Zhihu Inc. Reports Unaudited Third Quarter 2022 Financial Results

BEIJING,Nov. 30,2022 -- 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 September 30,2022.

Third Quarter 2022 Highlights

Total revenues were RMB911.7 million (US$128.2 million) for the third quarter of 2022,representing a 10.7% increase from the same period of 2021.

Average monthly active users ("MAUs")[1] were 97.0 million for the third quarter of 2022,compared with 101.2 million for the same period of 2021.

Average monthly paying members[2] reached 10.9 million for the third quarter of 2022,representing a 99.5% increase from the same period of 2021.

"In the third quarter,we made further strides executing our 'community ecosystem first' strategy,shifting our focus to quality user growth and bolstering the strength and resilience of our content-centric business model," said Mr. Yuan Zhou,chairman of the board and chief executive officer of Zhihu. "We saw encouraging performance across an array of user growth metrics including user activeness and time spent. We were also delighted to see an increased number of content creators who received financial incentives and earned higher average income in the Zhihu community. Moving ahead,we are committed to further enhancing the vitality of the Zhihu community,expanding our competitiveness,and striving to create long-term value for all the stakeholders."

Mr. Wei Sun,chief financial officer of Zhihu,added,"Despite the ongoing challenging macroeconomic conditions,our total revenues for the quarter recorded a double-digit year-over-year increase. Paid membership once again demonstrated robust growth potential with average monthly paying members reaching a new record high,and revenue from our vocational training business quadrupled year over year as we continued to expand offerings and address users' on-the-go needs. Meanwhile,our net loss for the quarter was significantly narrowed on a quarter-on-quarter basis. We firmly believe that Zhihu's resilient and innovative business model positions us well for continued investment for long-term growth while striving to achieve profitability."

Third Quarter 2022 Financial Results

Total revenues were RMB911.7 million (US$128.2 million) for the third quarter of 2022,representing a 10.7% increase from RMB823.5 million for the same period of 2021.

Advertising revenue was RMB196.7 million (US$27.7 million) for the third quarter of 2022,compared with RMB321.1 million for the same period of 2021. The decrease primarily reflected the headwinds faced by the online advertising industry in China broadly affected by the challenging macroeconomic conditions and the pandemic's resurgence nationwide.

Paid membership revenue was RMB335.4 million (US$47.2 million) for the third quarter of 2022,representing an 88.1% increase from RMB178.3 million for the same period of 2021. The increase was primarily due to the continued growth of our paying members,reflecting the attractiveness of our premium content and recognition of our paid membership value.

Content-commerce solutions revenue wasRMB265.2 million (US$37.3 million) for the third quarter of 2022,compared with RMB278.4 million for the same period of 2021.The decrease was primarily due to the challenging macroeconomic environment.

Vocational Training revenue[3]was RMB78.0 million (US$11.0 million) for the third quarter of 2022,increasing from RMB14.0 million for the same period of 2021. The strong increase was primarily due to the growth of our paying members attracted to our growing and diverse course offerings.

Other revenues were RMB36.3 million (US$5.1 million) for the third quarter of 2022,representing a 14.7% increase from RMB31.7 million for the same period of 2021. The increase was primarily due to the broadened offerings of our private label products and book series.

Cost of revenues increased to RMB467.3 million (US$65.7 million) for the third quarter of 2022 from RMB398.6 million for the same period of 2021. The increase was primarily due to higher content-related costs and payment processing fees,as well as increased cloud services and bandwidth costs.

Gross profit increased to RMB444.4 million (US$62.5 million) for the third quarter of 2022 from RMB424.8 million for the same period of 2021.

Gross margin for the third quarter of 2022 was 48.7%,compared with 51.6% for the same period of 2021.

Total operating expenses decreased to RMB723.0 million (US$101.6 million) for the third quarter of 2022 from RMB747.3 million for the same period of 2021.

Selling and marketing expenses increased to RMB478.3 million (US$67.2 million) for the third quarter of 2022 from RMB374.7 million for the third quarter of 2021. The increase was primarily due to higher promotion and advertising expenses as we continued to strengthen Zhihu's brand and promote Zhihu's community culture.

Research and development expensesdecreased to RMB160.8 million (US$22.6 million) for the third quarter of 2022 from RMB184.7 million for the same period of 2021. The decrease was primarily due to a decline in personnel-related expenses.

General and administrative expenses decreased to RMB83.9 million (US$11.8 million) for the third quarter of 2022 from RMB188.0 million for the same period of 2021. The decrease was primarily due to lower share-based compensation expenses.

Loss from operations decreased to RMB278.6 million (US$39.2 million) for the third quarter of 2022 from RMB322.5 million for the same period of 2021.

