Zhihu Inc. (NYSE:ZH) Q1 2025 Earnings Call Transcript

Zhihu Inc. (NYSE:ZH) Q1 2025 Earnings Call Transcript May 27, 2025

Zhihu Inc. beats earnings expectations. Reported EPS is $0.01, expectations were $-0.03168.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Zhihu Inc. First Quarter 2025 Financial Results Conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Today’s conference is being recorded and webcasted. At this time, I would like to turn the conference over to Yolanda Liu, Director of Investor Relations. Please go ahead, ma’am.

Yolanda Liu: Thank you, Heidi. Hello, everyone. Welcome to Zhihu’s first quarter financial results conference call. Join me today on the call from the senior management team are Mr. Zhou Yuan, Founder, Chairman, and Chief Executive Officer; and Mr. Wang Han, our Chief Financial Officer. Before we begin, I’d like to remind you that today’s discussion will include forward-looking statements made under the safe harbor provisions of the US Private Security Legation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our public filings with the US Security and Exchange Commission 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. Additionally, the discussion today will include both GAAP and non-GAAP financial measures for comparation purpose only. For reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our IR website at ir.zhihu.com. I will now turn the call over to Mr. Wang Han, CFO of Zhihu. Han, please go ahead.

Wang Han: Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu’s first quarter 2025 earnings call. I’m pleased to deliver today’s opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman, and CEO of Zhihu. In the first quarter, we carried our momentum of improving profitability forward, delivering another quarter of positive bottom-line results in terms of non-GAAP net income that significantly exceeded market expectations. This marks the first time we have achieved a non-GAAP net profit in the first quarter of the year since our IPO. Adjusted net income for quarter was RMB6.9 million, compared with an adjusted net loss of RMB135.7 million during the same period last year. This milestone reflects the continued execution and enhancement of our operating strategy, as well as the increased operating leverage enabled by AI integration.

Deep and engaging discussions across various professional fields continue to take place on the Zhihu platform, expanding the influence of our trustworthy content and contributors within and beyond our community. Our time spent per DAU, core user retention rate, and creator activities all showed improvement in the first quarter. We’re active in a healthy community [Technical Difficulty] experts passionate about sharing knowledge, experience, and insights forms a foundation and core advantage for our transition into the AI era. Investment in and exploration of AI applications remains a top priority for us. In the first quarter, we launched the contributor attribution feature, a key step for the broader integration of AI with our community. By building high-quality content to contributors, this feature further amplifies the influence of our expert network, built over years of professional accumulation.

This innovative feature helps reduce AI hallucination in specialized domains and has been well received by users. We believe AI will catalyze our rapid growth and through deep integration with our community, enable us to expand the range of our differentiated value proposition, high quality content, trusted creator network and AI capabilities to broaden [Technical Difficulty]. In the first quarter, we saw growth in both content consumption and creation, along with a stronger sense of community belonging. Increased engagement was evident in several of our key user metrics. Our monthly active user base remains stable. Average daily user time span reached nearly 38 minutes, up 17.6% year-over-year. Core user retention rate improved both sequentially and year-over-year.

Zhihu has long been the go-to platform for in-depth and vibrant discussion across a wide range of professional fields. We’re seeing a robust flow of high-quality content that both deepens user trust and drives more expertise interactions. During the quarter, AI-related professional content grew by 46% year-over-year, where high quality content continues to rank highly on major search engines and is increasingly cited by large language models and AI-powered search applications. According to the Qubit Research Institute, in professional domains, AI assistants cite community platform content 62.4% of the time, with Zhihu ranking highest, cited almost 4 times as much as just number 2 platform, highlighting the importance of content quality and professional credibility in the AI era.

