Zhihu Inc. ($ZH)

Ladies and gentlemen, thank you for standing by, and welcome to Zhihu Inc.'s First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded and webcasted. At this time, I'd like to turn the conference over to Yolanda Liu, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Amber. Hello, everyone. Welcome to Zhihu's First Quarter 2026 Results Conference Call. Joining me today on the call from the senior management team are Mr. Zhou Yuan, Founder, Chairman and Chief Executive Officer; Mr. Wang Han, Chief Financial Officer; and Mr. Jan Hulu, our Chief Operating Officer. Before we begin, 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 views expressed today. Further information regarding these and other risks and uncertainties is included in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements, except as required under as per law. Additionally, the discussion today will include both GAAP and non-GAAP financial measures for comparation purpose only. For a consolidation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our IR website at ir.zhihu.com. Today, Victor Zhou, an AI agent representing Mr. Zhou Yuan, will deliver prepared remarks in English on his behalf. As Victor is still being refined, we appreciate your understanding. Victor, please go ahead.

[ AI Agent -- Victor Zhou ] Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu's First Quarter 2026 Earnings Call. I am Victor Zhou, and I'm pleased to deliver the opening remarks on behalf of Mr. Zhou Yuan, our Founder, Chairman and CEO. The first quarter of 2026 marked a strong start to the year as we advanced our high-quality growth strategy, our community ecosystem continued to thrive, fueled by a more dynamic user base, deeper social connections and a stronger engagement. Average daily time spent per DAU reached nearly 42 minutes. Our content creators remain highly active and expanded across AI and other specialized domains, further strengthening our trusted expert network. This quarter, professional, authentic and in-depth content from real people continued to flourish across our community. Its influence extended beyond our platform and reinforced our unique competitive mode in the AI era. We also accelerated the integration of AI capabilities across our platform and business operations, with social interactions significantly enhanced across multiple use cases. Building on this solid foundation, Zhihu has continued to gain momentum along its recovery trajectory. In the first quarter, our total revenues achieved a positive sequential growth and year-over-year decline narrowed substantially, reflecting our healthier business ecosystem and more efficient monetization. Our core businesses are showing encouraging signs of recovery, while our new initiatives continue to gain momentum and deliver steady growth. Specifically, marketing services saw a meaningful narrowing of the year-over-year decline, signaling near-term stabilization. Revenue from IP operations delivered robust growth. Capitalizing on our premium IP library, we have significantly elevated both the production capacity and the quality of our short drama and comic drama adaptations. Multiple short dramas and coming dramas garnered billions of views and consistently topped popularity charts. This success serves as a strong validation of the commercial potential of our high-quality IPs. Our expert data solutions have started to gain traction among key clients with gradually taking shape. Our vibrant community fosters genuine connections and deep user trust assets that are increasingly valuable in the age of AI. This has directly fueled continued growth in user engagement on our platform. In 1Q '26, average daily time spent per DAU reached approximately 42 minutes, increasing on both year-over-year and quarter-over-quarter basis. The daily active user coverage of positive interactions also grew year-over-year. Underpinning this momentum, our content ecosystem is getting at a healthy pace. As of the end of the first quarter, cumulative content volume reached 972 million entries and cumulative topics grew to 4.38 million, up 8.8% and 15.7%, respectively, from the same period last year. High-quality content creation continued to gain momentum. This quarter, daily creation of high-quality content rose 18% year-over-year with the professional AI-related content growing over 30% year-over-year. Against the backdrop of rapid AI evolution, Zhihu's professional ecosystem and a high-quality creator network continue to offer distinct differentiated value as a hub for frontline developers, researchers and tech professionals. Zhihu remains the premier platform where cutting-edge industry trends are first discussed, rigorously analyzed and professionally evaluated. In the first quarter, we saw heightened engagement from subject matter experts across top universities, leading Internet companies and AI labs. They actively participated in deep discussions on topics such as AI self-evolution, next-generation