Zhihu Inc
NYSE:ZH
Earnings Call Analysis
Q4-2023 Analysis
Zhihu Inc
Despite market turbulences, the company reported solid strides in its expansion and efficiency, registering a 16.5% revenue increase year-over-year. Focused on promoting content creators with incentive plans, the number of creators grew by 13% to 71.3 million, yielding an impressive 19.3% increase in content volume. Average MAUs also saw a rise, contributing to the fortified monetization progress and an impressive gross margin boost to 54.7%, reflecting improved operational efficiency.
The company's fourth-quarter revenue hit RMB 1.1 billion, buoyed by a robust 28.3% growth in paid membership and vocational training. These sectors have become pivotal, delivering more than half of the total revenue, which underscores the diversification and resilience of the revenue streams. The commitment to optimizing cost and maximizing operating efficiency has rippled through, evident in the gross margin expansion to 59.1% and a substantial reduction in adjusted net loss by 31.9%.
The company plans to enhance community trustworthiness and user engagement by fostering high-quality content and utilizing AI technology to facilitate knowledge sharing. A new search feature, 'Discovery', leveraging large language models, exemplifies this strategy by improving search functionality and user experience within the platform. Additionally, the company aims to nurture organic community growth through strategies that prioritize user retention and engagement.
Investments in AI technology and premium content categories indicate the intent to solidify market position and pivot towards further growth. An increase in technology innovation spending to RMB 232.6 million and the expansion of high-quality content categories, including successful ventures into short dramas in partnership with Kuaishou, are tangible aspects of this strategic direction.
While the marketing services experienced an overall 18.7% decrease in revenue year-over-year due to tough economic conditions, there was notable sequential improvement in the fourth quarter. The company anticipates continued recovery and growth through data collaborations and a focus on high-quality user acquisition.
The fourth quarter's financials highlight a 7.1% gross profit increase, reflecting strategic cost-containment measures and an enhanced monetization strategy. The notable 42.6% reduction in GAAP net loss per quarter points towards a promising trajectory for the future of the company. Efforts to optimize the cost structure will play a crucial role in leveraging profitability.
Looking ahead, the management's goal is to achieve non-GAAP net profit break-even in the fourth quarter of the current year. This objective will be supported by improving the efficiency of commercial content recommendation and integrating AI to bolster content recommendation systems.
The company’s diverse premium content played a vital role in sustaining growth in the paid membership segment. With its vocational training business doubling its revenue, the company expects even larger scale economies and operational efficiencies. There is also an emphasis on leveraging AI technologies in vocational training scenarios to enhance user experience.
Zhihu's strong performance in IP content, especially in the promising short story sector, aligns with its expansion strategies. Revenue from film and television copyrights is set to grow as the company realizes the potential of its content library and explores audio and visual content formats. A recent partnership with Kuaishou in short dramas signals the firm's endeavor to pioneer new segments and capitalize on existing content strengths.
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Ladies and gentlemen, thank you for standing by and welcome to the Zhihu Inc Fourth Quarter and Full Year 2023 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded.At this time, I would like to turn the conference over to Yolanda Liu, Director of Investor Relations. Please go ahead, ma'am.
Thank you, operator. Hello, everyone. Welcome to our fourth quarter and full year 2023 financial results conference call. Participants on today's call include Mr. Zhou Yuan, our Founder, our Chairman, and Chief Executive Officer; and Mr. Wang Han, our Chief Financial Officer.Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. All the information regarding these and other risks and uncertainties is included in our public filings with the U.S. SEC and the Hong Kong Stock Exchange.The company does not assume any obligation to update any forward-looking statements except as required under applicable law. During today's call, management will also discuss certain non-GAAP financial measures for a consideration purpose only. For a 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 call will be available on our website at ir.zhihu.com.I will now turn the call over to Mr. Wang Han, CFO of Zhihu. Han, please go ahead.
