Zhihu - Q1 2023

Transcript

Operator (participant)

Welcome to the Zhihu Inc. first quarter 2023 financial results conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a Q&A session. 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.

Iris Liu (Investor Relations Manager)

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 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 the 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 the 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 the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. A webcast replay of this conference call will be available on our website at ir.zhihu.com. I will now turn this call over to Mr. Henry Sha, CFO of Zhihu.

Henry Sha (CFO)

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 sustained 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 novels. In addition to the various Yan Selection membership services, we launched a new app, Yanyan Story, in major app stores recently to serve the broader users' content demands. As a part of Zhihu's product matrix, Yanyan Story will not only contain content generated from the Zhihu community, but also provide more differentiated content.

Moreover, Yanyan Story will cover users from different tier cities and support more audiobooks. By offering more effective incentive plans for content creators, Yan Selection's bounty premium content, paired with our widely recognized brand name, prepared the number of average monthly subscribing members to a record high of RMB 14.9 million in the first quarter, representing 116% year-over-year, and a 14.5% sequential growth, respectively. We also continued to advance our technological development during the quarter through a combination of internal initiatives and 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 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 and accelerate their readings in a more enjoyable way. At the beginning of 2023, we optimized our organizational structure by combining advertising and content-commerce solutions, or CCS, to enhance the overall competence and operational efficiency of our combined marketing services business. This upgrade has empowered us to better utilize the resources within the Zhihu community and provide our clients with more effective and comprehensive marketing solutions. As we optimize our marketing services business, I will personally spend more time on the segment and monitor its execution. Starting from the recent months, we have already seen a revival of advertisers' engagement in e-commerce and the 3C sectors.

We are confident that our marketing services will achieve sequential growth in the second quarter and pick up growth momentum in the second half of the year. Let me move on to our users and content, where we have made remarkable progress, especially in our short form content. In the first quarter, we continued to broaden our content coverage and deepen our penetration across our cornerstone verticals, optimizing our content composition and format to better satisfy users' evolving needs to use their fragment time efficiently and obtain information quickly. To that end, we significantly upgraded our ideal tab on the app, making it a short form content tool to complement the long form knowledge base content currently available in Zhihu's community. We also extended our short form content library to cover more lifestyle and consumption scenarios in response to users' needs.

By upgrading an array of tools and functions such as picture editor and video captions, among many others, we provided a more efficient scenario to inspire creativity for new content creation. This exciting progress in content successfully drove an increase in the number of users in our community, driving our MAUs in March to more than RMB 110 million. We achieved a reacceleration in MAU growth in the first quarter, and expect MAUs will grow up to RMB 120 million within 2023, to mark another historical high. While we remain dedicated to further solidifying Zhihu's leading position as a platform for users to discuss and exchange ideas, we are also looking for ways to enhance our offerings by incorporating AI's knowledge within our community.

At the Zhihu Discovery conference in April, we introduced our AI strategy along with our first LLM, ZhihaiTu AI. Through investment and joint development efforts, we are accelerating our progress in integrating AI's knowledge across various application scenarios throughout our ecosystem. The trending topic summary is our first trial AI function. By leveraging AI's language learning ability to collect thoughts and integrate answers, the trending topic summary is able to summarize answers and present them to our users in an intuitive and clear manner. We are now opening this LLM summarization function to more users via the Zhihu mobile app. By further capitalizing on our unique advantages in both the data layer and the application layer, Zhihu is committed to becoming an important developer and ultimately a leading contributor to the industry's overall development in this area of AI's knowledge. Our membership business.

Driven by our premium content offerings and continuously expanding brand influence, our paid membership business grew rapidly during the quarter, delivering robust increases on both an annual and a sequential basis. Paid membership revenue for the first quarter increased by 105.2% year-over-year, while average monthly subscribing members grew by 116% year-over-year to 14.9 million in this quarter. We streamline the content creation procedures to improve efficiency and enforce the community compliance to protect the content creators' rights and benefits. As a part of a multi-brand strategy, we launched our new app, Yanyan Story, featuring numerous user favorite functions such as story search, audiobook, and recommended reading list.

