Image source @ Visual China
| Beijing Maritime Securities
The capital market is unpredictable and rapidly changing, affecting the sensitive nerves of investors.
In just over a week, Chinese stocks have experienced two days of ice and fire, from falling to an era to surpassing an era, just like an electrocardiogram.
Since March 10, when the US Securities and Futures Commission SEC announced that it would include Zaiding Pharmaceutical, BeiGene, Shengmei Semiconductor, Yum China, and Huang Pharmaceutical in the provisional list of the Foreign Company Accountability Law, Chinese stocks collectively began to plummet, but a very turning point is that on March 16, the Hang Seng Technology Index staged a Jedi counterattack, up more than 20%, the largest increase in history, and since then many Chinese stocks have ushered in a surge, and then fell again.
Beijing Haizheng noted that although Chinese stocks have come out of the shadow of plunge, they still have ups and downs. Among them is the protagonist we are going to study today, China's largest Q&A community, Zhihu (ZH.N), which rose 79.17% on March 16, but fell more than 21% on the 18th.
The source of the information is @Wind
In fact, since the middle of October last year, the stock price has continued to plummet, from the highest price of $10.71 / share on October 13, 2021 to the lowest price of $1.39 / share on March 15, although it has risen, but the closing price of March 18 is only 3.18 US dollars / share, the stock price has plummeted by more than 70% in just 5 months, and the market value has "evaporated" 2.1 billion US dollars, equivalent to 13.5 billion yuan.
Beijing Haizhen believes that the root cause of the decline in the stock price lies in investors' anxiety about its "burning money for scale and flow" model and concerns about profitability.
Zhihu, who once focused on hardcore high-quality content, has now begun to accelerate commercialization under the anxiety of monetization, trying to walk on multiple legs, but whether it can solve the problem of profitability remains to be seen.
In fact, holding the traffic in hand, how to realize and even achieve profitability is a common problem of the three masters in the community (Zhihu, B station, and Xiaohongshu). But there is no doubt that in the face of the essence of business - making money, there is not much time left for them.
01. China's online content community has great potential for monetization
Beijing Haizheng learned that thanks to the steady growth of consumption and payment willingness, China's online content community has great potential for monetization.
The so-called online content community refers to the online content market participants who focus on PGC (also include PUGC, UGC), in which content creators are also users, they actively participate in the community, so they can better create content that meets user needs and encourages interaction.
Source @ iResearch Report
With the development of China's online content market, users value not only the richness and diversity of content, but also the culture of the content community. In this context, online content communities have attracted market attention and have obvious advantages in user traffic by virtue of their advantages of stimulating higher levels of user engagement, cultivating a more active community culture, providing more interactive user experiences, and enjoying lower content costs.
However, Beijing Haizheng noted that compared with the US market, China's online content community market is still in its early stages, which means that there is still huge growth potential.
According to a report by China Insights Consultancy (CIC), the market size of China's online content community increased from 38.6 billion yuan in 2015 to 275.8 billion yuan in 2019 in terms of revenue, and is expected to increase to 1.3 trillion yuan in 2025 at a compound annual growth rate of 30.3%, but only account for one-third of the US market (about 1 billion yuan). In addition, the community user base of online content in China has also increased significantly from 516.2 million in 2015 to 773 million in 2019, and is expected to further increase to 1 billion in 2025.
Source @ Insight Consulting Report
The online content community attracts advertisers with its growing and high-quality user traffic, high marketing efficiency achieved by technology, and innovative advertising formats, making the total online advertising revenue in mainland China reach 665.8 billion yuan in 2019, and is expected to increase from a compound annual growth rate of 18.5% to 18 trillion yuan in 2025. Among them, the online advertising revenue of the online content community has reached 109.5 billion yuan in 2019, and is expected to further increase to 510.5 billion yuan in 2025 at a compound annual growth rate of 29.2%.
Source @ Zhihu Prospectus
One can't help but ask, how do online content communities generate revenue?
Beijing Haizheng learned that the online content community mainly achieves revenue through paid membership services, specifically through technology to match content with user needs, improve content diversity and quality, increase disposable income and increasing recognition of high-quality content, so that users are more willing and accustomed to paying for high-quality content.
According to the China Insight Consulting report, in terms of revenue, the size of China's paid membership market reached 105 billion yuan in 2019, and is expected to increase to 328.3 billion yuan in 2025 at a compound annual growth rate of 20.9%, of which the revenue generated by online content communities is expected to increase from 17.4 billion yuan in 2019 to 90.2 billion yuan in 2025 at a compound annual growth rate of 31.6%.
02, since the listing has not achieved profitability
Beijing Haizheng paid attention to the fact that although it is in china's online content community with great monetization potential, it knows that it is difficult to escape the "curse" of monetization.
