Investment Rating - The report suggests to pay attention to the company due to its potential for commercial space enhancement following the integration of the DeepSeek-R1 model [3]. Core Viewpoints - The integration of the DeepSeek-R1 model into Zhihu's AI search products is expected to significantly improve the accuracy and quality of search results and answers, leveraging the community's extensive high-quality corpus and over 50 million pieces of bilingual literature [3]. - The combination of the model's reasoning capabilities with the community's professional content will enhance the structured output of information, particularly in specialized fields such as healthcare and law, ensuring authoritative and traceable content [3]. - The efficiency of producing high-quality answers is anticipated to increase substantially, which will positively impact the activity level of the content ecosystem and its commercialization potential, including advertising and paid consultation scenarios [3]. - The current valuation of the company corresponds to a dynamic price-to-book ratio of approximately 0.6 times for 2025, indicating that the company can achieve large model integration at a low cost, which will greatly benefit its ecosystem [3].

Investment Rating - The report gives a "Buy" rating for the company, with a target price of $5.33, representing a potential upside of 48.7% from the current price of $3.60 [8][24]. Core Insights - The company reported Q3 revenue of 845 million RMB, a year-on-year decrease of 17.32%, but net loss decreased by 96.8% to 9 million RMB, with a gross margin increase to 63.9%, the highest in its history [3][14]. - The company is focusing on profitability, with a strategy to enhance gross margins and reduce net loss rates, aiming for significant loss reduction or near profitability by 2025 [8][10]. - The integration of AI technology into the platform is expected to improve user experience and attract new users, thereby increasing engagement and revenue from advertisers [15][26]. Financial Performance - Q3 revenue breakdown shows a decline across all major business segments: advertising marketing services down 32.9% to 257 million RMB, paid membership down 1.71% to 459 million RMB, and vocational training down 27.59% to 105 million RMB [3][14]. - The company’s MAU reached 81.1 million, with average monthly subscribers at 16.5 million, and content creation volume increased by 14.9% year-on-year [6][8]. - The operating expenses for Q3 were 624 million RMB, a decrease of 30.5% year-on-year, with significant reductions in sales and marketing, R&D, and general administrative expenses [36]. Future Outlook - The company aims to leverage its unique knowledge ecosystem and AI capabilities to enhance search functionalities and user satisfaction, which is expected to drive user growth and retention [15][8]. - The financial projections indicate a gradual improvement in revenue and a path towards profitability, with net losses expected to decrease significantly by 2025 [4][18].

Core Insights - Zhihu Inc. (NYSE: ZH) has experienced a significant decline in stock performance since its IPO in 2021, reaching a multi-year low recently [1]. Company Performance - The stock has spent most of the past three years in decline, indicating ongoing challenges for the company [1].

