PR Newswire | Nov 22, 2021 04:04AM EST

11/22 03:03 CST

Zhihu Inc. Reports Third Quarter 2021 Unaudited Financial Results BEIJING, Nov. 22, 2021

BEIJING, Nov. 22, 2021 /PRNewswire/ -- Zhihu Inc. ("Zhihu" or the "Company") (NYSE: ZH), the operator of Zhihu, a leading online content community in China, today announced its unaudited financial results for the quarter ended September 30, 2021.

Third Quarter 2021 Highlights

* Average monthly active users (MAUs)[1] reached 101.2 million in the third quarter of 2021, representing a growth of 40.1% over the third quarter of 2020. * Average monthly paying members[2] reached 5.5 million in the third quarter of 2021, representing a growth of 109.9% over the third quarter of 2020. * Total revenues were RMB823.5 million (US$127.8 million) in the third quarter of 2021, representing a growth of 115.1% over the third quarter of 2020. * Gross profit was RMB424.8 million (US$65.9 million) in the third quarter of 2021, representing an increase of 93.0% over the third quarter of 2020.

"During the third quarter of 2021, we continued to deliver solid operating and financial results. As part of our campaign of upgrading content quality to a next level and to promote "fulfilling content," we focused on optimizing the content creation and distribution mechanisms for purposes of promoting and enhancing content fulfillness and made remarkable progress in the quarter. By expanding content vertical coverage and promoting content timeliness, content consumption experience was further enhanced on our platform, which contributed to a more diversified user base, with average MAUs crossing the 100 million mark for the first time. The various tools and functions that we introduced in the quarter to our content creators continued to improve their creation experience and enhance their monetization potential. We will continue to focus on incentivizing and promoting high-quality content creation in various formats and strengthen and develop monetization approaches within our community, with an aim of cultivating a sustainable and long-term growth momentum of our business." said Mr. Yuan Zhou, Chairman of the Board and Chief Executive Officer of Zhihu.

Mr. Wei Sun, Chief Financial Officer of Zhihu, added, "We continued to deliver strong results in the third quarter of 2021, driven by our unique content-centric business model. Average MAUs increased significantly on a year-over-year basis, coupled with our continued strengthening of value per user. Active content creation and vibrant user engagement, coupled with our continuously expanding user base constantly unleashes significant monetization potential. In the third quarter, content-commerce solutions revenue grew five times year over year. Despite the headwinds facing the general advertising industry during the period, our advertising revenue grew by 39%, reflecting solid commitment to our services and firm recognition of our content-centric marketing capability by our clients. In line with our long-term commitment to our users and content creators as well as our obsession with content, we continued to make investments that will support our long-term growth strategy, such as in the vocational training space."

Third Quarter 2021 Financial Results

Total revenues were RMB823.5 million (US$127.8 million) in the third quarter of 2021, representing an increase of 115.1% from RMB382.8 million in the same period of 2020. The increase was driven by our continued expansion of our user base and average revenue per active user.

Advertising revenue was RMB321.1 million (US$49.8 million) in the third quarter of 2021, representing an increase of 38.9% from RMB231.1 million in the same period of 2020. The year-over-year increase was primarily attributable to the continued expansion of our user base.

Paid membership revenue was RMB178.3 million (US$27.7 million) in the third quarter of 2021, representing an increase of 95.8% from RMB91.1 million in the same period of 2020. The year-over-year increase was primarily attributable to increases in our overall user base and paying ratio for the period.

Content-commerce solutions revenuewas RMB278.4 million (US$43.2 million) in the third quarter of 2021, compared with RMB45.5 million in the third quarter of 2020. The strong year-over-year growth was primarily driven by the rapid increases in both our user base and average content-commerce solutions revenue per MAU, reflecting our continued commitment to our content-centric monetization strategy.

Other revenues were RMB45.7 million (US$7.1 million) in the third quarter of 2021, compared with RMB15.1 million in the same period of 2020. The year-over-year increase was primarily attributable to continued growth of our vocational training and professional course programs as well as our e-commerce services.

Cost of revenuesincreased to RMB398.6 million (US$61.9 million) in the third quarter of 2021 from RMB162.8 million in the same period of 2020. The increase was primarily due to an increase in execution costs for our advertising services and content-related costs. The rapid growth in user traffic in the quarter also resulted in increases in our cloud services and bandwidth costs.

