From 30 billion to 9 billion, I know how to bleed to Hong Kong IPO

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THECAPITAL

Do you still love to use Zhihu?

This article is 3029 words and about 4.2 minutes

Author | Wu Qiong Edited by | My people

Source | Rongzhong Finance

（ID：thecapital）

China's largest online Q&A community will go to Hong Kong for an IPO.

On April 8, the official website of the Hong Kong Stock Exchange showed that through the hearing of the Hong Kong Stock Exchange, the underwriters of the IPO were Credit Suisse, JPMorgan Chase, CICC and CMB International.

Zhihu was born in 2010, when the 30-year-old Zhou Yuan had already worked as a programmer and journalist, and the seeds of entrepreneurship sprouted in his heart. After two explorations, Zhou Yuan finally made Zhihu and turned it from the initial niche elite gathering place into a popular social platform.

In the past ten years, Zhihu's story has attracted a lot of capital to stop, and well-known institutions such as Innovation Factory, Saifu Investment, Qiming Venture Capital, Tencent Investment, Sogou, Today Capital, China Renaissance Capital, Kuaishou, Baidu and other well-known institutions have invested in it. On March 26, 2021, Zhihu successfully landed on the New York Stock Exchange, with a market value of more than 30 billion yuan.

According to the latest data, the market value of Zhihu has shrunk to 9 billion yuan. From 30 billion to 9 billion, what has you experienced? And what do you want to change by going public in Hong Kong?

01

Star VC/PE blessing, the market value was as high as 30 billion

When it comes to the origin of Zhihu, it must start from a programmer.

Zhou Yuan's first twenty years or so were almost all about "programmers". He studied computer science at Chengdu University of Technology in college, and later obtained a master's degree in software engineering from Southeast University. After graduation, he naturally entered a software company in Shanghai to work on the underlying database development.

However, after that, the road began to be a bit "yaw", and Zhou Yuan gradually found that he was not suitable for being a programmer. So, he changed careers to become a journalist. It is this work experience that Zhou Yuan planted the seeds of entrepreneurship in his heart.

The road to entrepreneurship will never be smooth. The first two entrepreneurial attempts ended in failure. But Zhou Yuan was not discouraged, but summed up the experience and prepared for the next venture. At that time, Zhou Yuan remembered that he had cooperated with his friend Zhang Liang to develop apple4.us website to provide a communication platform for people from all walks of life who loved Apple. Overseas, a Q&A SNS website called Quora has become very popular, and in China, there are still vacancies in the market, so he immediately found Zhang Liang, the two hit it off, and began to do Zhihu in 2010.

At the end of 2010, Zhihu began internal testing and was officially launched on January 26, 2011. From the beginning, Zhihu's story has taken on a touch of legend. It is reported that among the earliest 200 users of Zhihu, there are well-known entrepreneurs and VCs such as Kaifu Li, Wang Xing, Wang Xiaochuan, Xu Xiaoping and Ma Huateng, who created 8,000 questions and 20,000 answers in the first 40 days of Zhihu's development.

It is the high recognition of Zhihu's content that has contributed to Zhihu's angel round of financing. In January 2011, Innovation Factory invested RMB 1.5 million in Zhihu. In fact, before talking about investment, Kai-Fu Lee and Wang Hua were already "fans" of Zhihu.

In this case, Zhihu's financing road is very smooth, and it has successively obtained a series A investment of millions of US dollars from Qiming Venture Capital in 2012, a US$22 million joint investment of Saifu Investment Fund and Qiming Venture Capital in 2014, a 55 million US dollar Series C investment led by Tencent in 2015, and a US$55 million C investment followed by Sogou, Saifu, Innovation Factory and Qiming Venture Capital.

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. It is worth noting that at that time, the investment of today's capital was basically negotiated on the same day, and the SPA was signed within a week. "Many institutions are also giving Zhihu TS in this round, but because Xu Xin's speed is too fast, when other companies are still considering which financial adviser to use to help raise funds, the two sides have already closed." Afterwards, Zhou Yuan also revealed that the speed of this round of financing was very fast, "before it was time to write PPT, it was negotiated, and the speed of money arriving was also very fast." ”

According to statistics, before the listing, Zhihu completed a total of 9 rounds of financing, basically maintaining a yearly pace, and the amount of financing continued to rise, with a total financing amount of nearly 1.5 billion US dollars. Among them, not only has it attracted the favor of the above-mentioned well-known VCs/PE, but also the Internet giants have also rushed to enter the game. Tencent, Sogou, Kuaishou, Ali, and Baidu are all investors.

On March 26, 2021, Zhihu successfully landed on the New York Stock Exchange, and as of the close of the US stock market on the same day, Zhihu's market value was about 4.751 billion US dollars, equivalent to more than 31 billion yuan.

02

Report card for the first anniversary of listing: market value evaporated, loss increased

However, in the US stock market, I know that life is not satisfactory.

As of press time, Zhihu's share price fell to $2.57 per share compared to its highest point of $13.58, and its market value was $1.446 billion, equivalent to RMB9.198 billion. That is to say, in just one year of listing, the market value of Zhihu has evaporated by two-thirds.

