Ladies and gentlemen, thank you for standing by and welcome to the Zhihu Inc., Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Yolanda Liu, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Hello, everyone. Welcome to Zhihu's second quarter 2024 financial results conference call. Senior management joining me today are Mr. Zhou Yuan, our Founder, Chairman, and the Chief Executive Officer, and Mr. Wang Han, our Chief Financial Officer. Before we get started, I would like to remind you that today's discussion will include forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in other public filings with the U.S. Securities and Exchange Commission and Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Additionally, the matter we will discuss today will include both GAAP and 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 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. Wang Han, our CFO. Please go ahead.

Thank you, Yolanda. Hello, everyone. Thank you for joining Zhihu's second quarter 2024 earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, and Chairman, and CEO of Zhihu. We're pleased to report another strong quarter. In the second quarter, we achieved robust improvements in operating efficiency, with our gross margin raised by 5.8 percentage points year-over-year to 59.6%. Our total operating expenses decreased by more RMB 140 million compared to the same period last year, including a reduction of RMB 120 million in marketing expenses. Our adjusted net loss declined by 79.9% year-over-year to RMB 44.6 million, marking our lowest quarterly loss since our U.S. IPO. In the second quarter, we made significant strides in enhancing the Zhihu's community's trustworthiness and strengthening our core user experience. In addition to introducing an array of AI-powered products and engrossing content initiatives, we proactively refined commercial content distribution and meticulously tailored our services to meet the diverse needs of various user groups. As a result, our community remains vibrant and continues to grow, exhibiting positive trends across key user metrics, such as core user retention rates and daily active user timestamps. We expanded AI applications across our products and services during this quarter, aiming to provide users and clients with an enhanced experience. In late June, we officially launched Zhihu Zhida, marking a significant milestone in our AI search initiatives. Since its debut on the PC platform, we have observed a promising increase in user engagement and market reputation, highlighting new growth opportunities for us. Throughout the second quarter, our laser focus on cornerstone verticals coupled with enhanced support for content creators has led to significant improvements in the experiences of both users and content creators within our community. As of the end of June, the…

[Operator Instructions] The first question today comes from Vicky Wei with Citi. Please go ahead.

Thanks, management, for taking my question. Would management share some color about the progress of achieving breakeven target? Thank you.

Thank you for your question. This is from Wang Han, CFO of Zhihu. Our profitability goals remain unchanged and resolute. We still plan to achieve a quarterly non-GAAP net profit on this fourth quarter. And our second quarter financial results fully validate our strong strategic planning and execution capabilities. After a single quarter of adjustments, we not only reduced our losses by streaming costs and expenses, but also recorded our lowest absolute quarterly loss since our IPO. And from the current progress of the third quarter, our loss reduction work should also be more pressing, so please stay tuned. Thank you, Vicky.

The next question comes from Xueqing Zhang with CICC. Please go ahead.

Thanks, management, for taking my question. My question regards on your user base. How has Zhihu managed to maintain a stable database despite scaling down community promotion expense? And a follow-up question on your AI search. Can management share the progress of AI search? What's the user metrics after the launch of Zhihu Zhida? How does management feel the potential commercialization? Thank you.

This is from Zhihu's CEO, Zhou Yuan. The proactive user strategy adjustments we have made over the past two quarters were all quality-oriented, prioritizing our core user experience. As you mentioned, for our user base, the core is user retention improvement for us. And the user retention improvement is from the improvement of high-quality content and the core of the improvement of high-quality content is to rely on in-depth content cultivation operation approach. I will explain a little bit more here. This in-depth cultivation approach has two meanings. One is in-depth operation and the other is in-depth content. And so far, it seems to be working well. Our user base is quite stable. Thank you for your question. I will continue to answer for your second question. We successfully launched Zhihu Zhida on PC platform at the end of June. And over the past period, our work has focused on two main areas. The first, optimizing the model. And the second, upgrading and optimizing the end. The optimization of model has led to significant improvements in user retention with significant increase in the number of high-frequency users, or what we call heavy users. As for the end optimization, we started by enhancing the functionality of our PC end, which is an important productivity scenario. And this work will continue for some time. Meanwhile, we are preparing to launch Zhihu Zhida on our mobile end, features of which are still in plan. The goal of this end enhancement is for us to reach more users. The combination of model and end optimization is translating into our user growth. Overall, we are seeing positive changes in terms of product usage, user time spent, and both next day and seven-day user retention. And for sure, right now, our primary focus is on improving the experience for heavy users. And the commercialization is not the priority at this moment. Thank you, Xueqing, thanks for your question.