Investment Rating - The report maintains a "Buy" rating for Zhihu (ZH) with a target price of $4.87 per ADS [5][17] Core Views - Zhihu achieved significant loss reduction in 24Q3, with the lowest quarterly loss since its IPO [2][3] - The company's community ecosystem has been optimized, with core user health metrics steadily improving [3] - Zhihu's 24Q3 gross margin reached 63.9%, a YoY increase of 10.26 percentage points [3] - The company has implemented cost-saving measures across sales, R&D, and management expenses [3] - Zhihu's average MAU recovered to 81.1 million in 24Q3, showing a QoQ growth of 0.6% [3] Financial Performance Revenue and Profit - 24Q1-Q3 revenue reached RMB 2.74 billion, a YoY decrease of 10.48% [2] - 24Q3 revenue was RMB 845 million, a YoY decrease of 17.33% [2] - 24Q3 net loss attributable to shareholders was RMB 10 million, a significant reduction from the previous year [2] - Adjusted net loss for 24Q3 was RMB 13 million, showing a substantial improvement [2] Business Segments - Marketing services revenue in 24Q3 was RMB 257 million, a YoY decrease of 32.99% [3] - Paid membership revenue reached RMB 459 million in 24Q3, with monthly paying members increasing to 16.5 million [3] - Vocational training revenue was RMB 105 million in 24Q3, with self-operated courses showing growth [3] Cash Position - As of 24Q3, Zhihu held cash and cash equivalents of RMB 5.048 billion [3] - The company completed a share repurchase program, buying back 33.02 million Class A ordinary shares [3] Future Projections - Revenue for 2024-2026 is projected to be RMB 3.555 billion, RMB 3.055 billion, and RMB 3.229 billion respectively [3][12] - Net loss is expected to decrease from RMB 272 million in 2024 to RMB 23 million in 2026 [3] - Average MAU is forecasted to be 830 million, 830 million, and 850 million for 2024-2026 [11] - Marketing service revenue is projected to be RMB 1.233 billion, RMB 1.048 billion, and RMB 1.079 billion for 2024-2026 [11] - Paid membership revenue is expected to reach RMB 1.740 billion, RMB 1.589 billion, and RMB 1.724 billion in 2024-2026 [11] Valuation - The report values Zhihu at 1x PS for 2025, resulting in a fair value estimate of $4.87 per ADS [17] - The current PS ratio is 0.68x for 2024, 0.79x for 2025, and 0.75x for 2026 [17]

Core Insights - Zhihu reported a total revenue of 845 million RMB for Q3 2024, a year-on-year decrease of 17.3% [1] - The gross margin improved from 53.7% in the same period last year to 63.9%, while the net loss narrowed significantly to 90 million RMB, a reduction of 96.8% year-on-year, marking the smallest quarterly net loss since its IPO [1][3] - Adjusted net loss was 131 million RMB, a year-on-year reduction of 94.2% [1] Revenue Breakdown - Paid reading business generated 459 million RMB, accounting for 54% of total revenue [1] - Marketing services and vocational education contributed 257 million RMB and 105 million RMB, respectively [1] - Other revenue sources totaled 239 million RMB [2] User Engagement - Average monthly active users (MAUs) reached 81.1 million, with average monthly subscription members at 16.5 million [2] - The AI search product Zhihu Zhidao continued to grow, with the launch of a "professional search" feature that includes over 50 million Chinese and English literature data [1][2] Cost Management - Total costs and operating expenses decreased by 35.6% and 30.5% year-on-year, contributing to the improved gross margin [3] - The company aims to strategically explore business models that enhance its high-value brand image and unique user positioning [3] Share Buyback Program - Zhihu has repurchased 31.1 million Class A ordinary shares under its 2022 buyback plan, totaling 66.5 million USD [3] - The 2024 buyback plan is valid until June 26, 2025, allowing for the repurchase of up to 10% of the company's issued shares [3] Strategic Partnerships - Zhihu renewed a three-year framework agreement with Tencent, effective from January 1, 2025 [4] - The agreement includes a payment service framework to be provided by Tencent from December 1, 2024, to December 31, 2026 [4]

