Zhihu-W (2390.HK) IPO Review

安信國際 ·  04/12/2022  · Researches

Company overview

Zhihu Inc. is one of the leading online content communities in China. According to Zuoshi Consulting, Zhihu Inc. is one of the top five comprehensive online content communities in China in terms of the average number of mobile monthly active users and income in the past three years.

In 2021, the average number of Q4 Zhihu Inc. MAU is 99.6 million, with a total of 55 million content creators.

The company's revenue in 2019, 2020 and 2021 was 670 million yuan, 1.35 billion yuan and 2.96 billion yuan respectively, mainly driven by the growth of advertising, paying members and content commercialization solutions. In 2021, advertising revenue contributed 1.16 billion yuan, up 37.7 percent over the same period last year; paid member revenue contributed 670 million yuan, up 108.6 percent over the same period last year; content commerce solutions 970 million yuan, up 617.2 percent over the same period last year; and other income contributed 160 million yuan, an increase of 162.5 percent over the same period last year.

Despite the rapid growth in revenue, there is no significant scale effect on marketing, management and R & D expenses. The total expense rates of 2019, 2020 and 2021 are 204.4%, 100.6% and 99.5%, respectively. The scale of losses continues to expand, and the net losses of 2019, 2020 and 2021 are 1 billion yuan, 520 million yuan and 1.3 billion yuan, respectively.

Industry status and prospects

According to the report, the size of China's online content community market (by revenue) has increased from 63.9 billion yuan in 2016 to 410.3 billion yuan in 2020, and is expected to increase to 1.7 trillion yuan in 2026, with a compound annual growth rate of 26.8 percent from 2020 to 2026, outpacing the overall online content market.

Advantages and opportunities

The company is an industry leader in China's online Q & A community with a strong network effect potential, a large, diversified and highly engaged user base, and a growing supply of rich and comprehensive content.

Weakness and risk

High expense rate weakens profitability

The new business ecology brings the risk of losing original users.

The antitrust of Internet platform and the adoption of personal information by the media are faced with a certain degree of policy risk.

Investment suggestion

Zhihu Inc. 's fund-raising is a secondary listing, and the shares sold are sales shares, which does not involve the financing of the company.

In addition, the company's ADS, which is listed in the US, has a market capitalization of about HK $11.3 billion at its recent closing price, which is estimated to be about HK $16.4 billion, a premium of more than 40 per cent to the US stock market capitalization and about 4.5 times the corresponding PS (TTM), compared with the IPO ceiling of HK $51.80. From the performance of recent secondary listings, the price difference between Hong Kong and US stocks is relatively small. We believe that the company's track and advantages are outstanding, but considering that the ADR reference valuation will affect the upward space of the company's stock price in the short term, as well as the risk that the success rate is too high, we do not recommend investors to finance subscription and give IPO a dedicated rating of "4.5".

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