Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Zhihu Inc. Third Quarter 2024 Financial Results Conference Call. [Operator Instructions] Today's conference call is being recorded. And at this time, I would like to turn the conference over to Ms. Yolanda Liu, Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to Zhihu's Third Quarter 2024 Financial Results Conference Call. Senior management joining me today are Mr. Zhou Yuan, our Founder, Chairman and Chief Executive Officer; and Mr. Wang Han, our Chief Financial Officer. Before we get started, I'd 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 our public filings with the U.S. SEC 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 matters we will discuss today will include both GAAP and 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. Wang Han, CFO of Zhihu. Han, please go ahead.

Thank you, Yolanda. Hello, everyone. Thank you for joining Zhihu's Third Quarter 2024 Earnings Call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman and CEO of Zhihu. We delivered solid third quarter results across key financial metrics, thanks to our continued focus on efficiency enhancement and cost reduction. Gross profit margin improved by over 10 percentage points year-over-year, reaching 63.9%, the highest level since our listing. Total costs and operating expenses decreased by more than 35.6% and 30.5%, respectively, leading to a net loss of RMB 9 million, down 96.8% year-over-year. Our efforts to optimize the community ecosystem are also yielding positive results. Group user engagement in the third quarter propelled a sequential increase in our user base. Furthermore, we further enhanced content creators' experience across our community, fostering a renewed sense of confidence in driving more active contribution. This, in turn, has cultivated a professional insightful community atmosphere being built with a balanced rational optimism. Furthermore, in line with our commitment to exploring AI applications, we launched the professional search feature for Zhihu Zhida at the end of October. This initiative marks a significant step in our differentiated approach to enhancing product capabilities and elevating the user experience, leveraging our massive pool of high-quality data and content. I'll delve deeper into Zhihu Zhida later in the call. Now let me focus on users and content. This quarter marked the third consecutive period of our refined user strategy. We achieved sustained improvements across key user metrics alongside a sequential recovery in user growth. MAU for Q3 rebounded quarter-over-quarter to 81.1 million despite our continued reduction in community-related promotional spending. Overall user engagement across Zhihu community also increased sequentially with core user retention showing significant year-over-year growth. Additionally, daily active user time spent rose…

[Operator Instructions] And the first question will come from Xueqing Zhang with CICC.

Congratulations on further reducing loss in the third quarter. Could management share more color on the commitment about achieving a breakeven in the first quarter? And what's the outlook for 2025? What will be the main drivers?

Thank you for your question, Xueqing. This is Wang Han, Zhihu's CFO. We have been firmly focused on our Q4 breakeven target this year. Achieving a significant reduction in losses in both Q2 and Q3 have further boosted our confidence in reaching this goal. After reducing adjusted net loss by nearly 80% year-over-year in Q2, we further decreased the adjusted net loss by 70% quarter-over-quarter and 94% year-over-year for Q3. Our adjusted net margin in Q3 of last year was 22%, while this year, it is only 1.5%. So the path to the breakeven in Q4 now is quite clear. The two strategic priorities for '25 are quite clear. First of all, from a financial perspective, our primary objective is to sustainably reduce annual losses and potentially approach profitability on a full year basis. On the operational front, our focus is to enhance core users' experience and engagement level and strengthen Zhihu's content reputation and trustworthiness across all platforms. Creating an environment that encourages our most professional users to actively participate and contribute remains the foundation of Zhihu's identity. For our other business models, we will continue to innovate centered around Zhihu community's professionalism and trustworthiness. This approach will comprehensively leverage Zhihu's unique advantages. So to be more specific, in terms of our marketing services, we will continue to reduce low-quality and untrusted commercial content. We aim to innovate and make improvements through business model refinements and data infrastructure updates, building Zhihu's commercialization on a solid and trustworthy foundation. We are working to achieve breakeven within the vocational training business while strengthening its integration and interaction with Zhihu community. This will establish a faster feedback mechanism for user demands and accelerate service capability development. For our paid membership business, we will also leverage community content and user feedback to create a better product mechanism for this business and to further enhance Yan Selection members' renewal rate and consequently increasing the lifetime value, LTV, of our paid members. So in summary, our fundamental driver here is still a healthy prosperous community, along with a sustainable business ecosystem that can fully integrate and interact with the community itself.

