The market value has shrunk by 80%, and it is difficult to find an answer for commercialization

On April 11, Zhihu submitted a prospectus to the Hong Kong Stock Exchange to raise US$106 million for a global offering of 26 million shares, which is expected to be listed on the Hong Kong Stock Exchange on April 22.

That is, I know that I want to complete the dual major listing of Hong Kong stocks by not issuing new shares. After falling into negative news such as rumors of large-scale layoffs in the video business and the expansion of net losses, Zhihu brought good news at the capital level.

According to the latest financial report disclosed by Zhihu on March 14, the company achieved total revenue of 2.959 billion yuan in 2021, an increase of 118.9% year-on-year; revenue in the fourth quarter of 2021 was 1.019 billion yuan, an increase of 96.10% year-on-year. The Company recorded a net loss of $1,299 million in 2021 and an adjusted net loss of $747.1 million, an increase of more than 150% compared to a net loss of $517.6 million in 2020.

Knowing that it has been in a state of loss for many years and the commercial development is slow, the stock price broke on the day of listing on the New York Stock Exchange at the end of March 2021, and although the stock price rose to a certain extent, the market value also approached the highest point of $7.8 billion, but it fell all the way. As of press time, Zhihu's market value was around $1.2 billion, a decline of more than 80% compared to its peak. On the road to exploring commercialization, I know that I have not done it

There have been efforts, even multi-pronged, but the results have not been satisfactory. As the largest online Q&A platform in China, now that I am listed in Hong Kong, can I answer my questions well?

From "small and beautiful" to wanting to make money

Don't look at the current want to seek double listing, the average daily life of the mobile terminal is nearly 100 million people, in the previous long period of time, "small and beautiful" is the impression left to the outside world.

At the end of 2010, Zhihu began internal testing; on January 26, 2011, Zhihu was officially launched. Among the first 200 users of Zhihu, many of them were extraordinary, including well-known entrepreneurs or angel investors such as Kai-Fu Lee, Wang Xing, Wang Xiaochuan, Ma Huateng and Xu Xiaoping. In the first 40 days of Zhihu's development, they collectively created 8,000 questions and 20,000 answers.

With unique and high-quality content, Zhihu has continuously attracted all kinds of capital to settle in, from the 1.5 million yuan angel round investment of Kai-Fu Lee's innovation workshop at the beginning to the multi-million dollar A round of financing led by Qiming Venture Capital, and then to the B round and C round, at that time, Zhihu seemed to have become the darling of capital. There is a detail that can be corroborated, in the D round of financing process, even the PPT did not have time to write, Xu Xin's today capital finalized the investment in Zhihu in one day, signed the SPA within a week, and did not give other institutions too much time to consider.

Before the listing, Zhihu completed a total of 9 rounds of financing, almost a year round of rhythm. On March 26, 2021, Zhihu, which has a lot of capital behind it, 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.

In the first five years after its establishment, Zhihu was considered relatively restrained in commercialization, and the company focused on precipitating high-quality content and building a community culture; in the next five years, Zhihu gradually opened various commercialization initiatives, but it seemed a bit dazed and radical.

In 2016, the concept of "knowledge payment" stood on the cusp, Luo Zhenyu and Wu Xiaobo and others dug the first bucket of gold, Zhihu also officially launched commercialization in this year, and launched the function of paying to view answers "value", and launched a real-time Q&A product "Zhihu Live". Since then, Zhihu has successively launched many products related to knowledge payment, such as e-books, magazines and private lessons. In March 2019, Zhihu upgraded the content business of the knowledge payment sector as a whole and added a new membership system of "salt selection members".

Also in 2016, Zhihu also launched an in-feed advertisement. Initially, this kind of advertising mainly appeared in the Q&A comment area, and after many revisions, gradually, the home page was also occupied by information flow advertisements. At the beginning of 2020, Zhihu launched the "Commercial Content Solution" and "Zhi+", a content marketing tool, which are intended to better undertake various corporate advertising.

Around 2018, short videos were almost sought after by the whole people, and Zhihu, who did not want to miss the outlet, launched a "video creation tool" in February of this year; in March 2019, Zhihu internally tested the short video product "Instant Shadow"; in October 2019, Zhihu launched a live broadcast function; in October 2020, Zhihu, who pays more attention to video business, added a "video" area on the APP homepage, and then launched a package including 500 million cash incentives, 10 billion traffic support and video tools.

In addition, e-commerce has also been an area where Zhihu seeks to commercialize. For example, in 2019, Zhihu tried to create a male grass growing community APP called "CHAO".

Why didn't I do a good video?

Although it is on the road to commercialization, this kind of blank and radical measures have made the results less than satisfactory.

Due to the high operating costs, "Value" rushed off the line after not going online for a long time. Compared with other platforms that do knowledge payment, the results of Zhihu are also difficult to say excellent.

According to the data comparison of several major content platforms in the second quarter of 2021 compiled by Southwest Securities, compared with the content payment business of Station B, iQiyi, QQ Music and Himalaya, the payment rate and ARPPU (average revenue per paying user) of Zhihu Yanxuan members are not high.

In terms of advertising business, with the increase of advertising exposure and the construction of "commercial content solutions", revenue has increased, but first, it has not achieved the improvement of the income of relevant creators while making money on its own, and second, it has not been able to maintain a good balance between advertising monetization and user experience, the former has made many creators and even big Vs begin to leave; the latter has seriously damaged the user experience.

If the knowledge payment and advertising business is based on its own positioning and natural extension of the business, then Zhihu's involvement in the video field is considered by the outside world to be "really not doing business".