Zhihu is emerging as a leading source of trustworthy professional content. The number of daily active high tier content creators continued to grow sequentially in Q1, with verified owner creators increasing 20% year-over-year. Our higher tier creators include frontline experts in niche topics. In AI, our community not only discusses macro level topics like LLMs, intelligent agents, but also dives into foundational technologies such as embedded AI, autonomous driving, and model compression. For example, Ji Yu, founder of Xingyun IC, and Yang Shuo, a top robotics contributor and former Tesla engineer, both chose Zhihu as the first platform to discuss their startup journeys. Xuan Zhu, founder of StarMap, and Professor Zhou Boyu of SUSTech, regularly post their technical insights on Zhihu, generating widespread discussion across the broader Internet.

[indiscernible] parallel-scaling lead author, and core ByteDance, Trey and Mars co-developers also use Zhihu to share their ideas and development progress. The integration of AI within our community remains our priority this year. The user base for Zhihu Zhida has grown steadily as a result by the end of March, mostly active users grow over 37% compared to the start of the quarter, with improved usage, frequency, and user stickiness in high-value fields like technology, finance, workplace, and health. One of our next major updates will include a public knowledge base built on top of existing personal knowledge libraries, enabling professional content creators and expert network to deliver even greater value at scale. Turning to commercialization, we remain committed to balancing commercial growth with protecting the integrity of our community and user experience.

Our trustworthy content and active professional creator ecosystem enhance the commercial appeal of our brand and monetization potential. We believe a healthy and sustainable commercial flywheel will over time further drive our user engagement and improve community vitality. In the first quarter, our total revenue was RMB729.7 million, down 15.1% sequentially. Now, turning to our performance by segment. In the first quarter, revenue from our marketing services business reached RMB197 million, representing a year-over-year decline of 40.4%. This decrease was primarily due to the adoption of trustworthy content model, which identifies and distributes both commercial and organic content. As of the end of the quarter, the consumption of low quality marketing costs declined by more than 90% year-over-year.

At the same time, we are optimizing our client mix. Since the beginning of 2025, we have expanded our experts-facing client base, working with partners such as Huawei’s HarmonyOS NEXT developers and China Mobile cloud services, unlocking the commercial value of our high quality user base and strong brand influence. Leveraging our trusted AI content framework and vibrant professional creator ecosystem, we’re also helping brand partners explore new AI application scenarios. At the 2025 AWE and in the theme AI technology, AI life, we partnered with brands such as Haier, Gree, Lloyd, and Baidu [indiscernible] to create an immersive offline experience within the Zhihu Future [indiscernible] Store. Based on user interaction data and content insights, we identified five key AI home appliance and AI lifestyle themes, helping brand partners establish credibility and improve the visibility of their next-gen tech products.

We’re using this experience to accumulate valuable content and data assets for future AI use cases. Top-tier AI-related advertisers also remain active on our platform this quarter. Additionally, leveraging our in-house AI capabilities, we continue to upgrade our marketing product suits. In Q1, we maintain ad load as one of the lowest historical level while improving CPM performance across most product categories, driving higher commercial efficiency for brand partners. As overall ad exposure volume remains stable, ARPU increased steadily. As AI rapidly reshapes content distribution and brand marketing, Zhihu is emerging as a key upstream node in AI search value chain, driven by our trustworthy content and network of professional creators in specialized fields.

We believe our marketing services business has reached a strategic inflection point. One’s disadvantages and their traditional commercial paradigm is not increasingly transforming into structural advantages in AI era. For our paid membership business, we continue to prioritize ROI in user acquisition, resulting in improved return profile of new members. In this context, we are pleased that our average monthly paid members remain resilient in the first quarter, up by 1.2% on a sequential basis to 14.2 million. Our paid membership revenue was RMB417.9 million, remaining stable quarter-over-quarter. We continue to drive paid user conversion and engagement rates through our premium short form paid content and are actively exploring new paid content formats and monetization opportunities.

