Zhihu : Fourth Quarter and Full Year 2021 Financial Results Conference Call

Zhihu Inc. Reports Fourth Quarter and Fiscal Year 2021 Unaudited Financial Results

BEIJING, March 14, 2022 - 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 and fiscal year ended December 31, 2021.

Fourth Quarter and Full Year 2021 Highlights

• Average monthly active users (MAUs)[1] reached 103.3 million in the fourth quarter of 2021, representing a growth of 36.4% over the fourth quarter of 2020. Average MAUs for the year was 95.9 million, representing a growth of 40.0% from 2020.
• Average monthly paying members[2] reached 6.1 million in the fourth quarter of 2021, representing a growth of 102.0% over the fourth quarter of 2020. Average monthly paying members for the year was 5.1 million, representing a growth of 114.8% from 2020.
• Total revenues were RMB1,019.2 million (US$159.9 million) in the fourth quarter of 2021, representing a growth of 96.1% over the fourth quarter of 2020. Total revenues for the year were RMB2,959.3 million (US$464.4 million), representing a growth of 118.9% from 2020.
• Gross profit was RMB479.8 million (US$75.3 million) in the fourth quarter of 2021, representing an increase of 44.1% over the fourth quarter of 2020. Gross profit for the year was RMB1,553.9 million (US$243.8 million), representing an increase of 105.1% from 2020.

"2021 was a remarkable year for Zhihu. In March, we successfully completed our IPO amidst a challenging market environment and went on to complete the year with sustained, robust financial growth. Throughout the year, as part of our continued efforts to enhance content quality, we focused on promoting and distributing "fulfilling content," or content that we believe broadens horizons, provides solutions, and resonates with minds. Our videolization strategy proved to be effective and brought the diversity of Zhihu's content library to a new level. This enabled content creators to contribute with even greater levels of creativity and strengthened our capabilities to meet the growing content consumption needs of our users. As we continue to unlock the value of our unique content-centric ecosystem and benefit from growing scale, we will continue to enhance our operating efficiency and fulfill our responsibilities to the society." said Mr. Yuan Zhou, Chairman of the Board and Chief Executive Officer of Zhihu.

Mr. Wei Sun, Chief Financial Officer of Zhihu, added, "We are delighted to announce another strong set of quarterly results. During the fourth quarter of 2021, our content-commerce solutions and paid membership businesses continued to grow rapidly, expanding 380.2% and 100.0%, respectively, in terms of revenue on a year-over-year basis, and collectively contributed 56.5% of our total revenue in the quarter. At the same time, despite headwinds faced by the general advertising sector, our advertising business grew by 18.4% during the quarter on a year-over-year basis. We also continued to benefit from our commitment to deliver fulfilling content and enhance our operating efficiency, realizing another year of strong user-base growth and a more appealing content ecosystem for business partners. In 2022, we will continue to diversify our content-centric monetization

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capabilities, including further developing our vocational training businesses, and enhancing operating efficiency as we work to ensure long-term and sustainable growth."

Fourth Quarter 2021 Financial Results

Total revenues were RMB1,019.2 million (US$159.9 million) in the fourth quarter of 2021, representing an increase of 96.1% from RMB519.8 million in the same period of 2020. The increase was driven by the continued expansion of both our user base and average revenue per active user.

Advertising revenue was RMB377.8 million (US$59.3 million) in the fourth quarter of 2021, representing an increase of 18.4% from RMB319.2 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 RMB208.8 million (US$32.8 million) in the fourth quarter of 2021, representing an increase of 100.0% from RMB104.4 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-commercesolutions revenue was RMB367.3 million (US$57.6 million) in the fourth quarter of 2021, compared with RMB76.5 million in the same period of 2020. The strong year-over-year growth was primarily driven by rapid increases in both our user base and average content-commerce solutions revenue per MAU, reflecting our continued development of this business line.

Other revenues were RMB65.4 million (US$10.3 million) in the fourth quarter of 2021, compared with RMB19.8 million in the same period of 2020. The year-over-year increase was primarily due to the growth of our vocational training business and continued growth in our e-commerce services.

Cost of revenues increased to RMB539.4 million (US$84.6 million) in the fourth quarter of 2021 from RMB186.7 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, as well as an increase in staff costs due to our increased headcount to support our growth. The rapid growth in user traffic in the quarter also resulted in increases in cloud services and bandwidth costs.

Gross profit was RMB479.8 million (US$75.3 million) in the fourth quarter of 2021, compared with gross profit of RMB333.1 million in the same period of 2020.

Gross margin in the fourth quarter of 2021 was 47.1%, compared to 64.1% in the same period of 2020.

Total operating expenses were RMB855.1 million (US$134.2 million) in the fourth quarter of 2021, compared with RMB437.6 million in the same period of 2020.

Selling and marketing expenses were RMB470.2 million (US$73.8 million) in the fourth quarter of 2021, compared with RMB242.9 million in the same period of 2020. The increase was primarily due to higher promotion and advertising expenses related to attracting new users and strengthening Zhihu's brand recognition.

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Research and development expenses were RMB208.0 million (US$32.6 million) in the fourth quarter of 2021, compared with RMB82.4 million in the same period of 2020. The increase was primarily due to the higher headcount of research and development personnel, as we continued to invest in technical infrastructure, and research and development.

