To The Moon

On Wednesday, May 24 before the market, Zhihu reported its first quarter 2023 results, reporting revenue of $994 million in the first quarter, up 33.8% year-over-year and exceeding expectations. $Zhihu(ZH)$ 

I. Financial Analysis: Overall growth rate up, revenue and net income better than expected

In terms of revenue, Zhihu reported revenue of 994 million yuan in the first quarter, up 33.8% year-over-year and exceeding expectations. Zhihu continued its strong performance in the previous quarter, and continued to build on its dual growth points in the quarter, with paid membership revenue up 105% to RMB455 million, marketing services revenue down 11.7% to RMB392 million, and career education revenue up 171% to RMB107 million. The traffic accumulated by Zhihu's year-round operation is being realized to paid membership and vocational education revenue at a rapid rate, the beauty is that Zhihu's advertising business failed to beat the market, compared to Tencent and Racer's strong growth in advertising business in the first quarter, it became the Internet green leaf.

In particular, the vocational education piece, Zhihu 2022 acquisition of a number of vocational education platform have a good performance cash.

Regarding gross profit and expense control performance, Zhihu's gross margin was 51.5% in the first quarter, compared to 45.1% in the same period last year, mainly due to a significant reduction in cost of revenue growth compared to revenue growth, thanks to lower cloud services and bandwidth costs from Zhihu's internal technology improvements. Total operating expenses for the first quarter were only NT$729 million, a 25.9% decrease year-over-year, primarily due to significant reductions in marketing expenses and general administrative expenses.

On the profit side, Zhihu reported a net loss of $179 million in the first quarter, a significant reduction of 72% from $614 million in the same period last year. Adjusted net loss for the first quarter was $120 million, compared to $367 million in the prior year period, also significantly narrowed and exceeding previous expectations.

Notably, Zhihu finally achieved its goal of positive operating cash flow since its IPO, with operating cash flow of $59.9 million in the first quarter.

Operation Analysis: Active Users Reached New Highs, Double Curve Growth Emerged, and Cost Reduction and Efficiency Improvement Continued

1. Subscription and active user data

Zhihu's monthly average subscriptions reached 14.9 million in the first quarter, up 116% year-over-year, with a net addition of 1 million in a single quarter, a growth figure that didn't fall too far behind.

Zhihu's average monthly active users (MAUs) reached 102 million in Q1, with a peak of over 110 million active users in March, a new high. This compares to 101.6 million in the same period last year, compared to 100.7 million in the previous quarter, with positive growth both year-over-year and year-over-year.

Overall, Zhihu's operations have improved in terms of overall user data, but the change is not too big compared to the base of 100 million MAUs that will be reached in 2021.

2. Double-curve growth is emerging and revenue structure is further optimized

Currently, Zhihu's revenue growth mainly comes from paid members and professional education, forming a stable double-curve growth model. Even in the face of declining revenue from the old main business of marketing services (including advertising and content commercialization solutions in the past), the overall revenue growth is still guaranteed.

Paid membership revenue was $455 million, up 105% year-over-year, marketing services revenue was $392 million, down 11.7% year-over-year, and vocational education revenue was $107 million, up 171% year-over-year.

Speaking of this, we have to mention the decline of the K12 education industry, which also accelerated the growth of the vocational education business. Zhihu took advantage of this share of the wind and directly took up online vocational education. In the past, it was basically related to advertising, but now it relies more on its own merits in paid membership and vocational education. By the first quarter, the C-side revenue from paid membership and education accounted for more than half of the revenue for the first time, reaching 56.5%.

3. Significant improvement in cost control

Zhihu not only expanded its revenue growth rate in the first quarter, but also made greater improvements in its cost expenditures. Total operating expenses for the first quarter were RMB 729 million, a 25.9% decrease year-over-year. While R&D expenses were up slightly, significant reductions in sales and marketing expenses and general and administrative expenses were more critical.

Selling and marketing expenses decreased by 12.0% to $445.6 million from $506.6 million in the same period in 2022, primarily due to more disciplined promotional spending and lower salary and benefit costs.

Research and development expenses increased to $183.0 million from $166.5 million for the same period in 2022. The increase was primarily due to higher salary and benefit costs for research and development staff and increased investment in technology innovation.

General and administrative expenses decreased by 67.7% to $100.4 million from $310.6 million for the same period in 2022, primarily due to a decrease in equity incentive fees recognized and a decrease in professional services fees.

4. Will Zhihu's next growth point be e-commerce?

If you have been following Zhihu for a long time, you will notice that this quarter's earnings report is a bit different from the past. In previous years' earnings reports, Zhihu's revenue was written separately for advertising and content commercialization solutions, while Zhihu's e-commerce business, which has been piloted in previous years, is included in the content commercialization solutions section.

As to why the two are combined as marketing services, Zhihu's original statement reads, "Starting in the first quarter of 2023, our advertising and content commercialization solutions revenue is recorded as "marketing services revenue" to better present our business and operating results in line with our overall strategy. " In line with Zhihu's strong growth in paid users and career education in the first quarter, it seems that Zhihu's operations are now focused on converting paid users and career education.

Compared to the flurry of attacks launched by top stream Xiaohongshu next door in the e-commerce track, Zhihu's moves in e-commerce are much smaller, and it seems to be more inclined to be self-operated. In general, Zhihu's e-commerce is still only an attempt of Zhihu + and Zhihu Goodies, and there are no further big moves for the time being. It seems to be uncertain whether the e-commerce model Zhihu wants to develop can become the next growth point.

Technical side

After the release of Zhihu's earnings report, the pre-market was once up 10%, then dived at the opening, good results still did not stop the Chinese stocks from pulling crotch. Zhihu stock price is still in the downward trend has not yet reversed, it is recommended to buy cautiously, after all, the two years of Chinese stocks have been tossed silly.

However, individuals still quite like the performance of Zhihu this time, to see if the trend has the opportunity to buy points at a low price point to see.

Four, personal summary

1. With the support of double-curve growth, Zhihu's revenue growth rate further increased, overlaid with significant cost control, net profit recovered significantly, and the overall performance began to show its edge with Zhihu's high growth in paid membership and vocational education.

There is no doubt that Zhihu is the top Q&A community in China, with high quality traffic. Compared to the past, when Zhihu was struggling to cash in on business, it has now undergone a new transformation and has come out with its own unique path to cash in on traffic.

3. Zhihu's share price trend has not reversed, it seems that the short-term performance improvement failed to move the heart of Mr. Market, or was wrongly killed it, individuals intend to build a position at low, but do not recommend that you get on board, this car risk is a bit large.

This article is a personal quarterly report interpretation and analysis, are personal in the ability to think about the experience, but also hope that you criticize the correction. In addition, this article does not constitute an investment reference advice, hope that you readers think independently.

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