A recent highlight is the original audio drama Love with Ghost King Over Three Lifetimes, adapted from a popular story by a Yanyan writer. Upon release, the series quickly rose to the top of our training charts and leading — and lead in the weekly streaming rankings. Building on the strong momentum of our short form content, we’ve also expanded into longer form content. On May 8, we launched the Season 4 of Yanyan Story Long Form Writing Marathon, a six-month competition that invites submissions of high-quality long form stories across the Internet. This season features four creative categories, including historical fiction, mystery, witness fiction, and speculative fiction, with a prize of RMB100,000 for top writers. Going forward, we will continue to leverage a combination of premium short form and medium to long form content to fulfill the needs of a more diverse audience, reinforcing Yanyan Stories leadership in a paid reading space.

Lastly, our vocational training business required revenue of RMB94.5 million in Q1, down 35% year-over-year. This performance reflects our ongoing strategic transformation of the vocational training business, leveraging our high-quality content ecosystem and trusted professional creator network. We’re shaping away from a traditional subject-based expansion model, which focused on a few core categories towards a more socially interactive and knowledge sharing driven one. This transition expected to further enhance operational efficiency and profitability over time. A core of this transformation is our goal to empower professional creators. Product development will increasingly focus on integrating paid knowledge content with social interactions.

For example, our column product can not only better address the learning and knowledge needs of users, but also enable creators to publish in-depth, expertise-driven content while building their own communities and amplifying their personal influence. Going forward, we will continue to build on this new business model, expanding our product and service offerings, while further unlocking the value of Zhihu’s high-quality content and trusted computer network. As we move further into 2025, we will remain determined to capitalize on historic opportunity creating by AI. Building on a strong foundation of community trust, we will further enhance connections and engagement among our high value user base. By accelerating this synergistic evolution of high quality content, a trusted creator network, and AI reasoning capabilities, we aim to continuously strengthen Zhihu’s competitive advantages and deepen our competitive advantage in the AI area.

We believe this strategy will position Zhihu for sustained leadership in the next generation of intelligent content platforms. This concludes Mr. Zhou Yuan’s remarks. Now, I will review the details of our first quarter financials. For a complete overview of our first quarter 2025 results, please refer to our press release issued earlier today. In the first quarter, we achieved a non-GAAP probability and expanded our gross margin as we continue to execute strongly and enhance operational efficiency. We’re encouraged by the progress we made to start off the year and remain firmly focused on building upon this momentum to lay a stronger foundation for sustainable growth. Our total revenue for quarter were RMB729.7 million compared with RMB960.9 million in the same period of 2024.

The decrease reflects the ongoing adjustment to our business and our strategic focus on improving revenue quality and mix. Our marketing services revenue for the quarter was RMB197 million, compared with RMB330.5 million in the same period of 2004. The decrease was mainly driven by our proactive ongoing optimization of service offerings to strategically expand margins. Paid membership revenue were RMB417.9 million, compared with RMB449.7 million in the same period of 2004. While average monthly subscribing members declined slightly year-over-year, they increased by 1.2% sequentially. Notably, user engagement with premium content remained strong throughout the quarter, reinforcing the value of our current ecosystem. Vocational training revenue was RMB94.5 million compared with RMB145.4 million in the same period of 2024.

The decrease was primarily due to our strategic refinement of acquired business as we continue to prioritize faster growing self-operated programs. Other revenues were RMB20.3 million compared with RMB35.2 million in the same period of 2024. Our gross profit per the quarter was RMB451.1 million compared with RMB543.5 million in the same period of 2024. Supported by improved operational efficiency, our gross margin expanded by 5.2 percentage points year-over-year, reaching 61.8%. Our total operating expenses for the quarter declined by 34.4% year-over-year to RMB503.7 million. This decrease reflects better cost management and ongoing efficiency improvements driven by technological innovation. Selling and marketing expenses decreased by 32.9% to RMB320.6 million from RMB478 million in the same period of 2004.

