Zhihu Inc. Q2 FY2025 Earnings Call

Thank you, Sara. Hello, everyone. Welcome to Zhihu's 2025 Second Quarter Financial Results Conference Call. Joining me today on the call from the senior management team are Mr. Zhou Yuan, Founder, Chairman and Chief Executive Officer; and Mr. Wang Han, 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 U.S. Private Securities Litigation Reform Act of 1995. These statements involve inherent risks and uncertainties. As such, the 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 U.S. Securities and Exchange Commission and 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 comparison purpose only. For a 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. Today, Zhou Yuan, our Founder and CEO; and Wang Han, our CFO, will have their prepared remarks delivered in English through their representative AI voice agents. The content is prepared by them while the agents serve only as the voice interface. As the agents are still learning, we appreciate your understanding. First, let's hear from Zhou Yuan's agent, Victor. Victor, please go ahead.

Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu Second Quarter 2025 Earnings Call. I am Victor, an AI-powered voice agent of Zhou Yuan. I am pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman and CEO of Zhihu. We posted our third consecutive quarter of non-GAAP profitability, once again beating market expectations by a wide margin. Adjusted net income for the second quarter reached RMB 91.3 million compared to a loss of RMB 44.6 million in the same period last year, while gross margin expanded by approximately 3 percentage points year-over-year. These results highlight the strength of our disciplined operating strategy and the value of our AI-powered productivity gains. Zhihu's ecosystem continues to flourish with our trustworthy content and professional creators, enriching the experience for users and creators alike. In particular, leading experts continue to drive deeper engagements within the community, steadily amplifying the influence and strengthening the ecosystem. This increased engagement is clearly reflected in several key user metrics. While MAUs remained stable from last quarter, daily time spent, core user retention, and high-tier creator engagement all posted notable gains, both sequentially and year-over-year. Our expanding in-house AI capabilities and growing industry influence have reinforced our platform's unique value proposition as the go-to destination for professional trustworthy Chinese language content with an increasing number of users and creators flocking to the platform. Notably, our platform has emerged as the preferred launch pad for new AI technologies and products while becoming the leading network for AI talent and expertise. As our synergistic development of high-quality content, trusted creator network, and AI capabilities accelerates, Zhihu is delivering greater and differentiated value to users and clients not only on our platform but also across the broader Internet continuously widening our competitive moat. As AI tools surge in popularity, professional contents from the Zhihu community are increasingly being cited by a growing number of leading large AI models and AI search engines. We are pleased to see Zhihu serve as a key source for credible information and research, especially in practical use cases such as scientific education, consumer decision-making, and career development. Moving forward, we will further enhance the user and creator experience by integrating AI more deeply throughout our community by adding intuitive features like personal knowledge assistance. We will continue to test, refine, and enhance our AI capabilities to amplify the value of Zhihu as a trusted content and expert network across the broader Internet. We believe these efforts will establish our platform as a foundational source of reliable content for the Chinese AI ecosystem. Our persistent efforts to optimize the trustworthiness of our content system and foster greater creator engagement across the community continue to deliver tangible results. In the second quarter, average daily user time spent exceeded 39 minutes, reflecting a 15% year-over-year increase. Core user retention improved significantly, both on a sequential and year-over-year basis. While the depths of DAU content engagement increased quarter-over-quarter, this progress reflects our ongoing efforts to optimize community features and refine operational strategies throughout the year. Through AI integration, we've created a more user-friendly and reliable user experience while strengthening connections among our users and key contributors. Over the past 14 years, we've developed and continuously refined Zhihu's content model building a robust foundation where professional content thrives and consistently inspires trust, drives citations, and encourages discussions online. In the second quarter, daily high-quality content creation increased by over 10% sequentially. AI has emerged as a key vertical with professional AI-related content maintaining year-over-year growth of over 45% for 2 consecutive quarters. Recently, we've seen a growing trend of more and more frontline engineers and AI model developers openly sharing key insights that go beyond academic papers. This has made Zhihu a uniquely valuable community where new products debut, in-depth discussions unfold, and knowledge is continuously built and preserved. Over the past months alone, Zhihu has been the go-to platform for top AI teams and frontline developers to launch and discuss new technologies and products. For example, Moonshot AI unveiled the technical details of their Kimi K2 model with core developers actively engaging in Q&A sessions to break down the architecture and technical details. ByteDance's team also released their GR-3 robot model on our platform, accompanied by an exclusive article outlining their development principles and journey. The Trade team at ByteDance also shared a