Zhihu Inc.
Q2 2021 Earnings Call Transcript

Published: 16 Aug 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Zhihu Incorporated Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Jingjing Du Head of Investor Relations. Please go ahead, ma'am.

[Unidentified Company Representative:]

Thank you, operator. Hello, everyone. Welcome to our second quarter 2021 financial results conference call. Joining us today are Mr. Zhou Yuan, CEO and Chairman of the company; and Mr. Sun Wei, our CFO. Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For the definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference will be available on our website at ir.zhihu.com. I will now turn the call over to Mr. Sun Wei, our CFO

[Sun Wei:]

Thank you, Jingjing. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder and CEO of Zhihu.

[Zhou Yuan:]

Thank you for joining Zhihu's 2021 second quarter earnings conference call. Our user base continued its rapid growth momentum during the second quarter. Our average MAUs reached 94.3 million, up 46% year-over-year, of which, over 96% are mobile MAU. Meanwhile, we continue to increase our platform's high quality content offering. As of June 30, the cumulative pieces of content on our platform reached RMB420 million, including 368 million questions and answers, representing a year-over-year increase of 48% and 43%, respectively. In the second quarter, our average number of monthly active content creators was 3.6 million. Within this number, we saw a 75% year-over-year increase in the average number of monthly video content creators. In the quarter, our content centric monetization approach continued to propel robust growth, evidenced by a 144% year-over-year increase in revenue to RMB338 million and a 121% year-over-year increase in average monthly paying members to 4.7 million. Our achievements in the second quarter are ultimately an outgrowth of our funding belief, which continue to be our long-term guiding force. By building a high quality content centric community characterized by reliability and trustworthiness, we have been able to fuel healthy user growth and outstanding community engagement. As our user numbers grow, the natural extension of user demand and valuable supplements to our content library in terms of new various formats have expanded our content centric monetization channel and have nurtured the flywheel effect of our ecosystem. In the second quarter, we further upgraded our high quality community content standards by introducing sense of fulfillment at the new benchmark in evaluating content value on Zhihu platform. As a result of promoting content with a sense of fulfillment and our strong efforts to build brand awareness, we saw a remarkable growth in younger demographics from various cities, as well as a significant increase in cross generational user interaction. We believe our efforts and achievements in the second quarter enhanced our solid foundation for robust long-term development. Our content offerings continue to grow rapidly in the second quarter. In the process of achieving rapid growth is vital to continually maintain a high quality user experience. Towards this end, and as I mentioned in our first quarter earnings conference call, we have continued to optimize our content structure by supporting high quality content and handling low quality content. In the second quarter, we further refined our assessment standard for quality content by introducing what we call the sense of fulfillment standard. We believe content with the sense of fulfillment standard take place one or more of the following characteristics. Broadening horizons, providing solutions and then resonating with mind. Based on this assessment, we upgraded our distribution algorithm for video, as well as graphic and text content to encourage more creation and submissions of content, meeting this criteria. And ensure that once produced, they achieve higher exposure and greater traffic allocation. We believe this will not only empower content creators in more views, but also encourage more creation of high quality content with a sense of fulfillment, thus creating a virtuous cycle and a self reinforcing content ecosystem. Aligned with the sense of fulfillment standard, we allocate a high distribution weight to a large volume of unique high quality science content on Zhihu's platform. This further solidifies the sense category as a strategic cornerstone counter vertical on our platform. In our recently held event, Seeking Answers in Science, subject content received over 10 million interactions and over 100 million page views. Superior content from professionals and experts enable users to fully - to truly broaden their horizons and gain a real sense of fulfillment. It's important to note that content with ability to broaden horizons can be more than just hard core knowledge. It can also be just interesting and instructive content, such as content that inspires further explanation as illustrated by those found during our recent Children's Day event. Examples of such