Zhihu : Reports First Quarter 2022 Unaudited Financial Results - Form 6-K

Zhihu Inc. Reports First Quarter 2022 Unaudited Financial Results

BEIJING, May 25, 2022 - Zhihu Inc. ("Zhihu" or the "Company") (NYSE: ZH; HKEX: 2390), the operator of Zhihu, a leading online content community in China, today announced its unaudited financial results for the quarter ended March 31, 2022.

First Quarter 2022 Highlights

●	Total revenues were RMB743.2 million (US$117.2 million) in the first quarter of 2022, representing a growth of 55.4% over the first quarter of 2021.

●	Gross Profit was RMB335.5 million (US$52.9 million) in the first quarter of 2022, representing a growth of 23.1% over the first quarter of 2021.

●	Average monthly active users (MAUs)[1] reached 101.6 million in the first quarter of 2022, representing a growth of 19.4% over the first quarter of 2021.

●	Average monthly paying members[2] reached 6.9 million in the first quarter of 2022, representing a growth of 72.8% over the first quarter of 2021.

"The successful dual primary listing on the Hong Kong Stock Exchange in April, following our listing on the NYSE in the first quarter of last year, not only marks a new milestone in our development path, but also lays a solid foundation for our sustainable and long-term growth," said Mr. Yuan Zhou, Chairman of the Board and Chief Executive Officer of Zhihu. "In the first quarter, the fundamental value of Zhihu's fulfilling content and its content-centric community ecosystem has been further validated through our strong growth in both financial and operating performance. With the "Community ecosystem comes first" strategy, we continued to cultivate additional content verticals. Our interactive algorithm of fulfilling content, combined with refined analysis of user needs, has continued to enhance our understanding of our users, allowing us to address their needs more precisely. At the same time, our iterated tools, creator operations and support helped to further encourage content creation. All the above contributed effectively to boost the sustained vitality and prosperity of our community ecosystem."

Mr. Wei Sun, Chief Financial Officer of Zhihu, added, "Despite the recent resurgence of COVID-19 and macroeconomic uncertainties, we are delighted to report another solid quarter of performance in the first quarter of 2022, with total revenues up 55.4% year over year. Continuing to benefit from our dynamic community ecosystem and increasing content creation, our revenue structure was further diversified. Our content-commerce solutions and advertising services together contributed 59.8% of total revenues. As our No. 1 growth engine, content-commerce solutions achieved year over year growth of 87.7% in revenue. Vocational training, a new initiative further diversifying our commercialization capabilities, demonstrated promising growth momentum with quarterly revenue contribution exceeding 5% for the first time. During the quarter we maintained our gross margin at 45% in a challenging operating environment. Going forward, we will continue to employ well-managed cost control practices and further improve our operating efficiency, driving the healthy and sustainable growth of our business for the long run."

1

First Quarter 2022 Financial Results

Total revenues were RMB743.2 million (US$117.2 million) in the first quarter of 2022, representing a growth of 55.4% from RMB478.3 million in the same period of 2021. The increase was driven by the expansion of our user base and increase of our average revenue per MAU.

Advertising revenue was RMB217.3 million (US$34.3 million) in the first quarter of 2022, representing a growth of 1.7% from RMB213.7 million in the same period of 2021. The year-over-year increase was primarily attributable to the expansion of our user base.

Paid membership revenue was RMB221.7 million (US$35.0 million) in the first quarter of 2022, representing a growth of 75.1% from RMB126.6 million in the same period of 2021. The year-over-year increase was primarily attributable to increases in our overall user base and paying ratio for the period.

Content-commerce solutions revenue was RMB226.8 million (US$35.8 million) in the first quarter of 2022, representing a growth of 87.7% from RMB120.8 million in the same period of 2021. 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 sustainable development of this business line.

Vocational Training revenue^[3] was RMB39.5 million (US$6.2 million) in the first quarter of 2022, which grew from RMB3.1 million in the first quarter of 2021. The year-over-year growth was primarily driven by a more diversified vocational training course offering, as well as the revenue contributions from companies newly acquired in the second half of 2021.

2

Other revenues^[3] were RMB37.9 million (US$6.0 million) in the first quarter of 2022, compared with RMB14.1 million in the same period of 2021. The year-over-year increase was primarily attributable to the continued growth in e-commerce services.

Cost of revenues increased to RMB407.7 million (US$64.3 million) in the first quarter of 2022 from RMB205.6 million in the same period of 2021. The increase was primarily due to an increase in execution costs for advertising services and content-related costs, as well as an increase in staff costs due to the increased headcount to support our growth. The growth in user traffic in the quarter also resulted in increases in cloud services and bandwidth costs.

Gross profit was RMB335.5 million (US$52.9 million) in the first quarter of 2022, compared with gross profit of RMB272.7 million in the same period of 2021.

Gross margin in the first quarter of 2022 was 45.1%, compared to 57.0% in the same period of 2021.

