Zhihu, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Gross profit margin improved by over 10 percentage points year-over-year to 63.9%, the highest since listing. Total costs and operating expenses decreased, leading to a net loss of RMB 9 million, down 96.8% year-over-year.
• User Engagement: MAU for Q3 rebounded to 81.1 million despite reduced community-related promotional spending. Daily active user time spent rose nearly 20% year-over-year. Core user retention showed significant year-over-year growth.
• Content Ecosystem: Cumulative content volume reached 854.5 million theses, up 14.9% y-o-y. Number of content creators grew to 77 million, up 11.6% y-o-y. Launched professional search feature for Zhihu Zhida in late October, leveraging high-quality data and content.
• AI Initiatives: Zhihu Zhida saw rapid traffic growth; in September, traffic reached 4.7 million, up over 180% from August. Introduced professional search for Zhihu Zhida, integrating academic articles and supporting file uploads and document sourcing.

Segment Performance

• Paid membership business: The number of subscribing members rose by 11.5% year-over-year to 16.5 million, and the segment delivered revenue of RMB 459.4 million, increasing its revenue contribution to 54%.
• Marketing services: Revenue for the quarter was RMB 256.6 million, a 33% decline year-over-year.
• Vocational training business: Overall revenue declined by 27.4% year-over-year, mainly due to streamlined acquired business, but self-operated courses showed strong year-over-year growth with improved profitability sequentially.

Guidance

• Focused on achieving breakeven in Q4 2024. For 2025, strategic priorities include sustaining loss reduction, enhancing core user experience, and strengthening community trustworthiness. For marketing services, will reduce low-quality content and innovate product mechanisms. For vocational training, aim to achieve breakeven by end of 2025 and integrate with community. For paid membership, leverage community content to improve renewal rate and LTV of members.

Risks

• Forward-looking statements involve inherent risks and uncertainties, and actual results may differ from views expressed. Further information on risks is in public filings with U.S. SEC and Hong Kong Stock Exchange.

Q: Congratulations on further reducing loss in the third quarter. Could management share more color on the commitment about achieving a breakeven in the first quarter? And what's the outlook for 2025? What will be the main drivers?

A: We have been firmly focused on our Q4 breakeven target. For 2025, strategic priorities include a healthy community and sustainable business ecosystem. Drivers include a prosperous community and integrated business ecosystem.

Q: My question is about the users and the community. This quarter, we noted that Zhihu's MAU has improved and stopped the sequential decline. At the year of the beginning, you made some sequential adjustments to the community and the users. Can management provide more details on the adjustments you have done? And what are the key strategies you think that are successful? And what changes were made on Zhihu's community and users' behavior? And one more question is about when do you expect Zhihu's MAU to recover to a positive year-on-year growth?

A: Adjustments included algorithm optimization to promote professional content, increased weighting of high engagement metrics. Key strategies successful include improved user retention. Changes in behavior include higher visibility of professional content. MAU recovery timeline not specified but focus on core user experience continues.

Q: My question is about the Zhihu product upgrade as well as this Zhihu Zhida. So recently, we launched this Zhida professional search function. So could management share with us what are the other features that could be added to this Zhida in the future? And how might this integrate with the Zhihu community, or monetization efforts and as our AI strategy into our product?

A: Launch of professional search is scenario-oriented. Future upgrades may integrate with Zhihu community, but specific features not revealed yet. Focus on workflow-based updates for different user scenarios.

Q: Will management share some color about the fourth quarter outlook for the advertising business and the CCS business adjustment progress? My second question is related to the membership business. Will management share some color about the competition landscape, user growth and ARPU trend?

A: For advertising business, will reduce low-quality content and innovate product mechanisms. For membership business, Zhihu Yan Yan story is leading in short-form paid content. Average monthly subscribing members grew double-digit y-o-y and q-o-q. Focus on enriching member benefits to increase LTV.

Q: My question is about the advancement in optimizing the vocational training business. Could the management share some colors about this progress and what's the financial target in the long term?

A: Primary goal is improving efficiency and accelerating loss reduction, aiming to achieve breakeven for vocational training segment by end of 2025. Adjustments focused on scaling back unprofitable courses and low-margin acquired business, concentrating on strong-performing courses.

Q: It's very encouraging to hear that the company is on track to achieve breakeven in the first quarter. In light of this, whether the company has any plan to consider a shareholder arrangement post breakeven in order to enhance shareholder return and whether the company prefer share repurchase or dividend?

A: Since Hong Kong IPO, repurchased over USD 120 million worth of shares. Will consider more diverse methods for shareholder return post breakeven, continuing share buybacks on open market while accelerating path to profitability and positive cash flow.