Thank you, Yolanda. Hello, everyone. Thank you for joining Zhihu's fourth quarter and full year 2023 earnings call. I'm pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman, and CEO of Zhihu.In 2023, we faced a blend of challenges and opportunities. Despite a dynamic macro environment and competitive industry landscape, we achieved substantial progress in commercialization and efficiency both in the fourth quarter and throughout the year. Furthermore, we made considerable strides in improving our bottom line while actively exploring and investing in AI technology.Our primary focus in 2023 was motivating our content creators through a variety of incentive plans. As a result, the cumulative content creators on our platform increased by 13% year-over-year, reaching 71.3 million by the end of 2023. The cumulative pieces of content grew to 774.7 million, up 19.3% year-over-year. Additionally, the average MAUs for the full year increased by 4% year-over-year.Our monetization progress remained robust throughout the year. We achieved a 16.5% year-over-year increase in our full-year revenues to RMB 4,199 million. With enhanced operating efficiency, our overall gross margin for 2023 improved by more than 4 percentage points year-over-year to 54.7%.Furthermore, our operating gross margin for 2023 significantly narrowed by 19 percentage points and adjusted net loss decreased by 44.9% both on a year-over-year basis.During the fourth quarter, our dedication to user growth, resource allocation, and operating efficiency improvements began to pay off. As high-quality content continued to thrive across the community, we proactively refined our user growth strategy and significantly reduced acquisition costs for new users.Our focus shifted towards driving efficient and sustainable organic user growth by elevating engagement and retention rates among our highly active core users. We also continue to fortify our monetization model's resilience through diverse growth drivers.Our total revenue for the fourth quarter of 2023 reached RMB 1.1 billion, primarily fueled by the strong growth in our paid membership and vocational training business. Our increasing brand influence and expanded program offerings have strengthened this [ division's ] competitiveness, extending our revenue growth beyond the Zhihu community. Together, these 2 segments achieved a robust revenue growth of 28.3% year-over-year for the fourth quarter of 2023.Enhancing cost-control effectiveness and operating efficiency remain as our key strategic priorities during the fourth quarter. We continue to invest judiciously in cutting-edge technologies such as AI, while optimizing our fixed-cost structure. These initiatives resulted in an expanded gross margin of 59.1% for the fourth quarter. We also drove a significant 31.9% year-over-year reduction in adjusted net loss, which is narrowed quarterly level since our [ U.S. IPO ].As we move through 2024, we'll further optimize our financial performance by elevating trustworthiness within the Zhihu community. We're confident that in the area of AI-generated content, users will increasingly value professional, in-depth, and authentic content as well as discussion and feedback among real users. By fostering an environment of trust, we can stimulate user interactions and inspire content creators' passion and creativity, ultimately driving organic community growth.Meanwhile, we also believe that the present application of AI large-language models can improve user experience and strengthen the feedback mechanism for content creators enhancing our community's atmosphere and operating efficiency.Now, I'd love to delve into the details of our initiatives and achievements in 2023 across content and creators, as well as our commercialization progress. Let's start with our content and content creators. As I just mentioned, we revisited our user growth strategy in 2023 to promote organic community growth through high-quality content and a thriving community ecosystem. We shifted our focus to boosting our core users' activities and retention rate. We're also reducing user acquisition costs.Consequently, our average MAUs in the fourth quarter were 99 million, a slight decrease of 1.6% year-over-year. However, we reduced user acquisition costs in the fourth quarter by more than 40% year-over-year, accounting for less than 35% of total promotion and advertising expenses. This shift drove sequential increases in our daily active users' time spend.Additionally, in fourth quarter, we saw a significant year-over-year improvement in both the content creation contribution rate and next month's retention rate for our highly active users.Regarding content, we further refined our content operations by deeply integrating training topics and user demands for continually strengthening recommendation technology. This initiative, combined with our diverse incentive plans for content creators, propelled rapid growth in our community's high-quality content pool.As the end of 2023, the cumulative visits of content increased to 774.7 million, among which the cumulative number of Q&As reached 592.8 million. We also leveraged Zhihu's position as China's leading content-centric community to encourage extensive professional discussions on training topics.For instance, in 2023, accumulated discussion volume related to generative AI large language models and their applications surpassed 1.2 billion across the Zhihu community. A distinguished