This new app will help us attract more membership subscribers beyond the Zhihu community, while building a distinct user base seeking for a more concentrated reading experience inside the Zhihu community cohort. We hope Yanyan's differentiated content will also penetrate the massive internet users from tier two and tier three cities in China. Moving on to our vocational training business. Revenue from vocational training business increased by 117.6% year-over-year to RMB 107 million in this quarter. We grew our footprint in the vocational training industry value chain by organic growth and business acquisition. To seize the greater potential in the graduate students entrance examination market, we recently completed the acquisition of MBA Master, a training institution specializing in preparation for MBA entrance examination in China.

Completing the integration of MBA Master has further enhanced our industry competence with an improved business structure and enriched service offerings. We continue to expand our vocational training services across major categories by developing programs that are in high demand in this evolving market, including civil service examination, ESG, judicial examination, and story writing, among others. As I mentioned earlier, we are integrating AI technology into our course offerings as we look to enhance the overall quality and user experience. Encouraged by the positive feedback we have received our first new AI empowered program, we will continue to deepen our exploration of innovative technologies. Before I conclude, I'd like to provide a brief update on our ESG efforts. We published our ESG annual report for 2022 last month, presenting Zhihu's long-standing commitment to social responsibility.

As a leading online content community in China, our top priority and greatest asset is and will always be our people. Our employees, our content creators, our users, and our society. Therefore, we strive to holistically improve our ecosystem for each of these stakeholders throughout 2022. With the initiatives, including upgraded leadership development system for employees, our Haiyan campaign 4.0 incentive plan for content creators, an array of programs to protect and serve our most vulnerable users, including minors, those with disabilities, and seniors. We also leveraged our wealth of knowledge content to promote childhood education, particularly in rural areas, as we believe education equality and the growth and the development of China's young generation are critical to societal progress.

Going forward, we will remain committed to our stakeholders, improving their lives as we seek new ways to create value for our society and our planet sustainably. Looking ahead to the rest of 2023, we will remain focused on both monetization and user growth. Marketing services and paid membership have become our major revenue drivers, during our continued expansion of the vocational training business and then LLM development. We will further expand the discussion and the search scenarios in the Zhihu community as we leverage our resources and refine experience to study and respond to the evolving needs, thereby better serving both users and the clients. Thanks to our organizational optimization and operational efficiency improvements. In the first quarter, our non-GAAP net loss narrowed to RMB 120 million. We suggested a net loss margin narrowed to 12.1%.

We expect our business growth will continue accelerating. We are confident we will achieve 20% year-over-year increase in MAU as we strive to make innovative breakthroughs. We also believe our passion for progress and dedication will continue to empower our strength and resilience as we grow in this exciting and dynamic industry. This concludes Mr. Zhou Yuan's remarks. I will now turn to our financial details in the first quarter for review of our first quarter 2023 results. Please see our press release issued earlier today. We were excited to commence 2023 with a strong first quarter. Both our top line and the bottom line beat the street consensus, while our operating cash flow turned positive for the first time since our initial public offering.

Total revenue for the first quarter increased by 33.8% year-over-year to reach RMB 994.2 million, effectively beating the market consensus. Our paid membership and the vocational training services continued to exhibit a robust growth during the quarter, increasing their contributions to total revenue to 46% and 11% respectively. However, as a variety of macro factors continue to affect the overall online advertising market, advertising spending remained sluggish in the first quarter. To mitigate the impact, we optimized our organizational structure during the quarter, enabling us to better utilizing our community resources and enhance our service capability by integrating brand advertisements and the CCS. Starting from the first quarter, our advertising business is now combined with the CCS into marketing services to align with our new strategy and upgraded business structure.