Gross profit was RMB424.8 million (US$65.9 million) in the third quarter of 2021, compared with a gross profit of RMB220.1 million in the same period of 2020.

Gross margin in the third quarter of 2021 was 51.6%, compared to 57.5% in the same period of 2020.

Total operating expenses were RMB747.3 million (US$116.0 million) in the third quarter of 2021, compared with RMB349.9 million in the same period of 2020.

Selling and marketing expenses were RMB374.7 million (US$58.2 million) in the third quarter of 2021, compared with RMB219.6 million in the third quarter of 2020. The increase was primarily due to an increase in expenses in promotion and advertising activities to attract new users and strengthen our brand recognition.

Research and development expenses were RMB184.7 million (US$28.7 million) in the third quarter of 2021, compared with RMB77.2 million in the same period of 2020. The increase was primarily due to our continued investment in technical infrastructure and research and development capability.

General and administrative expenses were RMB188.0 million (US$29.2 million) in the third quarter of 2021, compared with RMB53.0 million in the same period of 2020. The increase was primarily due to an increase in share-based compensation expenses.

Loss from operations was RMB322.5 million (US$50.0 million) in the third quarter of 2021, compared with RMB129.8 million in the same period of 2020.

Net loss was RMB269.8 million (US$41.9 million) in the third quarter of 2021, compared with RMB110.0 million in the same period of 2020.

Adjusted net loss (non-GAAP)[3]was RMB112.4 million (US$17.4 million) in the third quarter of 2021, compared with RMB79.2 million in the same period of 2020.

Basic and diluted net loss per ADS was RMB0.46(US$0.07) in the third quarter of 2021, compared with RMB2.15 in the same period of 2020.

Cash and cash equivalents, term deposits, restricted cash and short-term investments

As of September 30, 2021, the Company had cash and cash equivalents, term deposits, restricted cash and short-term investments of RMB7.6 billion (US$1.2 billion), compared with RMB3.1 billion as of December 31, 2020.

Outlook

For the fourth quarter of 2021, the Company currently expects its total revenues to be between RMB1.01 billion and RMB1.03 billion. The above outlook is based on the current market condition and reflects the Company's preliminary estimates, which are all subject to change.

^[1] MAUs refers to the sum of the number of mobile devices that launch ourmobile app at least once in a given month, or mobile MAUs, and the number oflogged-in users who visit our PC or mobile website at least once in a givenmonth, after eliminating duplicates.

^[2] Average monthly paying members for a period is calculated by dividing thesum of monthly paying members for each month during the specified period by thenumber of months in such period.

^[3] Adjusted net loss is a non-GAAP financial measure. For more information onthe non-GAAP financial measure, please see the section of "Use of Non-GAAPFinancial Measure" and the table captioned "Unaudited Reconciliations of GAAPand Non-GAAP Results" set forth at the end of this press release.

Conference Call

The Company's management will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on November 22, 2021 (9:00 p.m.Beijing/Hong Kong time on November 22, 2021).

Dial-in details for the earnings conference call are as follows:

United States: +1-888-317-6003

International: +1-412-317-6061

Hong Kong, China: 800-963-976

Mainland China: 400-120-6115

Participant code: 3211613

Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at https://ir.zhihu.com.

A replay of the conference call will be accessible approximately one hour after the conclusion of the live call until November 29, 2021, by dialing the following telephone numbers:

United States: +1-877-344-7529

International: +1-412-317-0088

Replay Access Code: 10161654

About Zhihu Inc.

Zhihu Inc. (NYSE: ZH) is the operator of Zhihu, a leading online content community in China, dedicated to empowering people to share knowledge, experience, and insights, and to find their own answers. Zhihu fosters a vibrant online community where users contribute and engage while respecting diversity and valuing constructiveness by promoting a culture of sincerity, expertise, and respect developed through years of cultivation. Zhihu is China's largest Q&A-inspired online community and one of the top five Chinese comprehensive online content communities, both in terms of average mobile monthly average users and revenue in 2020. Zhihu is also recognized as the most trustworthy online content community and widely regarded as offering the highest quality content in China, according to a survey conducted by CIC. For more information, please visit https://ir.zhihu.com.

