Zhihu Inc. Q3 FY2025 Earnings Call

Ladies and gentlemen, thank you for your patience, and welcome to the Zhihu Inc. Third Quarter 2025 Financial Results Conference Call. Today's conference is being recorded and broadcast online. I will now hand the call over to Yolanda Liu, Director of Investor Relations. Please proceed, ma'am.

Thank you, operator. Hello, everyone. Welcome to Zhihu's Third Quarter 2025 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 U.S. Private Securities Litigation 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 U.S. Securities 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 comparison purposes 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. This quarter, Victor Zhou, Zhou Yuan's AI agent, will once again deliver the prepared remarks in English on his behalf. Victor is still in training, so we appreciate your patience as he continues to improve. Victor, please go ahead.

Thank you, Yolanda. Hello, everyone, and thank you for joining Zhihu Third Quarter 2025 Earnings Call. I am Victor Zhou, and I am pleased to deliver today's opening remarks on behalf of Mr. Zhou Yuan, Founder, Chairman and CEO of Zhihu. The third quarter marked another meaningful step toward our goal of achieving non-GAAP breakeven on a full-year basis. As our structural optimization initiatives continue to take effect, we further refined our service offerings and balanced commercialization with community health. We also maintained disciplined cost control and improved operating efficiency. As a result, our non-GAAP operating loss narrowed by 16.3% year-over-year in the third quarter. At the same time, our community ecosystem continues to strengthen; user mix and engagement improved, while MAUs increased modestly from the second quarter. Daily time spent continued to trend higher year-over-year and quarter-over-quarter. Our users and creators remain highly active, supporting improved core user retention and a steady stream of reliable high-quality content on the platform. With our high-quality content, expert network, and AI capabilities working in greater synergy, we are accelerating our agentic AI upgrades to deliver trusted and differentiated experiences to users, both within and beyond the community. As the AI industry enters a new phase of real-world integration and accelerated deployment, Zhihu, as a trusted source of high-quality content and data upstream of Chinese LLMs and AI applications, is gaining prominence, creating expanding opportunities for collaboration. With rising high-quality content, a highly active base of professional creators, and accelerating AI integration, our community ecosystem radiates vitality. Our competitive moat of trusted content continues to strengthen. In the third quarter, daily creation of high-quality content increased by over 25% year-over-year, with professional AI-focused content up by more than 30% compared to the same period last year. As AI technologies and applications rapidly advance in China, Zhihu remains a go-to platform for frontline engineers and researchers for sharing and lively discussions. AI-focused content covers a range of subjects, including deep technical analysis, innovative product applications, emerging industry trends, personal growth, career development, and a growing array of emerging topics driven by rapid AI adoption. From the technical debate between MiniMax and Moonshot AI over efficient attention, which sparks heated discussions on Zhihu, to the in-depth engineering analysis of new models shared by leading companies, Zhihu has become a trusted source for authentic first-hand exchanges. These discussions have made our platform a place where AI innovations are first interpreted, validated, and shared. Meanwhile, we continue to strengthen our trustworthy content ecosystem through ongoing improvements to content governance mechanisms and recommendation algorithms. Professional creators are a vital force in our community. In the third quarter, daily active high-tier creators increased significantly on both a year-over-year and a sequential basis. The number of verified honored creators also grew by 29% year-over-year. Engagement among AI-focused creators continues to strengthen. Zhihu now brings together more than 60 million continuous learners and 3.56 million proficient creators in science and AI, along with 150,000 ecosystem builders. These contributors not only add consistent high-quality input to our AI content ecosystem, but also show significant potential as future service providers for enterprises. Beyond science and AI, creator activity in humanities and social sciences also remains strong across the platform. In September, we launched the co-benefit co-creation initiative in collaboration with leading institutions such as Alibaba Foundation, Tencent Charity Foundation, One Foundation, and Greenpeace alongside psychologists, medical experts, and writers. This initiative generated a wide range of high-quality content across disability rights, mental health, environmental protection, and more, joining over 80 million views. We also hosted the 2025 Zhihu Humanities Season, Zhihu Renwenji event, which brought creators together through a blend of online and offline engagement. The campaign attracted nearly 30 influential creators, driving a 7.5% quarter-over-quarter increase in creator activity in the humanities category and generating 5.82 million topic views, reinforcing Zhihu's professional influence and cultural relevance. To better support professional creators, we continue to enhance the content creation and distribution experience. Our ideas product supports knowledge-based expression from high-tier creators and enables more diverse short-form content creation among mid-tier creators. As a result, average daily content volume and interactions increased by 21.7% and 33.1% quarter-over-quarter, respectively. Our Circles product also continues to serve as a focused space for users with shared interests to gather and interact with average daily views more than tripling sequentially during the quarter. We also continue to advance our agentic AI upgrades across the community. From a product perspective, Zhihu Zhida evolved into the agentic mode at the end of September, delivering more accurate and smarter search results. Most notably, Zhihu Zhida now serves as a helpful partner for deep thinking and creativity, capable of understanding user intent, performing multistep reasoning, and synthesizing information across research, learning, and content creation. Our advancements in agentic AI are also amplifying the value of our creators. By strengthening the attribution of content to trusted creators across the knowledge base and search, AI-generated responses now cite verified knowledge during the reasoning stage, significantly reducing hallucination and improving trust. This strengthens creator influence within the generative AI landscape and gives Zhihu a distinct advantage as a trusted content provider in the emerging AI ecosystem. Now moving on to commercialization. In the third quarter, our commercialization continued to recover on a healthier base with total revenues reaching RMB 658.9 million. We also made notable progress in exploring new monetization avenues by leveraging our core strengths. Let's take a closer