items include, what should I do when a giraffe's ears are itchy and can we catch light, as well as consumption tapes produced by fashion editors answer the question, why are the majority of luxury coats produced in Italy and France? And second, we believe content that helps users solve problems and make decisions also confirms a sense of fulfillment. Nowhere is this more evident than in the recent natural disaster in China. This July, Zhengzhou, the city in Henan province, suffered catastrophic flooding that caused tragic loss of life and devastating property damage. In an effort to help Zhengzhou a Zhihu user and a content creator from the northern state of Harbin uploaded a detailed self help menu for many storms It was quickly uploaded, forwarded on Zhihu and received over 30 million views in just a few days. This menu attracted nationwide attention, generated a robust discussion and was also reported by multiple media outlets such as CCTV News, Observer.com and others. The instantaneous national exposure of the menu and the collective discussions effectively helped many people in real time and suffering from this disaster. Since then in-depth discussions have surged a wide spectrum of disaster related content verticals, including real time disasters in progress, precautious for post-disaster reconstruction, including commercial insurance claims, how to get clean water with self made devices, metrological science-related knowledge and the popularization of secondary disasters. Through this experience, we saw a beautiful example of how premium content created by Zhihu community was used in an instrumental way to help provide a solution, believe and bring a sense of comfort to those in need during a critical time of disaster. We are proud that through the resources enabled by our platform, we were able to meaningfully contribute to the social responsibilities we uphold, both in times of crisis and on an ongoing basis as a leading corporate citizen. In addition to emergency assistance, Zhihu users are also encouraged to find solutions for their everyday real life problems such as common purchasing decisions on our platform. During the recent popular 618 Shopping Festival held in June, we are encouraged to see the consumption related content on Zhihu to help users of all ages find their item through high quality content with highlighted professionalism, rationality, high technology and novelty. While users are having fun on our platform, they also enjoy the journey of discovering the right product for them and at the best price. Strong user resonance is the third important characteristic of content that would meet our sense of fulfillment standard. During the Olympic Games, the question, "what do you see in the Tokyo Olympic that is more important than gold medal? Enjoyed vigorous discussion. The most popular answers have surprisingly similar characteristics such as Iraqi Olympic teams with only four members, Ni Xialian, the 58 year-old table tennis player from Luxembourg, Chusovitina, the only gymnast in the world to have participated in eight consecutive Olympic Games, among others. All the stories and messages highlighted the Olympic spirit. This content with a sense of fulfillment resonated strongly with users and received over 10,000 cumulative interactions in just a few days. And so far, Zhihu users have contributed more than 200,000 pieces of Olympic related content to our platform, bolstered by this mass of content with a sense of fulfillment, Zhihu garnered media praise at the most sophisticated platform for Olympic related content that educates, edifies and inspires users. Upgrading the content on our platform also have further demand, the trust among users in our community. We have made corresponding revisions on the product side accordingly by optimizing our distribution and ranking algorithm to enable content with a sense of fulfillment to be more easily recommended and consumed by users. In addition to encouraging production of premium content with a sense of fulfillment through products, technology and operations, we have also pursued community compliance through proactive community governance and scrutiny of non-compliant content. In the second quarter, we conducted a targeted community governance campaign to ensure the long-term health and prosperity of our community. Why are we paying so much attention to and emphasizing premium content meeting the sense of fulfillment standard? Ultimately, premium content defined by a strong sense of fulfillment standard is well from the unique DNA of Zhihu's content offering and differentiates us from other platforms. As we continue to improve our technology, operational efficiency and upgrade the standard of details on our platform, content with a sense of fulfillment will inspire deeper and longer term trust among users. This will be a key differentiator for our platform in the market, strengthening our competitive advantage. Now moving to the users. Driven by premium content with a sense of fulfillment, our monthly active users