General and administrative expenses were RMB176.9 million (US$27.8 million) in the fourth quarter of 2021, compared with RMB112.3 million in the same period of 2020. The increase was primarily due to an increase in the headcount of general and administrative personnel, and a rise in share-based compensation expenses.

Loss from operations was RMB375.2 million (US$58.9 million) in the fourth quarter of 2021, compared with RMB104.5 million in the same period of 2020.

Net loss was RMB383.3 million (US$60.1 million) in the fourth quarter of 2021, compared with RMB90.1 million in the same period of 2020.

Adjusted net loss (non-GAAP)[3] was RMB240.8 million (US$37.8 million) in the fourth quarter of 2021, compared with RMB26.3 million in the same period of 2020.

Basic and diluted net loss per ADS was RMB0.65 (US$0.10) in the fourth quarter of 2021, compared with RMB1.97 in the same period of 2020.

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

As of December 31, 2021, the Company had cash and cash equivalents, term deposits and short-term investments of RMB7.4 billion (US$1.2 billion), compared with RMB3.1 billion as of December 31, 2020.

Fiscal Year 2021 Financial Results

Total revenues were RMB2,959.3 million (US$464.4 million) in 2021, representing an increase of 118.9% from RMB1,352.2 million in 2020. The increase was driven by the continued expansion of our user base and average revenue per active user.

Advertising revenue was RMB1,160.9 million (US$182.2 million) in 2021, representing an increase of 37.7% from RMB843.3 million in 2020. The increase was primarily attributable to the continued expansion of our user base.

Paid membership revenue was RMB668.5 million (US$104.9 million) in 2021, representing an increase of 108.6% from RMB320.5 million in 2020. The increase was primarily attributable to increases in our overall user base and paying ratio.

Content-commercesolutions revenue was RMB974.0 million (US$152.8 million) in 2021, compared with RMB135.8 million in 2020. The strong growth was primarily driven by rapid increases in both our user base and average content-commerce solutions revenue per MAU.

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Other revenues were RMB155.9 million (US$24.5 million) in 2021, compared with RMB52.6 million in the same period of 2020. The year-over-year increase was primarily attributable to the continued growth of our vocational training business and e-commerce services.

Cost of revenues increased to RMB1,405.4 million (US$220.5 million) in 2021 from RMB594.4 million in 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 2021 also resulted in increases in our cloud services and bandwidth costs.

Gross profit was RMB1,553.9 million (US$243.8 million) in 2021, compared with gross profit of RMB757.8 million in 2020.

Gross margin in 2021 was 52.5%, compared to 56.0% in 2020.

Total operating expenses were RMB2,944.6 million (US$462.1 million) in 2021, compared with RMB1,360.7 million in 2020.

Selling and marketing expenses were RMB1,634.7 million (US$256.5 million) in 2021, compared with RMB734.8 million in 2020. The increase was primarily due to higher promotion and advertising expenses related to attracting new users and strengthening Zhihu's brand recognition.

Research and development expenses were RMB619.6 million (US$97.2 million) in 2021, compared with RMB329.8 million in 2020. The increase was primarily due to the higher headcount of research and development personnel, as we continued to invest in technical infrastructure, and research and development.

General and administrative expenses were RMB690.3 million (US$108.3 million) in 2021, compared with RMB296.2 million in 2020. The increase was primarily due to an increase in the headcount of general and administrative personnel, and a rise in share-based compensation expenses.

Loss from operations was RMB1,390.7 million (US$218.2 million) in 2021, compared with RMB602.9 million in 2020.

Net loss was RMB1,298.9 million (US$203.8 million) in 2021, compared with RMB517.6 million in 2020.

Adjusted net loss (non-GAAP)[3] was RMB747.1 million (US$117.2 million) in 2021, compared with RMB337.5 million in 2020.

Basic and diluted net loss per ADS was RMB3.06 (US$0.48) in 2021, compared with RMB9.18 in 2020.

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Outlook

For the first quarter of 2022, the Company expects its total revenues to be between RMB720 million and RMB740 million. The above outlook is based on current market conditions and reflects the Company's preliminary estimates, which are subject to change.

1. MAUs refers to the sum of the number of mobile devices that launch our mobile app at least once in a given month, or mobile MAUs, and the number of logged-in users who visit our PC or mobile website at least once in a given month, after eliminating duplicates.
2. Average monthly paying members for a period is calculated by dividing the sum of monthly paying members for each month during the specified period by the number of months in such period.
3. Adjusted net loss is a non-GAAP financial measure. For more information on the non-GAAP financial measure, please see the section of "Use of Non-GAAP Financial Measure" and the table captioned "Unaudited Reconciliations of GAAP and 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 March 14, 2022 (8:00 p.m. Beijing/Hong Kong time on March 14, 2022).

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

United States:	[phone]
International:	[phone]
Hong Kong, China:	800-963-976
Mainland China:	400-120-6115
Participant code:	7359097

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 March 21, 2022, by dialing the following telephone numbers:

United States:	[phone]
International:	[phone]
Replay Access Code:	4729100

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

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