comprehensive overview of their model iteration process. In addition, Zhipu AI launched its GLM-4.5 model on our platform, and Alibaba's team released 3 consecutive models, sparking a series of vibrant community discussions. Even StepFun's co-founder, Yibo Zhu, chose Zhihu to thoroughly explain the design ideas behind the step 3 architecture. Through ongoing improvements to our content, ecosystem, and algorithms, we continue to identify and suppress the spread of low-quality content, reducing its distribution by more than 98% year-over-year and over 59% sequentially. During the challenging annual Gaokao college entrance exam in June, when students are often overwhelmed with information and the need to make critical life decisions, Zhihu leveraged its trustworthy structured content ecosystem to provide clear and practical guidance. Tools such as the Gaokao Data Hub offered data-driven support for application submissions while long table discussions such as career paths for humanities majors and how to navigate away from discouraged to majors brought together expert voices offering valuable insights. Zhihu's university communities also supported students by sharing authentic firsthand perspectives about campus life. Professional creators form the backbone of our ecosystem. In the second quarter, daily active high-tier creators continued to grow sequentially, while the number of verified honored creators increased by 26% year-over-year. This community continues to thrive with high-quality engagement. As of the end of June, over 16 million continuous learners and 3.65 million proficient creators on Zhihu engaged in science and AI-related discussions. Among those who are AI developers, over 56% hold a Masters or a doctoral degree. Nearly 40% are aged between 18 and 24, and 14% are senior technology professionals including company executives, CTOs, and tech leads to provide a better experience for professional creators. We continue to optimize our ideas and column products. The upgraded ideas product now seamlessly aligns with the high-frequency creation workflow of professionals while encouraging interaction among users with shared interests. This led to a quarter-over-quarter increase of over 15% in both views and engagement in the second quarter. The column feature has strengthened connections among like-minded users resulting in a 45.7% quarter-over-quarter increase in daily visits. Additionally, more professional creators launched their own columns this quarter, fueling solid growth in the total number of columns. At the same time, deepening AI integration within our community has continued to expand our AI capabilities and service scope. In the second quarter, we launched a major update to Zhihu Zhida public knowledge base built on top of existing personal knowledge libraries. This update delivers a seamless AI interaction experience for creators and users across a wide range of reading, Q&A, and search use cases. It has also further reduced AI hallucinations in professional domains. Within just 2 weeks of launch, users created hundreds of new entries on the public knowledge base. This momentum also supported the creation of additional private knowledge bases among users enabling them to consolidate and archive their search and research workflows. Moving forward, we will continue to develop Zhihu Zhida as an AI agent embedded within the community, serving as a comprehensive productivity suite for search, research, learning, and content creation. We will further promote the open sharing of professional content within the Zhihu community and continue to strengthen the synergy between high-quality content, our trusted expert network, and AI capabilities. We are thrilled to see that Zhihu Zhida has entered an exciting new stage of growth and innovation. Once it achieves critical penetration relative to overall platform traffic, with the user experience and onset quality reaching key milestones, we will seek to integrate it across our broader suite of products. Now let's move on to commercialization. In the second quarter, we maintained a dynamic balance between commercial growth and community integrity by proactively refining our product offerings and client mix. While still navigating an adjustment cycle, we are encouraged to see the year-over-year top-line decline moderating with total revenue reaching RMB 716.9 million in the second quarter. We firmly believe these ongoing adjustments will lay a solid foundation for our sustainable long-term growth. Moreover, our evolving AI capabilities and content ecosystem will continue to enhance and expand our commercial services, reinforcing the virtuous cycle between commercial growth and community vitality. Let's turn to performance by segment. Our marketing services are progressing through the adjustment phase as planned and remain on track. In the second quarter, marketing services revenue grew 13.1% quarter-over-quarter to RMB 222.8 million, with the year-over-year decline narrowing substantially. We continue to crack down on low-quality marketing content, reducing its consumption by over 90% year-over-year during the second quarter. We also made meaningful progress in optimizing our client mix. Leveraging Zhihu's strong brand equity and influence, we expanded our enterprise-facing client base and diversified our commercial IP products and services tailored for top-tier clients. During the June 18th shopping festival, we launched the Smart Picks Expert Choice campaign, capitalizing on Zhihu's trustworthy content model and high-value user community. This initiative boosted brand awareness and highlighted product strength for leading brands such as BYD, Roborock, and others. Furthermore, our advertising product upgrades are accelerating, powered by our advanced AI capabilities. While the second quarter is typically peak season for e-commerce, our overall ad load significantly decreased from the same period last year, while CPM performance improved sequentially across most product