continue to grow rapidly in the second quarter, with average MAUs reaching 94.3 million, representing year-on-year growth of 46.2%. We are excited to see that the percent of Zhihu active users between 18 and 25 years old increased to 40% from 20% in the past two years, representing an increase over four times in absolute terms. Users at the age of 20 - sorry, at the age of 25 accounted for a significant proportion of our new users in the second quarter. As a group, their favorite content verticals are education, lifestyle and consumer, as well as science, one of the Zhihu cornerstone content verticals. This clearly demonstrates that Zhihu has become a platform that attracts younger demographics and accompanies them through their life. Geographically, we were pleased to see the percentage of our users in Tier 2 cities and below increased by 4% quarter-to-quarter to over 51% at the end of second quarter, which demonstrates encouraging progress in lower tier city penetration. The rapid growth of Zhihu users in the second quarter was driven by continuous output of premier content, increased content consumption and our investment in branding during the quarter. For example, during the May 4 Youth Day and the college entrance examination period, we launched a number of high production value promotional video. These videos imparted a sense of fulfillment that resonated strongly with a wide range of ages and attracted additional users to our platform. For this year's Youth Day, we launched a short film jointly with the Communist Youth League. The film was warmly welcomed across the Internet and received more than 100 million views in just three days. It's generated cross-generational discussions and resonated deeply with a wide range of people from students to workers, and from 20 year old to 80 year old. Within our rapidly growing user base, this is a - there is a special group of users, that is our creative and active content creator pool. They are driving - they are the driving force behind Zhihu. As of the end of June, there were over 49.5 million cumulative content creators on the Zhihu platform, who contributed more than 420 million pieces of content in various formats. Many video content creators were active in the field such as science, career, lifestyle have already made Zhihu their primary platform for video content creation and distribution. On Zhihu, you can see an elderly pillar with over 40 years industry experience shares his unique and sophisticated insights on fashion through video. You can also hear Shaolin Shu a Wall Street elite address our users curiosity and demand for financial knowledge through fun and dedicated videos. You may also be impressed by the order of fitness notes and an excellent creator, who previously expressed himself through graphics and text, and is now starting to share his secrets to health and beauty through creative videos. In the second quarter, we further iterated our video tools, enabling creators to easily arrange video content into segments and match those segments with related topics and questions on the platform. These video live answers can greatly increase the interaction efficiency between users and video content creators, inspiring further creation. Our varied and multi format content with a sense of fulfillment is created, filtered and surges through user interactions on our platform. This content has become not only a cornerstone of the Zhihu content ecosystem, attracting more content creators, but also the key driver in further enhancing the vitality of whole Zhihu platform. Moving into commercialization. The underlying driver for the commercialization of content communities is content itself. Premium content in a sense of fulfillment not only encourage engagement among users, but also improved user experience, as well as bring more - brings about more possibilities for commercialization. In the second quarter, Zhihu further optimized its revenue structure as the proportion of total revenue contributed by the content commerce solutions and paid membership continue to increase. This demonstrates our practice of a good content mix for good business is on track. Content as a sense of fulfillment not only addresses user's consumption needs for high quality content, but also meets the commercialization demand of our business partner. In the second quarter, content-commerce solutions revenue reached RMB207.4 million, accounting for 32% of the total revenue, and representing a 15 times year-over-year increase. Paid membership revenue for the quarter was RMB154.9 million contributing approximately 24% of the total revenue and representing a 124% year-over-year increase from the second quarter of 2020. As a percentage of total revenue, advertising revenue decreased to 39% in the quarter, despite increasing 48% year-over-year from the second quarter of 2020. Before our CFO shares more color on our financial performance, I would like to highlight our efforts to strengthen our monetization capability in the second quarter. We increased investment in