The next question will come from Daisy Chen with Haitong International.

My question is about the users and the community. This quarter, we noted that Zhihu's MAU has improved and stopped the sequential decline. At the year of the beginning, you made some sequential adjustments to the community and the users. Can management provide more details on the adjustments you have done? And what are the key strategies you think that are successful? And what changes were made on Zhihu's community and users' behavior? And one more question is about when do you expect Zhihu's MAU to recover to a positive year-on-year growth?

Thank you, Daisy. This is from Zhou Yuan, Zhihu's CEO. So I will just start it with the answer to your second question. So our MAU numbers may be influenced by 2 factors here. First of all, the reduction in community-related promotion spending, which may lead to the loss of the low-frequency users. And the second, our focus on enhancing our core users' experience. Consequently, the high-frequency users have been growing. So the combination of these 2 factors may not guarantee the overall numeral MAU growth in next year. However, what is certain is that we will continue to increase the investment in our core users' experience. What I want to address here is that the improvement in Q3 actually stem more from the work we've done in the first half of the year. I believe we have still a long way to go. Community work is pretty much like working as a farmer or as I just mentioned, work like a farmer. The work we're doing now may contribute to the improvement in 2 years later. As to improvements we've made so far this year, so firstly, we've been focusing on the algorithm optimization to encourage more professional in-depth and authentic content and increase the visibility of them in our community. And we significantly increased the weighting of like, follows, shares and [indiscernible] as high engagement often align with our criteria for high-quality content. As a result of these adjustments, user retention has also risen. This shows that our users are eager to consume high-quality content across various professional views. For our content creators, we have been continuously improving the creation experience and income mechanism for them by enhancing like the experience in a lot of ways and by all means. For example, for a community perspective, we strictly…

The next question will come from Lincoln Kong with Goldman Sachs.

My question is about the Zhihu product upgrade as well as this Zhihu Zhida. So recently, we launched this Zhida professional search function. So could management share with us what are the other features that could be added to this Zhida in the future? And how might this integrate with the Zhihu community, or monetization efforts and as our AI strategy into our product?

Thank you for your question, Lincoln. And I will just take this question. This is Zhou Yuan, Zhihu's CEO. So the launch of Zhihu Zhida's professional search feature is fundamentally about scenario-oriented updates. Our thinking is that the workflow in different scenarios is the most critical factor in addressing the needs of different user groups. Workflow represents a fundamental need, and this is also the direction for Zhida's iteration. For example, professional search is tailored to suit academic research and professional work scenarios across finance, law, health care and other fields. When searching for specific professional concepts or questions, user can directly access full text papers and take advantage of extended features such as single article detailed reading and customized Q&A with specified scope. Additionally, user can upload papers, and this is a very personalized Q&A and in-depth analysis. This means that for specialized knowledge in a vertical field, like from getting an overview of a topic, collecting related literature and rating and analyzing documents to answering follow-up questions and offering comprehensive breakdowns and insights, this capability can also be generalized across multiple scenarios. And besides that, Zhihu Zhida can provide a one-stop solution. We believe that one of the future directions for upgrading Zhihu Zhida is integration with Zhihu community itself. However, at this stage, we're not ready to reveal too much about this, specify new features. Thank you, Lincoln, for your question.

The next question will come from Vicky Wei with Citi.

Hello, can you hear me?

Yes.

Okay. Sorry. Will management share some color about the fourth quarter outlook for the advertising business and the CCS business adjustment progress? My second question is related to the membership business. Will management share some color about the competition landscape, user growth and ARPU trend?