Financial Data and Key Metrics Changes - Gross profit margin improved by over 10 percentage points year-over-year, reaching 63.9%, the highest level since the company's listing [7] - Total costs and operating expenses decreased by more than 35.6% and 30.5%, respectively, leading to a net loss of RMB 9 million, down 96.8% year-over-year [7][35] - Adjusted net loss on a non-GAAP basis was RMB 13.1 million compared with RMB 225.3 million in the same period of 2023, with an adjusted net loss margin decreasing more than 20 percentage points year-over-year to 1.5% [35] Business Line Data and Key Metrics Changes - Paid membership revenue for the third quarter was RMB 459.4 million, slightly decreased from RMB 466.8 million in the same period of last year, with the number of subscribing members rising by 11.5% year-over-year to 16.5 million [17][30] - Revenue from marketing services was RMB 256.6 million, a 33% decline year-over-year, attributed to a decrease in brand advertising and CCS [19][29] - Vocational training revenue for the quarter was RMB 105.1 million compared with RMB 144.8 million in the same period of 2023, primarily due to strategic refinement of acquired business [31] Market Data and Key Metrics Changes - MAU for Q3 rebounded quarter-over-quarter to 81.1 million, with daily active user time spent rising nearly 20% year-over-year [10] - Cumulative content volume reached 854.5 million thesis, representing a year-over-year growth of 14.9% [13] - The number of income-generating content creators increased by over 25% year-over-year, indicating a growing engagement among high-tier content creators [11] Company Strategy and Development Direction - The company is focused on enhancing user experience and strengthening community trustworthiness, with a commitment to optimizing operational models [26] - Strategic priorities for 2025 include sustainably reducing annual losses and enhancing core user engagement [42] - The company aims to innovate its marketing services by reducing low-quality content and enhancing collaboration with quality content creators [61] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving breakeven in Q4 2024, citing significant reductions in losses in Q2 and Q3 [41] - The company plans to continue enhancing the user experience and community engagement, which are seen as critical for long-term growth [42][44] - Management acknowledged that improvements in user metrics stem from earlier strategic adjustments and emphasized the importance of high-quality content [49] Other Important Information - The company has repurchased 74.2 million Class A ordinary shares for a total price of USD 121.5 million since its Hong Kong IPO [37] - The company is committed to optimizing resource allocation and advancing towards profitability while enhancing user engagement [38] Q&A Session Summary Question: Can management share more color on the commitment about achieving breakeven in the first quarter? - Management confirmed a strong focus on achieving breakeven in Q4 2024, with significant reductions in adjusted net loss over the past quarters [41] Question: Can management provide more details on the adjustments made to the community and user strategies? - Management highlighted a focus on algorithm optimization and enhancing the experience for core users, which has led to improved user retention and engagement [49] Question: What are the future features planned for Zhihu Zhida? - Management indicated that future upgrades for Zhihu Zhida will focus on scenario-oriented updates to meet the needs of various user groups, particularly in academic and professional contexts [55] Question: What is the outlook for the advertising business and membership growth? - Management stated that they will continue to reduce low-quality content in the advertising business while maintaining strong growth in paid memberships, with a focus on enriching member benefits [60][63] Question: What progress has been made in optimizing the vocational training business? - Management reported ongoing efforts to improve efficiency and reduce losses in the vocational training segment, aiming for breakeven by the end of 2025 [67]

Summary of Zhihu's Q3 2024 Financial Results Conference Call Company Overview - **Company**: Zhihu - **Quarter**: Q3 2024 Key Industry Insights - **User Engagement**: The company reported a year-over-year increase in user engagement, with Monthly Active Users (MAU) reaching 81.1 million, marking a recovery in user growth after previous declines [2][14] - **Content Creation**: The number of income-generating content creators increased by over 25% year-over-year, indicating a thriving creator ecosystem [2][16] - **Community Ecosystem**: Zhihu's community is characterized by professional discourse and rational optimism, with a cumulative content volume of 854.5 million pieces, reflecting a 14.9% year-over-year growth [3][16] Financial Performance - **Revenue Growth**: Paid membership revenue was RMB 469.4 million, contributing 54% to total revenue, with a year-over-year increase of 11.5% in subscribing members to 16.5 million [5][21] - **Marketing Services**: Revenue from marketing services declined by 33% year-over-year to RMB 256.69 million, attributed to reduced brand advertising and a strategic focus on high-quality content [5][8] - **Vocational Training**: Revenue from vocational training decreased by 27.4% year-over-year to RMB 105.1 million, primarily due to a strategic refinement of offerings [6][23] Strategic Initiatives - **AI Applications**: The launch of the professional search feature for Zhihu Zhida marks a significant step in enhancing product capabilities, integrating over 50 million academic articles to support user inquiries [2][4] - **Community Optimization**: The company has focused on algorithm optimization to promote high-quality content, resulting in increased user retention and engagement [15][16] - **Cost Management**: Operating expenses decreased by 30.5% year-over-year, reflecting disciplined spending and operational efficiency [8][9] Future Outlook - **Break-even Target**: Management is focused on achieving break-even in Q4 2024, with a significant reduction in adjusted net loss by 94% year-over-year [12][23] - **2025 Growth Drivers**: Key priorities include enhancing user experience, strengthening content reputation, and innovating marketing services to reduce low-quality content [12][20] - **Shareholder Returns**: The company has repurchased over 120 million USD worth of shares since its IPO, indicating strong management confidence in asset valuation and future profitability [25] Additional Insights - **Community Dynamics**: The reduction in community-related promotional spending has led to a decrease in low-frequency users while increasing high-frequency user engagement [14][15] - **Content Quality**: The average exposure of low-quality content on recommendation pages has decreased by over 40%, while positive user interactions have increased [16][18] - **Long-term Strategy**: The company aims to integrate vocational training with the community to enhance service capabilities and user demand validation [23][24] This summary encapsulates the key points from Zhihu's Q3 2024 financial results conference call, highlighting the company's performance, strategic initiatives, and future outlook.