group of founders and key developers from leading LLM companies joined the discussion on Zhihu, contributing their valuable insights.Science and engineering-related content was another standout, increasing by 85.6% year-over-year in 2023. Our high-end plan continues to serve as a crucial incentive for content creators. Since the release of [ high-end 5.0 ] in May 2023, we have consistently promoted professional content creation, driving creativity and productivity through initiatives such as our Blue Label certification.In 2023, this program covered 130 verticals with nearly 200,000 users certified. Furthermore, we provided a broad array of avenues for content creators to earn income. During the fourth quarter, the total number of content creators who earn income on our platform increased by 17.4% year-over-year.As I previously mentioned, one of our top priorities for 2024 is to enhance the trustworthiness within the Zhihu community. To that end, we have been prudently empowering our community with AI, leveraging large language models to better connect human knowledge, experience, and insights and make them more accessible to a broader audience.At our recent Discovery Conference on March 20, we introduced a new search feature called Discovery, leveraging our [ Zhihu ] to a large language model. This significant advancement in search scenario allows our users to initiate discussions directly with content creators across the entire Zhihu community with a single question.The content featured in Discovery comes from professional content creators within the community. This feature facilitates more efficient knowledge sharing by enhancing search efficiency and a content consumption experience for Zhihu users. We're also providing feedback to our content creators.With enhancements like Discovery, we aim to strengthen community development and drive the continued emergence of high quality, trustworthy content. We firmly believe that a combination of professional, in-depth, authentic content, a culture of sincerity and respect, as well as our transparent and efficient information mechanism will further enhance our community's trustworthiness. This, in turn, will drive user engagement and retention throughout the Zhihu community, building the efficient and sustainable organic growth of our user base in the long run.Moving into our multi-engine commercialization, in fourth quarter, our total revenue increased by 2.2% year-over-year to RMB 1.1 billion. Empowered by our thriving community, paid membership and vocational training maintained their [ robust ] growth. Together, they expanded our monetization capability beyond the Zhihu community, contributing more than 50% to total revenue for both the fourth quarter and full year 2023. Their strong performance underscores the resilience and effectiveness of our business models and diversified revenue growth engines.In terms of revenue growth by sector, vocational training and paid membership revenues led the way, increasing by 28.3% to RMB 625.2 million. Notably, revenue from vocational training doubled compared to the fourth quarter of last year. Its revenue contribution remained at over 10% throughout 2023.While marketing services had yet to fully recover on a yearly basis, it picked up sequentially with quarter-over-quarter growth of 21.5% in the fourth quarter. Particularly, display-based advertising delivers a crucial growth of over 33%.In addition, we saw rapid year-over-year growth in various verticals that requires a long-term decision-making process, such as IT, 3C and home appliance. This highlights the vital role of Zhihu's professional in-depth and authentic content in consumer decision-making.We continue to streamline and upgrade our [ CCS ] business offerings throughout 2023 to drive further marketing efficiency improvements and a lot greater commercial potential in this business segment.The increasingly diverse premium content has contributed to consistent growth in our payment membership business. In the fourth quarter, our paid membership revenue increased by 13.3% year-over-year to RMB 455.9 million. In the fourth quarter of 2023, average monthly subscribers reached 14.2 million, representing a 9.2% year-over-year increase. Average revenue per user, ARPU, also improved year-over-year.There were 2 primary growth drivers. First, the expansion of both our high-quality content categories and our target audience. Zhihu's vast and diverse library of premium content encompasses not only knowledge-based content like columns, research papers, and e-books, but also short stories that are gaining popularity among users.As of the end of 2003, our content library amassed 4.9 million visits, an increase of 15.7% year-over-year. Additionally, the number of premium content creators who earned income on Zhihu in 2023 Q4 surged by 36.8% year-over-year. Joining our massive content library, many of our short stories originate from professional discussion in Zhihu Q&A community. Since the launch of Zhihu Yanyan Story in May 2023, it has emerged as a frontrunner in the multi-billion dollar short story market in terms of both content production and consumption.Today, the cumulative number of content creators on Yanyan Story exceeds 600,000 with a cumulative of over 100,000 short stories published. Topical coverage has expanded beyond the platform's original romance of professional and suspense genres to encompass over 180 subcategories.While the content