Other income/(expenses) is comprised of investment income,interest income,fair value change of financial instruments,exchange gains/(losses) and others,net. The year-over-year changes were mainly due to the following.

Fair value change of financial instruments was a loss of RMB79.3 million (US$11.1 million) for the third quarter of 2022,compared to a gain of RMB11.1 million for the same period of 2021,primarily attributable to the fair value change of financial instruments related to currency exchange options and forward contracts due to the appreciation of U.S. dollars against Renminbi.

Exchange gains were RMB28.3 million (US$4.0 million) for the third quarter of 2022,compared with RMB8.7 million for the same period of 2021,primarily due to the appreciation of U.S. dollars against Renminbi.

Net loss was RMB297.6 million (US$41.8 million) for the third quarter of 2022,compared with RMB269.8 million for the same period of 2021.

Adjusted net loss (non-GAAP)[4] was RMB250.6 million (US$35.2 million) for the third quarter of 2022,compared with RMB112.4 million for the same period of 2021.

Basic and diluted net loss per ADS was RMB0.49 (US$0.07) for the third quarter of 2022,compared with RMB0.46 for the same period of 2021.

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

As of September 30,2022,the Company had cash and cash equivalents,and short-term investments of RMB6.6 billion (US$0.9 billion),compared with RMB7.4 billion as of December 31,2021.

Share Repurchase Program

In May 2022,the Company announced a share repurchase program under which the Company may repurchase up to US$100 million of Class A ordinary shares or ADSs for a 12-month period,subject to the shareholders' approval for granting a general mandate to the board of directors to repurchase shares or ADSs of the Company. This general mandate was obtained at the Company's annual general meeting held on June 10,2022. As of September 30,approximately 4.9 million Class A ordinary shares (including Class A ordinary shares underlying the ADSs) had been repurchased on both the New York Stock Exchange and The Stock Exchange of Hong Kong Limited under the program for a total price of US$13.2 million.

[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 each 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 7:00 a.m. U.S. Eastern Time on November 30,2022 (8:00 p.m. Beijing/Hong Kong time on November 30,2022).

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/10173450/f528d59af8

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 untilDecember 7,by dialing the following telephone numbers:

United States:

+1-877-344-7529

International:

+1-412-317-0088

Replay Access Code:

4752812

About Zhihu Inc.

Zhihu Inc. (NYSE: ZH; HKEX: 2390),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 inChina,both in terms of average mobile MAUs and revenue in 2019,2020,and 2021,according to CIC. For more information,please visithttps://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 acquisitions and the 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 RMB7.1135 to US$1.00,the exchange rate in effect as of September 30,2022 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 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: 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

ZHIHUINC.

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,

2021

June 30,

2022

September 30,

2021

September 30,

2022

RMB

RMB

RMB

US$

RMB

RMB

US$

Revenues:

Advertising

321,072

237,597

196,689

27,650

783,074

651,603

91,601

Paid membership

178,307

271,168

335,435

47,155

459,751

828,273

116,437

Content-commerce solutions

278,415

240,454

265,249

37,288

606,691

732,490

102,972

Vocational Training

13,991

46,127

78,004

10,966

23,626

163,675

23,009

Others

31,681

40,670

36,334

5,108

66,962

114,913

16,154

Total revenues

823,466

836,016

911,711

128,167

1,940,104

2,490,954

350,173

Cost of revenues

(398,617)

(436,414)

(467,327)

(65,696)

(866,031)

(1,311,425)

(184,357)

Gross profit

424,849

399,602

444,384

62,471

1,074,073

1,179,529

165,816

Selling and marketing expenses

(374,696)

(532,375)

(478,279)

(67,235)

(1,164,558)

(1,517,239)

(213,290)

Research and development

expenses

(184,657)

(223,589)

(160,760)

(22,599)

(411,579)

(550,867)

(77,440)

General and administrative

expenses

(187,972)

(104,290)

(83,944)

(11,801)

(513,411)

(498,866)

(70,129)

Total operating expenses

(747,325)

(860,254)

(722,983)

(101,635)

(2,089,548)

(2,566,972)

(360,859)

Loss from operations

(322,476)

(460,652)

(278,599)

(39,164)

(1,015,475)

(1,387,443)

(195,043)

Other income/(expenses):

Investment income

15,617

20,596

23,138

3,253

37,070

64,458

9,061

Interest income

9,850

10,480

14,598

2,052

21,428

34,433

4,841

Fair value change of financial

instruments

11,136

(101,197)

(79,322)

(11,151)

21,746

(172,066)

(24,189)

Exchange gains

8,724

49,126

28,302

3,979

13,489

73,273

10,301

Others,net

7,640

1,001

(3,047)

(428)

8,573

(116)

(16)

Loss before income tax

(269,509)

(480,646)

(294,930)

(41,459)

