Text/Lu Shiming
Edit/Gale
On 11 April, Zhihu submitted a prospectus to the Hong Kong Stock Exchange for listing on the main board of the Hong Kong Stock Exchange. It is reported that the prospectus mentions that it will seek to list in Hong Kong in a "dual major listing" manner. If the news is true, Zhihu is expected to become the first Chinese-listed Internet company to return to Hong Kong by way of dual major listing.
Since its establishment in 2010, under the dividends of the Internet era and under the coercion of various capitals, Zhihu has grown from a "small and beautiful" forum to the largest online Q&A community in China. Just as "there is no easy word in the adult world", the problems before the knowledge begin to become both numerous and complex, and all the problems point to "self-hematopoiesis".
Although there are many monetization routes for members, commercial content solutions, and self-operated e-commerce, they no longer rely on the leg of "advertising", but from the perspective of financial reports, the prospects for commercialization are still unclear. Even in recent years, it has tried to innovate and expand the track in the form of video, but unfortunately users do not buy it. And various forms of commercialization routes are also gradually encroaching on the moat of Zhihu.
Constantly trying to make the loss expand, the secondary market under the chain reaction has lost one after another, and users have begun to "vote with their feet". Zhihu, who was in a fog on the road ahead, began to examine himself and chose "defense" under internal and external troubles.
Defeated the North American stock market
At the end of 2010, Zhihu began internal testing and was officially launched on January 26, 2011. It is a little different from other communities, knowing that since its birth, it has carried a lot of aura, and there are also many "stories" that have been handed down.
It is reported that among the earliest 200 users of Zhihu, it includes Internet giants such as Kai-Fu Lee, Wang Xing, Wang Xiaochuan, Xu Xiaoping and Ma Huateng. In the first 40 days of Zhihu's birth, there were 8,000 questions and 20,000 answers. Incredibly, such a user "lineup" and data growth is still created under a closed invitation system.
The eye-catching results "quickly" attracted Kai-Fu Lee as a user, and in January 2011, the Innovation Factory invested 1.5 million yuan in Zhihu, which led to Zhihu's angel wheel. With the "leadership" of the innovation workshop, zhihu's next financing has also become extremely smooth, and in 2012, it received a multi-million dollar Series A investment from Qiming Ventures.
By April 2013, Zhihu opened up registration, and in just one year, the number of registered users climbed from 400,000 to 4 million. Such explosive growth has attracted the attention of more capital. Zhihu successively invested US$22 million in Saifu Investment Fund and Qiming Venture Capital in 2014, tencent led the investment in 2015, and Sogou, Saifu, Innovation Factory and Qiming Venture Capital co-invested using US$55 million in the C round.
In 2017, the amount of financing raised by Zhihu doubled again. Today Capital leads the $100 million Series D financing, and all old shareholders continue to follow suit.
After completing almost a round of financing once a year for a total of 9 rounds, on March 26, 2021, under the coercion of many star capitals, Zhihu successfully landed on the New York Stock Exchange, and as of the close of the US stock market on the same day, the market value of Zhihu was about 4.751 billion US dollars, equivalent to more than 31 billion yuan.
In the blink of an eye, Zhihu has been listed on the US stock market for more than a year, but in more than a year, Zhihu is no longer "going to get the wind and the rain to rain" as before, but it is extremely "bad".
As of press time, Zhihu's stock price fell to $2.23 per share compared with the highest point of $13.85, and the market value was $1.334 billion, equivalent to nearly 8.5 billion yuan, compared with the highest point of 31 billion, a direct evaporation of 73%. From 31 billion to 8.5 billion, what exactly has happened?
【Source: Futu Cattle】
According to its 2021 financial report, in the fourth quarter of 2021, Zhihu's average monthly mobile active users reached 996 million, with an average of 500 million monthly browsing and an average of 390 million monthly user interactions. As of December 31, 2021, Zhihu has a cumulative content creator of 55 million people.