Our paid membership revenue for the quarter was RMB 454.8 million, up 105.2% year-over-year from RMB 221.7 million in the same period of 2022. Our average monthly subscribing members grew by 116% year-over-year to RMB 14.9 million, which is a record high. Our appealing premium content and outstanding user experience continue to attract a broader user base, even beyond our Zhihu community. The company's marketing services revenue for the quarter was RMB 392.1 million. We are encouraged to see some recent signs of recovery in our marketing services in the recent months. We expect our marketing services business to gain faster recovery during the second half of this year.

Our vocational training business revenue for the quarter reached RMB 107 million, representing a year-over-year increase of 170.6% from RMB 39.5 million in the same period of 2022. Moving forward, we will continue to enhance our service capability and advance our footprint in the industry through both organic growth and business acquisition. Gross profit for the first quarter increased by 52.7% year-over-year to RMB 512.2 million. Gross margin expanded to 51.5% from 45.1% in the same period of 2022. Representing more than six percentage point expansion, thanks to our enhanced monetization efforts and the improvement of our cloud services and bandwidth utilization efficiency.

We were particularly happy to see our investment in research and development rewarded us with the savings in the cloud service utilization. Total operating expenses for the first quarter were RMB 779 million, down by 25.9% from RMB 983.7 million in the same period of 2022. Selling and marketing expenses decreased by 12% to RMB 445.6 million from RMB 506.6 million in the same period of 2022. The decrease was primarily due to our disciplined promotion spending and the decrease in salaries and welfare expenses for sales and the marketing related personnel. In the meantime, the number of Zhihu's MAUs recovered significantly to 110 million in March.

We will remain dedicated to driving user growth through our ongoing content ecosystem first strategy. Research and development expenses increased to RMB 183 million from RMB 166.5 million in the same period of 2022. The increase was primarily attributable to the increase in the salaries and the welfare of research and development personnel, as well as the increased expenditure in Zhihu's large language model training for this year's largest technology upgrade. Our large language model will gradually serve a broader user base in the Zhihu community going forward. General and administrative expenses decreased by 67.7% to RMB 100.4 million from RMB 310.6 million in the same period of 2022.

Primarily due to the lower share-based compensation expenses recognized and the decrease in professional services. Benefiting from our ongoing operation efficiency improvements and the cost control strategy, we greatly narrowed our net loss in Q1. Our GAAP net loss in the quarter was RMB 179 million, narrowing by 17.9% year-over-year. Our adjusted net loss on a non-GAAP basis, which primarily excludes the share-based compensation expenses and amortization of intangible assets resulting from business acquisition, was RMB 120.2 million for the first quarter, down by 67.3% from the same period of last year, with an adjusted net loss margin of 12.1%. In this quarter, we generated RMB 69.9 million operating cash flow, marking the first time we have achieved positive operating cash flow since our IPO.

This milestone demonstrates Zhihu's revenue diversification and the business model can similarly generate positive cash flow from its operations and represents an additional step towards becoming a profitable company. Moving to our balance sheet. As of March 31st, 2023, the company had a cash and a cash equivalent term deposits and a short-term investment of approximately RMB 6,258 million, compared with RMB 6,262 million as of December 31st, 2022. As of March 31st, 2023, we have repurchased approximately 6.9 million Class A ordinary shares at an aggregate price of $17.8 million. This concludes my prepared remarks on our financial performance for this quarter. Let's turn the call over to the operator for the Q&A session. Thank you. Thank you.

Operator (participant)

Yes, thank you.

Henry Sha (CFO)

Yes.

Operator (participant)

At this time, we will begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. The first question comes from Vicky Wei with Citi.

Vicky Wei (VP of Internet Research)

Management team, good evening. Thank you for taking my question. Congratulations on the performance that exceeded expectations. Could management share with us the strategic plan for AI technology in our company? How should we view related investments and the future path of commercialization? Thank you.

To team and management, thanks for taking my questions and congrats on the stronger than expected quarter. Will management share some color on the company AIGC technology strategy? How should we think of the AI investment and the future monetization potential? Thank you.

Henry Sha (CFO)

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

Dahai Li (CTO)

Okay. Thank you. I am Dahai. My answer is this. In the Zhihu community, we have unique advantages in Chinese language data.

