Zhihu, Inc. Q4 FY2024 earnings call

• 2024 was a transformative turnaround for Zhihu, with fourth quarter showing robust profitability. Adjusted net income was RMB97.1 million, turning from loss, and adjusted operating profit was RMB23.1 million.
• Prioritized community trust and core user experience, saving community user acquisition related expenses by 88% year-over-year. Key engagement metrics like time span, retention and content creation grew.
• AI is a historic opportunity for Zhihu. Zhida underwent major upgrade, achieving over 10 million MAU on app and PC platforms, with positive user feedback.
• Maintained focus on improving user engagement, retention and acquisition efficiency. Average MAUs were 81.4 million, up 0.3% sequentially. Content volume reached 874.6 million thesis, up 12.9% year-over-year. Content creators increased to 77.7 million, up 8.9% year-over-year.
• Li Ziqi became Zhihu's Intangible Culture Heritage Officer, driving community discussions. Negative user feedback declined, positive engagement increased.

Paid Membership Business

• Fourth quarter paid membership revenue was RMB420.2 million. Average monthly paid members were 14.1 million, a slight decrease of 0.8% year-over-year. ARPU grew 7% sequentially. Zhihu Yanyan Story brand strengthened, income-generating creators for paid members surged by 78.3% year-over-year, and IP revenue increased nearly 50% sequentially.

Marketing Services

• Marketing services revenue reached RMB315.9 million during the quarter, with the rate of decline narrowing compared to Q3 2024, growing 23.1% sequentially. Brand advertising was resilient. Strengthened presence in automotive sectors by hosting events. CCS business reduced low-quality commercial content by over 50% year-over-year and sequentially, driving a 15% sequential decline in negative user feedback on commercial content.

Vocational Training Business

• Revenue decreased 50.4% year-over-year to RMB84 million during the quarter. Self-operated business maintained robust momentum with double-digit growth year-over-year, achieving turnaround in operating profitability. AI drove conversion efficiency gains by 10% and reduced cost by 20% for proprietary live streaming platform, and a new AI-driven sales model showed progress.

• 2025 will focus on continuously enhancing community trustworthiness while strengthening profitability.
• Continue to enhance product in the direction of Zhida, strengthening synergies between Zhida and Zhihu community.
• May choose to maintain a slightly overall loss temporarily to pursue opportunities from deeper AI integration.
• Continue to conduct open market buybacks at appropriate times, having been one of the US-listed Chinese companies with the highest share repurchase ratio.

• The discussion included forward-looking statements made under the safe harbor provisions, which involve inherent risks and uncertainties. Actual results may be materially different from the views expressed today. Full information regarding these and other risks and uncertainties is included in the company's public filings with the US Securities and Exchange Commission and the Hong Kong Stock Exchange.

Q: Could management share insights regarding the user size data of Zhihu Zhida? How does it benefit over our Zhihu community ecosystem? Additionally, is there concern that with advancements in LLM inference capabilities, Zhihu could be replaced by AI?

A: Over the past six months, Zhida's MAU grew from about 1 million to 10 million. Zhihu community's expert network is irreplaceable. Zhida update introduced ways to connect with community contributors, turning experts into users' interaction personal knowledge base. AI will enhance Zhihu's development, as Zhihu has the strongest expert network, and experts' value will be amplified.

Q: What other changes and innovation can we expect on the product side this year? Are there any new directions about AI integration?

A: This year, focus is on strengthening social interactions and enhancing brand as a trusted content platform. Developing social circles for shorter-form content, columns and podcast for longer-form content. IP initiatives like [indiscernible] season will be key. AI-related initiatives will deepen integration with community, empowering community workflows to boost high-quality content creation and distribution.

Q: How can the AI and large language model benefit Zhihu's online marketing product? Do you have any example or data case for us?

A: AI LLMs prioritize high-quality answers from top-tier experts, so traffic is moving towards highest-quality content. Many AI chatbots rely on Zhihu's real expert-generated contents for in-depth responses. Advertisers are focusing on content marketing and brand reputation management on the platform, shifting towards generative engine optimization to gain visibility in AI-generated answers.

Q: How should we think of the long-term profitability of Zhihu? And how should we think of the 2025 margin outlook for this year? And how should we think of the cash utilization?

A: Q4 achieved double-digit non-GAAP net profit margin of 11%. Looking ahead to 2025, AI represents a historical opportunity. May maintain a slightly overall loss temporarily to capture AI integration opportunities. Although market value is undervalued, will continue conducting open market buybacks at appropriate times, having been one of the US-listed Chinese companies with the highest share repurchase ratio.