Zhihu Inc. Reports Second Quarter 2021 Unaudited Financial Results

BEIJING,Aug. 16,2021 -- 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 second quarter ended June 30,2021.

Second Quarter 2021 Highlights

Average monthly active users (MAUs)[1] reached 94.3 million in the second quarter of 2021,representing a growth of 46.2% over the second quarter of 2020.

Average monthly paying members[2]reached 4.7 million in the second quarter of 2021,representing a growth of 121.1% over the second quarter of 2020.

Total revenues were RMB638.4 million (US$98.9 million) in the second quarter of 2021,representing a growth of 144.2% over the second quarter of 2020.

Gross profit was RMB376.6 million (US$58.3 million) in the second quarter of 2021,representing a growth of 197.9% over the second quarter of 2020.

Gross margin increased to 59.0% in the second quarter of 2021 from 48.4% in the same period of last year.

"We are delighted to report another strong quarter,with solid growth in both operating and financial performance. We believe our founding belief,establishing a content-centric ecosystem and sustainable commercialization model,is the fundamental driver behind our achievements as a company. We continued to strive towards this goal in the quarter,by optimizing our content structure and refining our evaluation standards for quality content,thereby enhancing a "sense of fulfilment" for our users. We believe such quality content will broaden horizons,provide resolutions and resonate with minds. We further believe this "sense of fulfilment" will not only strengthen trust amongst users,content creators and our platform,but will also be a key element that will enhance our unique position in the market and further solidify our leadership position in the long-term." said Mr. Yuan Zhou,Chairman of the Board and Chief Executive Officer of Zhihu.

Mr. Wei Sun,Chief Financial Officer of Zhihu,added,"We have continued to deliver outstanding operating and financial results in the second quarter of 2021. In the quarter,our user base continued its rapid growth,with average MAUs increasing by 46% year-over-year to 94.3 million. Our content-centric monetization also enjoyed robust enhancement,yielding a 144% year-over-year growth in revenue. Our revenue structure diversified further in the quarter with a higher percentage of revenue coming from content-commerce solutions and paid memberships. At the same time,our gross margin remained strong at 59% for the quarter,compared with 48% for the same period last year,which significantly reinforces our strong capability in upgrading our content infrastructure and allows us to continue creating long-term value for our users,business partners and shareholders."

Second Quarter 2021 Financial Results

Total revenues were RMB638.4 million (US$98.9 million) in the second quarter of 2021,representing an increase of 144.2% from RMB261.4 million in the same period of 2020. The increase was driven by our expanding user scale and continued growth of our average revenue per user.

Advertising revenue was RMB248.3 million (US$38.5 million) in the second quarter of 2021,representing an increase of 48.4% from RMB167.3 million in the same period of 2020. The year-over-year increase was primarily attributable to the continued expansion of our user base coupled with an increased average advertising revenue generated per MAU.

Paid membership revenue was RMB154.9 million (US$24.0 million) in the second quarter of 2021,representing an increase of 123.5% from RMB69.3 million in the same period of 2020. The year-over-year increase was primarily attributable to an increase in our overall user base coupled with an enhanced paying ratio for the period.

Content-commerce solutions revenue wasRMB207.4 million (US$32.1 million) in the second quarter of 2021,compared with RMB12.7 million in the second quarter of 2020. The strong year-over-year growth was primarily driven by the rapid increases of both our user base and average content-commerce solutions revenue per MAU,which reflected our continued commitment to our content-centric commercialization strategy.

Other revenues were RMB27.8 million (US$4.3 million) in the second quarter of 2021,compared with RMB12.0 million in the same period of 2020. The year-over-year increase was primarily attributable to the continued growth of our e-commerce services and online education services that provide vocational training and professional courses for adults.

Cost of revenues increased to RMB261.8 million (US$40.5 million) in the second quarter of 2021 from RMB135.0 million in the same period of 2020. The increase was primarily due to increased 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 RMB376.6 million (US$58.3 million) in the second quarter of 2021,compared with a gross profit of RMB126.4 million in the same period of 2020.

Gross margin in the second quarter of 2021 was 59.0%,compared to 48.4% in the same period of 2020.

Total operating expenses were RMB727.1 million (US$112.6 million) in the second quarter of 2021,compared with RMB284.0 million in the same period of 2020.