large model development, video generation, model iteration and open-source ecosystems. From computer science scholars at institutions like Shenghua University to R&D leaders at tech giants and leading AI start-ups like Alibaba, ByteDance and Moonshot AI, Kimi. A growing number of professionals are sharing their frontline insights technical reproductions and in-depth analysis on Zhihu. Substantial cohort of core experts from top-tier labs has joined the platform and remains highly active. In addition, updates to mainstream AI products consistently spark systematic technical interpretations and the professional evaluations within our community. Notably, this quarter, saw substantial in-depth discussions surrounding DeepSeek's expert mode, Alibaba's new video model, Happy Horse and developments related to Google's Gen4. This high-quality content ecosystem continuously enriched by frontline practitioners, not only enhances Zhihu's professional credibility but also further solidifies our core competitive mode in the AI era. Professional creators are the core engine that powers the vitality, trustworthiness and the uniqueness of our expert network. In the first quarter, the number of verified honored creators on Zhihu grew over 10% year-over-year, reflecting our continued commitment to amplifying their industry influence. Momentum in AI-related creator activity remains strong. We have aggregated over 19 million AI-focused creators who not only fill our community's high-quality content ecosystem, but also represent a robust pipeline of potential 2B service providers. We also saw a notable influx of top research teams, institutional executives and the core developers in fields like commercial, aerospace and frontier technology. Their active participation has further solidified Zhihu's standing as a hub for professional discounts on advanced tech. At the same time, in the film, entertainment and cultural verticals, we deepened our reach and engagement among upstream IP holders, co-production teams and dedicated enthusiasts. In May, we hosted a 12th Zhihu Conference, Shinsuna in Beijing. This year's event placed a strong focus on the value of human creativity in the AI era, exploring the irreplaceable works and core strength of authentic creators amid rapid technological advancements. Overall, sustained engagement of high-quality creators across diverse verticals, not only strengthens our foundation of professional trustworthy content but also enhances the strategic value of our content assets. This ecosystem directly accelerates our AI-driven commercialization and reinforces the unique competitive advantages of our trusted network. Alongside the deeper professional engagement our ecosystem is also becoming increasingly social and interactive. In the first quarter, we optimized both the creation and consumption experiences for our short-form Ideas product. This initiative effectively lowered barriers to entry, while significantly boosting community vitality. Looking ahead, we will focus on deepening the synergies between ideas and our community-based circle product by implementing more refined operations and expanding distribution scenarios. We aim to drive further positive momentum in core user retention and total time spent. Ultimately, this will unlock and expand a wider range of native commercial monetization opportunities. We continue to integrate core AI capabilities across content creation, discovery, consumption and community interactions. Through our open platform, API [indiscernible] and off-line events like the AI Hackathon, we empower developers and creators to explore AI native content and interaction formats, further extending the practical application of AI technologies across the Zhihu community. As we embrace AI as a tool for creative efficiency, we further refine our AI-generated content governance framework to rigorously filter out low-quality machine-generated spend. Since the start of 2026, we have removed over 250,000 pieces of low-quality AI-generated content and have penalized more than 11,000 violating accounts. These efforts have meaningfully safeguarded Zhihu's authentic atmosphere and significantly enhanced the experience for our creators and users. Now turning to commercialization. In the first quarter, total revenues grew sequentially, and the year-over-year decline narrowed significantly, signaling a clear recovery underpinned by a healthier commercial ecosystem. Our monetization efficiency continues to improve with new growth momentum steadily materializing. Let's take a closer look at our performance by segment. First, paid content and IP operations. Starting from the first quarter of 2026, we combined IP-related revenue previously included in other revenues with our existing paid membership revenue into paid content and IP operations revenue. This change more accurately reflects the commercialization potential of our Yan'an Stories franchise. This quarter, revenue from paid content and IP operations