Zhihu Inc. Q3 FY2025 earnings call

• Structural optimization and cost control: Non-GAAP operating loss narrowed by 16.3% year-over-year as structural optimization initiatives took effect, with disciplined cost control and improved operating efficiency.
• Community ecosystem strength: MAUs increased modestly from the second quarter, daily time spent trended higher year-over-year and quarter-over-quarter, and user and creator activity remained high.
• AI advancements: Zhida penetration rate exceeded 15% in the third quarter, nearly 4x higher than the same period last year. Search scenario enhancements planned, including full augmentation of general AI search capability by late November and pilot features like cross-topic content aggregation. Content creation tools launched with over 20% adoption of new AI features by the end of Q3.
• Commercialization: Marketing services showed recovery with optimized client mix and AI-integrated product upgrades. Paid membership saw growth through retention initiatives and IP licensing success. Vocational training business reclassified, and column product enhanced with sequential growth in leading column creators and creator user engagement.

In the third quarter, marketing services revenue was RMB 189.4 million. Paid membership average monthly paid members increased by 8.1% sequentially to 14.3 million, with revenue reaching RMB 386 million. IP licensing revenue maintained triple-digit year-over-year growth and high double-digit quarter-over-quarter growth. Other revenues were RMB 83.9 million, primarily due to the strategic refinement of the vocational training business. Marketing services revenue accounted for a certain proportion of total revenues, with the year-over-year decrease narrowing, indicating the bottoming out of the adjustment cycle. Paid membership contributed significantly to revenue with growth in both members and revenue.

• On track to achieve full year non-GAAP breakeven. Marketing services expected to sequentially recover starting in Q4. Confident in achieving full year profitability.
• Buyback program to continue as Zhihu's market cap is undervalued relative to its cash position on the balance sheet.

Q: 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.

A: Zhida's overall usage and penetration rate continued to increase in the third quarter with the penetration rate existing 15%, nearly 4x higher than the same period last year. In the search scenario, by late November, Zhida will fully augment general AI search capability to include Zhida-generated content for all users, and will soon launch pilot features like cross-topic content aggregation. On the content creation side, a suite of AI assistant writing tools was launched with over 20% adoption by the end of 3Q.

Q: 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?

A: The community ecosystem is very healthy, focusing on content quality, user structure, and creator incentives. Future product direction is built around 2 pillars: utility and identity. Zhida will integrate with users' functional social needs, and the company will double down on real human connection social needs to build a sense of belonging in a trusted environment.

Q: 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?

A: Marketing services Q3 is the bottom, expecting sequential recovery starting in Q4. Pay membership is in a transition period. Vocational training business is no longer a drag and reclassified into others. Confident in achieving full year non-GAAP profitability, with Q3 loss well within comfortable range and using the period to fine-tune and invest where needed.

Q: Could management share some more color about the shareholder return pay in progress?

A: Zhihu has been one of the most active buyback companies among U.S.-listed Chinese names. Confident in profitability, and due to market cap being significantly below cash on balance sheet, the buyback program will continue