categories. During the June 18th shopping festival, users increasingly used our AI capabilities to make more informed purchase decisions reflected in the 190% year-over-year surge in the Zhihu June 18th Recommendation Search Index; the index for June 18th purchase-related searches on Zhihu Zhida grew by 61% quarter-over-quarter, and the average order value per user increased by 27% year-over-year. We are also building stronger connections between trusted content creators, high-quality content, and products; the number of content creators participating in product promotion grew by 10% year-over-year, while the volume of promotional content increased by 20% year-over-year. We continue to upgrade our CCS products, which are quickly gaining traction among clients. Advertising spend from the gaming sector saw a fourfold increase year-over-year, while our client base expanded by 75%. With ongoing improvements to our AI capabilities, we expect marketing services to recover more strongly in the second half, expanding our commercial potential and driving long-term value. And now for our paid membership business. In the second quarter, average monthly subscribing members totaled 13.2 million, with revenue reaching RMB 402 million representing a slight sequential decline of 3.8%. This was largely driven by our strategic emphasis on acquiring users with longer life cycles and higher ROI potential, which impacted new member sign-ups. Since the start of the year, we have focused on enhancing user stickiness and diversifying our paid content and business models. As part of this, we further expanded and upgraded the premium content formats and service offerings under Yanyan story. Notably, voice live streaming has seen steady growth in both user penetration and paid conversion rates since launch. In the second quarter, its ARPU significantly exceeded our expectations and continues to grow, reflecting strong user endorsement and the monetization potential it offers. The Yanyan story long-form writing Marathon launched in May has generated thousands of high-quality submissions from creators within just two months significantly outperforming similar initiatives over the period. This highlights the distinct advantages our content creator ecosystem has and the growing mind share we hold among users in the long-form content space. This directly translates into extended user subscription cycles and builds on our leadership in the short-form content space. Our commitment to premium paid content and support for creators has enabled Yanyan story to consistently deliver high-quality works that blend literary richness with broad emotional appeal. This has allowed us to build a stable and robust content pipeline that is both well-received by users and widely recognized across the industry. In June, Yanyan titles received 3 major awards in the 2024 China online literature influence ranking, further validating our content strategy and strengthening our foundation for IP development and monetization going forward. Momentum is also building in the commercialization of our original IPs. In the second quarter, revenue from IP licensing grew by triple digits both year-over-year and quarter-over-quarter. By the end of June, more than 40 premium short-form stories published on Zhihu had generated revenue through film and television licensing, among them, several titles that were especially well received by audiences while attracting strong interest from film and television adaptation partners. Lastly, our vocational training business recorded revenue of RMB 62.1 million during the quarter, down 34.3% quarter-over-quarter. As we focus resources on high-performing course categories and gradually phase out offerings with limited growth potential or lower profitability, this strategic focus is designed to improve overall business quality and long-term growth. Encouragingly, operating profit of the business for the quarter increased by an impressive 90% year-over-year, demonstrating the effectiveness of our operating strategy and execution. We continue to make steady progress in the broader strategic transformation of our vocational training business, powered by our high-quality content ecosystem and trusted creator network, we are transitioning from a traditional subject-based expansion model, focused on a few core categories, to a more community-driven approach that fosters deeper social engagement and knowledge sharing. This will also unlock new monetization opportunities for professional creators. In support of this, we enhanced the creator experience and paid content ecosystem of our new column product this quarter. Since May, we have improved operations, product experience, and algorithms to better support content creation and distribution. These efforts led to more than a 50% increase in shared column content from May to June. Creator user engagement has also improved significantly. The growing demand for premium content further fuels the monetization of paid columns with GMV in June increasing by over 34% month-over-month. For the remainder of the year, we will continue to drive the integrated development of high-quality content, a trusted creator network, and AI capabilities, further reinforcing Zhihu's competitive moat in the AI era. As AI becomes more deeply embedded in our community, we aim to enable more intelligent, reliable experiences for users across a variety of scenarios. On the commercial front, we will accelerate our product upgrades to better serve high-value users and professional creators, building a suite of solutions that enhance user trust and support stronger commercial monetization. Leveraging this foundation, we will further expand the reach of Zhihu as AI capabilities beyond our platform, offering our trusted content and services to a wider user base. We are confident that stronger synergies between our community and commercial ecosystems will reinforce Zhihu's value proposition as a trusted platform and unlock long-term sustainable growth.