categories popular among female users continue to grow, we're also expanding into categories favored by male users, such as science fiction and mystery. Meanwhile, the Zhihu community's financial rewards effectively motivated our premium content creators. Over 100 paid content creators on Zhihu has earned more than RMB 1 million. Also, in 2023, the average monthly income of signed content creators on Yanyan was close to RMB 10,000, nearly doubling the average income on other platforms.Second, media format diversification and IP monetization have continued to bolster our users' long-term value. In the fourth quarter, we introduced a variety of formats to boost content consumption, including audiobooks and radio dramas. These initiatives are carefully designed to provide our subscribers with an immersive and fulfilling storytelling experience.By leveraging our expanding media formats and deepening our penetration across the value chain, we're expanding from short story market to a broader IP monetization market. The success of our short-form blockbusters clearly reflects strong IP development potential within the Yanyan Story platform.Moving forward, we will harness the power of AI large-language model technology to explore and develop integrated content formats, further unleashing the value of Zhihu's premium content. This approach will help enhance our subscribers' LTV in the long-term.Our vocational training business continues to grow robustly, with fourth quarter revenues stretched by 100.1% year-over-year. Looking ahead, we officially announced our development strategy focusing on digital empowerment for our ZhiXueTang brand at our Annual Zhihu Education Conference in January 2024.ZhiXueTang is a vocational training platform dedicated to providing comprehensive and practical learning services for new generation professionals throughout their lifelong personal development journey. Currently, it's expanded course offerings over 3 main categories, [ examic ] improvements, such as postgraduate exams and English proficiency tests. Career enhancements, such as CFA, accounting, and ESG exams. And other vocational skills and interests, such as writing, IT skills, and AGI courses.The vocational training sector offers immense opportunities for advancing digitalization. AI and large-language models are poised to revolutionize the industry, leading to efficiency improvement and significant shift in user experience. By leveraging AI LLM and AI agent applications in vocational training scenarios, we can advance the digitalization of process such as job selection, exam practice, and homework correction.Our vocational training business success underscores Zhihu's unique position. We started as a community, but we are expanding beyond it. Moreover, its rapid revenue growth will bring us greater scale advantages in terms of cost of dilution and efficiency improvement. We will continue to control and optimize its business costs and expenses to continually boost its overall operating efficiency.In the fourth quarter, marketing services revenue decreased by 18.7% year-over-year, but increased by 21.5% quarter-over-quarter. The year-over-year decline can be attributed to the challenging economic environment and hidden market competition, as well as our proactive efforts to prioritize user experience by reducing the distribution of commercial content that may negatively impact our users.However, the cornerstone verticals of our community continue to demonstrate robust growth. This reaffirms our core users' recognition of our professional content's value, particularly in the current environment, emphasizing cost-effective and rational consumption.Specifically, the IT, 3C vertical grew by nearly 40% year-over-year in the fourth quarter of 2023. This trend is also evident in other consumer verticals involving significant decision-making processes, such as home renovation, [ paths ], and other activities, which appeals to our core users.Zhihu's unique content advantages and ongoing product efficiency upgrades empower brand and merchant to gain deep insights into users' evolving mindset, allowing them to influence decision-making and purchase behavior. Furthermore, we have established a feedback mechanism for data collaborations with e-commerce platforms like Taobao and JD.com. Leveraging virtualized data, we help brands and merchants achieve their business objectives more effectively by boosting add-to-cart rates, store visits, and category penetration rates, as well as lowering customer acquisition costs.Our market services made substantial progress during the Double 11 period, with the average conversion rate from Zhihu to brand online stores reached 6% across our verticals. Moreover, both transaction rates and new customer acquisition rates offered from the industry.As we progress through 2024 and elevate the community's trustworthiness, we will also continue to build our scientific trust-based marketing system across 2 primary aspects. First, we will continue to upgrade our underlying capability to further improve the efficiency of commercial content recommendation. Since the beginning of this year, we have sought to cover major advertising categories with a library upgraded and labeled SBUs so that we can establish a user evolution system empowered by AI. This will allow more suitable products to be recommended by a broader base of content creators.Second, we will strive to maintain a high level of user