our content-centric commercial ecosystem by launching the cheese platform in Chinese a commercial service platform for content creators. By connecting creators and business partners, this platform helps content creators to improve their monetization capabilities, as well as meeting the various monetization needs of business partners from the brand building to sales conversion. For example, one of the content creators on the cheese platform, Li Lang a doctor from biology and science researcher from the Chinese Academy of Sciences accepted an invitation from L'Oreal to address the question, how to grow bigger hair? A issue that bother many young people. Mr. Li started with the ingredient of hair care products and provided a detailed explanation and a step-by-step guidance. This was all presented with easy to read text and images, and in plain but specific language that not only effectively released the anxiety of users, but also provided a convincing recommendation for L'Oreal anti hair loss products. This is a great illustration of how good commercial content cannot only become content with a sense of fulfillment, but can also drive business growth for brands and merchants. Every month, we published a ranking list of Zhihu creators in terms of commercial value, with the aim of recommending our content creating talent with the most commercial value in various verticals. In our latest top ranking list, creators with the ability to create in both picture and text, as well as video accounted for more than 50%, demonstrating the growth trend of Zhihu's video commercial content. We believe investment in products and services for our content creation system will lay a solid foundation for the development of content commercialization on our platform at scale. With respect to brands and merchants, we have noticed that in the context of upgraded consumption, we are seeing an increasing number of emerging brands, as a community that brings together the most creative users and content creators that fuels up technology, business, fashion, film and culture. Zhihu has become an important platform for the younger demographics, lifestyle and the consumer purchase decision making. Recently, in collaboration with new emerging brands, we jointly launched the growth plan for emerging brands, otherwise known as the Zhihu Boom program. Through this program, we work closely with selected brands to grow together and to increase direct interactions between these emerging brands and users on Zhihu platform through co-creation of community content, special events and joint marketing of promotional events. By doing so, we encourage user feedback and enable users to see improvements in products and services. At the same time, we provide a chance for our merchants and brands to join our quality content community to gain user's recognition and trust and help them to achieve healthy and long-term development. As of the end of July, selected emerging brands covering industries, including beauty and personal care, digital technology and fast food have joined the program. During this year's 618 Festival, Zhihu became a prosperous community for our young generation users. Thousands of questions and answers helpful to consumer decision-making constitute a unique Zhihu market. Among a large number of Q&A, consumption related content in the format of professional evaluation view user experience, smart shopping recommendations, as well as guidance have formed a unique shopping model for Zhihu, and have become an important search target for many consumers before they shop. In the second quarter of 2021, high quality content consumption on Zhihu's platform promoted the rapid growth in our e-commerce business, resulting in e-commerce GMV exceeding RMB2 billion in the quarter, up 115% year-over-year. This demonstrates the consumption power of Zhihu users. In addition to the above, we also achieved rapid growth in paying membership and the monetization process of other business lines, which will be discussed in more detail by our CFO. In conclusion, in the second quarter of 2021, Zhihu maintain its strong growth momentum from the first quarter. We successfully surpassed our target for user scale, content coverage expansion and monetization progress. We owe such success to Zhihu's persistence in following our founding beliefs of the company. Let me end today's prepared remarks with an excerpt from a speech of mine from 2019. China's Internet industry has entered its adulthood, when the battle for traffic turn to the battle for quality, premium content and health ecosystem become more than a passing trait, but rather than - but rather the core and the key element for the sustainable growth of the company. That jointly create a civilized and thriving ecosystem through healthy competition enabling the Internet to become a powerful driver to accelerate the growth of the whole nation. We firmly believe that those who stay true to their founding beliefs will go the furthest. This concludes the remarks of Mr. Zhou Yuan, our Founder and CEO.

