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01/11 12:00
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
While Zhihu showed improved profitability and a new share repurchase program, revenue declines in key segments and unclear guidance suggest a balanced outlook. The positive EPS surprise and improved gross margin are offset by revenue declines and supply chain challenges. The focus on AI and community trust is promising but not enough to outweigh the immediate revenue concerns. Overall, the mixed signals from financial performance and strategic initiatives suggest a neutral stock price movement.
EPS Reported EPS is $0.01, compared to expectations of $-0.03168.
Adjusted Net Income Adjusted net income for the quarter was RMB6.9 million, compared with an adjusted net loss of RMB135.7 million during the same period last year.
Total Revenue Total revenue for the quarter was RMB729.7 million, down from RMB960.9 million in the same period of 2024, reflecting ongoing adjustments to the business and a strategic focus on improving revenue quality and mix.
Marketing Services Revenue Revenue from marketing services was RMB197 million, down from RMB330.5 million in the same period of 2024, primarily due to the adoption of a trustworthy content model.
Paid Membership Revenue Paid membership revenue was RMB417.9 million, compared with RMB449.7 million in the same period of 2024, with average monthly subscribing members up 1.2% sequentially.
Vocational Training Revenue Vocational training revenue was RMB94.5 million, down from RMB145.4 million in the same period of 2024, due to a strategic refinement of acquired business.
Gross Profit Gross profit for the quarter was RMB451.1 million, compared with RMB543.5 million in the same period of 2024.
Gross Margin Gross margin expanded by 5.2 percentage points year-over-year, reaching 61.8%.
Total Operating Expenses Total operating expenses for the quarter declined by 34.4% year-over-year to RMB503.7 million, reflecting better cost management and efficiency improvements.
Cash and Cash Equivalents Cash and cash equivalents, term deposits, restricted cash, and short-term investments totaled RMB4.8 billion, compared with RMB4.9 billion as of December 31, 2024.
Share Repurchase Repurchased 31.1 million Class A ordinary shares for an aggregate value of $66.5 million on the open market.
Contributor Attribution Feature: Launched a contributor attribution feature to enhance AI integration with the community, reducing AI hallucination in specialized domains.
Original Audio Drama: Released 'Love with Ghost King Over Three Lifetimes', which quickly rose to the top of streaming charts.
Long Form Writing Marathon: Launched Season 4 of Yanyan Story Long Form Writing Marathon, inviting submissions of high-quality long form stories.
AI-Related Professional Content Growth: AI-related professional content grew by 46% year-over-year, with Zhihu ranking highest in citations by AI assistants.
Paid Membership Growth: Average monthly paid members increased by 1.2% sequentially to 14.2 million.
Expert Client Base Expansion: Expanded client base to include partners like Huawei and China Mobile, unlocking commercial value.
Gross Margin Improvement: Gross margin expanded by 5.2 percentage points year-over-year, reaching 61.8%.
Cost Management: Total operating expenses declined by 34.4% year-over-year due to better cost management.
Ad Load and CPM Performance: Maintained low ad load while improving CPM performance across most product categories.
Shift in Marketing Services: Transitioned to a trustworthy content model, reducing low-quality marketing costs by over 90% year-over-year.
Vocational Training Business Transformation: Strategically refining the vocational training business to focus on socially interactive and knowledge-sharing models.
Share Repurchase Program: Approved a new share repurchase program effective until June 25, 2026, with a maximum repurchase size of 10% of total issued shares.
Regulatory Risks: The company mentions inherent risks and uncertainties related to forward-looking statements, which could impact actual results.
Competitive Pressures: Zhihu faces competitive pressures in the AI content space, as highlighted by the need to maintain high-quality content and a trusted creator network.
Supply Chain Challenges: The company is optimizing its client mix and service offerings, indicating potential challenges in maintaining a stable supply chain for its marketing services.
Economic Factors: The decline in revenue from marketing services and vocational training reflects broader economic challenges and shifts in consumer behavior.
User Engagement Risks: Despite improvements in user engagement metrics, the company acknowledges the need to balance commercial growth with community integrity, which poses a risk to user retention.
Revenue Quality and Mix: The ongoing adjustment to improve revenue quality and mix indicates challenges in achieving sustainable revenue growth.
AI Integration: Investment in and exploration of AI applications remains a top priority for us. We launched the contributor attribution feature, a key step for the broader integration of AI with our community.
Content Quality: AI-related professional content grew by 46% year-over-year, highlighting the importance of content quality and professional credibility in the AI era.
Commercialization Strategy: We remain committed to balancing commercial growth with protecting the integrity of our community and user experience.
Paid Membership Growth: Our average monthly paid members remain resilient in the first quarter, up by 1.2% on a sequential basis to 14.2 million.
Vocational Training Transformation: We are shaping away from a traditional subject-based expansion model towards a more socially interactive and knowledge sharing driven one.
Revenue Expectations: Our total revenue for the quarter was RMB729.7 million, down 15.1% sequentially, reflecting ongoing adjustments to our business.
Paid Membership Revenue: Paid membership revenue was RMB417.9 million, remaining stable quarter-over-quarter.
Gross Margin: Our gross margin expanded by 5.2 percentage points year-over-year, reaching 61.8%.
Share Repurchase Program: The Board has approved a new 2025 share repurchase program, effective until June 25th, 2026, with a maximum repurchase size of 10% of total issued shares.
Future Focus: We will continue strengthening our commercialization capabilities and capitalizing on the long-term growth potential within our community.
Share Repurchase: As of May 26, 2025, we repurchased 31.1 million Class A ordinary shares for an aggregate value of $66.5 million on open market. We also repurchased a total of 17.8 million Class A ordinary shares for an aggregate value of $26.9 million through the trustee of the company.
New Share Repurchase Program: The Board has approved the new 2025 share repurchase program, which will be effective until June 25th, 2026, with a maximum repurchase size of 10% of total issued shares, subject to shareholder approval at our upcoming Annual General Meeting.
Despite challenges like decreased revenues and increased losses, management's optimistic guidance and AI progress provide a counterbalance. The Q&A highlighted positive AI integration and a healthy user ecosystem. The commitment to share buybacks also supports sentiment. However, the absence of clear market cap data and ongoing financial pressures suggest a cautious outlook, resulting in a neutral prediction.
The earnings call presents mixed signals: a decline in revenue and specific segments, but an improvement in gross margin, cost control, and profitability. The Q&A section reveals cautious optimism, with management focusing on AI integration and shareholder returns. However, the lack of specific guidance and avoidance of detailed plans may concern investors. The share repurchase program and profitability turnaround are positives, but the overall sentiment remains balanced, leading to a neutral stock price prediction.
While Zhihu showed improved profitability and a new share repurchase program, revenue declines in key segments and unclear guidance suggest a balanced outlook. The positive EPS surprise and improved gross margin are offset by revenue declines and supply chain challenges. The focus on AI and community trust is promising but not enough to outweigh the immediate revenue concerns. Overall, the mixed signals from financial performance and strategic initiatives suggest a neutral stock price movement.
Despite achieving profitability and executing strategic shifts, Zhihu faces significant revenue declines and competitive pressures. The revenue drop across segments, especially in marketing services and vocational training, coupled with unclear guidance, paints a concerning picture. The share repurchase plan is a positive, yet it may not offset the negative sentiment from declining revenues and market pressures. The Q&A reveals management's evasiveness on revenue trends, exacerbating uncertainties. Without a clear market cap, but considering the overall negative indicators, a negative stock price reaction is anticipated.
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