在 AI 技 术 革 命 中 ， 我 们 形 成 了 独 特 的 定 位 ， 尤 其 在 垂 直 专 业 领 域 的 内 容 积 累 ， 对 我 们 来 说 是 很 重 要 的 。 知 乎 呢 ， 对 人 工 智 能 技 术 是 保 持 着 开 放 的 态 度 。 我 们 在 四 月 初 发 布 了 知 海 图 的 大 模 型 ， 这 个 大 模 型 呢 ， 是 我 们 通 过 投 资 加 协 同 开 发 的 方 式 来 跟 呃 ， 外 界 的 公 司 合 作 一 起 开 发 的 ， 不 仅 极 大 地 提 升 了 我 们 的 开 发 速 度 ，

也 带 来 了 跨 团 队 的 知 识 流 动 。 目 前 我 们 已 经 掌 握 了 二 十 B 面 参 数 的 大 模 型 的 技 术 ，我 们 今 年 计 划 要 达 到 一 百 B 的 这 样 一 个 参 数 的 大 模 型 。 好 ， 谢 谢 。

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. 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 investment 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.

Henry Sha (CFO)

Hi Vicky, the second question about our investment in this area. I think, still I think we are in the progressing of doing the new plan for this large language model training, which is the most, one of the most important technology development project for this year. I think the impact on a P&L as well, no less, no more than the RMB 300 million. That's the answer to your question. Thank you Vicky. Next.

Vicky Wei (VP of Internet Research)

Thank you.

Operator (participant)

Thank you. The next question comes from Steve Qiu with Goldman Sachs.

Steve Qiu (Equity Research Analyst)

晚 上 好 ， 管 理 层 ， 谢 谢 接 受 我 的 提 问 。 恭 喜 咱 们 这 个 经 营 现 金 流 的 转 正 ， 还 有 MAU 到 这 个 一 点 一 亿 的 一 个 里 程 碑 。 那 能 否 请 管 理 层 分 享 一 下 咱 们 这 个 MAU 增 长 背 后 的 驱 动 因 素 ， 包 括 我 们 的 这 个 战 略 以 及 用 户 行 为 的 变 化 ， 还 有 我 们 对 这 个 未 来 用 户 增 长 的 一 个 展 望 ？ 好 ， 谢 谢 。 Good evening management. 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 you 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.

Zhou Yuan (Founder, Chairman, and CEO)

哎 ， 你 好 啊 ， 这 个 Steve。 呃 ， 我 来 回 答 一 下 这 个 问 题 啊 。 这 个 首 先 呢 ， 我 们 过 去 一 年 执 行 的 生 态 第 一 战 略 ， 这 个 落 地 的 效 果 还 是 不 错 的 。 呃 ， 它 其 实 为 知 乎 的 整 个 发 展 呃 ， 构 建 了 一 个 比 较 稳 健 的 发 展 的 一 个 节 奏 。 所 以 我 们 在 一 季 度 的 时 候 呢 ， 整 个 这 个 MAU 它 也 是 持 续 的 在 增 长 ， 这 也 是 我 们 在 今 年 接 下 来 的 时 间 会 继 续 贯 彻 这 样 的 一 个 战 略 。

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. It also helped us to grow our MAU group through a robust growth. During the first quarter of this year, MAU has also experienced steady growth.

我 们 有 几 个 重 点 的 工 作 ， 我 这 个 可 以 再 突 出 讲 一 下 。 第 一 呢 ， 我 们 的 整 个 这 个 投 放 获 客 的 效 率 和 质 量 在 过 去 一 段 时 间 是 一 直 在 提 升 的 。 第 二 呢 ， 就 是 我 们 在 产 品 侧 比 较 专 注 呃 ， 短 的 内 容 和 短 的 文 戏 ， 那 这 个 呢 ， 也 是 获 得 了 多 用 户 的 欢 迎 。

