Ladies and gentlemen, thank you for standing by, and welcome to Zhihu Inc. Fourth Quarter and Full Year 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, Senior IR Manager. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to our fourth quarter and full year 2022 financial results conference call. Participants on today's call will include Mr. Zhou Yuan, Founder, Chairman and the Chief Executive Officer of Zhihu; Mr. Li Dahai, Chief Technology Officer; and Mr. Henry Sha, our Chief Financial Officer. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision of U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in company's [indiscernible] and other public filings as filed with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see 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. Zhou Yuan, Founder, Chairman and CEO of Zhihu.

[Foreign Language]

First of all, I would like to introduce our CFO and Director, Henry Sha. Henry joined Zhihu in January this year and comes to us with impressive corporate and capital market experience. We are delighted to have Henry as part of our senior management team and look forward to working with him to further [unleash] Zhihu's competitive advantages and to create more long-term value for our shareholders. Now I would like to invite Henry give my prepared remarks.

Hello, everyone, and thank you, Mr. Zhou, for the kind words. I joined the Zhihu in January this year, and I'm excited to be part of the leadership team and I am pleased to [indiscernible] experience opening remarks on behalf of Mr. Chairman. I am Chairman and the CEO of Zhihu. Thank you for joining Zhihu's Fourth quarter and full year 2022 earnings call. 2022 was a difficult year presenting multiple challenges, including COVID resurgence and economic turmoil, which disrupted our operating conditions and profoundly impacted all aspects of society. Despite the headwinds throughout the year, we are delighted with our solid fourth quarter and full year performance. With the solid execution of our Community Ecosystem First' Strategy, we continue to expand our high-quality content and footprint and encourage user engagement across the Zhihu community with a broader array of content creator incentive programs. Fueled by these efforts, our average MAUs grew steadily throughout 2022, to $101 million by year-end. Our accumulative content creators increased to 53.1 million by the end of 2022 with a 14% year-over-year increase. Its striving Community Ecosystem empowered Zhihu to mitigate challenges with strength and resilience. In Q4, our total revenues increased by 9% year-over-year to RMB 1.1 billion, representing our third consecutive quarterly revenue increase. Among total revenues, our customer-oriented business including paid membership and the vocational training business grew at a faster pace, further diversifying our revenue streams. Revenue from our paid membership totaled more than RMB 400 million in the fourth quarter, with an accelerated year-over-year growth rate of 93%, while the vocational training growth rate reached 281%. At the same time, our continued efforts to reduce cost, optimize our organizational structure, and improved overall efficiency over the past several quarters has paid off. For this quarter, we recorded another consecutive quarter…

[Operator Instructions] The first question today comes from Steve [indiscernible] with [indiscernible]. Please go ahead.

Zhihu has a very unique positioning within the China tech space, space with very high-quality text-based content and has a very unique positioning, especially for the training of Chinese-based large language model. So during the prepared remarks, management has also mentioned the future integration between the Zhihu's current business model as well as the large language model. So could management elaborate more on Zhihu's specific strategies both 2B front as well as 2C front. Our 2B front, where we collaborate with some of the upstream large language models and also strategy on a self-developed large language model. And on the 2C front, how do we plan to utilize AIGC to empower our content creators, especially for the creation of content, common solution content as well as the membership content?

Thank you for your question. This is Henry. We will invite our Chief Technology Officer on this call to answer your question. Dahai, please.

[Foreign Language]

I am Dahai, CTO of Zhihu. Zhihu is actually a open company. We are actually doing kind of evaluation of self-development and also [indiscernible] with many other third parties to see which one works better to empower on our content in our community.

[Foreign Language]

Zhihu has our [indiscernible] advantage in the data area, especially in the vertical and the professional sales, we believe this accumulative data will place us in a unique position in the AIGC technology revolution.

[Foreign Language]

We are currently exploring in both model layer and also application scenarios, hoping to bring our users a differentiated and fresh user experience in terms of the QA and content consumption, driven by the technology innovation.

The next question comes from Vicky Wei with Citi.

[Foreign Language] Will management give some color or what is the priority for the company in 2023? How should we think of the investment focus for 2023?

[Foreign Language]

This is Zhou Yuan. I do have like several key points to share with you. First of all, moving forward, we'll continue to stay with our ecosystem comes first strategy. In year 2020, we did see that we make a lot of achievements by adopting this strategy.

[Foreign Language]

To help you better understand our business, in 2023, we have actually separated our business models into two parts. One is the first revenue driver of like community business. The second driver come from education-related business.

[Foreign Language]

For our first revenue driver, the community business, we expect MAU of this business will maintain a healthy growth in the year. The community business consists of our CCS and advertising business, which is for sort of like a B-end. And also, it includes the C-end services, which is paying members. Both these two services will be the major drivers for the improvement of this business line.

[Foreign Language]

In the past years, our second like revenue driver education related business, also sharing on our achievements both in like the users and also the revenues.

[Foreign Language]

So in 2023, we believe that our second like revenue drivers were achieved on factor and higher quality growth. We have already have like internal evaluation and the strategic planning for the next 2, 3 years. We will stay with our development on pace and the strategy to grow this business.