Selling and marketing expenses were RMB443.2 million (US$68.6 million) in the second quarter of 2021,compared with RMB146.7 million in the second quarter of 2020. The increase was primarily due to the increased expenses in promotion and advertising activities to attract new users,as well as to strengthen our brand recognition.

Research and development expenseswere RMB120.6 million (US$18.7 million) in the second quarter of 2021,compared with RMB83.6 million in the same period of 2020. The increase was primarily due to the increased headcount in our research and development personnel as we continued to invest in technical infrastructure,research and development.

General and administrative expenses were RMB163.2 million (US$25.3 million) in the second quarter of 2021,compared with RMB53.7 million in the same period of 2020. The increase was primarily due to the increased share-based compensation expenses.

Loss from operations was RMB350.5 million (US$54.3 million) in the second quarter of 2021,compared with RMB157.7 million in the same period of 2020.

Net loss was RMB321.1 million (US$49.7 million) in the second quarter of 2021,compared with RMB116.1 million in the same period of 2020.

Adjusted net loss (non-GAAP)[3] was RMB200.3 million (US$31.0 million) in the second quarter of 2021,compared with RMB70.2 million in the same period of 2020.

Basic and diluted net loss per ADS was RMB0.55 (US$0.08) in the second quarter of 2021,compared with RMB2.22 in the same period of 2020.

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

As of June 30,2021,the Company had cash and cash equivalents,restricted cash and short-term investments of RMB7,703.1 million (US$1,193.1 million),compared with RMB3,096.7 million as of December 31,2020.

Outlook

For the third quarter of 2021,the Company currently expects its total revenues to be between RMB815 million (US$126.2 million) and RMB820 million (US$127.0 million). 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 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 August 16,2021 (8:00 p.m. Beijing/Hong Kong time on August 16,2021).

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:

5296870

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

A replay of the conference call will be accessible approximately one hour after the conclusion of the live call untilAugust 23,by dialing the following telephone numbers:

United States:

+1-877-344-7529

International:

+1-412-317-0088

Replay Access Code:

10159155

About Zhihu Inc.

Zhihu Inc. (NYSE: ZH) is the operator of Zhihu,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,which are non-cash expenses and are partially discretionary in nature. 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 RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader.Unless otherwise noted,all translations from RMB to U.S. dollars were made at a rate of RMB6.4566 to US$1.00,the exchange rate in effect as of June 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 Wu

Tel: +86-10-6508-0677

Email: zhihu@tpg-ir.com

In the United States:

The Piacente Group,Inc.

Brandi Piacente

Phone: +1-212-481-2050

Email: 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 Six Months Ended

June 30,

2020

March 31,

2021

June 30,

2020

June 30,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Revenues:

Advertising

167,342

213,730

248,272

38,452

292,971

462,002

71,555

Paid membership

69,284

126,572

154,872

23,987

125,043

281,444

43,590

Content-commerce solutions

12,731

120,845

207,431

32,127

13,798

328,276

50,843

Others

12,031

17,139

27,777

4,302

17,737

44,916

6,957

Total revenues

261,388

478,286

638,352

98,868

449,549

1,116,638

172,945

Cost of revenues

(134,994)

(205,616)

(261,798)

(40,547)

(244,905)

(467,414)

(72,393)

Gross profit

126,394

272,670

376,554

58,321

204,644

649,224

100,552

Selling and marketing expenses

(146,746)

(346,633)

(443,229)

(68,647)

(272,169)

(789,862)

(122,334)

Research and development expenses

(83,553)

(106,302)

(120,620)

(18,682)

(170,171)

(226,922)

(35,146)

General and administrative expenses

(53,746)

(162,196)

(163,243)

(25,283)

(130,880)

(325,439)

(50,404)

Total operating expenses

(284,045)

(615,131)

(727,092)

(112,612)

(573,220)

(1,342,223)

(207,884)

Loss from operations

(157,651)

(342,461)

(350,538)

(54,291)

(368,576)

(692,999)

(107,332)

Other income/(expenses):

Investment income

13,817

9,662

11,791

1,826

29,199

21,453

3,323

Interest income

7,410

3,327

8,251

1,278

17,280

11,578

1,793

Fair value change of financial

instrument

19,619

-

10,610

1,643

19,238

10,643

Exchange (losses)/gains

(689)