第 三 呢 ， 我 们 围 绕 这 个 职 人 整 个 用 户 群 持 续 的 这 个 运 营 的 动 作 ， 啊 它 叠 加 起 来 看 到 了 非 常 多 变 化 和 好 的 效 果 。 当 然 我 ， 我 们 也 相 信 ， 就 是 ， 呃 ， 在 不 同 周 期 角 度 来 看 ， 啊 ，AI 的 这 个 持 续 的 建 设 和 投 入 ， 它 也 会 对 我 们 用 户 的 增 长 啊 ， 带 来 很 多 好 的 正 面 的 影 响 。

Henry Sha (CFO)

I will help answer, I will help translate Mr. Zhou Yuan's answers to you, Steve. First one that our user acquisition strategy was executed well. The efficiency of the user acquisition, it was improved in the past quarter. Second, we have some like adjustment of and tune 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. We have a long form, very large base of the long form knowledge library.

Now we are going to provide more short form content, which is very welcomed by our users. A third one that we are more focusing on the people within the between the age between 18 to 35 years old, with a new job in maybe tier 1, 2, 3 cities in China. It's a large group of user. We estimated it will be around like 300 million or 400 million people population. That's a large potential pool. Lastly, but importantly, we believe the AI driven technology, the large language model technology will be applied to more scenarios on Zhihu's mobile app. This, we believe will help improve our user experience and draw public user growth going forward. Thanks for the question.

Back to your question about the user behavior changing in recent months. I have some numbers to be shared with you. The first one about the user engagement and user time spent on mobile app has been unchanged in comparison with Q4 last year. Was still between 27 minutes-28 minutes per users per day. Our membership, you know, the people who's grabbing our membership and spend even more longer time like 50 minutes per user per day. This is my answer to your question.

Zhou Yuan (Founder, Chairman, and CEO)

我 补 充 两 点 ， 就 是 我 们 的 那 个 女 性 用 户 她 其 实 是 在 不 断 增 加 的 ， 其 实 给 我 们 带 来 了 一 个 更 加 良 性 健 康 的 用 户 结 构 。 第 二 呢 ， 就 是 我 们 三 十 家 以 上 的 用 户 其 实 一 直 在 不 断 地 增 长 。 你 可 以 理 解 就 是 我 们 的 用 户 呢 ， 呃 ， 新 的 用 户 ， 新 的 年 薪 高 出 的 用 户 不 断 地 进 入 知 乎 ， 那 我 们 的 用 -- 原 来 用 户 他 也 长 大 了 。

啊 ， 所 以 呢 ， 其 实 ， 呃 ， 呃 ， 就 是 年 龄 加 上 这 个 ， 这 个 性 别 结 构 也 是 在 发 生 变 化 的 过 程 中 吧 。OK， 谢 谢 。

Henry Sha (CFO)

The users are beyond 30 years old is growing the cohort, according to our internal statistics. The second is the female users is also increasing, in terms of the percentage of the total user cohort. Thanks. That's the answer to your question. Next.

Steve Qiu (Equity Research Analyst)

诶 ， 谢 谢 周 元 总 和 邵 总 ， 非 常 有 帮 助 。

Operator (participant)

Thank you. The next question comes from Xueqing Zhang with CICC.

Xueqing Zhang (Senior Equity Research Analyst)

谢谢管理层接受我的提问。想请教一下营销类业务复苏的情况怎么样，然后我们预期什么时候能恢复到正增长？另外我们也看到了这季度公司广告和 CCS 的收入合并成了营销业务，那想请教一下公司财报口径调整的考虑是么？谢谢。Could management share with us the recovery progress of marketing business? What time does management expect to return to positive growth?

We noticed that the revenue from advertising and CCS has been merged into the marketing services business this quarter. Just wondering the company's consideration for the ad-adjustment. Thank you.

Henry Sha (CFO)

Thank you, Xueqing. This is Henry. I will help answer the question. The first one, we have been seeing some a rebound or recovery in the second quarter, but we believe that the headwind of the macro was still there. We still have been seeing some sluggish of the clients, of the advertiser, of the advertisers. But the rebound was coming from the 3C and the e-commerce sector. We think the obvious recovery should be seen in the second half of this year. For the second question, that because we have a business upgrading our advertising the products.