The decrease was primarily due to the more disciplined promotional spending and a decrease in personnel-related expenses. R&D expenses decreased by 28.1% to RMB141.9 million from RMB197.4 million in the same period of 2024. The decrease was primarily driven by more efficient spending on technological innovation. G&A expenses decreased by 55.6% to RMB41.2 million from RMB92.9 million in the same period of 2024. As a result, our GAAP net loss for the quarter narrowed by 93.9% year-over-year. On a non-GAAP basis, we remain profitable for the second consecutive quarter, recording adjusted net income of RMB6.9 million compared with an adjusted net loss of RMB135.7 million in the same period of 2024. As of March 31, 2025, we have a cash and cash equivalents, term deposits, restricted cash and short-term investment of RMB4.8 billion compared with RMB4.9 billion as of December 31, 2024.

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. In addition, 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. Looking ahead, we will continue strengthening our commercialization capabilities and capitalizing on the long-term growth potential within our community. Our goal remains clear, to drive sustainable growth and profitability and to deliver lasting value to our shareholders.

This concludes my prepared remarks on our financial performance for the quarter. Let’s turn the call over to the operator for the Q&A session.

Q&A Session

Operator: Your first question comes from the line of Xueqing Zhang from CICC. Please go ahead. Your line is open.

Xueqing Zhang: [Foreign Language] Thanks, management, for answering my question. The management mentioned about Zhihu’s strategic AI plans in the prepared remarks and also shared some metrics and user feedback on Zhida. It sounds like Zhida is not only an AI product of Zhihu. So what other AI initiatives can we expect next, both within the Zhihu community and beyond? Thanks.

Zhou Yuan: [Foreign Language] Thank you for your question, Xueqing. This is from Zhihu CEO, Zhou Yuan. So, on macro level, we expect over next two years, the intelligence selling of AI models will continue rising. So our strategic focus in AI centers around trustworthy content and our expert network. In fact, we believe this can be summarized as a simple formula. Trustworthy content times community expert network times AI capabilities equals to a scalable growth path. [Foreign Language] As you just mentioned, Zhida, truly Zhida serves as an AI interface of an entire community of us. Or you could say a new entry point to our community. What you are seeing today is only a partial realization of our vision. In fact, how our users are engaging and be active with it is providing us with invaluable feedback.

We didn’t choose to roll out a series of cookie cutter or repetitive features. On one hand, we believe many of these common functions will soon be overtaken by the rising intelligence selling of foundation models. On the other, we don’t see value in customizing features just to showcase model capabilities if they don’t provide lasting value to our users. [Foreign Language] So, fundamentally, I believe there are two more fundamental tasks in the context of what I mentioned, of these rapid model evolution. [Foreign Language] First of all, we are integrating more experts. It’s what we refer to as a expert network, Zhihu expert network. Our initial milestone here was to enable contributor attribution, [indiscernible] or traceability, which is now fully rolled out and has been positively received by our users.

We will definitely continue integrating on this front. [Foreign Language] Second, we aim to aggregate more high quality content. So, our next step is to launch public knowledge basis, which will help us scale our library of trustworthy content. We plan to introduce expert knowledge basis in different diversified sectors during the upcoming college entrance examination season in China, providing reliable support for students in making informed decisions. [Foreign Language] Looking ahead, both of these two pillars will continue to involve themselves. Today, the expert network primarily manifests through content. But with the development of agent-based technology, the value of the expert network may increasingly extend beyond content itself and enter a new stage of the evolution.

Thank you for your question again.

Operator: Thank you. We will take our next question. Your next question comes from the line of Lincoln Kong from Goldman Sachs. Please go ahead. Your line is open.

Lincoln Kong: [Foreign Language] Thank you, management, for taking my questions. My question is about the user and the community.

