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 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,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-commerce solutions revenue wasRMB367.3 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.

Research and development expenseswere 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-commerce solutions revenue wasRMB974.0 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.

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 expenseswere 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,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.

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:

+1-888-317-6003

International:

+1-412-317-6061

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:

+1-877-344-7529

International:

+1-412-317-0088

Replay Access Code:

4729100

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,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 RMB6.3726 to US$1.00,the exchange rate in effect as of December 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 Year Ended

December 31,

2020

September 30,

2021

December 31,

2020

December 31,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Revenues:

Advertising

319,172

321,072

377,812

59,287

843,284

1,160,886

182,168

Paid membership

104,372

178,307

208,756

32,758

320,471

668,507

104,903

Content-commerce solutions

76,485

278,415

367,295

57,637

135,813

973,986

152,840

Others

19,778

45,672

65,357

10,256

52,628

155,945

24,471

Total revenues

519,807

823,466

1,019,220

159,938

1,352,196

2,959,324

464,382

Cost of revenues

(186,721)

(398,617)

(539,392)

(84,642)

(594,399)

(1,405,423)

(220,542)

Gross profit

333,086

424,849

479,828

75,296

757,797

1,553,901

243,840

Selling and marketing expenses

(242,937)

(374,696)

(470,175)

(73,781)

(734,753)

(1,634,733)

(256,525)

Research and development

expenses

(82,359)

(184,657)

(208,006)

(32,641)

(329,763)

(619,585)

(97,226)

General and administrative

expenses

(112,297)

(187,972)

(176,881)

(27,756)

(296,162)

(690,292)

(108,322)

Total operating expenses

(437,593)

(747,325)

(855,062)

(134,178)

(1,360,678)

(2,944,610)

(462,073)

Loss from operations

(104,507)

(322,476)

(375,234)

(58,882)

(602,881)

(1,390,709)

(218,233)

Other income/(expenses):

Investment income

11,989

15,617

22,107

3,469

56,087

59,177

9,286

Interest income

4,135

9,850

9,877

1,550

24,751

31,305

4,912

Fair value change of financial

instrument

(49,246)

11,136

6,100

957

(68,818)

27,846

4,370

Exchange gains/(losses)

41,786

8,724

(30,154)

(4,732)

62,663

(16,665)

(2,615)

Others,net

6,271

7,640

(12,964)

(2,034)

11,728

(4,391)

(689)

Loss before income tax

(89,572)

(269,509)

(380,268)

(59,672)

(516,470)

(1,293,437)

(202,969)

Income tax expense

(485)

(303)

(3,023)

(474)

(1,080)

(5,443)

(854)

Net loss

(90,057)

(269,812)

(383,291)

(60,146)

(517,550)

(1,298,880)

(203,823)

Accretions of convertible

redeemable preferred shares to

redemption value

(169,783)

-

-

-

(680,734)

(170,585)

(26,769)

Net loss attributable to Zhihu

Inc.'s shareholders

(259,840)

(269,146)

(1,198,284)

(1,469,465)

(230,592)

Net loss per share

Basic

(3.94)

(0.91)

(1.29)

(0.20)

(18.36)

(6.12)

(0.96)

Diluted

(3.94)

(0.91)

(1.29)

(0.20)

(18.36)

(6.12)

(0.96)

Net loss per ADS (Two ADSs

represent one Class A

ordinary share)

Basic

(1.97)

(0.46)

(0.65)

(0.10)

(9.18)

(3.06)

(0.48)

Diluted

(1.97)

(0.46)

(0.65)

(0.10)

(9.18)

(3.06)

(0.48)

Weighted average number of

ordinary shares outstanding

Basic

65,948,861

295,179,795

296,870,566

296,566

65,279,970

240,174,108

240,108

Diluted

65,108

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

(441)

5,527

8,865

1,391

5,424

18,973

2,977

Selling and marketing

expenses

2,044

12,111

10,419

1,635

15,973

31,947

5,013

Research and development

expenses

4,613

21,764

25,514

4,004

15,281

57,595

9,038

General and administrative

expenses

57,537

116,489

95,904

15,049

143,412

439,950

69,038

ZHIHU INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands)

As of December 31,

2020

As of December 31,

2021

RMB

RMB

US$

ASSETS

Current assets:

Cash and cash equivalents

957,820

2,157,161

338,506

Term deposits

1,092,921

2,815,509

441,815

Short-term investments

1,046,000

2,239,596

351,441

Trade receivables

486,046

831,628

130,501

Amounts due from related parties

13,843

18,196

2,855

Prepayments and other current assets

123,536

272,075

42,695

Total current assets

3,720,166

8,334,165

1,307,813

Non-current assets:

Property and equipment,net

8,105

9,548

Intangible assets,net

23,478

68,308

10,719

Goodwill

-

73,663

11,559

Long-term investments

-

19,127

3,001

Term deposits

-

159,393

25,012

Right-of-use assets

3,241

126,512

19,852

Other non-current assets

6,451

14,132

2,218

Total non-current assets

41,275

471,000

73,909

Total assets

3,761,441

8,805,381,722

LIABILITIES,MEZZANINE EQUITY AND

SHAREHOLDERS' (DEFICIT)/EQUITY

Current liabilities

Accounts payables and accrued liabilities

501,848

1,026,534

161,086

Salary and welfare payables

231,847

313,676

49,223

Taxes payables

7,066

66,184

10,386

Contract liabilities

159,995

239,757

37,623

Amounts due to related parties

45,983

83,591

13,117

Short term lease liabilities

2,893

40,525

6,359

Other current liabilities

64,936

127,447

19,999

Total current liabilities

1,014,568

1,897,714

297,793

Non-current liabilities

Long term lease liabilities

-

82,133

12,888

Deferred tax liabilities

-

14,030

2,202

Other non-current liabilities

-

73,139

11,477

Total non-current liabilities

-

169,302

26,567

Total liabilities

1,568

2,067,016

324,360

Total mezzanine equity

7,891,348

-

-

Total Zhihu Inc.'s shareholders' (deficit)/equity

(5,144,475)

6,730,654

1,056,186

Noncontrolling interests

-

7,495

1,176

Total shareholders' (deficit)/equity

(5,475)

6,738,149

1,057,362

Total liabilities,mezzanine equity and shareholders'

(deficit)/equity

3,722

ZHIHU INC.

UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

(All amounts in thousands)

For the Three Months Ended

For the Year Ended

December 31,

2021

RMB

RMB

RMB

US$

RMB

RMB

US$

Net loss

(90,823)

Add:

Share-based compensation

expenses

63,753

155,891

140,702

22,079

180,090

548,465

86,066

Amortization of intangible

assets resulting from

business acquisition

-

1,980

2,400

377

-

4,380

687

Tax effects on non-GAAP

adjustments

-

(495)

(600)

(94)

-

(1,095)

(172)

Adjusted net loss

(26,304)

(112,436)

(240,789)

(37,784)

(337,460)

(747,130)

(117,242)

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