According to our company levels new strategy, we believe that this adjustment about the CCS and advertising will be increase our marketing and competitive competence to increase our power of the whole integrated marketing solution for our clients. And also can support our more longer term growth. That will make the change. That's my answers to your question.

Operator (participant)

Thank you. The next question comes from Eileen Lin with China Renaissance.

Eileen Lin (Equity Research Analyst)

感 谢 管 理 层 接 受 我 的 提 问 。 我 有 一 个 关 于 Yanyan Story app 的 问 题 ， 想 请 问 一 下 管 理 层 如 何 看 待 这 个 app 未 来 的 发 展 、 长 期 空 间 和 除 会 员 外 可 能 的 变 现 模 式 。Thanks management for taking my question. I have a question regarding Zhihu's new app, Yanyan Story. Can management share more details about future plan, long-term growth potential, and likely monetization method other than membership? Thank you.

Zhou Yuan (Founder, Chairman, and CEO)

那 个 Aileen 你 好 ， 这 个 我 是 周 元 。 嗯 ， 岩 岩 故 事 是 我 们 新 发 的 一 个 APP， 啊 ， 当 然 虽 然 它 新 发 ， 但 是 现 在 看 起 来 呢 ， 它 的 成 长 也 是 非 常 好 的 ， 呃 ， 非 常 受 用 户 欢 迎 。 呃 ， 我 们 是 非 常 看 好 这 个 岩 岩 故 事 未 来 的 发 展 空 间 的 。

Yanyan Story is our newly released application. We have received a lot of positive feedbacks from the market for this new story application, and we are generally optimistic about the future growth of this application.

那 岩 岩 故 事 呢 ， 它 其 实 这 个 APP 呢 ， 其 实 跟 我 们 的 就 是 在 知 乎 APP 上 的 岩 小 会 员 ， 它 的 ， 呃 ， 体 验 上 呢 还 是 有 比 较呃 明 确 的 这 个 差 异 。 嗯 我 们 会 在 颜 颜 故 事 上 提 供 更 加 沉 浸 ， 更 加 专 注 于 这 个 品 类 的 内 容 的 使 用 体 验 上 的 这 样 的 一 个 优 化 ， 它 有 - 有 助 于 颜 颜 故 事 去 并 新 增 的 一 些 呃 使 用 。

The Yanyan Story application compared with our original 知 乎, Zhihu Yan Selection has a lot of clear differentiations. The Yanyan Stories application is focused on premium short stories, and it provides immersive and concentrated reading experience for users. It also help us to attract more users from the Yanyan Story outside the Zhihu community.

我 们 相 信 呢 ， 在 今 年 呢 ， 整 个 这 个 Yan Selection 的 增 长 ， Yan Selection 业 务 的 增 长 ， 它 会 持 续 地 保 持 一 个 健 康 高 速 同 比 增 长 的 一 个 趋 势 。 那 么 同 时 呢 ， 我 们 也 相 信 ， 随 着 市 场 大 环 境 的 不 断 的 变 好 ， 由 这 个 业 务 所 带 来 的 IP 上 面 的 这 个 收 益 也 会 不 断 地 有 所 进 步 和 增 加 。

We believe that for this year, the Yanyan Selection will continue its healthy and robust growth, in terms of both year-over-year growth and its sequential growth. In the future, we believe that with improvement of the general macroeconomic condition in China, we will also generate IP gains from the application.

Henry Sha (CFO)

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

Operator (participant)

Thank you. The next question comes from Daisy Chen with Haitong International.

Daisy Chen (Research Analyst)

晚上好，谢谢 management 接受我的提问。恭喜 Zhihu 这个季度呢收入增速的恢复以及净现金流的转正。我的问题是关于教育业务的。教育业务我们看到在这个季度依旧增长强劲，能否请 management 分享一下教育业务的一个中长期的一个战略计划？比如说怎么样去做一个持续的增长，以及近期的业务的一个进展。Thanks management for taking my question, congratulations for the decent top-line growth and the quality operation cash flow. My question is about the education business. Can management share the mid and long term strategy for this segment and for example, how to maintain the growth momentum for this segment?