Total operating expenses were RMB 983.7 million (US$155.2 million) in the first quarter of 2022, compared with RMB615.1 million in the same period of 2021.

Selling and marketing expenses were RMB506.6 million (US$79.9 million) in the first quarter of 2022, compared with RMB346.6 million in the first quarter of 2021. 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 RMB166.5 million (US$26.3 million) in the first quarter of 2022, compared with RMB106.3 million in the same period of 2021. 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 RMB310.6 million (US$49.0 million) in the first quarter of 2022, compared with RMB162.2 million in the same period of 2021. The increase was primarily due to an increase in share-based compensation expenses, as well as the expense related to our dual primary listing on The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange").

Loss from operations was RMB648.2 million (US$102.3 million) in the first quarter of 2022, compared with RMB342.5 million in the same period of 2021.

3

Net loss was RMB614.3 million (US$96.9 million) in the first quarter of 2022, compared with RMB324.7 million in the same period of 2021.

Adjusted net loss (non-GAAP)^[4] was RMB367.4 million (US$58.0 million) in the first quarter of 2022, compared with RMB193.6 million in the same period of 2021.

Basic and diluted net loss per ADS was RMB1.02 (US$0.16) in the first quarter of 2022, compared with RMB3.46 in the same period of 2021.

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

As of March 31, 2022, the Company had cash and cash equivalents, term deposits, restricted cash and short-term investments of RMB7.1 billion (US$1.1 billion), compared with RMB7.4 billion as of December 31, 2021.

Dual-primary Listing in Hong Kong

On April 22, 2022, the Company successfully listed its Class A ordinary shares on the Main Board of the Hong Kong Stock Exchange under the stock code "2390," and the stock short name is "ZHIHU-W".

Share Repurchase Program

The board of directors is confident about the Company's continued growth in the future and announces that it proposes to conduct a share repurchase program of up to US$100 million available for the coming 12 months, subject to the shareholders' approval for granting a general mandate to the board of directors to repurchase shares and/or ADSs of the Company not exceeding 10% of the total number of issued shares of the Company as of the date of passing of this resolution at the annual general meeting to be held on June 10, 2022 as set forth in the notice of annual general meeting dated May 19, 2022. The Company's proposed repurchases, if approved, may be made from time to time in the open market at prevailing market prices and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. The Company plans to fund any such repurchases from its existing cash balance.

4

^[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] Effective in the first quarter of 2022, the Company separately reported the revenue of its vocational training business, which was formerly included in "revenue - others", in light of the significant growth of the revenue contribution from vocational training to the Company's total revenues. For comparison purposes, the revenue of vocational training business and the revenue in "others" for the first quarter of 2021 have been retrospectively re-classified.

^[4] 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 May 25, 2022 (8:00 p.m. Beijing/Hong Kong time on May 25, 2022).

All participants must pre-register online using the link provided below. Once the pre-registration has been completed, participants will receive dial-in numbers, a passcode, and a unique registrant ID which can be used to join the conference call. Participants may pre-register at any time, including up to and after the call start time.

PRE-REGISTER LINK: https://dpregister.com/sreg/10167344/f2d0c75040

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 June 1, 2022, by dialing the following telephone numbers:

United States:	[phone]
International:	[phone]
Replay Access Code:	1483549

5

About Zhihu Inc.

Zhihu Inc. (NYSE: ZH; HKEX: 2390), the operator of Zhihu, a leading online content community in China where people come to find solutions, make decisions, seek inspiration, and have fun. We have been dedicated to expanding our content and service offerings to enable our users to explore and enjoy "fulfilling content" (有获得感的內容) that broadens horizons, provides solutions, and resonates with minds. Since the initial launch in 2010, we have grown from a Q&A community into one of the top five comprehensive online content communities and the largest Q&A-inspired online content community in China, both in terms of average mobile MAUs and revenue in 2019, 2020, and 2021, according to 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 RMB6.3393 to US$1.00, the exchange rate in effect as of March 31, 2022 as set forth in the H.10 statistical release of the Federal Reserve Board.

6

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 and the Hong Kong Stock Exchange. 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: [e-mail]

The Piacente Group, Inc.

Helen Wu

Tel: [phone]

Email: [e-mail]

In the United States:

The Piacente Group, Inc.