look at our performance by business unit. In the third quarter, marketing services revenue was RMB 189.4 million. Notably, the year-over-year decrease narrowed, indicating the bottoming out of our adjustment cycle. We expect marketing services revenue to begin growing on a sequential basis in the fourth quarter. During the quarter, we made solid progress in optimizing our client mix and upgrading our advertising products. We continue to optimize client mix by deepening our focus on high-value accounts with our brand power and expanding commercial IP, driving strong uptake from enterprise clients, particularly in technology and other high-value verticals. In late September, we hosted the TechClub Conference, bringing together AI experts and some of the most influential tech creators from the Zhihu community to explore the latest developments and future applications of AI. The event showcased technology's transforming role in everyday life and our unique ability to connect professional content with meaningful brand engagement, further expanding our high-value client base. Through the Zhihu platform, leading companies such as Gree, China Mobile, Huawei, and FY Tech further strengthened their brand positioning in technological innovation and product excellence. Backed by the credibility of our brand and strong commercial efficiency created by professional discussions across our community, we made solid progress in acquiring new clients across diverse sectors such as automotive, consumer, and health care. This quarter, we also further upgraded a wide range of our commercial products by integrating AI more deeply across our portfolio. Our dual ecosystem optimization and product efficiency engines drove a significant increase in positive feedback from clients. For example, we launched the upgraded CCS for idea scenarios and introduced the product to more clients. By offering this short content plus precise scenarios format, it bridges authentic experiences and purchase decisions for brands and merchants. At the same time, it makes content consumption and the decision-making for users substantially more efficient. We are also seeing rising demand from clients to improve brand and product presentation in AI-generated answers. Leveraging our trusted content and high citation rate across the Internet, we launched our new GEM marketing solution in early November. This new solution provides core insights such as visibility across AI platforms and citation analytics. Leading technology clients we have worked with include Lenovo, FlightTech, Vivo, and Proa. We have received positive endorsements as we help enhance both their SEO and GEO performance for brands and new products. Looking ahead, with a healthier ecosystem, stronger client base, and more robust service offerings, we will continue to leverage AI to drive a steady recovery and long-term growth in our marketing services business. And now for our paid membership business. In the third quarter, average monthly paid members increased by 8.1% sequentially to 14.3 million, with revenue reaching RMB 386 million. Our efforts to boost member retention and ARPU through diversified initiatives continue to generate positive feedback from both creators and users. The Yanyan Story long-form writing marathon came to a successful close in late October after a 6-month campaign, generating tens of thousands of submissions in the third quarter alone. This initiative opened up new development pathways for aspiring creators and provided a steady pipeline of content for our library and future IP development. At the same time, voice live streaming saw further improvement in paid conversion rates. We also unlocked further commercial potential for our IP adaptations in China and overseas. During the quarter, revenue from IP licensing maintained its triple-digit growth rate year-over-year and generated high double-digit growth quarter-over-quarter. Year-to-date, revenue has nearly doubled compared with the same period last year. In mid-October, Yanyan Story debuted at the Frankfurt Book Fair, showcasing Chinese digital literature on a global stage for the first time. It also drew coverage from the U.K. magazine, The Bookseller, which noted the new growth path for Chinese short-form digital literature in international markets. By the end of October, Yanyan Story licensed more than 100 titles for publication across major Asian markets, including Japan, South Korea, Thailand, and Vietnam. A number of works have also been adapted into short dramas for overseas markets and performed well, reflecting the growing popularity of Chinese short-form content abroad. Meanwhile, Yanyan Story has established partnerships with international platforms such as Mobile Reader and GoodNovel to translate works into English, Spanish, Japanese, Korean, Portuguese, Thai, Indonesian, and other languages, further expanding its international reach. Going forward, we will pursue a diversified set of initiatives to improve member retention and ARPU. By enhancing content supply, membership benefits, and personalized experiences, we aim to strengthen long-term member value. As AI enables more efficient content creation, the potential for IP development and commercialization will expand, unlocking new growth opportunities for our membership business. Starting this quarter, we are simplifying our revenue breakdown and will begin reclassifying vocational training revenue into other revenues to align with our overall strategy. Other revenues were RMB 83.9 million, while we will continue to adjust our vocational training business with a focus on improving operational efficiency and prioritization. Although our vocational training business has been reclassified, we continue to build on its creator-driven foundation with the development of our column product. Designed primarily to serve super creators, the column is intended to enhance the creator ecosystem rather than act as a new commercial growth driver. During the quarter, we enhanced the product by rolling out a PC version and AI tools that help creators generate column descriptions and cover designs. This enhancement drove sequential growth in both the number of leading column creators and creator user engagement. Monetization models for column creators are also becoming more diversified, with overall GMV more than doubling compared with last quarter. Going forward, we will continue to operate with discipline, maintaining stability while investing prudently for sustainable growth. With ongoing enhancements in efficiency and steady cost optimization, we are confident in achieving our full-year profitability target. Building on this foundation, we will continue to invest with a long-term view to strengthen our AI capabilities and improve the efficiency of our core operations. Deeper AI integrations will drive greater synergies across content creation, distribution, and monetization on Zhihu. Meanwhile, we will further refine our product and marketing strategies to capitalize on new growth opportunities from high-quality users and enterprise clients. With a healthier operating structure and ongoing innovation, we are well positioned to thrive in this next stage of high-quality growth. With that, I will hand the call over to our CFO, Wang Han. Han, please go ahead.