[Sun Wei:]

I will now start with our financial performance review for the second quarter of 2021. As previously mentioned, we delivered an outstanding set of financial results for the second quarter of 2021. We recorded total revenue of RMB638.4 million, representing a 144.2% increase year-over-year. As our content-centric business model continue to drive the growth of our business, our content-commerce solutions and paid membership together contributed over 50% to our total revenue. In the second quarter of 2021, our Zhi+ business contributed RMB 207.4 million in revenue, making Zhi+ our second largest business segment by revenue contribution in the quarter, representing an increase of 15 times over the same period of 2020. The strong growth momentum of Zhi+ reflects the market recognition of its high marketing efficiency among merchants and brands. The number of customers for the business line has increased ten-fold since the first quarter of 2020. In addition, our growing business partners and the brand portfolio for the business line also represents much broader coverage, including fast moving consumer goods, vocational education, beauty and in personal care, as well as daily live services. As we find and introduces the sense of fulfillment at the new evaluation standards for content in the second quarter, we see great growth potential for Zhi+ as we believe it will continue to unleash the great commercial potential of our platform going forward. Advertising revenue achieved RMB248.3 million for the second quarter of 2021, representing an increase of 48.4% over the same period of 2020. The key driver of this rapid growth is the increase of advertising spending of our business partners, as many sectors are showing strong past-pandemic recovery. FMCG, e-commerce and automotive are among the strongest in terms of advertising growth on Zhihu. Our paid membership revenue for the quarter was RMB154.9 million, growing 123.5% year-over-year with average monthly paying members doubling compared with the same period of last year, reaching 4.7 million. Our paying ratio continued to grow in the second quarter of 2021 to 5%, while the average monthly revenue per paid membership users remain stable. We are proud to have witnessed many young talents grow with our paying membership services, and we will continue our investment into this service to benefit all participants in our ecosystem. Other revenues, including new initiatives, primarily contributed by e-commerce and vocational education also performed strongly in the second quarter of 2021, with total revenues increasing by 131% year-over-year to RMB27.8 million. In this year's 618 event, a large number of consumption related content formed a unique shopping model for Zhihu and largely the rapid growth of the e-commerce business with the GMV for the quarter, exceeding RMB2 billion, up by 115% year-over-year. Our education income, which constitutes occupational and post gradual examination preparation courses only, also made significant progress. We have seen a slightly higher proportion of our occupational courses, among which our occupational scale improvement courses such as writing scale, training are overwhelming. And we extend more diversified verticals and courses such as post-graduate examination related and CFA and CPA preparation will contribute more in the coming quarter. On the cost and the expense side, our rapidly growing business drove a year-over-year increase of 94% in total cost of revenue to RMB261.8 million for the second quarter. The higher year-over-year increase was primarily due to the increases in our advertising services execution and content related costs, as well as our cloud services and bandwidth costs with the rapid user traffic growth. While the total cost of revenues increased, our margin profile remains strong. Gross margin for the second quarter of 2021 was 59% compared to 48.4% for the same period of last year. Our total operating expenses increased to RMB727.1 million in the second quarter, driven primarily by investments in marketing, promotional expenses and human resources expenses for new headcount. Our marketing and promotional campaign in the run-up to China's college entrance exam, the Gao Kao, help us to effectively acquire new users and greatly enhance our brand recognition, which we expect to benefit us both in the short term and long term. Our operating margin in the second quarter of 2021 narrowed from negative 60.3% to negative 54.9% on a year-over-year basis, demonstrating our progressively stronger operating efficiency. Our adjusted net loss, which is a non-GAAP measure that includes share based compensation expenses was RMB200.3 million for the second quarter of 2021. As of March 31, 2021, the company had cash and cash equivalents, term deposits, restricted cash and short term investments of RMB7,703.1 million. Finally, on to our financial outlook. Looking to the third quarter of 2021, the company expects total revenue to be in the range of RMB850 million to RMB820 million, reflecting a year-over-year increase of 112.9% to up to 114.2%. As a reminder, this outlook reflects Zhihu's current and preliminary estimates and is subject to change. This concludes our earnings remarks. Operator, we are ready for the Q&A.

