu has been a pioneer in these aspects. First, our substantial investments have made us one of only a select few platforms in China with a license to operate — to self-operate LLM; and second, we already have natural advantages, thanks to our abundant high-quality content and high-quality user base. The advent of AI era presents a golden opportunity for Zhihu to return to what we do best, that is high-quality Q&As. This has enabled us to make strategic adjustments with confidence and [Indiscernible]. Next question, please.
Operator: Sure. Thank you. The next question is from the line of Steve Chu [ph] from Goldman Sachs. Please go ahead.
Unidentified Analyst: [Foreign Language] Good evening. Thank you for taking my questions. I would like to ask about the user trends post your selling and marketing discipline strategy and what are the future strategy to further improve your user engagement? Thanks.
Zhou Yuan: [Foreign Language] Thanks, Steve, for your question. This is Zhou Yuan, Zhihu’s CEO. Our sales and marketing strategy adjustment is based on a quality of branded approach. Overall, these adjustments are in line with our expectations. While our core user retention rates maintain its growth momentum, our DAUs time spend also increased significantly. The sales and marketing strategy adjustment is just one part of our broader community strategy. Our efforts to build and enhance the community’s content and the atmosphere are also crucial to improve the activeness of our users. The trustworthiness of Zhihu is primarily from our professional users. Many professionals and industry experts whose professional value is often underestimated, have found a platform for discussion and sharing on Zhihu. We have very high penetration rates among professionals in various industries. For example, Zhihu has the highest concentration of AI industry professionals and the senior technical executives from leading LLM companies who engage in cutting-edge discussions on our platform. The number of our blue label certified AI participants grew by 130% year-over-year as of the latest. Thus, one important aspect of community daily operation is to enhance the experience for our core content creators. For example, recently, our Zhihu plan in the community, in which by optimizing the revenue distribution Argo [ph], the revenue in a broader range of knowledge-related fields such as science and engineering increased by 30% to 50% quarter-over-quarter. These adjustments have been happening in Q2. Our approach to support creators’ focuses on operations driven with the enhanced efficiency through product development and research. And accordingly, on the content distribution wise, we will prioritize professionals in-depth and authentic content. Secondly, it comes from professional in-depth and authentic content. Zhihu gathers a diverse range of real user experience and insights. For example, the recent incidents involving [Indiscernible] in the open source still became a hot topic on Zhihu with Chief Scientists personally responding. AI industry professionals, open source communities, operators, and lawyers from both domestic and international communities participated in the discussion generating widespread attention and dimension. The influence generated by this content is not just ordinary traffic from curious out — onlookers, but rather it empowers more people to gain common knowledge behind the news through professional insights, providing a sense of fulfillment. We will continue to upgrade our operational systems in line with our content fulfillment standards. Thirdly, but nonetheless, the community culture and atmosphere in the second quarter, we began integrating and streamlining our operational system and community governance, including the user service team to enhance our community culture of sincerity, expertise, and respect. For example, the proportion of professional in-depth and original content in discussion on training topics is steadily increasing, in line with our expectations. Thanks. Thank you for the question.
Operator: Thank you. Our next question is from the line of Daisy Chen from Haitong International. Please go ahead.
Daisy Chen: [Foreign Language] I’ll translate myself. Good evening management. Thanks for taking my question. I’d like to — I have two questions about AI. The first one is I’d like to ask about the recent development of our AI publications, such as the AI power search feature, which was announced in next quarter. Do we have any new products? And can management elaborate more about how that product empower Zhihu community? And — for example, does management see any positive impact on the user activity or behaviors? Following that, I think I have second question. We noted that already announced the partnership with OpenAI to bring its Q&A content into Open products. And they also reached a deal with Google to authorize its data for some AI training that would bring it to roughly over — roughly $60 million per year to raise revenue. So, my question is about whether we consider similar approach business model to add more revenues to the group? Thank you.
Zhou Yuan: [Foreign Language] Thanks for your two questions. This is Zhou Yuan, Zhihu’s CEO. In the late March — sorry, I will just answer the first question. In late March, we introduced a beta version of our AI search feature Discovery (NASDAQ:) — named Discovery. The initial results of the testing phase has been very promising. Users utilizing our AI search become notably more active. We regard this as a positive indicator, demonstrating a significant expansion in our users’ content construction scenarios. So, building on the feedback and usage patterns from the past two months, we are excited to announce that we will launch a new version of AI search by the end of June. This version will have a fresh product name. And it will initially be available on our PC platform. We believe that our PC platform is a crucial scenario of productivity and efficiency, perfectly complementing the mobile end. In the AI era, the quality of user and content far overweighs the importance of quantity. Our AI search function relies on the high quality and trustworthy content within our community, and it enabled it to provide users with high-quality search results. We believe that AI search serves as efficient tool-based scenario, while the community offers a multiuser online interaction environment. These two have strong complementary characteristics. Integrating AI search with our community ecosystem will be our central product development focus moving forward. And for the second question, indeed, many companies are interested in acquiring Corvus from us, but we haven’t made the decision yet. Thank you. Thanks for the two questions.
Operator: Thank you. Our next question is from the line of Cici from CLSA. Please go ahead.
Cici Cheng: [Foreign Language] What’s the long-term growth outlook for vocational training business? And how could commonly differentiate yourself from other educational institutions? Thank you.