reached RMB 402.3 million, increasing 15.8% and sequentially, driven primarily by the rapid growth of our IP operations, which reflected strong momentum in unlocking the commercial value of our original content IP. Average monthly subscribing members reached 13.1 million, up 7.9% sequentially with structural optimization. This growth was primarily driven by seasonal content consumption during the Chinese New Year holiday and improved customer acquisition efficiency with Zhihu's premium short-form paid content continuing to play a key role in attracting and retaining users. We maintained disciplined high ROI standards by proactively optimizing inefficient acquisition channels to drive high-quality growth in our subscriber base. Meanwhile, synergies between our AI-powered comic dramas and paid membership businesses are gradually emerging by distributing Zhihu's high-quality IP and adopted content beyond our community. We effectively attract new users to in-community consumption scenarios, creating a strong connection with membership benefits. This strategy expands the reach of our IP while driving conversion among potential members, improving overall acquisition efficiency and enabling us to continuously optimize returns our marketing spend. Revenue from IP operations delivered a strong growth momentum this quarter. The number of our IP partnerships grew more than fivefold year-over-year and more than doubled sequentially. Several of our top titles sold both film and gaming rights, and we signed additional licensing deals in verticals like science fiction. Together, these deals further validate both the depth of our IP monetization capabilities and the pricing power of our IP assets supported by our IP library. Both the production capacity and the content quality of our short drama and economic drama adaptations remained stable in the first quarter. Multiple short dramas and comic titles achieved billions of views consistently ranking at the top of various major platforms. Looking ahead, leveraging our strong IP pipeline, we will continue to pursue end-to-end multidimensional commercialization and further extend the life cycle of each individual IP. Moving to marketing services. In the first quarter, Marketing Services revenue was RMB 191.4 million, broadly in line with the same period last year. Our disciplined execution across the client mix optimization and the product upgrades continue to deliver results. On client mix, ARPU rose sharply both year-over-year and sequentially in core verticals like gaming and automotive. Our industry mix also continued to improve with commercial efficiency improving notably across gaming, travel and transportation. This was supported by the ongoing consumption recovery and the wave of new game launches during the quarter. On commercial products, in March, we launched our technology SIM IP tech bites, Textura at this year's appliance and electronics world expo with a focus on the home appliance and consumer electronics sector. At the on-site immersive exhibition zone, Zhihu creators hosted guided work-throughs to answer consumer questions with professional technical insights. They also share the latest trends in home appliances and consumer electronics. At the same time, Zhihu reviewers jury hosted online discussion forum, helping decade industry jargon and highlight the real value behind the product innovation. Turning to other revenues. In the first quarter, Other revenues were RMB 57.8 million. As I mentioned earlier, we have reclassified IP-related revenue into our new paid content and IP operations segment, which better reflects how each business is developing. Within other revenues, our expert data solutions business won recognition from leading enterprise clients and began generating revenue this quarter. As a pioneer in defining and delivering high-value data solutions, we are now translating our expertise into tangible value for our clients. Our differentiated value has been firmly validated by the top-tier AI Labs. Looking ahead through the rest of 2026, we remain committed to deepening our services for key clients while expanding our footprint into new industries. To wrap up, the first quarter gave us a solid start to the year. As we move through 2026, our priorities remain clear. We will continue to strengthen operational profitability while leveraging our unique strength in the AI area to drive higher quality, accelerated growth, we believe the combined power of high-quality content times expert network times AI capabilities will further set the Zhihu apart in this new era. Over the next 3 quarters, we will continue to execute on our strategy with discipline. We expect our core businesses to show an accelerated recovery. In parallel, our AI-related new initiatives should continue to gain traction and contribute meaningfully to growth. With that, I will hand the call over to our CFO, Wang Han, whose remarks will be delivered through his AI voice agent. Han, please go ahead.