[Operator:]

Thank you. Our first question comes from Piyush Mubayi from Goldman Sachs. Please go ahead.

[Piyush Mubayi:]

Thank you for taking my question. And my first question is about your MAU, which has grown very nicely. Could you just take us through the dynamics of what has led that to happen? And how close are you to the magic number of 100 million. And as you look at your third quarter guidance, could you give us a sense of where that MAU number will be that's going to drive the revenue guidance that you provided for third quarter? The second question concerns the mix in revenue between content commerce solution and advertising. How have you managed to grow your content commerce solutions so nicely in the quarter? If you could just take us through the dynamics that have led to that. And I just wondered on the regular on the performance advertising side, there's been a slight weakness. What is the cause of that, if you could take us through those two questions, that would be great. Thank you. Then I have a follow up question.

[Unidentified Company Representative:]

?

[Zhou Yuan:]

[Unidentified Company Representative:]

This is the CEO and Founder of Zhihu Mr. Zhou Yuan. As for user growth, if you're familiar with our business, you may understand that the large proportion of our new users are actually attracted organically to our community by user created content

[Zhou Yuan:]

[Unidentified Company Representative:]

And naturally, you understand that good content impose direct and genuine impact on our users and create attractiveness to these new users. And in different scenarios and different demands these kind of attractiveness to users displayed seasonality and cycles, which is very prominent. And I can explain in greater details now.

[Zhou Yuan:]

[Unidentified Company Representative:]

Let us take Gao Kao examination as an example for this. Just two months ago, we had this Gao Kao exam in China nationwide. And during that period, over 35 million users have consumed Gao Kao-related content in our community. And this 35 million users are higher three times higher as three times the stat also who actually sat in the Gao Kao examination. And we know that a lot of them are actually not only the high school graduates who take the examination, but also their parents, their teachers and those who used to took this examination in the past.

[Zhou Yuan:]

[Unidentified Company Representative:]

So this showcase a very obvious cycle of user activity or as we – or seasonality as we call it. And we are very happy to see that there are a lot of young users and users from different generations who are very active during certain periods and have a lot of interactions with one another.

[Zhou Yuan:]

[Unidentified Company Representative:]

So at certain time of the year, we will organize specific activities according to different user groups and their specific demands, not only during Gao Kao period, but also in other periods of the year, we would do so and to create more uses and check them to our community.

[Zhou Yuan:]

[Unidentified Company Representative:]

And also in the past two months, you see that we have launched a campaign called Seeking Answers in Science, where we have attracted over 800,000 creators on our platform to produce public education materials in science. And these materials has gained over 2.4 billion page views in total. And another example is a short video film that we have created to celebrate the Youth Day, the May 4, which is called the Reunion, and they are attracting users from various generations, including those who are born as early as in 1950s and those who were born as late as after 2000.

[Zhou Yuan:]

[Unidentified Company Representative:]

So thanks to our deep insights into our users, we have a very nice outcome and nice efficiency in terms of user acquisition as a result of our campaigns and events. And you see that one thing that remains unchanged is that our content remained the main driver for us to attract users organically and they are able to see values in our community when they join us. Thank you.

[Zhou Yuan:]

[Unidentified Company Representative:]

And we are also very happy to see that young users as a percentage to our total user base is on the rise. And our new users recruitment in new first tier cities and second tier cities kept a very healthy trend and that would give us a steady user increase going forward in the future. Thank you. And I have our CFO, Mr. Sun Wei, to make additional comments, please.

[Sun Wei:]

[Unidentified Company Representative:]

So our analysts asked about when will we hit the target of 100 million active users? Well, we are now doing 990,000 - sorry, 99 million, and that is very close to our big target of 100 million. But I should say that our ultimate goal is to attract those users and make them stay and make them active in our community. So I think with all sorts of efforts that we are making, we have the right confidence to say that we could hit target of 100 million in Q4 and to make them stay inactive in our so-called. Thank you.

[Sun Wei:]

[Unidentified Company Representative:]

So as to the question of Zhi+ business, why we had such a stellar quarter is because that our user on this regard has increased by over 100% in the last quarter.

[Sun Wei:]

[Unidentified Company Representative:]

Because we have a 500% increase of the clienteles, our mechanism of Zhi+ became much more effective and the outcome looks quite positive. As you can see, the indicators such as CTR look very good. And also CBC under our bidding system increased as much as 20%.

