Ladies and gentlemen, thank you for standing by. And welcome to the Zhihu Inc. Fourth Quarter and Full Year 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, excuse me, ladies and gentlemen, thank you for standing by. And welcome to the Zhihu Inc. Fourth Quarter and Full Year 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's 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 Ms. Jingjing Du [ph] Head of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to our fourth quarter and full year 2021 financial results conference call. Joining us today are Mr. Zhou Yuan, Chairman and CEO of Zhihu; and Mr. Sun Wei, our CFO and Mr. Neo Zhang, Head of Communities Business Division and Strategic Development. Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference will be available on our website at ir.zhihu.com. I will now turn the call over to Mr. Sun Wei, our CFO.

Thank you, Jingjing. I am pleased to deliver today's opening remarks on behalf of Mr. Julian, Founder and CEO of Zhihu. Thank you for joining Zhihu's 2021 fourth quarter and full year earnings conference call. 2021 was a remarkable year for Zhihu. In March, we successfully completed our IPO amidst a challenging market environment and went on to complete the year with sustained, robust financial growth. Throughout the year, as part of our continued efforts to enhance content quality, we focused on promoting and distributing fulfilling content, or content that we believe broadens horizons, provides solutions, and resonates with minds. Our videolization strategy proved to be effective and brought the diversity of Zhihu’s content library to new level. This enabled content creators to contribute with even greater levels of creativity and strengthened our capabilities to meet the growing content consumption needs of our users. We continue to benefit from our commitment to deliver fulfilling content and enhance our operating efficiencies, realizing another year of strong user base growth and a more appealing content ecosystem for business owners. In Q4, our user base reached a new high in the fourth quarter, with average MAU exceeding 100 million, and a year-over-year increase of 36.4%. Our content-centric monetization approach maintained its robust growth momentum, as revenue in Q4 increasing by 96.1% year-over-year to RMB1.02 billion and the revenue for the full year increasing by 118.9% to RMB2.96 billion. And the contributions of non-advertising business increased to 62.9% in Q4. At the same time, our average monthly team members for Q4 further increased by 102% year-over-year to 6.1 million and accounted for 5.9% of total MAU. We believe these achievements are the result of not only the successful implementation of our content-centric growth strategy, but also the joint efforts of all the parties in…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Yingyan Zhao [ph] with CICC. Please go ahead.

[Foreign Language] Thanks management. And I have two questions. And the first one is about how does the management think of the strategic direction of the company in 2022? And the second question is regarding the content ecosystem, especially for the content creator side and for the commercialization. So what are the potential enforcement's in the 2022? Thanks.

[Foreign Language] Okay.

Thank you very much. This is the answer from CEO, Mr. Julian. First of all in the year of 2021, we have made some concrete achievements at the current stage. In terms of content exquisite - sense of acquisition, as a sense of fulfilment, as well as medium upgrades and based on this foundation, we will put our strategic focus for the year of 2022 to ecology first.

[Foreign Language] Okay.

What do I mean by ecology first? Well, first of all, it means that there are things that we have to accomplish on top of the user number increase and also revenue number increase. What is more important and higher up on the top of our hierarchy are the experiences of content creators, the word of mouth of consumers, as well as the satisfaction level of the community hemisphere. All of these factors that I mentioned will be attest to whether or not we have done our good job. And of course, the numeric or KPIs are also very important and we'll try to also hit those targets and also reduce the loss for the year.

[Foreign Language]

Second, in terms of the product and operations that we have, we'll try to unleash the full volatility of the community that we built. In this perspective, as I said before, a good ecosystem focuses on a couple of things. First is multi-medium of - a multi-forms of the medium, and multi-forms of monetization, and the third is end-to-end. And I'll elaborate a little bit more in detail.

[Foreign Language] Okay.

By multiple format of mediums, I meant that by using different mediums we'll be able to cater for different needs of our users in different scenarios. It's just like having a dinner, you have motor, you have you know, first appetizer and then the main course and then followed with some dessert at the end.

[Foreign Language] Okay.

By multiple ways of monetization, I mean today the popular - the creator population, they're a diversified group of population and we - as a platform, we have to be adaptive to cater for their needs and experiences, rather than having the creators coming to us and adapting to our platform.

[Foreign Language] Okay.

And last but not least, by end-to-end. I mean, we have multiple types of creators at different levels. And we would want to make sure that our platform is running efficiently and quickly so as to create a closed loop for those creators to be able to finish their content concentrations [ph] and make money. So according to this, three key factors that I just mentioned. We do have a lot of rooms for further upgrades.

[Foreign Language] Okay.