I will now go over our first quarter 2026 financials. For a complete overview of our results, please refer to our press release issued earlier today. The first quarter marked a strong start to the year with our operations and financial performance, both improving. Building on the full year non-GAAP profitability achieved in 2025, we delivered a strong sequential return to profitability in the first quarter, supported by continued gross margin recovery, disciplined cost management and focused resource allocation. These results reflect the cumulative impact of our multi-quarter structural optimization and provide a strong foundation for continued growth as we move through 2026. Now turning to the financial highlights of first quarter 2026. At the non-GAAP level, we are pleased to report that adjusted net profit turned positive in the first quarter of 2026, reaching RMB 17.2 million compared with an adjusted net loss of RMB 39.4 million in the fourth quarter of 2025. Our total revenue for the quarter reached RMB 651.6 million, compared with RMB 729.7 million in the same period of 2025. The year-over-year decline reflects our continued efforts to optimize revenue mix and to prioritize high-quality services. More importantly, revenue grew on a sequential basis driven by strong revenue contribution from our paid content and IP operations segment. Our Marketing Services revenue for the quarter was RMB 191.4 million compared with RMB 197 million in the same period of 2025. The stabilization in Marketing Services reflects our proactive and ongoing refinement of service offerings with notably improving sequential trend. Paid content and IP operations revenue was RMB 402.3 million compared with RMB 420.9 million in the same period of 2025. Average monthly subscribing members were 13.1 million, an increase of 7.9% on a quarterly basis. We continue to focus our resources on strengthening user engagement and monetization opportunities. In addition, revenue growth from our IP operations served as an earnings driver, supported by expanding IP initiatives. Other revenues were RMB 57.8 million compared with RMB 111.8 million in the same period of 2025. The decrease was primarily due to strategic refinement of our vocational training business. Our gross profit for the quarter was RMB 388.3 million compared with RMB 451.1 million in the same period of 2025. Gross margin was 59.6% compared with 61.8% in the same period of 2025. Notably, gross margin improved sequentially from 53.6% in the fourth quarter of 2025. This improvement was attributable to prudent cost controls across content and cloud operations. Our total operating expenses decreased by 10.4% year-over-year to RMB 451.2 million in the first quarter of 2026 compared with RMB 503.7 million in the same period of 2025. The decrease in total operating expenses was in line with revenue, supported by management's careful cost controls, R&D expenses fell by 22.4% year-over-year, while selling and marketing expenses also decreased by 11.1% year-over-year. Selling and marketing expenses decreased by 11.1% year-over-year to RMB 285.1 million from RMB 320.6 million in the same period of 2025. The decrease was primarily due to more disciplined marketing spending and a decrease in personnel-related expenses. Research and development expenses decreased 22.4% year-over-year to RMB 110.1 million from RMB 141.9 million in the same period of 2025. The decrease was primarily driven by ongoing improvements in our research and development efficiency. General and administrative expenses were RMB 56 million compared with RMB 41.2 million in the same period of 2025. The increase was primarily attributable to an increase in the allowance for expected credit losses on trade receivables. Accordingly, our net loss narrowed by 15.6% to RMB 8.5 million from RMB 10.1 million in the same period of 2025. On a non-GAAP basis, adjusted net income increased by 147.2% year-over-year to RMB 17.2 million from RMB 6.9 million in the same period of 2025. As of the 31st of March 2026, the company had RMB 4.5 billion in cash and cash equivalents, term deposits, restricted cash and short-term investments. As of the 31st of March 2026, the company has repurchased 34.8 million Class A ordinary shares on the open market for an aggregate value of USD 70.7 million on both the New York Stock Exchange and the stock exchange of Hong Kong. During the first quarter of 2026, the company repurchased 3.7 million Class A ordinary shares for a total consideration of USD 4.2 million. The share repurchase program continues to deliver value back to our shareholders. Building on the solid momentum achieved in the first quarter, we expect 2026 to be a year of high-quality growth. remain focused on strengthening operational profitability and improving execution efficiency while further leveraging the unique advantages from our high-quality content, expert network and AI capabilities. As these 3 pillars continue to evolve in unison, they will further highlight our distinctive value in the AI era. Looking ahead, we will continue to execute our established strategy with discipline and focus driving sustainable growth and long-term shareholder value. 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. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Sarina of CICC.

