Zhihu Inc. (NYSE: ZH; HKEX: 2390) Q1 2025 Earnings Call | 05/27/2025

Zhihu Inc. announced its First Quarter 2025 financial results, marking a significant milestone with its first-ever non-GAAP net profit in a Q1 since its IPO. The company's focus on improving profitability, enhancing operating efficiency, and deeply integrating AI technology has driven this positive turnaround, exceeding market expectations.

Q1 Financial and Operational Highlights:

• Non-GAAP Net Income: Zhihu achieved a non-GAAP net income of RMB 6.9 million, a substantial improvement from an adjusted net loss of RMB 135.7 million in the same period last year.
• Total Revenue: Q1 total revenue was RMB 729.7 million, a sequential decline reflecting ongoing business adjustments and a strategic focus on improving revenue quality and mix.
• Gross Margin: Expanded by 5.2 percentage points year-over-year, reaching 61.8%, supported by improved operational efficiency.
• Operating Expenses: Declined by 34.4% year-over-year to RMB 503.7 million, due to better cost management and efficiency gains from technological innovation.
• User Engagement: Average daily user time spent increased by 17.6% year-over-year to nearly 38 minutes. Core user retention rate improved both sequentially and year-over-year.
• Content and Creator Growth: Growth in both content consumption and creation was observed. Daily active high-tier content creators continued to grow, with verified owner-creators increasing 20% year-over-year. AI-related professional content grew by 46% year-over-year.

AI as a Core Strategic Pillar:

Zhihu views AI as a catalyst for rapid growth and is deeply integrating it into its community and commercial offerings.

• Contributor Attribution Feature: A key AI integration step, this feature attributes high-quality content to creators, amplifying the influence of Zhihu's expert network and helping to reduce AI hallucination in specialized domains.
• Zhihu Zhida (AI Interface): Monthly active users of Zhihu Zhida grew over 37% by the end of March, with improved usage frequency and stickiness in high-value fields like technology and finance.
• Public Knowledge Base: Future updates will include a public knowledge base built on personal knowledge libraries, allowing expert networks to deliver greater value at scale.
• AI in Marketing: AI is unlocking new marketing product opportunities by optimizing client mix and enhancing commercial product updates. Zhihu is emerging as a key upstream node in the AI search value chain due to its trustworthy content and professional creators.
• Content Sourcing for LLMs: Zhihu's high-quality content consistently ranks highly on search engines and is increasingly cited by large language models and AI-powered search applications, highlighting its credibility in the AI era.

Business Segment Performance:

• Marketing Services: Revenue was RMB 197 million, a 40.4% year-over-year decline. This was primarily due to adopting a trustworthy content model that reduced low-quality marketing content consumption by over 90%. However, the company is optimizing its client mix, focusing on expert-facing clients and leveraging AI for new application scenarios.
• Paid Membership: Revenue was RMB 417.9 million, remaining stable quarter-over-quarter, with average monthly paid members resilient at 14.2 million (up 1.2% sequentially). Zhihu continues to drive conversion through premium short-form content and is expanding into longer-form content formats.
• Vocational Training: Revenue was RMB 94.5 million, down 35% year-over-year. This reflects a strategic transformation from a traditional subject-based expansion to a more socially interactive, knowledge-sharing model that leverages the community and empowers professional creators.