If you know Zhihu well, you may noticed already that we have made quite a lot of changes to our product last year. And through this process, we have also got quite a lot of learnings. And this year, our plan is to further reduce the level of difficultness for the content creators and also to increase the consumer experiences to have further iterations of our product. And also at the same time, we'll try to continue to allocate more resources to those who continuously creating contents that are bringing higher sense of fulfilment.

[Foreign Language] Okay.

The third point I want to make is that everybody knows that only by having healthy content, healthy commercial products, which could we are able to have, you know, continuous revenue and create genuinely valuable - useful values. And as you can see that we have a very nice CCS impressive performance on CCS and around CCS this year there are many, many more, you know, changes to production to come in a year of 2022.

[Foreign Language] Okay.

The last point I want to make is that we had already fought out our business in vocational training this year, due to the belief that we think it's a good to come supplementary to our ecosystem. And we just discovered that the demand for taking exams and having vocational training is really huge and the size is quite impressive. And therefore we will have some more progress to be made in vocational training by working with our education partners this year.

[Foreign Language]

So as I said before, ecology first is our fourth [ph] strategy. And we believe that by implementing this strategy well, we'll have improved the numbers for years to come. And I'll direct the second question to our - Neo Zhang.

[Foreign Language]

So this is Neo Zhang, the Chief Strategy Officer responsible for the community. So for the content creators and sense of fulfilling, we will focus on the content creators, especially the original content creators by creating - by giving them better creation tools through our product and our technology and to support them to have multi-medium formats of expression, so that to help them work better.

Okay. [Foreign Language]

Second is about the traffic and benefits innovation schemes, especially for those who are with us for the longer time in cornerstone areas, we would have some new schemes in terms of benefits in order to supplement with the cheese [ph] system and the influx [ph] system that we already have, so as to benefits those creators with a better traffic and better monetization.

Okay. [Foreign Language]

As to the standard of sense for fulfillment, we had already completed the preliminary algorithm for that. And we have deeper understanding as to the content and capacity of our content creators, so that we'll be able to have a higher efficiency and better control of costs, in terms of the supply of content, all the way up to the distribution of the content. And for those content creators different areas and at different levels, we'll be able to create sorts of better areas of our communication through our algorithm improved, so that we have both squares and also clubs.

Okay. [Foreign Language]

By way of summary, just as our CEO Julian said, we'll continue to have ecology first and continue to help our content creators to support them for their content creations and to give them some very nice, you know, monetization mechanism.

Are we ready for the next questioner?

Yeah, please.

Thank you. The next question comes from Natalie Wu with Haitong International. Please go ahead.

[Foreign Language] Thank you very much. Management, thanks for taking my question. My question is related there about online advertising, industry update to you on the advertising from your perspective. So just wondering what's the latest trend and outlook for the online advertising industry in China and for most specifically for traditional brand ad performance based ad and CTS et cetera? Also for the specific industry in terms of the user advertisers, just wondering any particular - particularly stronger or weaker on a year-over-year base to – your perspective of view, and how is your exposure for that? And also in terms of the full year of 2022, how should we think about your growth with advertising business, also the CCS? Thank you.

Hello. Hello?

Yes, we can hear you Grace, please go ahead.

I think we have problem hearing the call, can we check.

Just one moment please. Thank you. I'm still trying. Excuse me, we have re-joined the speaker location. Please go ahead. I believe the answer to Ms. Wu's Question.

Yeah, yeah. Hi, Natalie.

[Foreign Language]

Thank you very much, Natalie, for your question. We actually have made two observations in terms of online advertisements recently. First is because of the uncertainty surrounding macro economy, the politics, as well as regulation. The general environment indeed has made some negative impacts on our clients marketing budgets. In the past couple of quarters, you see that the total size of their marketing budget probably dropped quite a lot. And the second is that we noticed that there is a major structural change to the marketing budget of our clients, more and more budget - more and more marketing budget switching from traditional media platform towards content platforms that has better and higher qualities of our contents, including content community, like us. Therefore, our clients they focus more and more on making long term investment in building their brands and also to make accumulations of high quality content assets. And during this switching or a shift of structural budget shifts, community - content community, high quality content community like Zhihu we are actually benefiting from this trend.

[Foreign Language] Okay.

So, against this backdrop, we see that CCS, plus advertisement as a model for us is giving us three nice growth for instance, year-on-year growth for the whole year '21 increased by 180% and fourth quarter year-on-year increase was 88%.

Okay. [Foreign Language]

Structure wise we see advertisement is still the number one source of revenue we had. In Q4 we had a faster growth rate than the industry average and for the whole year we reached around 40% in advertisement increase.

Okay. [Foreign Language]

In terms of the brand advertisement, we see that is growing even faster at about 50% for the whole year and as a percentage to total online advertisement revenue it is also growing and getting a bigger part. In terms of verticals, we see e-commerce, FMCG, we see electronics and automobiles are growing very significantly, which is very unique and characteristic to Zhihu, because we believe that these two areas they are closer to the consuming scenarios of the users and also closer to people's consuming decision point.