The next question comes from Thomas Chong with Jefferies. Please go ahead.

So I transfer myself. My question is about advertising. So our performance app and brand app has good performance during 618. So what's the drivers behind and what are our advantages? Thanks.

Thank you for your question. This is from Zhihu CFO Wang Han. Zhihu is becoming increasingly clear about its commercial strength and expertise, specifically in helping brands to build premium value with high-quality audience. I'd like to share two practical cases. The first example of these two cases is our successful collaboration with media to achieve both positive word-of-mouth and self-worth refrigerator priced over 60,000 yuan. During this 618 Shopping Festival, Toshiba's premium flagship star-rated refrigerator achieved positive ROI through Zhihu's first stop for new product purchases solution. By leveraging our high-value community and users, we focused on human-centered design and advanced technology for high-end home appliance, successfully creating a differentiated discussion space for new products, achieving both positive word-of-mouth and strong sales. The second example is our Lighthouse project IT collaboration. With the same -- the Lighthouse of the community illuminates the warmth of the product. We help Vivo promote the Blue Heart AI accessibility feature. This initiative combines social value with strong marketing results. The in-platform topic gained over 1.3 million rates, and Zhihu's video channel set an all-time high record of interactions with likes and favorites, surpassing 100,000 and over 40,000 shares. The video even received praise and a share from Vivo's Chief Marketing Officer, generating significant buzz and positive feedback for both brands and our community. These successful cases categorized by high value and strong word-of-mouth, demonstrated that Zhihu's strength in professional discussion forums unlocks the commercial potential of high-value users. By becoming the center of trust for these audience, this is the most natural path for Zhihu's commercialization. Thank you for the question.

The next question comes from Yu Chen Zu with Guangfa [ph] Securities. Please go ahead.

What are the main drivers behind the growth of Zhihu's paid user base? And how can we assess the outlook of this segment? Thank you.

Thank you for your question. This is from Zhihu CFO Wang Han. Our two drivers remain the growth of our subscribing members and the increase in ARPU. In terms of the user scale of our paid members, as we mentioned previously, with massive market beyond Zhihu community, we will continue to explore multiple channels to expand our user base. Firstly, the MAU of Yanyan Stories app in July saw a year-over-year increase of more than 36%. In the second quarter, our exploration of co-brand memberships and distribution channels further demonstrated the spillover effect of the Zhihu Yanyan Stories brand with paid members growing year-over-year in this quarter. Regarding ARPU growth, the key is enriching membership benefits. We have launched a premium membership that included privileges such as audiobooks and radio dramas with differentiated pricing. Order in this category has been steadily increasing. As the reputation and influence of Zhihu Yanyan Stories continues to spread, we have more product formats and member benefits based on this advantage currently in development. So please stay tuned. Thank you for your question.

[Operator Instructions] The next question comes from Daisy Chen with Haitong International. Please go ahead.

Thank you for taking my question. My question is about the vocational training. How do you think of the future of your self-operated part-time kind of business? Currently, we know that the economy and consumption is relatively weak. Do you think is there an opportunity or a challenge for its goals? Thank you.

Thank you for your question, Daisy. This is from Zhihu CFO Wang Han. The external environment is certainly a significant positive for our self-operated vocational training business. Firstly, from a fundamental perspective, the pressure on the employment environment has rapidly increased. The demand for professional or soft skills and comprehensive abilities. Additionally, the stable and favorable regulatory policies in the education industry have a sustainable, improved performance and the market value of the companies in this sector, which positively influences our valuation benchmarks. This year, the primary goal for our vocational training business is to improve efficiency and accelerate loss reduction. We have swiftly adjusted some underperforming courses and acquired subsidiaries. Reallocating more resources to strengthen our core programs and expand into new disciplines. In short term, this might mean sacrificing some low-quality revenue, but we have simultaneously benefited from realized gains and profit improvements. In terms of acquisition side, we will continue to actively seek suitable targets with high standards like the company can integrate it well with our community and have good operational and profitability levels. In long term, we believe that the synergy between the vocational training business and our community will significantly empower this business segment. In rapidly validating new demand, acquiring customers precisely and building strong reputation, ultimately translating into a competitive advantage in our unit economics model. Thank you. Thank you for your question.

That concludes today's Q&A session. At this time, I will turn the conference back over to Yolanda for any additional or closing remarks.

Thank you, operator. And thank you all once again for joining us today. If you have any further questions, please don't hesitate to contact our IR team directly or PSN Financial Communications. Thank you all.

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