experience, especially for our highly active users. If a user submits a feedback indicating no interest for a piece of content, the user will no longer seek commercial content for that product.Moving on to our key strategy for 2024. Enhancing operating efficiency and accelerating profitability remain our core strategic objectives for sustainable growth. Alongside ongoing efforts to improve our commercialization efficiency, we're committed to optimizing our cost and expensive structures. Efficiency will be a pivotal performance indicator at each BU level. This approach will expedite our journey towards profitability.Meanwhile, we'll prioritize initiatives that contribute significantly to the community's long-term growth and sustainability. Additionally, we will deepen our commitment to protecting our core users' engagement and creative contributions, reflecting the growing value we place on our trustworthy community culture and professional, in-depth, and authentic content.Finally, in terms of AI investment, we will shift our focus to developing application scenarios. We will prudently integrate AI into our diverse professional and trustworthy community to provide Zhihu users with efficient access to our massive library of trustworthy answers and a lot greater expansion opportunities beyond it. This concludes Mr. Zhou Yuan's remarks.Now, I will review the details of our fourth quarter financials. For a complete overview of our fourth quarter and full year 2003 results, please see our press release issued earlier today.While we continue to face various challenges, we remain resilient and devoted to our multi-engine monetization strategy. Our total revenue increased by 2.2% and 16.5% year-over-year for fourth quarter and full year, respectively. We're also pleased to deliver measurable progress in refining our cost controls and operating leverage, shaping a record high gross margin since our U.S. IPO and a significantly narrowed net loss for the fourth quarter.Our paid membership revenue for the quarter increased 13.3% year-over-year to RMB 455.9 million. This growth was primarily driven by continued expansion of our subscribers, which increased by 9.2% year-over-year to 14.2 million as a result of content enhancement and user experience improvement.Our vocational training business revenue for the fourth quarter surged by 100.1% year-over-year to RMB 169.3 million. This impressive growth can be attributed to our ongoing efforts to expand our course offerings. All our courses are specifically designed to meet our users' evolving demands, covering areas such as academic improvements, career advancement, and other vocational skills and interests. It continued to garner market recognition for our programs and drive its sustainable development.The overall macro environment and uncertainties in the advertising market pressured our marketing services throughout 2023. In the fourth quarter, marketing services randomly declined by 18.7% year-over-year. However, they recovered by 21.5% quarter-over-quarter driven by our product enhancement has sustained increasing performance in verticals such as IT and 3C and home appliance.Gross profit for the fourth quarter increased by 7.1% year-over-year to RMB 673.1 million, with gross margin expanding to 59.1%, its highest level since our U.S. IPO. Gross margin improvement reflects our enhanced monetization efforts, as well as improved efficiency in cloud services and bandwidth utilization.Total operating expenses were RMB 851.3 million for the fourth quarter, compared with RMB 844.8 million for the same period of 2022.Selling and marketing expenses for the fourth quarter increased to RMB 527.6 million from RMB 509.2 million for the same period of 2022.As we continue to invest in product and service offering promotions with a prudent RI-based approach, research and development expenses likely increased to RMB 232.6 million for the fourth quarter from RMB 212.5 million for the same period of 2022. The increase was primarily attributable to our increased spending on technology innovation.General and administrative expenses for the quarter decreased by 26% to RMB 91.1 million from RMB 123.1 million in the same period of 2022, primarily attributable to a decline in personnel-related expenses as we continue to improve operating efficiency.Driven by our ongoing efforts to control cost and enhancing operating efficiency, our GAAP net loss per quarter narrowed significantly year-over-year by 42.6% to RMB 103.1 million. Our non-GAAP adjusted net loss, which primarily excludes share-based compensation expenses and amortization of intangible assets resulting from business acquisitions, narrowed by 31.9% year-over-year to RMB 91.3 million for the fourth quarter.Moving forward, as we continue to optimize our cost structure, control our operating expenses, and record growth driven by our multi-engine amortization model, we expect to further enhance our operating leverage.As of December 31, 2023, we had cash and cash equivalents term deposit and short-term investment RMB 5.5 billion compared with RMB 6.3 billion as of December 31, 2022. Also, as of December 31, 2023, we had repurchased 26.3 million Class A ordinary shares, including ADS, for a total of USD 58.5 million on both the New York Stock Exchange and the Stock Exchange of Hong Kong.This concludes my prepared remarks on our financial performance for this quarter. Let's turn the call over to the operator for the Q&A session.