Thank you for your question, Vicky. I will take this question. The first question is about the advertising or the marketing services business. This is Wang Han, Zhihu's CFO. To fundamentally safeguard and potentially enhance the differentiated advantage we gain from our high-value audience and brands, we will continue to reduce low-quality, untrustworthy commercial content. To that end, we will remain quite focused on innovating and transforming our product mechanism and the data infrastructure. Recently, we have been reviewing and refining our collaboration models with quality content creators and brands to further bolster the trustworthiness of Zhihu community. So there are a lot of dimensions that we make this thinking and do the upgrading. Our commitment to make this adjustment is resolute, even if it means temporarily sacrificing some low-quality content. So the know-how here is that Zhihu is increasingly validating its commercial strength and expertise specifically focusing on help brands build premium value with high-quality and high-value audience. In the second quarter, we shared examples such as Toshiba refrigerator launched their campaign in Zhihu with this first stop for new product and Vivo's collaboration with Zhihu's lighthouse program to promote their Blue Heart AI accessibility feature. Some similar cases that we can see in our Q3 also highlighted the premium value of the high-end brands and audience. For example, TCL's new embedded refrigerator gained strong word of mouth and seeding effect through Zhihu's first stop for new product campaign, achieving better-than-expected results. Similarly, like the Bulgari, the luxury brand, during this year's Qixi Festival, they chose Zhihu as a primary platform for its nationwide campaign, recognizing Zhihu's high concentration of affluent, high-conception users. So these examples perfectly illustrate our trustworthy and our high-quality content value and the ability to deliver commercialization results, driving win-win outcomes for ourselves. And for…

The next question will come from Stella Wang with TH Capital.

My question is about the advancement in optimizing the vocational training business. Could the management share some colors about this progress and what's the financial target in the long term?

Thank you for your question. This is from Wang Han, Zhihu's CFO. Currently, the primary goal of our vocational training business remains improving efficiency and accelerating loss reduction with the goal of achieving breakeven for this segment itself by the end of '25. So to that end, our Q2 and Q3 adjustments pretty much focused on the scaling back of unprofitable course offerings and like the low-margin acquired business. This allowed us to concentrate more resources on expanding our strong performing courses, resulting in improved overall efficiency and profitability. So from a management's perspective, both operating losses and the net losses for the vocational training segment declined quarter-over-quarter for the Q3. So looking ahead, we aim to bolster a faster and closer integration between the vocational training business and the community. This will enable us to quickly validate new demands, leverage precise customer acquisition advantages and build brand reputation and user recognition. We expect this effort to deliver the substantial empowerment and eventually translated into sustained positive unit economics. This adjustment process will span the fourth quarter of this year and continue throughout the next year. Thank you for your question.

The next question will come from Cici Cheng with CLSA.

It's very encouraging to hear that the company is on track to achieve breakeven in the first quarter. In light of this, whether the company has any plan to consider a shareholder arrangement post breakeven in order to enhance shareholder return and whether the company prefer share repurchase or dividend?

Thank you for your question. This is Wang Han, Zhihu's CFO. As we mentioned earlier, since our Hong Kong IPO, we have repurchased over USD 120 million worth of shares via various means, including open market buybacks and tender offers. So the total number of shares that we repurchased exceeds 25% of the total issued and outstanding shares -- is calculated using the total number of the outstanding shares prior to the tender offers. So on the one hand, this results in a significant enhancement in shareholders' value. On the other, this clearly demonstrated the management's strong confidence in the undervaluation of its assets. This is also worth mentioning that earlier in the beginning of November, we completed a share buyback via tender offers, both in Hong Kong and the U.S. market. This is the very first practice in the market. and for a total consideration of over HKD 300 million. And on the open market side, we will continue to do the buyback on open market to further demonstrate the management's confidence. So at the same time, we are also accelerating our path to profitability and positive cash flow. So with this foundation, we will consider exploring more diverse methods for the shareholder returning. Thank you for your question.

This concludes today's question-and-answer session. At this time, I would like to turn the conference back over to Ms. Yolanda for any closing remarks. Please go ahead, ma'am.

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

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