Zhou Yuan: Thank you for your question, Cici. This is Zhou Yuan, Zhihu’s CEO. In the first quarter, our vocational training business continued to outperform the industry with a year-over-year growth rate of 35.9%. This is primarily driven by the robust growth of our community-enabled self-operated offerings. Notably, the AI, AGI, and software, and other vocational SKUs and interest courses mentioned in the opening remarks, not only received positive feedback, but also demonstrated improved profitability. Unlike other educational institutions, Zhihu [Indiscernible] is built on the foundation of high-quality content and accumulated knowledge orienting from our community, which naturally extends to supervised learning services. And this process is primarily driven by the needs of our users who are also potential learners of our vocational training business. As we shared in last quarter, Zhihu’s community mechanism continuously identifies and rapidly validates our users’ demands in vocational subsegment, providing us with a significant customer acquisition advantage. Community user and content creators effectively supports our course development, resulting in high labor efficiency across existing offerings. Besides our community-based approach means that when learners’ needs are satisfied, they can, in turn, contribute back to the community, fostering the development of subsequent programs and exempting learners’ lifetime value. This helps mitigate the common challenge of low renewal rates in the vocational training industry. And our future growth strategy, target enhanced profitability. First of all, we will continue to expand into subsegments across three main categories; academy improvements, career enhancements, and vocational SKUs and interest. Our primary focus will remain on vocational SKUs and interest, which are with higher certainty and better profit margins. We aim to enhance our learners’ renewal and the repurchase rate by leveraging Zhihu’s unique advantages, thereby increasing our average GMV. Second of all, we will further improve the ROI of our resources investment and leverage AI to enhance internal operational efficiency. Our goal is to achieve operational breakeven as soon as possible. This is in line with Zhihu’s overall top priority. Thanks. Next question, please.
Operator: Thank you. The next question is from the line of Vicky Wei from Citi. Please go ahead.
Vicky Wei: [Foreign Language] Thanks management for taking my questions. My question is related to the membership business. How should we think of membership business competition landscape and business strategy? Would you please share some color about genuine stories, paying user behaviors, and also other business such as IP operation business update? Thank you.
Wang Han: [Foreign Language] Thank you, Vicky, for your question. This is Han, Zhihu’s CFO. In terms of the competitive landscape, we remain the leader in this segment. While we have experienced competition from other big Internet companies as well as some fluctuations in content creator numbers and the submissions. A significant number of content creators have returned to Zhihu notably, confirming that Zhihu provides the best environment for short story creators to thrive. And I would like to share two points on our strategic plan. Zhihu’s excellence in short-form story segment has been widely recognized. However, some views this actively. As of the presence of stories on our platform dilutes the quality of our content library. So, on this, we would like to share some insights. We believe that literature itself is undeniable valuable content. After all, the novel [ph] price has a literature price, and New York Times has a bestseller list of novels, but we have concluded by separating the display and distribution of story content from non-story content, we can provide better experience for users with different preferences. The best library and book stores globally also categorize fiction and non-fiction separately to enhance users’ experience. Therefore, we launched the stand-alone Yin Yang Story app. Yin Yang Story achieved a nearly 40% quarter-over-quarter increase in MAU for Q1 2024, reaching millions of users. This segmentation allows us to optimize each domain for specific user preferences without affecting the experience of the other group of users. And second of all, Zhihu’s short story, [Indiscernible] has become the most popular premium revenue sharing drama on the market. The premium short drama [Indiscernible] adapted from Zhihu’s short story has achieved excellent market results, becoming the highest revenue share in short drama to-date. Its success has raised major reading platforms awarenesses of the value of Zhihu’s short story copyright. Premium channels are approaching us for collaboration, further allocating the value of our IPs. How should we understand short story IP’s value? So, in our recent discussion with the academic community, we share that short story may represent the most advanced format of content evolution as the precisely and quickly showcase the latest authentic and value trend. Short story may be as much as five years ahead of novels, which in turn are five years ahead of film and television production. We look forward to sharing more Zhihu IP content success story with all of you in the future. Thank you for your question.
Operator: Thank you. The next question is from the line of Thomas Chong from Jefferies. Please go ahead.
Thomas Chong: [Foreign Language] Thank you management for taking my question. My question is about marketing and services. So, I want to ask about online marking revenue outlook and our long-term strategy. Thanks.
Wang Han: Thank you for your question. This is on Wang Han, Zhihu’s CFO. As we mentioned in last quarter, Zhihu is committed to enhancing the community’s trustworthiness even at the cost of satisfying some short-term low-quality revenue. As such, we proactively refined our commercial content and distribution mechanism, resulting in an expected CCS decrease. However, our brand advertising increased by 40% year-over-year during the non-peak season and performance advertising delivered quarter-over-quarter growth compared to Q4 2023. For the rest of 2024, we will focus on improving performance advertising through enhancing AI and data infrastructure. In long-term, we believe that Zhihu’s commercial potential should be assessed with Zhihu’s brand premium instead of only focusing on in-platform traffic. Let’s take an example. Many emerging domestic 3C tech brands showcased their R&D technologies and principles on Zhihu. They believe that only on Zhihu can be popularized their tech in a sufficiently professional and in-depth approach and establish market awareness for new product categories. We even integrate and upgrade their product based on Zhihu’s data and the user feedback. In the consumer industry, most of the products on the market are actually quite similar. The main difference is the level of investment in advertising and promotion. However, products that can earn a solid reputation among professional users within Zhihu community likely have a generating competitive edge. You might have same phrases like Zhihu high phrase followed by the rest of the title or Zhihu [Indiscernible] plus rest of the title in many articles. These validates the trust premium and the endorsement value of Zhihu’s content compared to that of content from other Internet platforms. We are quite confident that in commercial area, Zhihu has great potential to further enhance brand’s credibility. Thank you for your question.
Operator: Thank you. That concludes today’s question-and-answer session. At this time, I will turn the conference back to Yolanda for any additional or closing remarks.
Yolanda Liu: Thank you, operator. Thank you all once again for joining us today. If you have any further questions, please contact our IR team directly or PSN Financial Communications. Thank you.
Operator: Thank you. This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Read the full article here