Although in the earnings conference call on March 14 this year, Zhou Yuan, chairman and chief CEO of Zhihu, did not forget to "justify" the video business, "Our video strategy has proved to be effective, and it has raised the diversity of Zhihu content to a new level", looking back at the relevant external rumors and product form changes that have occurred in recent months, such a statement is more like a lack of public relations.

In February this year, some netizens broke the news on social media that Zhihu was laying off employees in a low-key manner, and the relevant departments doing video business would be cut in half, and according to the latest report of "Finance and Economics", there was indeed a departure of the general manager of the video department and a large-scale layoff, "equivalent to changing the blood of the video".

Recently, from the small-scale measurement of the new version of the product, it can be found that the "video" module in the home page has also been replaced by the "idea" page, and the adjustment of this product side reflects the weakening or even turning of the meaning of the previous comprehensive increase in the video.

Although Zhihu replied that "video is an indispensable part of Zhihu's content ecology" and "we have no layoff plans in the video business". But in fact, Zhihu's innate genes determine that it is difficult to do a good job in video business.

Putting aside the factors such as the late entry time has missed the best time, its own commercialization ability is not strong and it is difficult to attract video creators, the production characteristics of the video itself make it difficult to better integrate into the platform system based on the Q&A structure, and the information flow algorithm recommendation video mechanism also conflicts with the inertia of most users who actively acquire knowledge.

First of all, Zhihu started out with the low creative threshold of graphic content and the social incentives such as likes and sharing caused by it, but the video content with high production costs invalidated these all. Secondly, the knowledge question and answer structure of Zhihu makes its user behavior have a strong purpose, and the platform itself is more around the content than the person.

This makes it impossible to go out of the way like Douyin and B Station: Douyin can occupy the user's fragmented time, and B Station can inspire users to generate electricity for love, but it can't.

When will I be able to answer my own questions?

When will you be profitable? People are asking, in the short term, knowing that they can't seem to give an answer.

At the beginning of the article has briefly mentioned the latest financial report figures of Zhihu, Zhihu said in the financial report that the revenue in the fourth quarter of 2021 is the highest quarter since its listing, reaching 1.019 billion yuan, an increase of 96.10% year-on-year, but this is in terms of year-on-year, month-on-month, from the second quarter of 2021, the growth rate of Zhihu is declining, which means that the high-growth era it has experienced in 2020 is no longer, and the financial performance is becoming ordinary.

The performance is also common with the number of monthly active users (MAU) known as the number of monthly active users (MAU). In the financial report, Zhihu also announced that in the fourth quarter of 2021, the company hit a new high in the key indicator of MAU, with the MAU in the fourth quarter reaching 103.3 million, and the average MAU for the whole year was 95.9 million. However, as early as the "2021 Zhihu Business Conference" held on September 16, 2021, Zhihu had announced that the monthly live activity exceeded 100 million, so it seems that the MAU gain in the fourth quarter of last year was weak.

In terms of revenue structure, I know that it has indeed changed the situation that advertising revenue was once a monopoly. In 2021, advertising accounted for 37%, commercial solutions accounted for 36%, and paid membership revenue accounted for 21%, these three major businesses have become the revenue pillars of today's zhihu. It is worth pointing out that in recent years, the rapid growth of revenue brought about by commercial solutions has become a key factor in changing the revenue structure of Zhihu.

But I know that I have more income and more losses, and I seem to be a bit into the embarrassing situation of "losing money and making money". The net loss in 2019 was 1 billion yuan; in 2020, it narrowed with a net loss of 517.6 million yuan; and in 2021, it suddenly expanded with a net loss of 1.299 billion yuan.

Combined with the key factors that have changed the revenue structure, it is reasonable to speculate that the high cost of commercial solutions has eroded the profit margins brought about by revenue growth. Because from Zhihu's financial report, it can be seen that in 2021, although the company's total business revenue increased by 118.9% year-on-year, the sales expense was as high as 1.635 billion yuan, making the operating cost also increase by 136% year-on-year.

Looking back at zhihu's listing in Hong Kong, unlike the previous secondary listing of Chinese stocks such as Ali and Baidu to Hong Kong, Zhihu chose a "double listing" with a more complicated process and higher listing costs. Some analysts pointed out that because the stocks of dual-listed companies in the two markets cannot flow across the market, the respective stock price performance will be relatively independent.

In addition, companies that use the dual listing method can also have the same listing status in both listing places, which means that even if they are delisted from the US stock market in the future, it will not affect their listing status in Hong Kong stocks. Choosing a dual listing also increases the possibility of Zhihu being included in the Hong Kong Stock Connect in the future, and if it can be included in the Hong Kong Stock Connect, it will help attract domestic southbound funds, compared with U.S. investors, the holders or institutions behind the southbound funds are expected to be more optimistic about Zhihu's development strategy.

From "small and beautiful" to want to make money, since you have enjoyed the pursuit of capital, you must also give a response to commercialization, but this series of response actions of Zhihu is not calm. In the middle, he once chased the video outlet, forgot the basis of the standing, and looked left and right, stumbling. In recent years, Zhihu has vigorously developed the business of commercial solutions, although it has changed the revenue structure, but the operating costs are also rising, and the road to profitability is still long.

It is understood that Zhihu's strategic focus in 2022 is "ecological first" and "loss reduction", and Zhou Yuan also said on an analyst conference call in March this year that he should pay attention to indicators such as community atmosphere satisfaction and creator experience, but neither of these two goals is easy to achieve. Even if you go public in Hong Kong, in the short term, it will be difficult for Zhihu to give a satisfactory answer to your questions about yourself.