Zhihu files IPO as its online data demonstrate impressive value

China's largest Q&A platform Zhihu recently announced it has filed an initial public offering with the United States Securities and Exchange Commission. It will list its shares on the New York Stock Exchange under the ticker symbol ZH.

The IPO is a milestone in Zhihu's development. It marked a new start for the company, Zhou Yuan, the founder and CEO, said in a public letter on March 6.

"We are a mission-driven company dedicated to empowering people to better share knowledge, experience and insights, and find answers. This requires us to insist upon constant efforts," Zhou said.

"IPO will put higher demands on us and we look forward to becoming a more open, innovative and stronger company," he said.

According to the offering, Zhihu's 2020 revenue totaled 1.35 billion yuan ($206.74 million), up 101.7 percent year-on-year. The company's gross profit was 758 million yuan, an increase of 142.7 percent year-on-year.

Founded in 2010, the platform is a gathering place for creative people from industries including internet technology, commercial business, film and television, fashion and culture.

Developed as a Q&A-inspired online community, Zhihu incorporates a wide range of knowledge-sharing formats including content generated by both everyday users as well as working professionals, stories, columns, videos and livestreaming.

Diverse users

By the end of December, the platform had attracted 43.1 million users who contributed a combined 353 million pieces of content, with 315 million Q&As covering more than 1,000 verticals and 571,000 topics, according to the company.

High-quality content enables Zhihu to expand its user base and helps maintain user engagement and subscriptions, the company said.

In the fourth quarter of 2020, the average number of monthly active users reached 75.7 million, up 33 percent from the same period in 2019.

During that period, the monthly average number of people who searched the Zhihu platform was 25.7 million, up 38.2 percent year-on-year. The increase shows that more people are using Zhihu as a primary option for seeking answers.

Research from the Beijing-based market research information provider CIC Consultancy shows Zhihu is China's largest online Q&A community. It was also one of the top five comprehensive online content communities in the country, both in terms of average mobile MAUs and revenue in 2020.

Technology support

Focused on content creation, distribution and consumption, Zhihu uses artificial intelligence, big data and cloud technologies to optimize its content and services, the company said.

It utilizes AI-powered TopicRank algorithms to assess the quality of content based on analysis of users' credentials and engagement in its community. The self-developed WaLi monitoring system and WuKong anti-spamming system help ensure suitable content and a healthy community culture.

To ensure data security, the platform adopts a data encryption system to ensure the secure storage and transmission of data while preventing any unauthorized member of the public or third parties from accessing or using its data.

The technology and data systems are continuously refined through the deep pool of data accumulated over the company's 10 years of operation, according to the offering.

Cultural ecology

With the philosophy of promoting a culture of sincerity, expertise and respect, Zhihu has formed its distinctive content environment by encouraging creation while respecting diversity and valuing constructiveness.

In 2018, the company launched the "Haiyan Plan" to safeguard its community atmosphere of discussion, as well as to help more talented creators gain profit from their valued and professional answers on the platform. The plan has been upgraded with more supportive and incentive measures, including online tools for transforming files to videos, as part of an effort to empower creators, the company said.

Commercial model

In 2016, Zhihu began its online advertising business. The platform introduced paid content in 2018.

Revenue from paying members is increasing rapidly. Such revenue contributed to 320 million yuan to the company's total revenue last year, surging from 13.1 percent of total revenue in 2019 to 23.7 percent in 2020.

Last year, the company said its advertising revenue was 843 million yuan, up 46 percent year-on-year.

In March 2019, Zhihu rolled out the Yan Selection membership program, making it the first payment Q&A community. It provides premium accounts with unlimited access to some 3.4 million pieces of paid content including columns, e-journals, online lectures and audio books. It shows the company is diversifying its business model from payment for knowledge to a membership economy.

In early 2020, Zhihu launched content-commerce solutions, which provide merchants and brands a one-stop service for all of their sales and marketing needs. It encompasses marketing plans, facilitating content creation and assigning the most relevant content creators to interested users, according to the company. The solutions generated 136 million yuan. Revenues from online education and e-commerce services earned the firm 52.63 million yuan last year, up 108 percent year-on-year.

According to CIC Consultancy, China's content-commerce solution market is expected to grow in terms of revenue generated from online content communities. From 11.4 billion yuan in 2019, it is forecast to reach 112.3 billion yuan in 2025 at a compound annual growth rate of 46.4 percent.

Zhihu is in the early stage of capitalizing on its content and is seeing huge potential in new channels, the prospectus said.