Use of Non-GAAP Financial Measure

In evaluating the business, the Company considers and uses adjusted net loss, a non-GAAP financial measure, to supplement the review and assessment of its operating performance. The Company defines adjusted net loss as net loss adjusted for the impact of share-based compensation expenses, amortization of intangible assets resulting from business acquisition and tax effects of the non-GAAP adjustments, which are non-cash expenses. The Company believes that the non-GAAP measure facilitates comparisons of operating performance from period to period and company to company by adjusting for potential impacts of items, which the Company's management considers to be indicative of its operating performance. The Company believes that the non-GAAP financial measure provides useful information to investors and others in understanding and evaluating the Company's consolidated results of operations in the same manner as it helps the Company's management.

The non-GAAP financial measure is not defined under U.S. GAAP and is not presented in accordance with U.S. GAAP. The presentation of the non-GAAP financial measure may not be comparable to similarly titled measure presented by other companies. The use of the non-GAAP measure has limitations as an analytical tool, and investors should not consider it in isolation from, or as a substitute for analysis of, our results of operations or financial condition as reported under U.S. GAAP. For more information on the non-GAAP financial measure, please see the tables captioned "Unaudited Reconciliations of GAAP and Non-GAAP Results" set forth at the end of this press release.

Exchange Rate Information

This announcement contains translations of certain Renminbi amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at a rate of RMB6.4434 to US$1.00, the exchange rate in effect as of September 30, 2021 as set forth in the H.10 statistical release of the Federal Reserve Board.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to," or other similar expressions. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law.

For investor and media inquiries, please contact:

In China:

Zhihu Inc.Email: ir@zhihu.com

The Piacente Group, Inc.Helen WuTel: +86-10-6508-0677Email: zhihu@tpg-ir.com

In the United States:

The Piacente Group, Inc.Brandi PiacentePhone: +1-212-481-2050Email: zhihu@tpg-ir.com

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(All amounts in thousands, except share, ADS, per share data and per ADS data

For the Three Months Ended For the Nine Months Ended

September 30, June 30, September 30, September 30, September 30,

2020 2021 2021 2020 2021

RMB RMB RMB US$ RMB RMB US$

Revenues:

Advertising 231,141 248,272 321,072 49,830 524,112 783,074 121,531

Paid membership 91,056 154,872 178,307 27,673 216,099 459,751 71,352

Content-commerce solutions 45,530 207,431 278,415 43,209 59,328 606,691 94,157

Others 15,113 27,777 45,672 7,088 32,850 90,588 14,059

Total revenues 382,840 638,352 823,466 127,800 832,389 1,940,104 301,099

Cost of revenues (162,773) (261,798) (398,617) (61,864) (407,678) (866,031) (134,406)

Gross profit 220,067 376,554 424,849 65,936 424,711 1,074,073 166,693

Selling and marketing expenses (219,647) (443,229) (374,696) (58,152) (491,816) (1,164,558) (180,737)

Research and development (77,233) (120,620) (184,657) (28,658) (247,404) (411,579) (63,876) expenses

General and administrative (52,985) (163,243) (187,972) (29,173) (183,865) (513,411) (79,680) expenses

Total operating expenses (349,865) (727,092) (747,325) (115,983) (923,085) (2,089,548) (324,293)

Loss from operations (129,798) (350,538) (322,476) (50,047) (498,374) (1,015,475) (157,600)

Other income/(expenses):

Investment income 14,899 11,791 15,617 2,424 44,098 37,070 5,753

Interest income 3,336 8,251 9,850 1,529 20,616 21,428 3,326

Fair value change of financial (38,810) 10,610 11,136 1,728 (19,572) 21,746 3,375 instrument

Exchange gains 36,847 5,458 8,724 1,354 20,877 13,489 2,093

Others, net 3,826 (5,076) 7,640 1,186 5,457 8,573 1,331

Loss before income tax (109,700) (319,504) (269,509) (41,826) (426,898) (913,169) (141,722)

Income tax expense (341) (1,580) (303) (47) (595) (2,420) (376)

Net loss (110,041) (321,084) (269,812) (41,873) (427,493) (915,589) (142,098)

Accretions of convertible redeemable preferred shares to (172,906) - - - (510,951) (170,585) (26,474) redemption value

Net loss attributable to Zhihu (282,947) (321,084) (269,812) (41,873) (938,444) (1,086,174) (168,572)Inc.'s shareholders

Net loss per share

Basic (4.30) (1.09) (0.91) (0.14) (14.46) (4.91) (0.76)