(913,169)

(1,461)

(195,045)

Income tax expense

(303)

(6,375)

(2,655)

(373)

(2,420)

(11,428)

(1,607)

Net loss

(269,812)

(487,021)

(297,585)

(41,832)

(915,589)

(1,398,889)

(196,652)

Net income attributable to

noncontrolling interests

-

-

(2,590)

(364)

-

(2,590)

(364)

Accretions of convertible

redeemable preferred shares to

redemption value

-

-

-

-

(170,585)

-

-

Net loss attributable to Zhihu

Inc.'s shareholders

(269,021)

(300,175)

(42,196)

(1,086,174)

(1,401,479)

(197,016)

Net loss per share

Basic

(0.91)

(1.59)

(0.98)

(0.14)

(4.91)

(4.60)

(0.65)

Diluted

(0.91)

(1.59)

(0.98)

(0.14)

(4.91)

(4.60)

(0.65)

Net loss per ADS (Two ADSs

represent one Class A

ordinary share)

Basic

(0.46)

(0.79)

(0.49)

(0.07)

(2.46)

(2.30)

(0.32)

Diluted

(0.46)

(0.79)

(0.49)

(0.07)

(2.46)

(2.30)

(0.32)

Weighted average number of

ordinary shares outstanding

Basic

295,795

307,101,052

306,621,507

306,507

221,050,126

304,837,976

304,976

Diluted

295,976

ZHIHUINC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(All amounts in thousands,

2022

RMB

RMB

RMB

US$

RMB

RMB

US$

Share-based compensation

expenses included in:

Cost of revenues

5,527

3,839

(411)

(58)

10,108

8,198

1,152

Selling and marketing

expenses

12,111

6,196

6,647

934

21,528

19,315

2,715

Research and development

expenses

21,764

14,294

16,608

2,335

32,081

46,672

6,561

General and administrative

expenses

116,489

17,108

22,002

3,093

344,046

257,165

36,152

ZHIHUINC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(All amounts in thousands)

As of December 31,

2021

As of September 30,

2022

RMB

RMB

US$

ASSETS

Current assets:

Cash and cash equivalents

2,157,161

3,397,542

477,619

Term deposits

2,815,509

1,119,638

157,396

Short-term investments

2,239,596

2,107,392

296,252

Trade receivables

831,628

742,547

104,386

Amounts due from related parties

18,196

30,275

4,256

Prepayments and other current assets

272,075

230,887

32,458

Total current assets

8,334,165

7,628,281

1,072,367

Non-current assets:

Property and equipment,net

9,865

8,051

1,132

Intangible assets,net

68,308

85,637

12,039

Goodwill

73,663

126,344

17,761

Long-term investments

19,127

-

-

Term deposits

159,393

-

-

Right-of-use assets

126,512

109,008

15,324

Other non-current assets

14,132

22,450

3,156

Total non-current assets

471,000

351,490

49,412

Total assets

8,805,979,771

1,121,779

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Accounts payable and accrued liabilities

1,026,534

922,995

129,753

Salary and welfare payables

313,676

237,817

33,432

Taxes payables

66,184

27,576

3,877

Contract liabilities

239,757

376,876

52,980

Amounts due to related parties

83,591

86,274

12,128

Short term lease liabilities

40,525

51,340

7,217

Other current liabilities

127,447

214,513

30,156

Total current liabilities

1,897,714

1,917,391

269,543

Non-current liabilities

Long term lease liabilities

82,133

54,149

7,612

Deferred tax liabilities

14,030

12,230

1,719

Other non-current liabilities

73,139

78,506

11,036

Total non-current liabilities

169,302

144,885

20,367

Total liabilities

2,067,016

2,062,276

289,910

Total Zhihu Inc.'s shareholders' equity

6,730,654

5,886,205

827,470

Noncontrolling interests

7,495

31,290

4,399

Total shareholders' equity

6,738,149

5,495

831,869

Total liabilities and shareholders' equity

8,779

ZHIHUINC.

UNAUDITEDRECONCILIATIONSOF GAAP AND NON-GAAP RESULTS

(All amounts in thousands)

For the Three Months Ended

For the Nine Months Ended

September 30,

2022

RMB

RMB

RMB

US$

RMB

RMB

US$

Net loss

(269,652)

Add:

Share-based compensation

expenses

155,891

41,437

44,846

6,304

407,763

331,350

46,580

Amortization of intangible

assets resulting from

business acquisition

1,980

2,400

2,763

388

1,980

7,563

1,063

Tax effects on non-GAAP

adjustments

(495)

(600)

(600)

(84)

(495)

(1,800)

(253)

Adjusted net loss

(112,436)

(443,784)

(250,576)

(35,224)

(506,341)

(1,061,776)

(149,262)

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