(693)

5,458

845

(15,970)

4,765

738

Others,net

930

6,009

(5,076)

(786)

1,631

933

145

Loss before income tax

(116,564)

(324,156)

(319,504)

(49,485)

(317,198)

(643,660)

(99,690)

Income tax benefit/(expense)

449

(537)

(1,580)

(245)

(254)

(2,117)

(328)

Net loss

(116,115)

(324,693)

(321,084)

(49,730)

(317,452)

(645,777)

(100,018)

Accretions of convertible

redeemable preferred shares to

redemption value

(172,534)

(170,585)

-

-

(338,045)

(170,585)

(26,420)

Net loss attributable to Zhihu

Inc.'s shareholders

(288,649)

(495,278)

(321,730)

(655,497)

(816,362)

(126,438)

Net loss per share

Basic

(4.45)

(6.93)

(1.09)

(0.17)

(10.17)

(4.45)

(0.69)

Diluted

(4.45)

(6.93)

(1.09)

(0.17)

(10.17)

(4.45)

(0.69)

Net loss per ADS (Two ADSs

represent one Class A

ordinary share)

Basic

(2.22)

(3.46)

(0.55)

(0.08)

(5.09)

(2.22)

(0.34)

Diluted

(2.22)

(3.46)

(0.55)

(0.08)

(5.09)

(2.22)

(0.34)

Weighted average number of

ordinary shares outstanding

Basic

64,894,737

71,493,738

293,735,095

293,095

64,439,452

183,518,197

183,197

Diluted

64,197

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(All amounts in thousands,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Share-based compensation

expenses included in:

Cost of revenues

2,239

2,232

2,349

364

4,420

4,581

709

Selling and marketing

expenses

5,094

4,803

4,614

715

10,746

9,417

1,459

Research and development

expenses

5,814

7,608

2,709

419

13,263

10,317

1,598

General and administrative

expenses

32,720

116,484

111,073

17,203

57,025

227,557

35,244

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

As of December 31,

2020

As of June 30,

2021

RMB

RMB

US$

ASSETS

Current assets:

Cash and cash equivalents

957,820

884,544

136,998

Term deposits

1,092,921

3,546,595

549,298

Short-term investments

1,046,000

1,314,536

203,596

Restricted cash

-

1,214,499

188,102

Trade receivables

486,046

567,542

87,901

Amounts due from related parties

13,843

35,393

5,482

Prepayments and other current assets

123,536

151,182

23,415

Total current assets

3,720,166

7,714,291

1,194,792

Non-current assets:

Property and equipment,net

8,105

7,329

1,135

Intangible assets,net

23,478

17,833

2,762

Long-term investments

-

19,380

3,002

Term deposits

-

742,911

115,062

Right-of-use assets

3,241

83,145

12,877

Other non-current assets

6,451

5,679

880

Total non-current assets

41,275

876,277

135,718

Total assets

3,761,441

8,590,568

1,330,510

LIABILITIES,MEZZANINE EQUITY AND

SHAREHOLDERS' (DEFICIT)/EQUITY

Current liabilities

Accounts payables and accrued liabilities

501,848

754,420

116,845

Salary and welfare payables

231,847

248,614

38,505

Taxes payables

7,066

29,529

4,573

Contract liabilities

159,995

201,652

31,232

Amounts due to related parties

45,983

54,324

8,414

Short term lease liabilities

2,893

24,357

3,772

Other current liabilities

64,936

110,334

17,089

Total current liabilities

1,014,423,230

220,430

Non-current liabilities

Long term lease liabilities

-

52,675

8,159

Total non-current liabilities

-

52,675

8,159

Total liabilities

1,475,905

228,589

Total mezzanine equity

7,891,348

-

-

Total shareholders' (deficit)/equity

(5,144,475)

7,114,663

1,101,921

Total liabilities,mezzanine equity and shareholders'

(deficit)/equity

3,510

ZHIHU INC.

UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

(All amounts in thousands,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Net loss

(116,018)

Add:

Share-based compensation

expenses

45,867

131,127

120,745

18,701

85,454

251,872

39,010

Adjusted net loss

(70,248)

(193,566)

(200,339)

(31,029)

(231,998)

(393,905)

(61,008)

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