[Sun Wei:]

[Unidentified Company Representative:]

Despite the fact that our Zhi+ business is growing very fast and healthily, we still think that Zhi+ has huge potentials to unleash going forward. Because right now, we only have less than 50,000 pieces of content commerce solution content compared with our total content library of 420 million pieces of our content. This is still a very, very small or tiny proportion.

[Sun Wei:]

[Unidentified Company Representative:]

So if I'm not mistaken, I think there was a question about regulation. We do might maybe specifically ask what kind of areas do you want to know more about the regulation.

[Piyush Mubayi:]

We just want to know the impact of the sectors that have seen a slowdown on a kind of regulation. What is your exposure to those sectors?

[Unidentified Company Representative:]

[Zhou Yuan:]

[Unidentified Company Representative:]

Well, as for those specific areas that are heavy handedly treated by the government recently, I think that our client in our client mix, the exposure were like the percentage of the client in those areas are not very high. And therefore, our business exposure to regulatory crackdown is controllable. And we believe that for the long term, this is a positive sign for the Internet industry. We are part of it for the longer term. So we are positive about that. Thank you.

[Zhou Yuan:]

Operator The next question comes from Alex Xie from Credit Suisse. Please go ahead.

[Alex Xie:]

Hi, management. Thank you for taking my questions. And congratulations on a very strong quarter. My first question is about your video initiatives, so would you please elaborate more about the optimization of the structure in your video? Do you have more data points to show the impact of your adjustments? And when do you expect the optimization process to be completed. And what about the outlook of video penetration in the second half? The second question is about your major content-driven user acquisition event in the second half. So in the first half, we have seen a very successful impact from your tenth year anniversary as well as the Gao Kao event. What will be the key events that we should look for in the second half? Thank you.

[Unidentified Company Representative:]

[Zhou Yuan:]

[Unidentified Company Representative:]

Yes, as we explained in the opening remarks that our video content creators have been increasing dramatically by 75% monthly video creators in the second quarter. And the daily upload volume increased by three times.

[Zhou Yuan:]

[Unidentified Company Representative:]

So I think that behind those nice numbers is our emphasis on the ecosystem, because we think that video business is not just a stand alone business, we believe that video content is part and partial of our content library at Zhihu. So in reality, I think the increase of video content and the active content creators of videos and consumers of videos are actually a reflection of our - of the changes in our ecosystem in our community.

[Zhou Yuan:]

[Unidentified Company Representative:]

So our content creators and consumers are becoming active in consuming both detect and images, as well as the video. Maybe I can show you some numbers. For instance, in the area of engineering, technology, economics and laws, the consumption of tax and image increased by 136%, 112% and 58%, respectively. And the interaction increased by 102%, 111% and 134%, respectively.

[Zhou Yuan:]

[Unidentified Company Representative:]

As for video consumptions, it has been also very active and the top areas are health, as well as humanities and digital devices. The actual numbers of the video consumptions and interactions to save time, I won't elaborate right now, and I can share the details of those numbers with you later on after this call.

[Zhou Yuan:]

[Unidentified Company Representative:]

As the school year - the new school year is about to start pretty soon, and we will continue to encourage content creation and interaction encouragement in this - in the form of video with the help of our newest benchmark on the sensor fulfillment. We will focus on certain areas such as humanities, economics, career development and et cetera.

[Zhou Yuan:]

[Operator:]

The next question comes from Yan Zhao from CICC. Please go ahead.

[Yan Zhao:]

My question is about the guidance on the second half expenses, operating expenses, especially for the sales and marketing. Could you give us more color about the specific investment directions for the sales and marketing expenses? Thank you.

[Zhou Yuan:]

[Unidentified Company Representative:]

So as for operating costs in Q2 we had operating costs totaling at RMB727 million. And sales and marketing R&D putting together are contributing to 80% of that expenses. Well, as for sales and marketing, specifically, I should first of all point out that our MAU increased by 46% year-on-year, standing at 94 million users, which is actually beyond our target set for this quarter.