[Foreign Language] My question is about could management share some of the latest strategic thinking and road map around AI. For example, in terms of integrating AI with the Zhihu community, what's the latest plan and progress?

Thank you for the question. I believe the relationship between the community is not AA+ or plus AI. So as I mentioned earlier, average daily time spent per DAU increased and I recommend it's mainly seen from our position and core strategy over the past period, which centers on building a high-quality trustworthy community. So in other words, the interpersonal connections are becoming more active. And this vibrancy will occur even without AI. So what users truly need is not an AI itself but rather like cognitive enhancement experience sharing and real connections. So building a high-quality trust with the community is what Zhihu has been doing since day 1, and whether navigating the -- like the Internet area or today's AI era, our underlying mission has never changed. Therefore, rather than viewing the community as an AI application scenario, we focus on how to leverage technology to better people.

Take the Shinji conference as an example. This year, on-site attendance exceeded 80,000, which is setting a historical record. We have over 100 partners on site and featuring numerous workshops and coffee chats related to AI. And there's also non-AI activities such as workshops, fitness areas and food markets. So limit people together for the engagement. And the meaning of Shinji does normally represent the new knowledge, but the new cognition and the new connections and this is precisely the core value of the Zhihu community. And we have always believed that Zhihu's community ecosystem is not filed to serve like shallow attention and the increase in time spent corresponds and not to a concept of like everyone, but to the active growth of mid- to tie attention user cohort. So our core priority is to continuously built into a positive feedback system that helps people elevate the cognition and establish connections. And to achieve this, we have executed 4 initiatives over the past 2 years. So the first 1 would be the sustained investment in the community operations. And second would be the simplification of the product experience. And third one will be the long-term investment in the underlying technical infrastructure. And last one would be the advancement in like AI innovation and efficiency. Regarding AI, we have 1 principle. So AI is not the angle but paper war, so like in the Phase I for Zhihu, we aim to integrate AI search with our Transport community content, ensuring answers not just generated from the models but could be tracked back to real people and experiences. And the Phase 2, which is our current stage, we are advancing in 2 areas. So firstly, we are building on a data platform. we're gaining like the high-quality, long-term community data that have been cleaned and credibly ramped. It's open to develop via like MCP or skills. And secondly, we are building an open platform, which is our community APIs, and we host our first open platform-based. Now it's currently project-based and we're turning to projects in the long-term open platform to enable the engineers and AI creators to continuously innovate. Therefore, integrating the community and AI is not simply dropping into. It's about to leverage open platform to empower more creators to generate new value. Our exploration extends further. If the open platform unlocks creativity, AI short dramas or the comics unlock the value of our IP, our paid content in story and today's AI dramas are all organic extensions of our authentic discussions. This exemplifies our strategy of starting form and extending beyond the community. Community creates content and content generate IP, which leverages the new technologies to reach broader users. As the AI drama industry shifts from the volume growth to quality, we believe the value of our IP will further unlock. And finally, Zhihu believes in long term. Our current progress is not driven by scale focused tactics. Our core strategy remains unchanged, deeply cultivate the community and focus on people and leverage AI innovation to better serve and empower people and continue to drive the positive cycle or starting from the community and expanding beyond it. So such transition cannot materialize within a single quarter or even a full year. Our current results from consistent execution over the past 2 years, while our ongoing efforts are laying groundwork for structural improvements in the next 3 years.

We will now proceed to take our next question from the line of Vicky Wei of Citi.

We noticed that starting from the first quarter, the company merged original paid membership revenue with membership-related copyright licensing and IP derivatives revenue into a single category. Does this change reflect a new strategy within by management regarding the market potential and growth drivers of this business? And third more, how should we think of those advantages and opportunities within this newly defined market space?