[Operator Instructions] The first question is from Vicky Wei with Citi.
[Foreign Language] Will management share some color about the key strategic focus of Zhihu for 2024?
[Interpreted] Thank you, Vicky for the question. This is Zhou Yuan, CEO of Zhihu. Moving forward to 2024, our key strategic focus will be on achieving profitability as soon as possible. To achieve this, we will optimize cost and expense structures to prioritize efficiency as the pivotal goal across our daily operations and for each business unit.And secondly, our key focus will be to protect the professional and in-depth consumption experience for Zhihu's core users. We will focus on to enhance the retention and reputation for our high-quality and trustworthy content and to enhance a sincere and friendly atmosphere for communication between individuals.Last but not least, we will continue to focus to shift our focus on AI application to different real application scenarios, we will continue to enhance the search function, the convenience and the efficiency of our search function, and also our -- to establish a feedback system that connects the designing and the establishing of these functions with the feedback system.To summarize, in the next year, we will focus on our key objective that we started from a community but we are expanding beyond it. And moving forward, around our multi-engine growth, we will try to narrow the losses for some of our business that is still emerging and to achieve the overall profitability in the future.
The next question is from Xueqing Zhang from CICC.
[Foreign Language] The company just mentioned that the priority goal in 2024 is to achieve profitability. So what's [ our ] timetable for break-even? And could management elaborate a bit more on the path to achieve it?
[Interpreted] Thank you, Xueqing for your question. This is Wang Han, CFO of Zhihu. To first start, we aim to achieve break-even quarterly break-even on the non-GAAP net profit level in the fourth quarter this year.As we all know that Zhihu has grown into a widely known name over the past 14 years, I believe many of you on this call, like myself, have been spontaneously opening the Zhihu app on our phone rather than being directed through any promotional link.Before I joined this company, I believe that Zhihu possesses a large base of genuine and loyal users. After I joined the company, I have reconfirmed this fact with numbers. The majority of active users in 2023 are those who have been with Zhihu since 2022, which is even larger than I previously expected.Additionally, as a user-generated content community, Zhihu has much lighter operating costs compared to other business models of other companies. Our growth margin has maintained at over 50% for 5 consecutive quarters, reaching 59.1% in the fourth quarter last year. It is obvious that Zhihu's core users will contribute notably high profits.In other words, as long as we proactively and prudently reduce brand promotion expenses with lower ROI, prioritize user quality over quantity, we believe that Zhihu can continue to narrow losses and progress towards profitability.Meanwhile, in terms of our commercialization model, Zhihu has developed its own approach which breaks through the limits of users' scale by leveraging the community's advantages. Our Yanyan Story and ZhiXueTang brand has shown us great potentials in this regard.We also expect similar potentials with our AI-empowered search discovery function, the real-time conversion-based interaction built on top of our high-quality, long-form text and graphic Q&A can unlock greater user and commercial potentials.So to summarize, Zhihu will gradually explore a path to scalable profitability that differs from other social media platforms.
The next question is from Daisy Chen with Haitong International.
[Foreign Language] First of all, congratulations on the probable achievement of Zhihu's efficiency improvement strategy. I saw that the Q4 [ monetization ] also narrowed to single-digit level since 2021. But my question is about the membership business. I noted that the growth rate of the monthly paid users seems to decelerate in recent 2 quarters, but the number of the MPOs and the pay ratios remained about 14 million and 40% this quarter. Can I ask about how the management considers about the savings of the paid users? And how does you -- how does management affect the growth rate of the membership at least in the next 1 or 2 quarters -- 2 years? And what the corresponding drivers?