Brandi Piacente

Phone: [phone]

Email: [e-mail]

7

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
		March 31, 2021			December 31, 2021			March 31, 2022
		RMB			RMB			RMB			US$
Revenues:
Advertising			213,730				377,812				217,317				34,281
Paid membership			126,572				208,756				221,670				34,968
Content-commerce solutions			120,845				367,295				226,787				35,775
Vocational Training			3,051				22,197				39,544				6,238
Others			14,088				43,160				37,909				5,980
Total revenues			478,286				1,019,220				743,227				117,242
Cost of revenues			(205,616	)			(539,392	)			(407,684	)			(64,311	)
Gross profit			272,670				479,828				335,543				52,931
Selling and marketing expenses			(346,633	)			(470,175	)			(506,585	)			(79,912	)
Research and development expenses			(106,302	)			(208,006	)			(166,518	)			(26,268	)
General and administrative expenses			(162,196	)			(176,881	)			(310,632	)			(49,001	)
Total operating expenses			(615,131	)			(855,062	)			(983,735	)			(155,181	)
Loss from operations			(342,461	)			(375,234	)			(648,192	)			(102,250	)
Other income/(expenses):
Investment income			9,662				22,107				20,724				3,269
Interest income			3,327				9,877				9,355				1,476
Fair value change of financial instrument			-				6,100				8,453				1,333
Exchange losses			(693	)			(30,154	)			(4,155	)			(655	)
Others, net			6,009				(12,964	)			1,930				304
Loss before income tax			(324,156	)			(380,268	)			(611,885	)			(96,523	)
Income tax expense			(537	)			(3,023	)			(2,398	)			(378	)
Net loss			(324,693	)			(383,291	)			(614,283	)			(96,901	)
Accretions of convertible redeemable preferred shares to redemption value			(170,585	)			-				-				-
Net loss attributable to Zhihu Inc.'s shareholders			(495,278	)			(383,291	)			(614,283	)			(96,901	)
Net loss per share
Basic			(6.93	)			(1.29	)			(2.04	)			(0.32	)
Diluted			(6.93	)			(1.29	)			(2.04	)			(0.32	)
Net loss per ADS (Two ADSs represent one Class A ordinary share)
Basic			(3.46	)			(0.65	)			(1.02	)			(0.16	)
Diluted			(3.46	)			(0.65	)			(1.02	)			(0.16	)
Weighted average number of ordinary shares outstanding
Basic			71,493,738				296,870,566				300,483,336				300,483,336
Diluted			71,493,738				296,870,566				300,483,336				300,483,336

8

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
		March 31, 2021			December 31, 2021			March 31, 2022
		RMB			RMB			RMB			US$
Share-based compensation expenses included in:
Cost of revenues			2,232				8,865				4,770				752
Selling and marketing expenses			4,803				10,419				6,472				1,021
Research and development expenses			7,608				25,514				15,770				2,488
General and administrative expenses			116,484				95,904				218,055				34,397

9

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands)

		As of December 31, 2021			As of March 31, 2022
		RMB			RMB			US$
ASSETS
Current assets:
Cash and cash equivalents			2,157,161				2,393,111				377,504
Term deposits			2,815,509				1,724,171				271,981
Short-term investments			2,239,596				2,718,980				428,909
Restricted cash			-				222,187				35,049
Trade receivables			831,628				811,572				128,022
Amounts due from related parties			18,196				38,930				6,141
Prepayments and other current assets			272,075				182,030				28,715
Total current assets			8,334,165				8,090,981				1,276,321
Non-current assets:
Property and equipment, net			9,865				9,031				1,425
Intangible assets, net			68,308				63,085				9,951
Goodwill			73,663				73,663				11,620
Long-term investments			19,127				19,045				3,004
Term deposits			159,393				-				-
Right-of-use assets			126,512				135,025				21,300
Other non-current assets			14,132				14,132				2,229
Total non-current assets			471,000				313,981				49,529
Total assets			8,805,165				8,404,962				1,325,850
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payables and accrued liabilities			1,026,534				1,023,258				161,415
Salary and welfare payables			313,676				316,760				49,968
Taxes payables			66,184				17,916				2,826
Contract liabilities			239,757				257,850				40,675
Amounts due to related parties			83,591				81,427				12,845
Short term lease liabilities			40,525				52,344				8,257
Other current liabilities			127,447				124,158				19,585
Total current liabilities			1,897,714				1,873,713				295,571
Non-current liabilities
Long term lease liabilities			82,133				80,257				12,660
Deferred tax liabilities			14,030				13,430				2,119
Other non-current liabilities			73,139				76,331				12,041
Total non-current liabilities			169,302				170,018				26,820
Total liabilities			2,067,016				2,043,731				322,391
Total Zhihu Inc.'s shareholders' equity			6,730,654				6,349,638				1,001,630
Noncontrolling interests			7,495				11,593				1,829
Total shareholders' equity			6,738,149				6,361,231				1,003,459
Total liabilities and shareholders' equity			8,805,165				8,404,962				1,325,850

10

ZHIHU INC.

UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

(All amounts in thousands)

		For the Three Months Ended
		March 31, 2021			December 31, 2021			March 31, 2022
		RMB			RMB			RMB			US$
Net loss			(324,693	)			(383,291	)			(614,283	)			(96,901	)
Add:
Share-based compensation expenses			131,127				140,702				245,067				38,658
Amortization of intangible assets resulting from business acquisition			-				2,400				2,400				379
Tax effects on non-GAAP adjustments			-				(600	)			(600	)			(95	)
Adjusted net loss			(193,566	)			(240,789	)			(367,416	)			(57,959	)

11