Ladies and gentlemen, thank you for standing by, and welcome to Zhihu Inc. First Quarter 2023 Financial Results Conference Call. [Operator Instructions] Today's conference call is being recorded. At this time, I would like to turn the conference over to Ms. Iris Liu, IR Manager. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to our first quarter 2023 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 provisions of U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include 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 the company's prospectus 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 the 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. Henry Sha, CFO of Zhihu.

Thank you, Iris. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder and CEO of Zhihu. Hello, everyone. Thank you for joining Zhihu's first quarter 2023 earnings call. We are delighted to start 2023 with a solid first quarter highlighted by sustaining the revenue growth and a significantly narrowed net loss, both beating the market consensus. While continuously expanding our user base over the past two years, we have also been closely following and capturing the evolving demand for short-form online reading, including both knowledge sharing and notebooks. In addition to the various Yan Selection membership services, we launched a new app Yanyan Stories in major app stores recently to serve the broader user content demand as a part of Zhihu's product metrics. Yanyan Stories will not only contain content generated from the Zhihu community, but also provide more differentiated content. Moreover, Yanyan Stories will cover users from different tier cities and support more audio books, by offering more effective assistance for content creators. The installations are bouncing the premium content, compared with our widely recognized brand name, compared to the number of average monthly subscribing members to a record high of 14.9 million in the first quarter, representing 116% year-over-year and 14.5% sequential growth respectively. We also continued to advance our technological development during the quarter, through a combination of internal initiatives and the joint development efforts, as we actively explored the possibilities, and potential of revolutionary AI technology. Zhihu is now equipped with large language model technology that has 20 billion parameters. We launched our first language with large language model, or LLM, Zhihaitu AI in April, aiming to enable our content creators to generate high quality content more efficiently. Additionally, our users may utilize our LLM summarization function to consume more content…

[Operator Instructions] And the first question comes from Vicky Wei with Citi.

Thanks for taking my questions and congrats on the stronger than expected quarter. Will management share some color on the company AIGC technology strategy and how should we think of the AI investment and the future monetization potential?

Thank you. Thank you, Vicki. I think your AIGC related strategic questions will be answered by our Chief Technology Officer, Dahai and I will help answer your question about the budget.

This is Li Dahai, CTO of the company. To answer your question, Zhihu is having unique positioning in terms of Chinese based database in China. And we are uniquely positioned in the artificial intelligence revolution in China, especially in a lot of different verticals, for professional field content accumulation. Zhihu is open-minded towards AI revolution. And in early April, we have released Zhihaitu AI, our large language model. We released Zhihaitu AI through both internal investments and joint development with other companies. These have largely enhanced our speed of development and also brought along team and knowledge flow between different teams. Now we are having about 20 billion parameters in terms of our latest LLM and we are planning to reach about 100 billion parameters for our large language model towards the end of this year. Thank you.

Vicky, the second question about co-investments in this area, I think -- still I think we are in the progress of doing new plan for this large language model training. We believe is one of the most important technology development projects for this year. But I think the impact on the P&L that were no more than RMB300 million. Thank you, Vicky.

Thank you. And the next question comes from Steve Qu with Goldman Sachs.

Thanks for taking my questions. Congrats on the positive operating cash flow as well as the MAU crossing the 110 million milestone. Could you please share with [us] the driving forces behind our strong MAU growth, as well as our strategy and changes in user behavior and your outlook for the future MAU growth? Thanks.

This is Zhou Yuan, CEO of the company. In the past year, we have made a lot of remarkable progress in terms of content ecosystem-first strategy. This also helped us to grow our MAU through a robust growth. And during the first quarter of this year, and MAU has also experienced steady growth. [Foreign language]

I will help answer -- I will help translate Mr. Zhou Yuan's answer to you. So just one that our user acquisition strategy was executed well. The efficiency of the user acquisition improved in the past quarter. And second, we have something like adjustment often too on the product, and on the content. As I presented during the remarks in the conference before, we are now focusing on the short-form content, as you may know. So we have long-form, very large base of the long-form knowledge bandwidth. And now we are going to provide more short-form content which is very welcomed by our users. I said one that we are more focusing on the people between the age between 18 to 35 years of -- with job in maybe Tier 1, 2, 3 cities in China. This large group of users we estimated will be beyond around like 300 million or 400 million people population, has a large potential for us. Lastly, but importantly, we believe AI driven technology, larger language model that technology will be applied to more scenarios on Zhihu's mobile app. We believe it will help improve our user experience and it will cover user growth going forward. And actually on question about user behavior changing and the reason that -- I have some numbers to be shared with you. The first one about the user engagement and user time spend on mobile app is unchanged in comparison with Q4 last year, was still between 27 to 28 minutes users per day. And our membership, the people subscribing membership spend even more longer time, like 15 minutes per user, per day. This is my answer to your question.