Thank you for the question, Vicky. This is from Juhu COO, Zhonghong. Look, this revenue reclassification indeed reflects our strategic offering in how we view our paid content and IP operations. Previously, the market saw our paid content is just membership revenue. But as China's top premium short-form original platform, the growth of Yan'an Stories has unlocked broader value beyond the subscriptions. Our IPs now monetized through like short dramas, comic, or TV shows and games. Creators are already becoming writers and producers. So effective since the first quarter of 20 the reclassification aims to better showcase the full life cycle value of our content and IP. This means its upgrade from a single subscription model to the full chain IT operation and development. It remains as a crucial foundation, helping us validate the content creation the user willingness to pay and IP potential. A building on this content could unleash like commercial value through the IP partnerships, script adoptions, short dramas and et cetera. And we aim to form a complete closed loop from the content to consumption and to the IP screaming and multi-format monetization. In this new market landscape, we believe Zhihu has 4 competitive advantages. Our Yan'an Stories is the leading player in the short story track. It has accumulated a vast library of premium short stories over time. Short stories is naturally feature concentrated plots, clear character relationships and like high-density conflicts, making them highly suitable for the adoption into new content. Compared to intimidating content from scratch, adapting the existing IPs deliver high efficiency in both content screening and monetization conversion. We continue to strengthen our ceator ecosystem through the incentive mechanism. We discovered the big mid-tier agrees and extend their life cycle by enabling the transition from novel writing to script adoption. Meanwhile, our creators are showing high potential in utilizing AI for content inspiration and video gen motors. So in first quarter, total creative earnings surged 5.6x year-over-year, further demonstrating the IP monetization. AI short dramas are really speeding up our IP monetization. So in the first quarter, our total IP partnerships such like 564% year-over-year and 248% quarter-over-quarter and fully validating the commercial dip and the premium pricing power of Zhihu's content assets. Computation will ultimately return to the quality of the content. As the industry evolves, the lifetime value of individual IPs will be further unlocked. AI has increased the production capacity. Our short-form IP offer a natural high-yield advantages for adoption. As we deepen our participation leveraging AI for storyboarding image generation, scripting and distribution, and we anticipate the lower cost and higher margin Ultimately, AI doesn't just increase output, it empowers creativity. Therefore, the revenue reclassification isn't just an accounting adjustment. It reflects how we redefine the commercial potential of in story and our original IP. Going forward, we will drive deeper synergies across paid content IP licensing dramatic and other formats. And this allows us to maximize the LTV of each IP and turning the paid content and IP operation into a growth driver.

We will now proceed to take our next question from Luqing Zhou of Goldman Sachs.

My question is regarding the AI investment. Can management elaborate more on the specific areas of allocation of your AI been if you plan to balance those new investments with the group's long-term overall profit goals?

Thank you for the question, Luqing. This is from Zhihu CFO, Han Wang. We are certainly integrating AI into all aspects of our operations. However, I understand that the market is likely most concerned about when AI-driven revenue will accelerate our growth. We maintain our previous strategic focus, specifically targeting 2 films. The AI short dramas, comic dramas and the solution. The former represents the AI-generated content that users are most willing to pay for, whether the later served as the selling water and shovels to the AI industry. Therefore, regarding how we balance new business investments with profitability. These 2 selections represent some of the healthiest cash flow profiles among all AI verticals and Zhihu holds a distinct competitive advantages here. Of course, the challenges ranging from industry competition to the macro environment, which would require a medium- to long-term perspective. However, we will not pursue a strategy of burning cash to chase growth. Our investments will focus on building core long-term capabilities to deliver fundamentally superior products.

We will now proceed to take our next question from the line of Daisy Chen of Haitong International.

Zhihu's profit has shown a significant improvement in Q1. Does management have any update to the shareholder return plan such as the resource and the payout scale?

Yes. Thank you for the question, Daisy. We remain firmly committed to our share repurchase. We believe Zhihu has been 1 of the most active Chinese ADRs in terms of buyback intensity over the past 2 years. And since 2022, the company has repurchased accumulative like 63.5 million Class A ordinary shares in the open market with a total cost of USD 130 million. And year-to-date in 2026, the company has repurchased 4.61 million shares for over the cost of USD 5.06 million, representing 1.74% of total shares outstanding and share repurchase during the first quarter of 2026 have all been fully canceled. Thank you.

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

Thank you once again for joining us today. If you have any further questions, please contact our IR team directly for Christensen Advisory. Thank you. Thank you all.

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