Zhou Yuan: [Foreign Language] Thank you for your question, Lincoln. As you may know, our current priority is the quality of our entire ecosystem. Since last year, we’ve executed this strategy with strong conviction. Well, overall community user scale has remained quite stable. What’s more important here is that all key user health metrics have continued to improve. And we’re seeing a stronger and a more engaged community atmosphere. This is very much in line with our expectations. [Foreign Language] Just last week, we wrapped up the 11th Zhihu Youth Knowledge Conference [Foreign Language] and on site we heard a lot of positive feedbacks from long time and the new creators, like including many who have been contributing to Zhihu for over a decade.

This kind of early positive momentum is encouraging. I believe that incremental changes will compound into meaningful breakthroughs and over time we will see greater returns. [Foreign Language] In the first quarter, the number of our professional creators honored under our key programs such as Outstanding Contributors, Rising Contributors, Blue Label Professionals, and the Navigators grew significantly year–ver year. These creators are expanding their influence both within community and beyond with evidence that by interactions per creator and per post, serving more than 45% and 95% year-over-year respectively. [Foreign Language] We also upgraded our column and idea features to better support both long and short form content, professional content creation, and offered improved channels for interaction and monetization.

Since the roll out of new column feature in March, we’ve achieved two consecutive months of rapid growth in both content creation and user conception. Likewise, the volume of ideas generated by professional creators surged in the first quarter, showing exceptionally user engagement. Thank you.

Operator: Thank you. We will take our next question. Your next question comes from the line of Thomas Chong from Jefferies. Please go ahead, your line is open.

Thomas Chong: [Foreign Language] So I’ll translate myself. Thanks, management, for taking my question. So, my question is, I could mention and share some color on the revenue trends for each of these segments, in 2025 and the profitability outlook. Thanks.

Wang Han: [Foreign Language] Thank you for your question. This is from Zhihu CFO, Wang Han. So, 2025 is another very important year of business model optimization for us. Our key focus is to further align our community ecosystem with our commercial operations while enhancing the Zhihu’s brand commercial value and the pricing power to build a more sustainable long-term business flywheel. [Foreign Language] Although our Q1 revenue declined year-over-year, but each of our business streams is entering a new phase of growth with evolving monetization models. [Foreign Language] For our marketing services, it has been evidenced that relatively low quality marketing content conception has dropped to a very low level. And we are now seeing an accelerated momentum in both client mix optimization and commercial product updates.

On top of that, AI is unlocking new marketing product opportunities. [Foreign Language] In terms of our paid membership, we are broadening our content offering to include a mix of a premium short form and made to long form content. This strategy strengthens our competitive edge in this sector. [Foreign Language] For our vocational training business, we are transitioning from a traditional model to a more socially engaging knowledge sharing model that better leverages our community’s strength. [Foreign Language] On the innovation front, we remain disciplined with our investments, particularly in AI-driven initiatives that align Zhihu’s core strengths in content and community. [Foreign Language] Our ongoing ecosystem upgrades and AI initiatives come with both opportunities and challenges.

[Foreign Language] With continued operational refinements and more granular management execution, we are confident our financial performance will exceed our initial expectations for the year. [Foreign Language] Thank you. Thank you for your question.

Operator: [Operator Instructions] Your next question comes from the line of Vicky Wei from Citi. Please go ahead, your line is open.

Vicky Wei: [Foreign Language] Thanks, management, for taking my question and congrats on a strong quarter. Would management share some color in your thoughts about the shareholder return program this year? Thank you.

Wang Han: [Foreign Language] Thank you for your question, Vicky. This year, we remain committed to enhancing shareholder returns through our share repurchase plan. [Foreign Language] Earlier today, our Board approved the 2025 buyback plan, authorizing a repurchase of up to 10% of our issued and outstanding shares. [Foreign Language] So we will execute the buyback in the open market on the back to effort basis. We believe the current share price does not fully reflect the value of our company and this well underscores measurement’s confidence in our long-term success. Thank you. Thank you again.

Operator: 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.

Yolanda Liu: Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or Christensen Advisory. Thank you. Thank you so much.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.