[Foreign Language]

I believe that you have seen the data for this business line in our recently released earnings release. We believe that is driven by our further upgrades of technology and also our corporate third parties together with our sales development programs. The quarterly revenue for this business line is expected to break through RMB 100 million in coming quarters.

[Foreign Language]

In the coming years, we will continue our investments in the technology part because we believe as a technology-driven company, this operated technology will not only improve our operational efficiency, but also will bring more growth opportunities to us.

This is Henry. I will have -- let me supplement our key advantage with you. We had mentioned about our education or vocational training business, our revenue forecast for the next quarter that will be in RMB 100 million.

The next question comes from Ashley Xu with Credit Suisse.

[Foreign Language] My question is related to the recent trend in the recovery of our advertising and CCS business. Could management share more color about the performance in key verticals?

Thank you, Ashley. This is Henry. I will help answer the question. I think for the next quarters, recovery of the ad business still highly depends on the recovery of our macroeconomic -- economy in China. So we believe that will take some time. Also apply to the verticals within both CCS and branding advertisement.

The next question comes from Thomas Chong with Jefferies.

[Foreign Language] If you look into Q4 GP margin, it comes in better than expectations and the losses is also less than consensus estimate. So I'm just wondering how we should think about the GP margin and the breakeven timing, if there's any color on that front.

This is Henry. I will help answer this question. So in Q4, I think the GP margin is about 56%, so -- which has improved sequentially and also year-over-year in comparison with last year. The major reason is that the first, the operational cost was stayed during this quarter because I think during our efficiency improvement, the advertisement execution cost is also optimized as well as the server and funding costs, the utilization has improved, the funding cost was also stayed during this quarter. We believe that we still have some room for cost saving in [ service ] and fund utilization in this year. But we believe that in Q1, our business is also a very heavy seasonality. Q4 is a high season over the year. So we believe that the deep margin in Q1, Q2 cannot be comparable with like that in Q4. And also, I will need to remind the investors that our revenue strategies also get changed in the past 1 year. And now the [ 2C ] business, including membership subscribing as well as the education business, they're also growing very fast with a faster pace than our advertising and the CCS business. So this will also have some impact on our GP margin, that we believe that our GP margin will be around like 50% on average on average. This concludes my answers for you.

Next question comes from Xueqing Zhang with CICC.

My question is related to membership business. The membership business demonstrated strong growth this quarter, and we noticed the launch of independent at [indiscernible] recently. So just wondering what strategy for this business, and how do you see the growth in 2023?

[Foreign Language]

In the past quarters, in the past years, we actually have some accumulation experience across various areas, including content creators and content consumers as well as rich marketing know-how.

[Foreign Language]

This accumulated experience, actually, we see is the new trade of the current novel reading market. We see that currently the premium novels for -- in the consumption scenario is the current market trend for this business.

[Foreign Language]

We believe that our accumulation in this market know-how and also the number of customers will give us a solid position for the further growth for the year 2023.

[Foreign Language]

You just mentioning your question about the app rollout. This is kind of like a [ app ] exploration we just released, but behind this exploration, we have like a planning for the investment in two areas.

[Foreign Language]

First of all, definitely, we're going to invest in their creation ecosystem. This greater ecosystem will be like the major focus, will continue to be the major focus for us in the year 2023.

[Foreign Language]

Second one is on the consumer side. We actually have tried on several explorations and the new and independent like app development, it's one of that which will provide a unique and better experience for the users to give them like more price recommendation.

To supplement our CEO's answers for you. We believe that the membership -- subscribing membership business will still achieve the high growth in the coming quarters and in 2023.

The next question comes from Yiwen Zhang with China Renaissance.

So my question is regarding with our second growth driver of the education segment. What's our medium to long-term goal? And how should we think about our investment scale and for the growth driver there? Is it driven by -- mainly driven by organic or M&A demand?

[Foreign Language]

Education-related business has actually become our second growth driver. In the past year, it has achieved a remarkable achievements.

[Foreign Language]

We believe this is a very massive market with a lot of like opportunities. We are very optimistic, so we will continue to do the investments and also upgrade this business line centered on our current offerings.

[Foreign Language]

From the development strategy, we think that for the vocational education business, both the organic and M&A approach are both very important. I think that to grow this business through this key approach will be our strategic planning for the future.

[Foreign Language]

And we will continue to invest on the technology as well. We will continue to invest other content across the community-driven technology.

Thank you, our CEO and this is Henry. I will also supplement the CEO viewpoint. Two points, the first one, we are evaluating this opportunity in the position of training sector, we will evaluate targets lightly and have an appetite on those ROI on each of the M&A projects. And for now, we don't have like a significant like a large plan -- significant investing on the segment on this industry. But I think that's all more like an investment for our company in terms of the considering -- total contribution to pay. Second is about -- one more thing is the regulation. We believe that the vocational training business should be encouraged by the government because it will largely solve the job problem in China now. That concludes my answer to you.

This concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Yolanda for any additional or closing remarks.

Thank you. Thank you once again for joining us today. If we have any further questions, please contact our IR team directly or Piacente Financial Communications. Thank you very much.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.