Now I will review the details of our third quarter financials. For a complete overview of our third quarter 2025 results, please refer to our earnings release issued earlier today. In the third quarter, we maintained disciplined cost management and drove further improvements in operational efficiency. As a result, our non-GAAP operating loss narrowed by 16.3% year-over-year. We continue to invest in areas that reinforce our long-term growth potential, striking a healthy balance between efficiency and investment. Our total revenues for the quarter were RMB 658.9 million compared with RMB 845 million in the same period of 2024. The decrease was mainly the result of our continued efforts to optimize revenue mix and focus on sustainable, high-quality growth. Notably, the year-over-year decrease narrowed for the third consecutive quarter, in line with our expectations. Our marketing services revenue for the quarter was RMB 189.4 million compared with RMB 256.6 million in the same period of 2024. This decrease was mainly driven by our proactive refining of service offerings and optimization of client mix. Encouragingly, the year-over-year decrease narrowed meaningfully, indicating that our adjustment cycle has bottomed out. Paid membership revenue was RMB 385.6 million compared with RMB 459.4 million in the same period of 2024. While the number of average monthly subscribing members fell year-over-year, they rebounded and grew 8.1% sequentially to 14.3 million. We also continued to enhance retention and ARPU through diversified content and membership initiatives. Other revenues were RMB 83.9 million compared with RMB 129 million in the same period of 2024. The decrease was primarily due to the strategic refinement of our vocational training business. Our gross profit for the quarter was RMB 403.6 million compared with RMB 540.1 million in the same period of 2024. Gross margin was 61.3% compared with 63.9% in the same period of 2024. Our total operating expenses for the quarter decreased by 19.4% year-over-year to RMB 503.5 million. The decrease was primarily due to a more efficient cost structure and disciplined resource allocation across key operating areas. Selling and marketing expenses decreased by 14.9% to RMB 330.1 million from RMB 388 million in the same period of 2024. The decrease was mainly due to tighter control over promotional spending and optimized personnel-related expenses. Research and development expenses decreased by 36.2% to RMB 114.4 million from RMB 179.3 million in the same period of 2024. The decrease was primarily driven by continued improvement in research and development productivity and efficiency. General and administrative expenses were RMB 59 million compared with RMB 57.2 million in the same period of 2024. Our GAAP net loss for this quarter was RMB 46.7 million compared with RMB 9 million in the same period of 2024. On a non-GAAP basis, our adjusted net loss was RMB 21 million compared with RMB 13.1 million in the same period of 2024. As of the 30th of September 2025, we had cash and cash equivalents, term deposits, restricted cash, and short-term investments of RMB 4.6 billion compared with RMB 4.9 billion as of the 31st of December 2024. As of the 30th of September 2025, we repurchased 31.1 million Class A ordinary shares for an aggregate value of USD 66.5 million on the open market. Additionally, we repurchased a total of 22.5 million Class A ordinary shares for an aggregate value of USD 34.5 million through the trustee of the company as of the end of the third quarter. Looking ahead, we are on track to achieve full-year breakeven on a non-GAAP basis. We will continue to further strengthen our monetization capabilities and pursue new revenue opportunities that leverage Zhihu's strength in high-quality content creator expertise and AI-driven innovation. Together, these efforts will reinforce our business resilience and support sustainable long-term growth. 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.