In terms of revenue, it increased from RMB670.5 million in 2019 to RMB1.4 billion in 2020 and further increased to RMB3 billion (US$464.4 million) in 2021, with a COMPOUND ANNUAL GROWTH rate of 110.1% since 2019.
However, behind the rapid growth of users and revenue, Zhihu's losses are also expanding.
Its financial report shows that the adjusted net loss for 2021 is 747 million yuan. In 2020, the net loss was 338 million yuan. At the same time, the gross profit margin in Zhihu in 2021 was 52.5%, lower than 56% in 2020, and the gross profit margin in the fourth quarter was 47.1%, which was far lower than the 64.1% in the same period in 2020.
Behind the increase in revenue and no increase in profits is the business model that constantly consumes brand power, and it is a knowing that under the increasingly high operating costs, it is caught in commercialization anxiety.
A tortuous road to commercialization
In fact, as early as 2016, Zhihu has begun the road to commercialization, first to provide online advertising services, to introduce paid content services in 2018, and then to launch the Salt Selection Paid Membership Program in the first half of 2019...
From the overall point of view, the current revenue sources mainly include advertising, paid membership, content business solutions, and other four sectors.
In the past, Zhihu's revenue relied heavily on the advertising business, and the financial report showed that its advertising revenue accounted for 86% in 2019. With the development of the market, it is gradually difficult for simple advertising to meet the needs of the market. As an influential platform, Zhihu Nature knows this well.
In order to avoid relying too much on a single business model of advertising, Zhihu officially launched a content commercialization solution in early 2020, using a content delivery system to accurately deliver recommended commercial content published in the form of answers, articles and videos to target readers, increasing the exposure of brands or products.
This initiative has had a clear effect, and the proportion of advertising revenue in Zhihu will drop to 62% in 2020. In the four quarters of 2021, it was reduced to 44.8%, 38.9%, 39% and 37.1% respectively.
At the same time, content business solutions have gradually become the main force of Zhihu revenue. In 2019, the revenue of this business accounted for only 0.09%. In the four quarters of 2021, the corresponding revenue proportion was 25.3%, 32.4%, 33.7%, and 36%, with a total revenue of 367 million yuan, almost equal to advertising revenue.
【Source: Zhihu Hong Kong Prospectus】
However, the rapid growth of the business data seems to be obtained through continuous "burning money". According to its prospectus, The total operating expenses of Zhihu in 2020 were 1.361 billion yuan, and the growth rate in 2021 was 2.95 billion yuan.
In addition, with the rapid advancement of content business solutions, the contradiction between platform users and soft and wide has also begun to appear. As a knowledge community communication platform, on the one hand, it is necessary to make a profit commercially, and on the other hand, it is inevitable that more and more advertisements will dilute the content that users need, which will affect the user experience. This vicious circle will inevitably lead to the loss of users.
In addition to advertising and content business solutions, paid membership is also an important source of revenue. In 2021, the revenue of Zhihu paid members was 689 million yuan, an increase of 108.64% year-on-year, accounting for 22.6% of the total revenue.
Although the number of paid members has more than doubled, too many ads are still complained about by users, and the payment rate is still low. In the fourth quarter of 2021, Sina Weibo paid 9.0%, Station B paid 9.02%, and Zhihu only had 5.9%. Such a gap better illustrates the quality of the content of Zhihu, or the problem of "too much" advertising.
Of course, there are some other sources of revenue. For example, the vocational training service launched in 2020, and then the e-commerce business, but the revenue of these businesses does not play a decisive role in the entire platform.
In order to better promote commercialization, Zhihu also tried to expand the track and began to explore the video business.
In fact, as early as 2018, Zhihu launched a video zone, mainly based on 3-5 minutes of short videos. In 2019, a short video called "Instant Shadow" was launched, but this was finally gone because of the general response.
With the rise of short video platforms such as Douyin and Kuaishou, short videos have become the largest entrance to traffic, and even WeChat has launched video numbers. The focus of advertisers began to shift, and if they did not seriously do video business, perhaps zhihu's graphic advertising revenue would also be cannibalized by other platforms.
