• Gross Profit Margin: Improved by over 10 percentage points year over year, reaching 63.9%.
• Net Loss: RMB9 million, a decrease of 96.8% year over year.
• MAU (Monthly Active Users): Rebounded to 81.1 million in Q3.
• Paid Membership Revenue: RMB459.4 million, with a 11.5% increase in subscribing members to 16.5 million.
• Marketing Services Revenue: RMB256.6 million, a 33% decline year over year.
• Vocational Training Revenue: RMB105.1 million, a decrease from RMB144.8 million in the same period of 2023.
• Operating Expenses: Total operating expenses decreased by 30.5% to RMB624.5 million.
• Selling and Marketing Expenses: Decreased by 27.4% to RMB388 million.
• R&D Expenses: Decreased by 28.2% to RMB179.3 million.
• G&A Expenses: Decreased by 50.1% to RMB57.2 million.
• Cash and Cash Equivalents: RMB5 billion as of September 30, 2024.
• Share Repurchase: 74.2 million Class A ordinary shares repurchased for USD121.5 million.

• Warning! GuruFocus has detected 10 Warning Signs with XSGO:AGUAS-A.

Release Date: November 26, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Zhihu Inc (NYSE:ZH) achieved a significant improvement in gross profit margin, reaching 63.9%, the highest since its listing.
• The company reported a substantial reduction in total costs and operating expenses, decreasing by over 35.6% and 30.5% respectively.
• User engagement and core user retention showed significant year-over-year growth, with daily active user time span rising nearly 20% year over year.
• The number of income-generating content creators increased by over 25% year over year, enhancing the content ecosystem.
• Zhihu Zhida's traffic saw a remarkable increase of over 180% in September compared to August, indicating strong growth in its AI-driven features.

Negative Points

• Marketing services revenue declined by 33% year over year, reflecting challenges in brand advertising and CCS.
• Vocational training revenue decreased by 27.4% year over year due to strategic refinement of acquired businesses.
• Paid membership revenue slightly decreased from the same period last year, indicating potential challenges in maintaining growth.
• The company experienced a decline in cash and cash equivalents, term deposits, restricted cash, and short-term investments from RMB5.5 billion to RMB5 billion.
• Despite improvements, the company still reported a net loss, albeit significantly reduced, indicating ongoing challenges in achieving profitability.

Q & A Highlights

Q: Could management share more color on the commitment about achieving a breakeven in the first quarter? And what's your outlook for 2025? What will be the main drivers? A: Wang Han, CFO, stated that the company is focused on achieving breakeven in Q4 2024, with significant reductions in losses boosting confidence. For 2025, the priorities are reducing annual losses and enhancing user experience and engagement. The focus will be on maintaining a professional community and innovating business models around Zhihu's strengths.

Q: Can management provide more details on the adjustments made to the community and user behavior? When do you expect Zhihu's MAU to recover to a positive year-on-year growth? A: Yuan Zhou, CEO, explained that the focus has been on enhancing core user experience, which has led to growth in high-frequency users. The company has optimized algorithms to promote professional content and improved creator income mechanisms. While MAU growth isn't guaranteed, the focus remains on long-term community improvements.

Q: What other features could be added to Zhihu Zhida in the future, and how might this integrate with the Zhihu community and monetization efforts? A: Yuan Zhou, CEO, mentioned that Zhihu Zhida's professional search is tailored for specific professional scenarios. Future upgrades will focus on integrating with the Zhihu community, although specific features are not yet disclosed.

Q: Will management share some color about the fourth-quarter outlook for the advertising business and the CCS business adjustment progress? A: Wang Han, CFO, noted that the focus is on reducing low-quality commercial content and enhancing collaboration with quality creators and brands. The strategy involves leveraging Zhihu's high-value audience for premium brand partnerships, with examples like TCL and Bvlgari campaigns.

Q: Could the management share some colors about the progress in optimizing the vocational training business and the long-term financial target? A: Wang Han, CFO, stated that the goal is to improve efficiency and reduce losses, aiming for breakeven by the end of 2025. The focus is on scaling back low-margin offerings and integrating the vocational training business with the community for better demand validation and brand reputation.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.