[Interpreted] Thank you, Daisy, for the question. This is Wang Han, CFO of Zhihu. I understand your question may involve 3 underlying sub-questions. Firstly, whether the percentage of paying members to Zhihu's MAU has already become relatively high. And secondly is the potential growth ceiling of the short story sector. And thirdly would be the competitive landscape within the online literature sector.So firstly, the traditional logic of paying members is based on the concept of converting a subset of users from the entire user base. The selling would be the total number of users.However, Zhihu has pioneered a new growth trajectory for paying member growth. Zhihu's premium content can attract users beyond the community to subscribe within the Zhihu community. This not only eliminates the gross selling imposed by user base within the app, but also brings in additional users to the community.In addition, these users' consumption of non-story contents actually surpass that of the story content, driving the overall content consumption growth.Secondly, regarding the competitive landscape, Zhihu is the largest platform to both produce and consume short stories across the entire internet. It is the preferred platform for many short story content creators to submit their work. Zhihu's leading market position can be attributed to 2 factors, the support from the community and our distinctive value proposition.Content creators of Zhihu can find inspiration, engage in topic discussion, and develop plots in the course of Q&A discussion to naturally create innovativeHigh-quality and high-volume contents. This value of acquisition of ecosystem is irreplaceable.Additionally, most of the online literature apps available in the market operates through an advertising model focusing on maximizing users' time spent, often resulting in lengthy, slow-paced, and low information density.But in contrast, Zhihu operates through a subscription model which prioritize the delivery of high-quality content that users are willing to pay for. This unique value proposition has established Zhihu's distinct content characteristics and value position in the market.In terms of growth ceiling, the short story segment represents an emerging sector where Zhihu has taken part in establishing it as a pioneer. We have been actively expanding and striving to expand its selling.Currently, our premium content primarily consists of text and graphics-based formats. However, there is a larger audience base and greater commercial potential in audio and visual contents, such as radio play, audio books, and short drama.Short stories actually share some similarities with short dramas than longer narratives. Zhihu stories are known for its brevity, engaging plot, rapid creation, and real-world relevance. There are -- these are essential elements to produce blockbuster short dramas. We already produced them.We recently announced a partnership with Kuaishou in the area of short drama. A great array of high-quality short story IPs will be increasingly valuable for Zhihu. Some of the short drama adapted from Zhihu IPs have already achieved remarkable market performance and we anticipate more success in the future.Additionally, revenue from our IP copyrights currently only represents a small percentage of our total revenue. As the market increasingly recognizes the value of our Yanyan's IP, revenue share from film and television copyrights will gradually increase.
Operator, we can continue with the next question, please.
The next question is from Eileen Lin with China Renaissance.
I have a question related to education. Can management share more color on Zhihu's education development, such as student-based strategic focus? And how AI can be integrated into the education business?
[Interpreted] Thank you for your question.This is Zhou Yuan, CEO of Zhihu. As we all know that our vocational training business has been growing rapidly in the recent quarters and it has achieved synergies between our self-operated vocational training business and our acquired vocational training business.So firstly, our self-operated business is closer tied to our community yielding higher profits and will swiftly responding to evolving user demands, while our acquired business segments offers greater demand certainty and larger addressable market.Our community has continually empowered our vocational training business. Firstly, we'll be able to discover the specific demands, the evolving demands of our users, and with -- and achieve greater certainty in terms of our course offerings compared to other industry players.For example, some of our cornerstone course offerings, for example, the writing courses, the multimedia training courses, the artificial general intelligence courses, they actually stemmed from the Q&A discussions within the community and catered to the evolving demands of our users.In the future, we will continue to leverage our advantages to expand our course offerings, especially to expand beyond the evolving needs and also the greater needs with -- the demands with greater certainty for our course.The beyond our community empowerment, the users and content creators within the community can not only inspire and support the research and development of our new course offerings, but also empower multiple existing premium courses.Our labor productivity stays at the top rank in the industry, and as our course offerings become mature, the scale of the economies will continue to strengthen. And moving forward, we can further cultivate our content creators in our community to become our teachers, helping all content creators to achieve their financial goals.So our -- the users of our content -- course offerings, they are comes to Zhihu with the aim to improve themselves, and they also serve as the users for our vocational training business. Our vocational training is actually expanding beyond our community now.The users will not only generate word of mouth effects, but also generate high-quality commercial content based on their learning experience, attracting new students. This greatly improved our acquired business also improved the conversion rate and our -- to continue to maintain a dynamically optimal customer acquisition ROI in their respective segments.So beyond that, our ZhiXueTang brand actually formed a closed-loop ecosystem that can empower our self-operated business in return.We believe that the expenses and costs with our expenditure will be further diluted with the growth of our revenue from the vocational training business, and our commercialization efficiency will be further elevated.We believe that also AI technology will highly enhance our efficiency and revolutionize our user experiences.We will start from the core needs of our users and promote the application of AI large language model to empower the full process of our education in different scenarios.We believe that in the next 1 year or 2 years, we aim to expand the application of AI large-language model across the full process of our vocational training business.