On March 14, Zhihu released its unaudited financial reports for Q4 and full year 2021. Although the financial report is "mixed", Beijing Haizheng believes that in the face of losses, any leapfrog growth in revenue, continuous optimization of revenue structure, steady growth of monthly active users, and significant increase in membership payment rate are also eclipsed.
According to the financial report, in 2021, Zhihu's operating income increased by 119% year-on-year to 2.959 billion yuan, of which revenue in the fourth quarter of 2021 increased by 96% year-on-year to 1.019 billion yuan.
Beijing Haizheng is concerned that since 2016, Zhihu has officially begun to commercialize, at that time, it was mainly to provide online advertising, and its current business is diversified, covering online advertising, commercial content solutions, paid membership and other businesses. Among them, in 2021, the revenue of Zhihu's online advertising business increased by 37.7% year-on-year to 1.161 billion yuan; the revenue of commercial content solutions business increased significantly by 617% year-on-year to 974 million yuan; the revenue of paid membership business increased by 108.6% year-on-year to 669 million yuan; and the revenue of online education services and e-commerce business mainly based on vocational training and professional courses increased by 196% to 156 million yuan year-on-year.
It is not difficult to see that Zhihu is still dominated by online advertising, but the revenue structure has been optimized, and the revenue of non-advertising business has increased significantly under the drive of commercial content solutions and online education services.
But what surprised Beijing Haizhen was that it had not achieved profitability since its listing.
According to the financial report, in 2021, Zhihu's net loss increased by 150.95% year-on-year to 1.299 billion yuan, and the adjusted net loss increased by 121.36% year-on-year to 747 million yuan. Among them, the total revenue of Q2 increased by 144% year-on-year to 640 million yuan, and the net loss expanded by 177% year-on-year to 320 million yuan; the total revenue of Q3 increased by 115% year-on-year to 820 million yuan, and the net loss increased by 145% year-on-year to 270 million yuan; and the net loss of Q4 expanded by 326% year-on-year to 383 million yuan.
Beijing Haizheng believes that the "culprit" that causes Zhihu to fall into the process of increasing revenue and not increasing profits is the increase in marketing expenses, which is closely related to the strategy of "burning money for scale and traffic" adopted by it.
You know, in order to improve the core competitiveness of the content platform, it is necessary to attract more high-quality content creators to settle in, and whether it is users or creators, new and retention require large-scale capital investment.
According to the financial report, the total operating expenses of Zhihu in 2021 increased by 116.4% year-on-year to 2.945 billion yuan. Among them, marketing expenses increased by 122.5% year-on-year to 1.635 billion yuan, accounting for 55% of revenue, mainly due to the increase in promotion and advertising expenses related to attracting new users and strengthening brand awareness.
On the other hand, the gross profit margin of Zhihu is only 53% in 2021, which is 55% lower than the sales expense ratio. This means that Zhihu is still in the stage of exchanging losses for scale.
Pan Helin, co-director and researcher of the Digital Economy and Financial Innovation Research Center of Zhejiang University's International United Business School, said, "In the short term, there are not many profit channels, but through the accumulation of knowledge content, it is still possible to achieve profitability in the future." For example, through the way of knowledge fees. "However, today, the road of knowledge charging is getting narrower and narrower.
In this regard, Zhu Di, a researcher at the Institute of Sociology of the Chinese Academy of Social Sciences and secretary general of the Consumer Sociology Professional Committee of the Chinese Sociological Society, said, "If there is no requirement for policies and related payment channels, then in fact, the platform is suspected of inducing consumption." Because the cost is the same for the platform, then why doesn't he set the user not to operate (renew) that is, to signify unsubscribe, but to set the non-operation to indicate default renewal, which is the careful thinking of marketing in it, not to mention that the operation is still more complicated, and the reminder is not obvious. ”
03, from "specialized" to "extensive", to create a multi-growth pole
In fact, knowing that in the past two years, the commercial sprint model has been launched, and the revenue has doubled since 2020, and the non-advertising business is undoubtedly the biggest contributor, or the key to breaking the deadlock.
In addition, Zhihu recently launched the first adult vocational education App "Zhixuetang", positioned to provide a learning platform for adults to provide knowledge products, users can choose the categories of interest for online learning such as: graduate school, workplace skills, etc. This means that Zhihu officially laid out the online education track.
Beijing Haizheng believes that the zhihu power online education track is not a whim, but a correct strategy under the review of the situation.
In recent years, the Chinese government has issued a number of favorable policies to promote vocational education and training and promote the orderly development of the market, and the current vocational education and training industry has broad prospects for development.