We will now begin with our first question, and this is from Vicky Wei from Citi.

Will management share some color about the AI progress of Zhihu? For example, the penetration rate of Zhihu Zhida and the progress of the AI integration with the Zhihu Community.

Thank you for the question. This is Zhou Yuan, CEO of Zhihu. First, I apologize for my weak voice as I'm still recovering from a cold. Regarding your first question, Zhida remains a key product for us. Its overall usage and penetration rate have continued to rise in the third quarter, reaching 15%, which is nearly four times higher than the same period last year. This shows the ongoing development of our foundational AI capabilities within the community and reflects strong user support for the strategic integration of AI and the community. It gives us confidence to continue enhancing this AI and community experience across more touchpoints. Let me share some recent progress and plans. In the search area, by late November, Zhida will fully enhance our general AI search capability to incorporate Zhida-generated content for all users. We will also soon introduce pilot features such as cross-topic content aggregation and community trend summaries. This will transition Zhida from a secondary to a primary entry point, further increasing AI adoption throughout the community. On the content creation front, we are providing professionals with a powerful AI copilot. This quarter, we launched a set of AI assistant writing tools for our creation assistant, which includes smart headlines, grammar and fact-checking, and lead paragraph generation. These tools help creators optimize long-form structures and expert-level content. By the end of Q3, the adoption of these new AI features had already exceeded 20%. Looking ahead, we plan to add capabilities like AI-powered multi-model content conversion, intelligent formatting, and short-form content generation. These tools will significantly reduce barriers for mid-tier creators, allowing more users to express themselves easily and increase their posting and engagement frequency. Additionally, we are expanding Zhida into high-frequency consumption scenarios. For instance, AI-powered daily briefings on trending topics and other specific areas, as well as the functionality to mention Zhida in threads or summarize discussions and highlight key insights, will help users quickly understand complex conversations and engage more meaningfully. We believe this will further boost user engagement and community loyalty. Thank you.

We'll now take the next question. This is from Luqing Zhou from Goldman Sachs.

So my question is on how do you see the current status of Zhihu's user ecosystem? And based on that, could management share more color on the directions for improving Zhihu's future product design and how is the progress so far?