The next question is from [ Lu Xingchu ] with Goldman Sachs.
I'm asking about advertising business on behalf of Lincoln Kong. Can management shed more light on advertising business including strategic priority and outlook for online marketing services for 2024?
[Interpreted] Thank you for your question. This is Wang Han, CFO of Zhihu. In the fourth quarter of 2023, In addition to the external and macro factors, the main reason for the delayed year-over-year recovery is that we have proactively enhanced the commercial content governance. In order to foster the trustworthiness within the Zhihu community, we chose to phase out some near-term low-quality business income.However, at the same time, we have made remarkable strides across our businesses.To start with, the retention rate, average revenue per user, and content consumption volume of high-quality users across our core verticals have all been steadily increasing.Secondly, the consumption power and high-quality of Zhihu users have been further recognized in the industry. According to third-party surveys, 72% Zhihu users are willing to pay a higher price for quality products.In addition, as much as 86% of Zhihu users have made repeat repurchases on JD.com during the past year, with a target group index, namely TGI, reaching an impressive 502 significantly outperforming the industry leverage.In addition, we are optimizing our closed-loop data ecosystem. We have strengthened our data partnership with e-commerce platforms such as Taobao and JD.com through initiatives such as [ indiscernible ]. By providing visualized data, we assist brands and merchants to better validate the value and ROI of their promotional efforts to drive further increase in marketing services order placement.In 2024, we expect to remain in a period of product upgrading and adjustment for our marketing services business. We will continue to explore business models that can foster stronger trustworthiness while optimizing our data infrastructure.
The next question is from [ Chichi Cheng ] with CLSA.
Can management share some color on user growth target for 2024? And how can we model the long-term self-enlarging cost ratio?
[Interpreted] Thank you for your question. This is Wang Han, CFO of Zhihu. This year, we took a proactive approach to adjust our user growth strategy. Instead of simply pursuing a larger-scale MAU, we will be focused on improving our core users' retention rate and further enhancing the trustworthiness within our community, ultimately, we will establish a commercialization model that is unique to Zhihu.It is worth mentioning that although our sales and marketing expenses as a portion of revenue may seem significant, the direct user acquisition costs for our app were only half of the total promotional costs -- less than half of the total promotional expenses.The absolute amount of customer acquisition costs in the fourth quarter of 2023 increased by only 40% year-over-year, while our MAU only experienced a slight decline. That demonstrates the loyalty of Zhihu's core users.Zhihu has a group of users with the highest quality and greatest value. We believe that serving them well will yield substantial commercial rewards. We do not need to follow the other mass market social entertainment platforms to pursue user growth at any cost. We should follow our own path.As we approach an era of AI generated content, authentic and trustworthy human generated content will become increasingly scarce across the internet. Zhihu represents the place to generate and share genuine, high-quality content, possessing a unique value proposition in the market. AI technology will enable us to blaze a trail that is different from traditional time spent framework and explore new business models with greater potential.The way that Zhihu forms is actually the place that is demanded by the market in the age of AI technology.
Thank you. That concludes today's Q&A session. At this time, I will turn the conference back to Yolanda for any additional or closing remarks.
Thank you, operator. Thank all of you once again for joining us today. If you have any further questions, please contact our IR team directly or PSN Financial Communications. Thank you.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]