In October 2021, the CPC Central Committee and the State Council issued the "Opinions on Promoting the High-quality Development of Modern Vocational Education", encouraging listed companies and leading enterprises in the industry to hold vocational education, in the new journey of comprehensively building a modern socialist country, vocational education has a broad future and great promise, and it is expected that by 2025, the scale of vocational undergraduate education in the mainland will not be less than 10%; on November 22, the official website of the Ministry of Finance issued the "Notice on Issuing the Fund Budget for the 2022 Modern Vocational Education Quality Improvement Plan in Advance". The total capital budget exceeds 24.9 billion yuan; on December 1, the executive meeting of the State Council deliberated and adopted the "14th Five-Year Plan" vocational skills training plan to accelerate the training of high-quality workers and technical skills.
According to statistics, the total number of people who registered for the 2022 national civil service examination and passed the qualification examination increased by nearly 35% year-on-year to 2.123 million, hitting a record high. In addition, in 2022, the number of applicants for the national examination and research examination reached 4.57 million, an increase of 800,000 year-on-year, an increase of 21.22%, and a record high; in 2021, the number of applicants for the teacher qualification certificate examination reached 11 million, an increase of nearly 5 times in several years. And according to the "2021 Graduate Employment Quality Annual Report", nearly 70% of Tsinghua University's graduates have entered the system. There is no doubt that the current popularity of the examination for public examinations and examinations has not decreased but has increased.
According to the Frost & Sullivan report, the market size of China's vocational education and training industry increased from 516.7 billion yuan in 2016 to 724.2 billion yuan in 2020 in terms of revenue, with a compound annual growth rate of 8.8%, and is expected to reach 1110.7 billion yuan by 2026, with a compound annual growth rate of 7.4% from 2020 to 2026.
Source @ Frost & Sullivan Report
According to the Financial Associated Press, some insiders said, "The vocational education segment market is too fragmented, and it was very difficult to attract capital compared with K12 education in the past." Now, the situation has changed, in the context of vocational education reform, under the premise of policy encouragement and support for the development of vocational education, vocational education will usher in a new outbreak period. ”
You know, advertising is very susceptible to the impact of the macroeconomic environment and the impact from the short video platform, the risk of walking on one leg alone is too great, and now I know that I have begun to try more diversified monetization methods, with the help of multiple legs, I am bound to go faster and go farther.
04, the community three masters of the road to monetization "each shows their magic"
Beijing Haizheng believes that the three masters of the community, including Zhihu, are all niche, and the similarity is that they are all balancing the relationship between community atmosphere and commercialization, and they are also expanding the user base, but the difference is the monetization method. Compare the revenue structures of the three major companies:
Station B's operating income in 2021 increased by 62% year-on-year to 19.38 billion yuan, in the fourth quarter, live broadcast and value-added business revenue increased by 52% year-on-year to 1.89 billion yuan; advertising business revenue increased by 120% to 1.59 billion yuan; game business revenue increased by 15% to 1.3 billion yuan; e-commerce and other business revenue increased by 35% to 1 billion yuan, and the contribution rate of the above four businesses to the current revenue was 33%, 28%, 22% and 17% respectively.
Beijing Haizheng noted that the various businesses of Station B are relatively balanced, and there is no obvious phenomenon of "partial science", but in the face of such a sluggish growth rate of game business, Station B has invested in 4 game companies in just 8 days, trying to achieve breakeven through "making up for shortcomings". You know, in the past, Station B mainly engaged in the game business, and now it can be said that it is back to the old business.
Xiaohongshu's revenue in 2020 is mainly composed of advertising and e-commerce, of which advertising revenue accounts for about 80%, e-commerce revenue accounts for about 15%-20%, there is no doubt that advertising business is its largest source of income.
Xiaohongshu strengthens the "grass planting economy" and breaks the circle with the unique content shared by high-viscosity users. By the end of November 2021, the Xiaohongshu MAU reached 200 million, of which 72% were post-90s users and 50% were first- and second-tier cities. In 2021, the number of xiaohongshu user notes published increased by 100% year-on-year, and the community gathered nearly 80,000 brands in more than 230 countries and regions around the world.
It can be seen that Zhihu and Xiaohongshu are still dominated by advertising business, and the advertising business is extremely vulnerable to the market environment, especially in the Internet advertising environment, the profit space is greatly compressed, and the advertising industry used to be traffic-driven, and put forward higher marketing requirements for content platforms. Beijing Haizheng believes that based on the inherent low stability and limited growth space of advertising revenue, if Zhihu and Xiaohongshu want to achieve profitability, they must exert efforts to other fields such as online education, and demand greater growth space.
Station B is positioned as a cultural community, is building a closed loop of online content and offline formats, and is expected to achieve the goal of "breakeven in 2024" with the expansion of the game business territory in the future.
Starting from the content, fire in traffic, trapped in the commercialization of the community Sanjie, how to improve the quality of content has become a compulsory course, but also the key to achieve profitability.