Therefore, on October 12, 2020, Zhihu took video content as an important strategy, not only set up a separate "video" menu bar for short videos on the home page, but also announced the launch of support plans for excellent video respondents, including 500 million cash incentives, 10 billion traffic support, video tools, signing opportunities and creator academies...
What is embarrassing is that for video content creators, knowing that because it is too late to enter the game, compared with the douyin, Kuaishou, Weibo, video number and other platforms, the weight is lower, or even "dispensable". At the same time, Zhihu, who has been focusing on graphic business, suddenly and frantically promoted short videos has also greatly affected the user's experience.
With the advancement of Zhihu in the video business, the voice of dissatisfaction also filled the entire Zhihu platform.
【Source: Zhihu】
For a platform that is in the early stages of commercialization and has a certain degree of influence, blindly advancing is not a good choice. After a year of various attempts, Zhihu, who has hit the "south wall" one after another, needs to re-examine himself.
As the "bearish" factors in the U.S. stock market environment become more and more frequent, returning to Hong Kong for listing may bring a lot of "benefits" to Zhihu.
Dual primary listing values
In March this year, due to the impact of the Foreign Company Accountability Act, dozens of Chinese stocks were pre-delisted by the SEC. With the continuous expansion of the list, the market's concerns about the risk of delisting of Chinese stocks have intensified, and the valuations of related companies have been seriously decoupled from their fundamentals.
In the context of the increasingly complex US stock market, many Chinese stock companies, including Zhihu, have become risk-averse and have begun to return to Hong Kong for listing, and listing in both places has become the norm in the market.
Generally speaking, there are three main ways for Chinese stocks to go public in Hong Kong. The first is the way most Internet companies use, that is, the secondary listing through listing, such as Alibaba, Station B, etc.; the second is to privatize the US stock market first, and then list it through Hong Kong stocks; the third is the dual listing of Hong Kong and US stocks that we know will be used this time.
From the perspective of the listing process, the secondary listing exchange will adopt relatively relaxed review standards, and there are a number of exemptions and preferential policies. The dual primary listing return process is a complete Hong Kong listing application that goes through a complex application and approval process.
【Source: Futu Cattle】
At present, only four domestic enterprises such as Ideal and Xiaopeng have adopted this method of listing. In the middle of last month, Bilibili, which has returned to Hong Kong for a second listing, also issued an announcement that it is seeking to voluntarily switch to a dual major listing on the main board of The Stock Exchange of Hong Kong Limited.
The reason why Zhihu chose the most difficult and costly listing method is that the "advantages" and "value" of the dual main listing are very obvious.
A dual major listed company will have the same listing status in both listing places at the same time, and delisting in one of the listing places will not affect the listing status in the other listing place. The shares of the two places cannot be circulated, and the stock price performance is relatively independent, which can effectively isolate the risk in theory.
As a member of the Chinese stock market, if Zhihu takes the lead in completing the dual major listing, it will undoubtedly prepare a safety foundation for investors in advance and stabilize the "military heart" of investors. In the future, even if Zhihu chooses to leave in the United States, the listing of Hong Kong stocks will not be affected in the slightest. In the long run, this is undoubtedly a very wise choice.
On the other hand, after the realization of the dual main listing, Zhihu will also have the opportunity to be included in the Hong Kong Stock Connect, so that A-share investors can be introduced, providing a more sound financing channel for its "commercialization road".
In the process of commercialization of content platforms, it is inevitable that they will be resisted by users, but with more financing, Zhihu will be more confident in continuing to release commercial value.
It is worth mentioning that Zhihu will also obtain the identity of "the first share of the double main listed Internet", and the logic of "fresh first share" and "new energy first share", such an identity will have a significant increase in the influence of Zhihu, but behind the short-term attention, whether it can bring confidence to the capital level is the key, and this confidence ultimately comes from the ability to liquidate.