Diluted (4.30) (1.09) (0.91) (0.14) (14.46) (4.91) (0.76)

Net loss per ADS (Two ADSs represent one Class A ordinary share)

Basic (2.15) (0.55) (0.46) (0.07) (7.23) (2.46) (0.38)

Diluted (2.15) (0.55) (0.46) (0.07) (7.23) (2.46) (0.38)

Weighted average number of ordinary shares outstanding

Basic 65,790,538 293,735,095 295,179,795 295,179,795 64,893,102 221,050,126 221,050,126

Diluted 65,790,538 293,735,095 295,179,795 295,179,795 64,893,102 221,050,126 221,050,126

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(All amounts in thousands, except share, ADS, per share data and per ADS data)

For the Three Months Ended For the Nine Months Ended

September June September 30, September September 30, 30, 30, 30, 2021 2021 2020 2021 2020

RMB RMB RMB US$ RMB RMB US$

Share-basedcompensation expensesincluded in:

Cost of revenues 1,445 2,349 5,527 858 5,865 10,108 1,569

Selling andmarketing 3,183 4,614 12,111 1,879 13,929 21,528 3,341 expenses

Research anddevelopment (2,595) 2,709 21,764 3,378 10,668 32,081 4,979 expenses

General andadministrative 28,850 111,073 116,489 18,079 85,875 344,046 53,395 expenses

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands)

As of December As of September 30, 31, 2021 2020

RMB RMB US$

ASSETS

Current assets:

Cash and cash equivalents 957,820 1,467,251 227,714

Term deposits 1,092,921 2,821,149 437,835

Short-term investments 1,046,000 2,485,585 385,757

Restricted cash - 648,540 100,652

Trade receivables 486,046 699,485 108,558

Amounts due from related parties 13,843 18,321 2,843

Prepayments and other current assets 123,536 184,606 28,650

Total current assets 3,720,166 8,324,937 1,292,009

Non-current assets:

Property and equipment, net 8,105 8,351 1,296

Intangible assets, net 23,478 59,130 9,177

Goodwill - 50,833 7,889

Long-term investments - 19,456 3,020

Term deposits - 162,135 25,163

Right-of-use assets 3,241 98,334 15,261

Other non-current assets 6,451 12,458 1,933

Total non-current assets 41,275 410,697 63,739

Total assets 3,761,441 8,735,634 1,355,748

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' (DEFICIT)/EQUITY

Current liabilities

Accounts payables and accrued liabilities 501,848 807,657 125,346

Salary and welfare payables 231,847 303,342 47,078

Taxes payables 7,066 21,151 3,283

Contract liabilities 159,995 253,987 39,418

Amounts due to related parties 45,983 66,439 10,311

Short term lease liabilities 2,893 29,495 4,578

Other current liabilities 64,936 121,340 18,831

Total current liabilities 1,014,568 1,603,411 248,845

Non-current liabilities

Long term lease liabilities - 62,232 9,658

Deferred tax liabilities - 11,030 1,712

Other non-current liabilities - 45,000 6,984

Total non-current liabilities - 118,262 18,354

Total liabilities 1,014,568 1,721,673 267,199

Total mezzanine equity 7,891,348 - -

Total Zhihu Inc.'s shareholders' (deficit) (5,144,475) 7,010,564 1,088,022/equity

Noncontrolling interests - 3,397 527

Total shareholders' (deficit)/equity (5,144,475) 7,013,961 1,088,549

Total liabilities, mezzanine equity andshareholders' 3,761,441 8,735,634 1,355,748 (deficit)/equity

ZHIHU INC.

UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

(All amounts in thousands, except share, ADS, per share data and per ADS data)

For the Three Months Ended For the Nine Months Ended

September 30, June 30, September 30, September 30, September 30,

2020 2021 2021 2020 2021

RMB RMB RMB US$ RMB RMB US$

Net loss (110,041) (321,084) (269,812) (41,873) (427,493) (915,589) (142,098)

Add:

Share-based compensation 30,883 120,745 155,891 24,194 116,337 407,763 63,284 expenses

Amortization of intangible assets resulting from - - 1,980 307 - 1,980 307 business acquisition

Tax effects on non-GAAP - - (495) (77) - (495) (77) adjustments

Adjusted net loss (79,158) (200,339) (112,436) (17,449) (311,156) (506,341) (78,584)

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SOURCE Zhihu Inc.