Ladies and gentlemen, thank you for standing by and welcome to the Zhihu Inc. First Quarter 2022 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Jingjing Du, Head of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to our first quarter 2022 financial results conference call. Joining us today are Mr. Zhou Yuan, our Chairman and CEO of Zhihu; and Mr. Sun Wei, our CFO. 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 purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see our earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.zhihu.com. I will now turn the call over to Mr. Sun Wei, our CFO.

Okay. Thank you, Jingjing. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder and CEO of Zhihu. Thank you for joining Zhihu's first quarter 2022 earnings call. In April, we successfully completed our dual primary listing on the Hong Kong Stock Exchange, marking another key milestone following our listing on the NYSE last year. Our dual primary listing further demands our solid foundation for the sustainable and the long-term growth of the company. In the first quarter, aligned with our community ecosystem comes first strategy. We continue to cultivate fulfilling content in various verticals. Our sense of fulfillment approach and algorithm combined with refined analysis of the needs and the characteristics of our core user groups has continued to enhance our understanding of users and help us more precisely meet their needs. At the same time, our iterated tools, creator operations and support helps further encourage content creation. The combined effect of the above, effectively work to boost the sustained vitality and the rational prosperity of our community ecosystem. During the first quarter, our average MAUs grew by 19.4% year-over-year to RMB101.6 million, with over 96% being mobile MAUs. Affected by our strategy of creating a better community ecosystem, starting from January, we have continued to improve user experience by optimizing recommendation algorithm. We have also actively implemented initiatives to better manage content which is incompatible with our sense of procurement content standards, including content that is filed, irrelevant and friendly and spending content. As a result and as anticipated, we saw a slight pullback in overall user growth in the first quarter compared with peak levels in previous quarters. However, at the same time, we witnessed notable growth in user engagement and the retention due to the enhanced user experience on our platform. Our…

[Operator Instructions] Today's first question comes from Xueqing Zhang with CICC.

[Foreign Language] I will translate myself. My question is about the user growth with the community ecosystem comes first strategy, we saw a slight pullback in average MAU in the first quarter. And in first quarter [indiscernible] and more social hub topics may positively boost our user activity. So can management share more color on user growth momentum such as new user acquisition and targeting? And how does the management think of the user growth in the second quarter? And what's the annual target in terms of the full year of 2022?

[Foreign Language] Thank you for the question. I'm the CEO of the company. My name is Yuan Zhou. Let me talk about the question or the aspect of growth strategy for the whole year as well as for the second quarter and the second half of the year. Now in terms of our adjustment in order to fulfill our ecosystem first strategy, we've done a lot of adjustment and we were able to actually achieve a lot of our growth target for the first quarter. [Foreign Language] So in terms of our ecosystem first strategy, we mainly focus on adjusting the user experience as well as the whole -- the ecosystem for our high-ranking creators in their use of the community. And as a result, we are able to actually achieve quite a lot for Q1 and also the beginning of Q2. Just to give you some idea, the active level of our high-ranking creators has increased significantly and the quarterly DAU of our high-ranking creators has increased by 40% Y-o-Y. And also their daily content creation has increased by over 125% Y-o-Y as well. [Foreign Language] And also, as was mentioned by our CFO earlier in the prepared remarks, we just launched our 4.0 version of the high yen plan [ph] for the whole year last week. And based on the public information, you can actually check more details for the high yen plan [ph]. We mainly focus on the adjustment and the upgrading of the creator system as well as different monetization channels or ways for our content creators. And this is part of our tradition of creating a more robust ecosystem for our young creators as well as following up on our successful upgrade of our high-ranking content creator's ecosystem following in Q1. [Foreign Language] Now what…

Okay. Operator, we would like to take the next question.

Absolutely. Our next question today comes from Steve Qu with Goldman Sachs.

[Foreign Language] My question is on advertisement. Could management share regarding current tight COVID situation or restriction? What is our outlook on the second quarter advertising plus the CCS revenue? And it would be great if you could provide us more color by verticals, including our top verticals such as FMCG, e-commerce, auto, education as well as online games and their performances in the second quarter? And just wondering, given COVID restriction definitely has been reasoning in some of the areas and as well as the recovery of the logistics, have you seen an advertising budget recovery into the end of the May?