[Foreign Language]

CCS is still the biggest driver for growth in Q4 increased by four times and for the whole year about six times. CCS is highly scalable and it is highly growth-oriented. I believe that this has been proven too.

[Foreign Language]

In terms of the content creators, they - by using the cheese platform they entered into our ecosystem for CCS and will be able to scale up more significantly and meaningfully so that they can have a better you know income. By the end of the fourth quarter, the total number on cheese platform is 15,000 of creators.

[Foreign Language]

We are benefiting with better and better word of mouth. In terms of the CCS we are seeing those - the number of brands and merchants who are working with us on the rise. Vertically we see e-commerce and personal care are the two biggest verticals, whereas Internet service and vocational training are showcasing very nice driving force.

[Foreign Language]

So overall speaking for both advertisement and CCS, we have e-commerce, three C [ph] vocational and gaming of this categories put together accounting for 80% plus of the total advertisement revenue. And then the e-commerce, Internet service, automobile and three C's quarter-on-quarter they registered a growth rate ranging between 20% to 60%. So that's very impressive.

[Foreign Language]

For the year 2020 Q1, we thought that the growth will be over 50% year-on-year and for the whole year we expect it to be 60% to 65%, which will be higher than the industry average.

[Foreign Language]

[Foreign Language] In terms of full year growth

[Foreign Language]

Got it…

For the whole year outlook we're talking about 60% to 65% growth, which will be higher than industry average. And in terms of contributor size, CCS will be probably the biggest contributor by taking up about one third of the total, following up with you know advertisement and paid membership also on the rise.

Are you ready for the next question please?

Yeah.

Thank you. The next question comes from Steve Qiu with Goldman Sachs. Please go ahead.

[Foreign Language] Okay, I'll briefly translate myself. Thanks, management for taking my questions. So I've one question on behalf of future buy [ph] regarding vocational education. So understand that this business is still at the national stage, but could management share with us some high level thoughts and in terms of how actually manufacture or create high-quality educational content on a sustainable basis. So except for the content that already on our platform, how we actually cooperate with our industry partners, is there going to be done through M&A Or is going to be created by our partners and then we will be the publisher of this education content? And last but not least, could you please share with us some of the data points, such as the growth profile, the revenue mix, as well as the margin content?

[Foreign Language]

Answer from CEO, Julian. Well, actually for the vocational training business, in our mind, we believe that this is a real demand generated genuinely within the community as we see it over the years. And we see that there is a mid to long term - long tail education system that is gradually taking shape in our community from the demands generated from our users. By way of example, in our master's examination part we see an active for DAU you have about 1 million or even higher than 1 million, so the demand is real and huge.

[Foreign Language]

As I said before, the contract is something we see in our system. We think that the people who are very active if we want to pursue like a professional certificates and use it as a forum to talk to like minded people, and they also talk about their hobbies, their skills, and how they can achieve a certificate or improve their skills in our community. So we could provide greater support to those people based on our content.

[Foreign Language]

We believe that community that we have built already is a very good platform in order to generate an ecosystem specifically for education and community can serve as an entrance - as an entrance for people to take up you know, the content with regard to education that they required.

[Foreign Language]

From CFO Mr. Sun Wei, in terms of numbers, education or vocational training in 2021, the size increased by five times year-on-year and in terms of percentage is still rather small at the beginning. So we put that under the category of Other income. However, in the year of 2021, in Q1 we thought that increasing to more than 5% and for the longer term, we believe that they have a potential of taking up about 20% of our total revenue.

[Foreign Language]

In terms of types of products or categories of a product that we have developed for training, in terms of exam we have master's entry examination, we have civil-service [ph] examination in China. We also cover different types of professional skills, such as CFA or CPA or FRM. We also have business English training or writing skills training.

[Foreign Language]

In terms of infrastructure building, we had already completed the mid office required for Zhihu education. For instance, we have this CRM education system that will be able to cover the whole value point from content creation and distribution of content. So in the future either we can run it ourselves, operate it ourselves or we can acquire a partner and very quickly and efficiently incorporate the business into our own system as an infrastructure.

[Foreign Language]

And also specifically to Stevens question before, all the courses that we have for the time being are 1P instead of 3P but maybe there will be 3Ps in the future.

[Foreign Language]

Thank you. Did that answer your question? Thank you. That concludes today's question-and-answer session. At this time, I will turn the conference back to by to Jingjing Du for any closing or additional remarks.

Thank you, operator. Thank you all again for joining us today. And if you have any further questions, please contact our IR team directly or TPG Investor Relations. Thank you.

Thank you. The conference has ended. You may disconnect your line.