Thank you for your question. This is Zhou Yuan, CEO of Zhihu. We believe that the overall community ecosystem is in good health. We do not depend on a single metric to gauge its vitality; rather, we prioritize content quality, user demographics, user characteristics, and the effectiveness of our incentives for content creators to establish a positive feedback loop. Furthermore, we have integrated AI as a key driver of our products at a strategic level. Over the last few quarters, we have focused on the collaborative development of high-quality content, professional expert networks, and advanced AI capabilities to advance our ecosystem positively. In this regard, our ecosystem is stable and consistently improving, aligning with our expectations. Trustworthiness and professionalism in our content are vital and serve as crucial indicators of ecosystem health. Recently, we have worked to enhance our trustworthy content ecosystem and expert network while addressing low-quality content and traffic to maintain the integrity of our ecosystem and reinforce the positive cycle. This has resulted in several consecutive quarters of double-digit growth in daily high-quality content creation. The AI segment is particularly indicative of this progress, with professional AI-related content growing at double digits for four consecutive quarters. Consequently, user trust in our content has also steadily increased. Our user demographics and quality have improved, and we have addressed users' varied needs across different scenarios. As seen in last Q4, our monthly active users have remained consistent for four quarters. Additionally, average daily user engagement, which we consider a measure of retention, has seen double-digit year-over-year growth for six quarters. Our users are primarily young individuals aged 18 to 30 focused on learning and growth, constituting over 65% of our total user base. Among them, technology and AI professionals represent a significant group, engaged in long-term learning and exploration, contributing more content, and enhancing our ecosystem. Moreover, the creator ecosystem is thriving. Output from top-tier professional creators has been stable for seven consecutive quarters. Meanwhile, we are using AI tools to reduce the creation barrier for mid-tier creators, increasing the content production rate from the entire creator group, which diversifies community supply and fosters social interaction. In summary, maintaining a healthy ecosystem is fundamental to Zhihu. Moving forward, we will continue to invest in quality content and expert networks to ensure that our growing community retains its professionalism, vibrancy, and trustworthiness. Now, regarding your second question on our core product and future plans, we hold several key beliefs. First, we expect that AIGC content consumption will increase over the next three years, alongside a greater value placed on human-to-human interaction. We believe both trends can coexist. Secondly, as AI advances, individuals may feel a reduced presence, which will make community participation, social capital, and relationships increasingly valuable and sought after. Lastly, high-quality human-generated content will become rare and extremely important, which will be essential for both AI development and human progress. Going forward, Zhida will integrate our users' functional social needs. For instance, when users seek to ask a question, search for information, or look for resources, AI will enhance efficiency significantly. Zhida aims to make the community more utilitarian, allowing first-time users to have meaningful experiences right away. At the same time, we will enhance social interactions stemming from genuine human connections, such as fostering recognition, collective growth, and connecting with like-minded individuals. We want to create an environment where users feel a sense of belonging rooted in real people, authentic culture, and trusted interactions. Our future product direction is built on two pillars: utility and identity. I envision Zhihu serving as a connection platform for individuals in the AI age, where they can utilize AI tools to comprehend the world and engage with each other for deeper mutual understanding. Additionally, we plan to develop a trusted content and expert network as foundational layers of our infrastructure. Thank you for your inquiry.

We will take the next question. This is from Daisy Chen from Haitong International.

Could management update the progress of the adjustments in each business line? Did you see any signs that the revenue has bottomed out or started to rebound? In particular, how do you expect the future of the advertising business? And also, could you share your outlook on the company's profitability?

Thank you for your question, Daisy. This is Wang Han, CFO of Zhihu. I will address your second question regarding our profitability outlook. After achieving solid profits in the first two quarters, we believe there is a very high chance of reaching our first full year of non-GAAP profitability in 2025. With that in mind, we are using Q3 and Q4 to refine our strategies and invest where necessary. As a result, we anticipate a small loss in Q3, which is manageable for us. Let me explain the adjustments in our major revenue areas. First, concerning marketing services, as we noted last quarter, Q3 will be the lowest point, and we expect to see a recovery starting in Q4. Our current insights support our confidence in maintaining that guidance. Looking to next year, we aim for each quarter to exceed the baseline established in Q3 this year. Next, regarding paid membership, this segment is still transitioning. As we have mentioned, even the best libraries and bookstores separate fiction from nonfiction; the challenge lies in differentiating and integrating these effectively for users. Therefore, we cannot confirm that membership revenue has reached its lowest point yet. However, any declines will likely come from products or groups with lower returns on investment, weaker profitability, or less than ideal retention. With respect to vocational training, this area is no longer negatively impacting our overall results. Given its relatively low scale, we have reclassified it into others. Overall, we have delivered several consecutive profitable quarters, followed by a small loss in Q3. While we are confident about achieving full-year profitability, we are using this period to make necessary adjustments and targeted investments. As we near our first full year of profitability, our goal is to eliminate some legacy inefficiencies and start anew. We do not plan to remain stagnant or just maximize profits. We are building a stronger foundation and realigning with Zhihu's long-term growth. Additionally, we have a robust cash position and will not revert to aggressively spending for growth. In this new era of AI, our focus is on enhancing Zhihu's role in fostering genuine interactions, expert networks, and trusted content, which are increasingly valuable and carry significant social importance. Thank you for your questions.

We will now take the next question. This is from Jing Yi Wang from Guangfa.

Could management share some more color about the shareholder return pay in progress.

Thank you for your question. This is Wang Han, the CFO of Zhihu. Over the past two years, we have been one of the most active buyback companies among U.S.-listed Chinese firms. Our confidence in becoming profitable has driven this approach. This year, we plan to show that we are meeting the expectations and targets established two years ago. Despite this, Zhihu's current market capitalization is still significantly lower than the cash on our balance sheet, indicating that we are undervalued. As a result, we will continue our buyback program and aim to be one of the most active repurchase participants in our sector. Thank you once again for your question.

That concludes today's Q&A session. At this time, I will turn the conference back to Yolanda for any additional or closing remarks.

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 so much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.