Can management also please provide more color on the recent update for this segment? Thanks.

Zhou Yuan (Founder, Chairman, and CEO)

谢 谢 Daisy。 嗯 ， 到 -- 就 是 职 业 教 育 呢 ， 是 整 个 知 乎 正 在 构 建 ， 也 就 是 建 设 中 的 呃 第 二 增 长 曲 线 。 嗯 ， 其 实 去 年 我 们 跟 大 家 开 始 介 绍 这 个 业 务 的 时 候 ， 就 讲 过 说 首 先 呢 一 - 一 我 们 的 这 个 呃 ， 教 育 业 务 和 社 区 的 用 户 群 的 匹 配 程 度 很 高 。 二 呢 ， 就 是 我 们 呢 非 常 有 信 心 地 去 搭 建 一 个 从 内 容 到 服 务 的 闭 环 。

三 呢 ， 就 是 我 们 可 以 通 过 这 个 技 术 数 据 对 整 个 环 节 来 进 行 提 升 。 那 到 了 今 天 呢 ， 我 们 已 经 取 得 了 非 常 显 著 和 明 确 的 收 益 。

Thank you Daisy for your question. Vocational training is one of the second growth drivers that we have been building on recently. We think Zhihu is naturally uniquely positioned to do the vocational training business. Firstly, it is because our user base is have a lot of overlap with the target users for vocational training. Secondly is that our content to our vocational training services have a closed loop. Thirdly 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.

我 们 做 职 业 教 育 的 长 期 目 标 呢 ， 是 去 提 升 整 个 行 业 的 效 率 ， 让 这 ， 最 终 消 费 者 呢 能 够 因 此 而 受 益 。 就 是 有 2 件 事 情 在 我 们 的 这 个 长 期 规 划 中 非 常 重 要 。 First 呢 是 多 品 类 发 展 ， Second 呢 是 通 过 不 断 地 通 过 技 术 和 数 据 ， 在 整 个 行 业 的 各 个 环 节 去 提 升 它 的 效 率 和 品 质 。

Our long term goal for vocational training business is to enhance the efficiency and quality for this industry. We have been focusing on two directions. Firstly is that we are diversifying to provide comprehensive services for our clients. Secondly is that we will utilize our data and technology to enhance the efficiency to provide better services for our customers.

Henry Sha (CFO)

To supplement the CEO's answer to you, Daisy, the company is very emphasizing the focusing on the recent development of the reactive knowledge to be applied to the whole education or professional training industry. We believe that our large language model training will also empower our professional training businesses in the future. I think that's our answers to your question. Next.

Operator (participant)

Thank you. The next question comes from Thomas Chong with Jefferies.

Thomas Chong (Managing Director)

I'll translate myself. Thanks management for taking my question. My question is, how should we think of the GP margin outlook and the timing to reach break even? Thanks.

Henry Sha (CFO)

Thank you. My answer to your question is quite straightforward. The first one, we are seeing some progress in the gross margin improvements in this year and in this quarter. We believe that it's too early to say that what kind of a gross margin to be achieved within the next few quarters. Believe us that we are doing the strict like the cost control strategies as well as improving our efficiency. We believe that we are on the way to improving our margin. The second question is that because we have the like the new investment and the R&D development for our large language model training.

This also has some impact on our P&L forecast for the rest of the year. We believe that our break-even point will be the, some quarter next year, 2024. That's our answers for your questions.

Thomas Chong (Managing Director)

Thanks.

Operator (participant)

Thank you. This concludes the question and answer session. I would like to turn the call to Iris Liu for any closing comments.

Iris Liu (Investor Relations Manager)

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.

Operator (participant)

Thank you. The conference has now concluded. Thank you for attending.