Zhihu Inc. (NASDAQ: ZH), founded in 2010 by Yuan Zhou, has transformed from an invite-only Q&A platform into one of China’s largest online content communities. Since opening to the public in 2013, ZH stock has become a go-to destination for users seeking knowledge, inspiration, and entertainment.
The platform hosts a vast range of content, from everyday decisions like product purchases and travel plans to complex topics such as generative AI and career advice. By 2023, Zhihu stock boasted 105.3 million average monthly active users and 14.5 million subscribing members.
With 71.3 million content creators contributing over 774.7 million pieces of content, Zhihu continues to evolve its content-centric business model, exploring new monetization channels while maintaining significant growth potential.
Strong Zhihu Operational Gains for Q2
Zhihu’s (NASDAQ: ZH) second quarter reflects a pivotal phase in the company’s ongoing transformation, all while boasting heightened operational efficiency. The integration of AI technologies, coupled with a focus on enhancing user experience, has solidified ZH stock position as a leading online content community.
Notably, cost management initiatives have driven significant improvements in financial performance. The platform’s robust growth in content creation and user engagement further underscores its long-term potential. Below is a summary of the key achievements from this quarter:
- Gross Margin Improvement: Achieved a 5.8 percentage point year-over-year increase, raising gross margin to 59.6%.
- Cost Reduction: Reduced total operating expenses by over RMB 140 million, including RMB 120 million in marketing cuts.
- Adjusted Net Loss: Reduced adjusted net loss by 79.9% year-over-year to RMB 44.6 million, the lowest since the U.S. IPO.
- AI Integration: Launched Zhihu Zhida, enhancing user engagement with AI-powered search functionality and new growth opportunities.
- Content Growth: Expanded cumulative content by 16.8% year-over-year, reaching 830.9 million pieces, while content creators grew by 12.5%.
- User Engagement: Fostered in-depth discussions on social issues, significantly boosting daily active user timestamps and retention.
- Olympics Coverage: Successfully attracted users to Olympic-related content, generating over 600 million views within a week.
- Positive Feedback: User interactions rose significantly, with a nearly 40% increase in daily engagements and a 47% rise in monthly average upvotes.
Operational Efficiency Drive Improved Zhihu Financials
In the second quarter, Zhihu (NASDAQ: ZH) made notable strides in optimizing its core operations and refining its business model. A disciplined approach to spending and strategic prioritization of high-return investments led to improved gross margins and a significant reduction in adjusted net loss. This quarter marked the lowest quarterly loss since the ZH stock’s U.S. IPO.
Marketing services revenue decreased to RMB 344 million, reflecting a deliberate focus on margin improvements. Pay membership revenue also dipped slightly by 3.7% year-over-year, despite a 4.7% increase in the average number of monthly subscribing members. This highlights the success of user growth strategies, even amid a minor decline in revenue per member.
Vocational training revenue declined to RMB 133.6 million, as Zhihu stock shifted focus to more profitable, self-operated programs. Gross profit reached RMB 556.5 million, with gross margin rising to 59.6%, the highest level since the IPO.
Operating expenses dropped by 16.7% year-over-year, with a 22.9% reduction in selling and marketing costs. Research and development expenses also decreased by 11.4%, driven by more efficient innovation spending. These efforts contributed to a significant narrowing of both GAAP and non-GAAP net losses, down 71.1% and 79.9%, respectively.
Prioritizing Quality Over Volume
This year, Zhihu has focused on improving efficiency within its vocational training business by strategically shifting away from underperforming courses and acquired subsidiaries. While this approach may lead to a temporary reduction in low-quality revenue, it allows the company to reallocate resources to core programs with higher profitability and potential. By prioritizing long-term gains over short-term revenue, Zhihu is laying the groundwork for sustainable growth and improved profit margins in the future.
Zhihu Slowly Heading in the Right Direction
Zhihu’s recent moves signal that the company is slowly but steadily heading in the right direction. By refining its operations, embracing AI, and focusing on high-quality content and user engagement, Zhihu is positioning itself for sustainable growth. Cost-cutting measures and disciplined spending further underscore its commitment to profitability.
While challenges remain, the platform’s continuous evolution and strategic focus on long-term gains show promise. As Zhihu enhances its core strengths and explores new opportunities, the company is laying a solid foundation for future success in China’s competitive online content landscape.