So the users beyond 30 years old is growing, the cohort, according to our internal statistics. And the second is the female users is also increasing in terms of the percentage of the total user cohort.

And the next question is comes from Xueqing Zhang with CICC.

Can management share with us the recovery progress of marketing business, what time management expects to return to positive growth? And we've noticed that the revenue from advertising, since that's being merged into the marketing services business this quarter. So just wondering the company's consideration for the adjustment?

Thank you, Xueqing. This is Henry, I'll help answer the question. So the first one, we have seen some rebound or recovery in the second quarter but we believe that the headwind of the macro was still there. And we still haven't seen some sluggish climb of the advertisers but the rebounding was coming from those 3C and the e-commerce, e-commerce factor. So we think the recovery should be seen in the second half of this year. For the second question, that's -- because we have business upgrading on our patented products, so -- and according to our company levels, new strategy, we believe that these adjustments about CCS and advertising will be -- increase our marketing and competitive competence to increase our power of our integrated marketing solution for our clients. And also can -- to support our more longer-term growth. So that we make the change. That’s my answer to your question.

And the next question comes from [Eileen Lim] of China Renaissance.

I have a question regarding Zhihu's new app, Yanyan Stories. Can management share more details about future plans, long-term growth potential and likely monetization method other than membership? Thank you.

Yanyan Stories is our newly released application. We have released -- we have received a lot of positive feedback from the market for this new story application and we are generally optimistic about the future growth of this application. The Yanyan Stories application compared with our original Zhihu Yan Selection has lot of clear differentiations. And the Yanyan Stories application is focused on premium short stories, and it provides immersive and concentrated reading experience for users. It also helps us to attract more users from the Yanyan Stories outside the Zhihu community. We believe that for this year the Yan Selection will continue its healthy and robust growth in terms of both year-on-year growth and the sequential growth. And in the future, we believe that with the improvement of general macroeconomic condition in China, we will also generate IP gains from the application.

And to supplement the CEO's answers to you. First, I believe that Yanyan will be positioned at different tier cities users in China. And Yanyan's content will not be all the same as Zhihu's content. So that's the differentiation. And the second from the product level, for example, Yanyan will provide like the audio books or the flying bullet chat function. These are very welcomed function by our users, which is quite different from Zhihu mobile app. That's our answer for you, [Eileen]. Next?

Thank you. Next question comes from [Daisy Chan] with Haitong International.

Thanks management for taking my question. Congratulations for the decent top-line growth and quality of operational cash flow. So my question is about the education business. Can management share the lead and strong hiring strategy for this segment and for example, how to maintain the growth momentum for this segment. And can management also please provide more color on the recent update for this segment?

Thank you, [Daisy] for your question. Vocational training is one of the second growth drivers that we have been building on recently. And we think Zhihu is naturally uniquely positioned to do the vocational training bits. Firstly, it is because our user base is -- have a lot of overlap with the target users published in vocational training. And secondly, is that our content to our vocational training services have a scope. And third is that our technology and data has -- will increase the efficiency of our vocational training. We have made a lot of tremendous progress in the last year. Our long term goal for vocational training business is to enhance the efficiency and wuality for the industry. And we have been focusing on two directions. Firstly is that we are diversifying to provide comprehensive services for our clients. And secondly is that we will utilize our data and technology to enhance the efficiency to provide better services for our customers.

To supplement CEO's answers for you [Daisy]. The company has been really emphasizing the focus and the reasonable development of the reactive knowledge to be applied to the whole education or vocational training industry. And we believe that our large language model training will also empower our vocational training business in the future. That's our answer to your question. Next?

The next question comes from Thomas Chong with Jefferies.

So my question is how should we think of the GP margin outlook and the timing to reach breakeven? Thanks.

So my answer to your questions are quite straightforward. The first one, we're seeing some progress in the gross margin improvements in this year and in this quarter. So -- but we believe that we -- it's too early to say that what kind of gross margins will be achieved within the next few quarters. But believe us that we're doing the strict cost control strategy as well as improving our efficiency. So we believe that we're on our way to improving our margin. The second question is that because we have the -- like the new investments and -- in the R&D, the development for our large language model training, so this also has some impact on our P&L for the rest of the year. So we believe that our breakeven point will be some quarter next year, [2024]. That’s our answer to your question.

And this concludes the question-and-answer session. I would like to return the call to Mr. Iris Liu for any closing comments.

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

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