Now I will review the details of our second quarter financials. For a complete overview of our second quarter 2025 results, please refer to our press release issued earlier today. In the second quarter, we maintained our trajectory of non-GAAP profitability for the third consecutive quarter. Gross margin also continued to expand year-over-year. These results underscore the ongoing strengthening of our financial fundamentals, supported by a leaner cost structure and more efficient operations. Our total revenues for the quarter were RMB 716.9 million compared with RMB 933.8 million in the same period of 2024. The decrease was driven by our ongoing business optimization. The year-over-year decline also narrowed slightly for the second straight quarter in line with our expectations as we transition toward a more resilient and higher-quality revenue mix. Our marketing services revenue for the quarter was RMB 222.8 million compared with RMB 344 million in the same period of 2024. This decrease was mainly due to our continued refinement of service offerings and our strategic focus on improving margins. Encouragingly, revenue grew 13.1% sequentially and the year-over-year decline also narrowed meaningfully, reflecting a more stable phase in our adjustment cycle. Paid membership revenue was RMB 402 million, down slightly from RMB 432.7 million in the same period of 2024. This was primarily due to a decrease in new subscriptions following a shift in our focus towards acquiring users with longer life cycles and higher ROI potential. Vocational training revenue was RMB 62.1 million compared with RMB 133.6 million in the same period of 2024. The decline resulted from the ongoing refinement of our acquired businesses as we continue to prioritize faster-growing self-operated course offerings. Other revenues were RMB 30 million compared with RMB 23.5 million in the same period of 2024. Our gross profit for the quarter was RMB 448.2 million compared with RMB 556.5 million in the same period of 2024. Gross margin expanded to 62.5%, up from 59.6% in the same period of 2024 and 61.8% in the previous quarter. This was largely driven by improvements to our monetization capabilities and continued gains in operating efficiency. Our total operating expenses for the quarter declined by 27.2% year-over-year to RMB 539.2 million. This decrease reflects tighter cost controls and productivity improvements supported by technological innovation. Selling and marketing expenses decreased by 21.8% to RMB 326.3 million from RMB 417 million in the same period of 2024. The decrease was primarily due to more disciplined promotional spending and lower personnel-related expenses. Research and development expenses decreased by 30.4% to RMB 145.7 million from RMB 209.3 million in the same period of 2024. The decrease was mainly driven by improved efficiency in our research and development activities. General and administrative expenses decreased by 41.1% to RMB 67.3 million from RMB 114.1 million in the same period of 2024. The decrease was largely due to use allowance for expected credit losses and lower share-based compensation. Investment income was RMB 140.8 million compared with RMB 21.8 million in the same period of 2024. The increase was primarily attributable to unrealized gains as a result of remeasuring the fair value of our investment in a privately held company associated with an observable price change in the quarter. As a result, our GAAP net income for the quarter was RMB 72.5 million compared with a net loss of RMB 806 million in the same period of 2024. On a non-GAAP basis, we remain profitable for the third consecutive quarter recording adjusted net income of RMB 91.3 million compared with an adjusted net loss of RMB 44.6 million in the same period of 2024. As of June 30, 2025, we had cash and cash equivalents, term deposits, thrifted cash, and short-term investments of RMB 4.8 billion compared with RMB 4.9 billion as of December 31, 2024. As of June 30, 2025, we repurchased 31.1 million Class A ordinary shares for an aggregate value of USD 66.5 million on open market. Additionally, we also repurchased a total of 18.6 million Class A ordinary shares for an aggregate value of USD 27.9 million through the trustee of the company as of the end of Q2. Looking ahead, we will continue to strengthen our monetization capabilities and support long-term growth across key areas of our AI-powered content ecosystem. As we deepen the synergy between community activity and commercial performance, our solid financial foundation enables us to invest with focus and flexibility to drive sustainable profitability. This concludes my prepared remarks on our financial performance for this quarter. Let's turn the call over to the operator for the Q&A session.