[Zhou Yuan:]

[Unidentified Company Representative:]

And the cost we spend on each new MAU is less then RMB48, which is sitting at the lower end of the spectrum of the Internet industry. So this proves that our sales and marketing activities are quite successful, and we are seeing very good ROI out of our sales and marketing expenses. So we will keep an eye on our tech and our retention rate and we'll continue to spend sales and marketing money to acquire more MAUs and grow that number. Thank you.

[Zhou Yuan:]

[Unidentified Company Representative:]

Our R&D is another key element to our operating expenses as we keep quoting great talent, especially R&D talents to support our business growth in Q2. The R&D expense increase is 40% year-on-year, whereas the revenue increase is 144%, which is by far higher than the rate of the R&D expenses growth. So that is a proof that we have been quite efficient in terms of R&D expenses.

[Zhou Yuan:]

[Unidentified Company Representative:]

So entering into the second half of the year, we will keep spending on getting more users and getting better talents to join our business. And we will make sure that the expenses are reasonable, necessary and effectively used. And to have a stringent monitoring system on by rolling accounting methods to make sure that we spend the money wisely.

[Zhou Yuan:]

[Unidentified Company Representative:]

Thank you. That's the end my answer for OpEx. Thank you.

[Operator:]

The next question comes from Xueru Zhang from 86 Research. Please go ahead.

[Xueru Zhang:]

Good evening, management. Thank you for taking my questions. I have a follow-up questions on the regulatory front. I'm wondering, have you seen more step-up by the regulators on paying attention to the media content, the content within the app of data security or this will be a potential risk going forward? And what could be the impact on Zhihu from this aspect? My second question is on the user metric is a follow-up question on the user metrics for second quarter. If you could share the sequential trend for the DAU and time spend. Also, any update on the retention of the YanPlus business? And how should we expect the trend of user engagement traffic metrics on Zhihu in the future? Thank you.

[Zhou Yuan:]

[Unidentified Company Representative:]

Well, Mr. Zhou Yuan will address the first question about the regulatory issues and data security. Well, we believe that the government's policy with regard to content and data compliances for the long-term health and safe development of our business and our industry at large.

[Zhou Yuan:]

[Unidentified Company Representative:]

As for data security, we have been investing a lot in terms of technology and management approaches by upgrading our standards and better management of the data and, et cetera, to safeguard the security of the data that we have. And when it comes to content, where we are also taking up some measures to make sure that the content offer high quality and are properly produced in our community in Zhihu.

[Zhou Yuan:]

[Unidentified Company Representative:]

And we have also conducted some industries survey to make sure that we are in a leading position in terms of the data security in our area, and we are also in constant communications with the competent regulators to make sure that we will shoulder our responsibility fully and properly.

[Zhou Yuan:]

[Unidentified Company Representative:]

And in terms of content, I'll just say that under some topics and discussions that are highly popular in our community, we can also see the voices from the central media to participate and make contributions as well. So as the user of our communities will be able to understand some certain issues or current issues in a reasonable and comprehensive way.

[Sun Wei:]

[Unidentified Company Representative:]

As for user metrics, this is from CFO, Sun Wei. So for Q2, our users keeps growing very well, and the time spent on app remained very stable compared with the past consecutive eight to nine quarters. And in terms of activity levels, you see that the ratio of DAU versus MAU remained 25%, which is quite stable, even we saw a slight increase in July. When it comes to paid membership in Q2, we are nudging towards 5 million members - paid members and the renewal rate for either monthly subscription or a six month subscription, both remained very stable. So they're looking very well.

[Operator:]

Due to time constraints, that concludes today's question-and-answer session. At this time, I will turn the conference back to Jingjing for any additional or closing remarks.

[Unidentified Company Representative:]

Thank you all once again for joining us today. If you have any further questions, please contact our IR team directly or TPG Investor Relations. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.