According to its 2021 financial report, Zhihu's total revenue in 2021 reached 2.959 billion yuan, an increase of 118.9% year-on-year, of which the fourth quarter revenue was 1.019 billion yuan, an increase of 96.1% year-on-year. Zhihu's gross profit for the full year of 2021 was 1.554 billion yuan and gross profit margin was 52.5%, an increase of 105.1% over 2020.

However, as bright as revenue, there are more and more losses. According to the financial report, the adjusted net loss for 2021 was 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.

In this regard, Zhihu explained in the prospectus that the investment in 2021 is used to establish and expand the content ecosystem. Net losses and net operating cash outflows are expected to continue in the near future as expenditures will continue to be generated strategically to build and expand the content ecosystem, further improve the quality of Zhihu's content and content portfolio, promote community culture and user interaction, and consolidate organic growth.

Behind this is the anxiety of being an established content community. It is understood that the source of revenue of Zhihu includes advertising, paid membership, content business solutions, and other four sectors, of which advertising revenue in 2021 is 378 million yuan, accounting for 37.1% of total revenue.

It is worth noting that in the past, Zhihu's revenue relied heavily on advertising business, and Zhihu was also trying to adjust this "one-legged walking" state. In 2019, the proportion of Zhihu advertising revenue was 86%, and it fell to 62% in 2020. In 2021, the data is still declining, and the proportion of advertising revenue to total revenue in the four quarters was 44.8%, 38.9%, 39%, and 37.1%, respectively.

On the other hand, content commerce 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 revenue of Zhihu's content business solution business was 121 million yuan, 207 million yuan, 278 million yuan and 367 million yuan, respectively, and the corresponding revenue proportion was 25.3%, 32.4%, 33.7% and 36% respectively. In the fourth quarter of 2021, the content business solution business revenue was 367 million yuan, almost equal to the advertising revenue.

Behind this is the soaring data obtained through continuous burning of money, but it also leads to high operating costs. In 2020, Zhihu's total operating expenses were 1.361 billion yuan, and in 2021, it increased to 2.95 billion yuan. Among them, sales and marketing expenses in 2020 will be 730 million yuan, an increase of 123.3% to 1.63 billion yuan by 2021; research and development expenses will be 330 million yuan in 2020, an increase of 87.9% to 620 million yuan by 2021; general and administrative expenses will be 300 million yuan in 2020, an increase of 130% to 690 million yuan by 2021.

However, this commercial adjustment also brings crisis to Zhihu. For users, the essence of content business solutions is soft and wide, which is not a good thing for community platforms that focus on content. If you can't continue to provide users with high-quality content, balancing content and business, it will inevitably lead to the loss of users.

03

The return wave of TMT Chinese stocks is coming

It is understood that zhihu has obtained the consent of the Hong Kong Stock Exchange to adopt a dual main listing model to list in Hong Kong and the United States, and intends to raise US$150 million to 200 million through listing in Hong Kong, and may become the first Chinese-listed Internet company to return to Hong Kong for listing by means of dual main listing.

In fact, it is not new to know that going public in Hong Kong is not new, but has become a standard for Overseas listed Internet companies. Since The second listing of Ali in November 2019, NetEase, JD.com, station B, etc. have completed the secondary listing on the Hong Kong Stock Exchange. On March 14, Kingsoft Cloud also made it clear that it was exploring opportunities for listing on the Main Board of Hong Kong.

According to professionals, there is a big difference between dual primary listing and secondary listing, and companies that take dual primary listing will have the same listing status in two listing places at the same time, such as delisting in one of the listing places, which will not affect the listing status in the other listing place. From the perspective of the listing process, the dual main listing return process is a complete Hong Kong listing application, while the secondary listing process will be much simplified, and many Hong Kong listing rules will be exempted. If a company moves from a secondary listing to a dual primary listing, it will also have to go through a complex application and approval process, with considerable variables. Following the SEC's identification of a number of Chinese companies as "relevant issuers" at risk of delisting, the pursuit of dual major listings has been included in the agenda of a number of Chinese-listed companies. On the evening of March 16, Station B announced that it would strive to voluntarily switch to dual listing on the main board of the Hong Kong Stock Exchange.

On April 7, EY released an industry report entitled "Hot Actions and Cold Thoughts on the Secondary Listing of TMT Chinese Stocks Returning to Hong Kong". The report pointed out that "in recent years, the uncertainty of foreign capital markets has increased, the SUPERVISION of the United States has tended to be stricter, and the investment and financing environment in Hong Kong has continued to be optimized, and the reform of the listing system of the Hong Kong Stock Exchange has relaxed the conditions for the secondary listing of Chinese stocks in Hong Kong, which together have catalyzed the return of Chinese stocks." For TMT enterprises, their application scenarios are rooted in China, and the continuous improvement of the domestic policy environment and the recognition of the value of TMT high-tech enterprises by the capital market are also an important driving force for the secondary listing of TMT Chinese stocks back to Hong Kong. ”

Back to Zhihu, its business scenarios are rooted in the Chinese market, and its business model and development prospects are more well understood by Chinese consumers and Chinese investors. However, today's Zhihu has been criticized by more and more netizens, "it is better to change the name of the editor", "The community atmosphere of Zhihu has become a miasma, not only the questions are not answered, but also often insulted and attacked." As its overall style changes, can it still gain the trust of users?

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