Thanks management for taking my questions. The prepared remarks delivered by AI agent is really impressive. So my question is also about AI regarding to whose AI and the large language model related products. Does the company have any new plans? And how should we think as current progress?

Thank you, Xueqing, for the question. Other progress in AI is kept pace with the broader large language model industry. Over the past quarter, we've seen a lot of new integrations of many new models, including both open sources and the closed sources. We believe our capability will naturally rise along with all these new models. We are accelerating the upgrade of our agentic capability to more fully leverage this increase and innovation of the entire industry. Our key products at the application layer have performed very well over the past quarter, with its penetration and usage continuing to grow. This progress reflects our ongoing innovation and product updates as well as increasing word of mouth among our users. The evolution of Zhihu Zhida has gone through 2 stages: first, as AI search, then AI search combined with a knowledge base. We see these not as isolated feature upgrades but as necessary scenario extensions of AI plus community. Just last week, on August 22 to be specific, we saw knowledge-based entries becoming shareable and securable within our community. The experience is seamless, so our users don't even notice they are already engaging with containers that span both community native and AI-native domains, something rarely seen in standalone AI applications as we believe the room for future upgrades is substantial. Looking ahead, we believe AI search and the knowledge base will become further integrated with the community scenarios. In Q4, we plan to deliver a more significant experience update on top of this foundation. So please stay tuned. Thank you for your question.

So will management share some color about the current user matrix for Zhihu Zhida? How does management view the unique value of Zhihu's authentic user-generated content? What opportunities has Zhihu identified and what are the biggest challenges facing?

Thank you, Vicky, for your question. As I just mentioned earlier, this quarter, Zhida's penetration within the community continues to grow. At the same time, we believe the definition of Zhihu Zhida itself is also evolving. Of course, Zhida initially launched as many people's understanding is for AI search within the community. But now, it has certainly expanded beyond that definition. It should be understood as our AI capability applied across diverse community scenarios. You also asked about the value of user-generated content. In my opinion, its value is huge, and it is the currency of trust in the AI era, the gold standard, where the quality and authenticity of content is the baseline as well. From our understanding, the opportunity we see here is in how trust can scale—we call it the scaling law of trust. Our path forward is a variable formula of trusted content times expert network times AI capabilities, and we will move forward with strong conviction along this direction. Thank you for your question.

So can management provide some color on the growth outlook for the marketing service, paid membership, and the vocational training business? So how should we think about the key drivers for each segment in the second half? And how should we think about the full year profitability for 2025?

Thank you, Lincoln, for your question. So I will just start with your first question. First on our marketing services. In the past several quarters, we have often mentioned that we are in an adjustment phase. Now we can say that this phase is nearing its end, and we expect to see stabilization and recovery in the coming quarters, with a return to positive year-over-year growth. Our focus will be on optimizing our client structures and upgrading our commercial products. On the client structure-wise, we will further leverage Zhihu's brand and high-quality user base to expand into more trust-driven categories such as high-value FMCG, maternal and infant products, as well as clients with stronger professional B2B attributes. At the same time, we'll also continue to strengthen the monetization of Zhihu's high-profile commercial IPs. For our paid membership business, we are currently in a stage of active experimentation with the core goal of improving renewal and retention as well as driving true growth across multiple dimensions. On retention-wise, we have optimized the structure of new members to attract users with longer life cycles, such as expanding our monthly paid members to more like half-year and annual pay numbers. We're also actively exploring media and longer-form content. On ARPU, we are expanding premium content formats and service benefits for our members, for example, like I mentioned, the voice live streaming. At the same time, we will further accelerate the monetization efficiency of our IPs of the payment membership, thereby strengthening member stickiness and enhancing the commercial value of each member. On vocational training, our operating strategy remains focused on efficiency and profitability. In the second half of this year, we will continue to address both our model and content through these adjustments, which are already approaching a more stable stage. So strategically, we will keep moving towards a more socially and knowledge-sharing oriented model, enabling knowledge-based content to better meet our users' needs and experience and to foster healthy circulation and consumption within the community. In return, we believe it will further strengthen the community's ecosystem. So this is basically about the current development of all our business services. Thank you for your questions.

Thank you for giving me the opportunity to ask questions. I would like to ask the management to share how we should anticipate the method and extent of shareholder returns going forward?

We need a 10% share repurchase authorization approved by our Board and shareholders earlier this year. We remain firmly committed to enhancing shareholder returns through buybacks. As disclosed in today's earlier earnings release, by June 30, we had repurchased 7.41 million ordinary shares in open markets, representing 2.8% of total shares outstanding. Since this July, we have also continued to execute actively on the repurchase program. We believe in the second half of this year, we will stay the same course and carry out the strategy with a strong commitment. Over the past 2 years, and for the foreseeable future, we expect to remain one of the most significant U.S.-listed Chinese companies in terms of share repurchase ratio. I will just add on to the question raised about our full year profitability. In the first half of this year, we achieved profitability on both the GAAP and non-GAAP net income basis in each of these 2 quarters, also exceeding expectations in the market, and this has not only provided us with more flexibility to make adjustments in certain businesses for longer-term healthy development but also significantly increase the likelihood of reaching near breakeven on a full year non-GAAP basis. Thank you for your questions.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a nice day.