[Foreign Language] Thank you for your question. I'm the CFO of the company. My name is Sun Wei. Allow me to take your question. Now since the beginning of 2022, we've been able to -- we actually have observed a lot of the resurgence of the pandemic all over the world as well as in China. And so different provinces in China has adopted quite a tighten prevention policy in order to prevent the spread of the pandemic and the viruses. And as a result of the supply chain as well as overall macro economy and customer and consumer consumption has experienced some short-term changes and I believe that we are all part of it. And I believe that if you are in Shanghai right now, you might still be negatively impacted by the lockdown policy there. And definitely, it affected our business and we have noticed some changes on our business as well ever since the mid- to low -- well, mid- to late March of the year. And it affected mainly our advertising as well as our CCS business because they were both the 2B side of the business on the platform. And overall, I believe that the Q1 impact on performance is still under the impact of the pandemic and we still are facing some restriction and some constraint as a result of the pandemic on our 2B side of the revenue. [Foreign Language] And before I go about saying the -- or giving you more expectations about our Q2 growth, I would like to actually talk about the impact from the pandemic on our Q1 results. First of all, I would like to address the positive impact. And so there are several verticals on our platform that are impacted positively, including the online service, online gaming…

And our next question comes from Ashley Xu with Credit Suisse.

[Foreign Language] I just want to check on our latest progress about utilization? How is the feedback? And also what's our plan for second half -- for the rest of the year? A - Yuan Zhou [Foreign Language] So thank you for the question. Actually, video has become an integral part of Zhihu's content ecosystem. And our consumption rate amongst the DAU for the first quarter of video has already exceeded 45%. And this definitely marks a key developmental milestones on the platform because it tells you -- it tells us that we have entered a positive cycle of development for our video content. [Foreign Language] And so for the first quarter, under the strategy of ecosystem first, we are able to optimize our overall experience of video for the content creators in terms -- including, for example, optimize the overall -- optimizing the overall style of the videos as well as encouraging more original content or original high-quality videos from our organic content creators. And with some simplification of the products, we are able to make the video creation process easier and also more refined as well. And going forward, we will continue to integrate and basically integrate the video together with other content formats on the platform so that we can continue to empower our content creators. [Foreign Language] Now what I've mentioned is about the content of video themselves. It's mainly about content creation. However, on the consumption side, we also have done a lot of adjustment and upgrade as well. For example, we've optimized our algorithm in order to better match our users' preferences and be able to actually made lots of customization or individualized recommendation according to different users' preferences. And also, we categorize different videos in terms of -- by the quality of the…

And our next question comes from Yiwen Zhang with China Renaissance.

[Foreign Language] In your prepared remarks, you mentioned we want to improve operational efficiency. So can you elaborate on the key areas of such optimization, for example, whether that's headcount optimization or selling the marketing expense optimization? How should we think about market trend down the road?

[Foreign Language] Now about cost reduction and efficiency improvement, I want everyone to understand that the core of doing that or the final goal of doing that is to upgrade our business as well as our management because only by doing that can we achieve a sustainable way of long-term cost reduction and efficiency improvement. [Foreign Language] Let me give you an example in terms of our community development. For the first quarter and going into the second quarter, we have taken 3 steps. [Foreign Language] So the first step is to really integrate our video together with the community. Last year, when we first launched our video formats, it was in a pilot stage of development and that kind of independent close development was very beneficial for the fast growth of our video content. And right now, for the first quarter, we have already achieved a lot of growth, for example, the consumption penetration rate of video has exceeded 45%. And that shows that video has already become an integral part of our ecosystem. And so we believe that going into the second quarter of the year and also the rest of the year, the integration of the video content together with the community will be more empowering for the -- for all of the content creators. [Foreign Language] And the second step is definitely built on the development of the first step. And so for the second step, our goal is to further integrate the whole community in different aspects of our daily operation. And as a result, we believe that we can greatly enhance the communication efficiency for our operational staff as well as other parts of the business, including different -- the communication between different units. And we can actually integrate the data between different units…

Thank you. Ladies and gentlemen, this concludes today's question-and-answer session. At this time, I will turn the conference back to Jingjing for any additional or closing remarks.

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

This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.