Core Insights - Zhihu Inc. reported total revenues of RMB845.0 million (US$120.4 million) for Q3 2024, a decrease from RMB1,022.2 million in Q3 2023, indicating a year-over-year decline of approximately 17.4% [2][7] - The company's gross margin improved to 63.9% in Q3 2024 from 53.7% in Q3 2023, reflecting enhanced operational efficiency [3][11] - Net loss narrowed significantly to RMB9.0 million (US$1.3 million) in Q3 2024, down 96.8% from RMB278.4 million in the same period of 2023 [3][14] Financial Performance - Total revenues for Q3 2024 were RMB845.0 million (US$120.4 million), compared to RMB1,022.2 million in Q3 2023, marking a decline of 17.4% [2][7] - Marketing services revenue decreased to RMB256.6 million (US$36.6 million) from RMB383.0 million in Q3 2023, primarily due to a strategic focus on margin improvement [7] - Paid membership revenue slightly decreased to RMB459.4 million (US$65.5 million) from RMB466.8 million in Q3 2023, attributed to a marginal decline in average revenue per subscribing member [8] - Vocational training revenue fell to RMB105.1 million (US$15.0 million) from RMB144.8 million in Q3 2023, driven by lower contributions from acquired businesses [9] Cost Management - Cost of revenues decreased by 35.6% to RMB304.9 million (US$43.4 million) from RMB473.7 million in Q3 2023, due to reduced content and operating costs [10] - Total operating expenses decreased by 30.5% to RMB624.5 million (US$89.0 million) from RMB898.6 million in Q3 2023, reflecting improved operational efficiency [11] - Selling and marketing expenses decreased by 27.4% to RMB388.0 million (US$55.3 million) from RMB534.3 million in Q3 2023, due to more disciplined promotional spending [12] User Engagement - Average monthly active users (MAUs) reached 81.1 million in Q3 2024, indicating growth in user engagement [4] - Average monthly subscribing members were 16.5 million in Q3 2024, reflecting the company's efforts to enhance its subscription model [5] Strategic Initiatives - The company introduced the 'Professional Search' feature to enhance user experience and engagement, building on the success of its AI-powered search tool, Zhihu Zhida [6] - Management emphasized a commitment to reducing losses and improving profitability, achieving the lowest quarterly loss since its U.S. IPO [6][14] Share Repurchase Programs - As of September 30, 2024, Zhihu repurchased 31.1 million Class A ordinary shares for a total price of US$66.5 million under its existing share repurchase program [17] - The company also conducted a cash tender offer, repurchasing 33,016,016 Class A ordinary shares, representing approximately 11.2% of its total issued shares before the repurchase [18]

Core Viewpoint - Zhihu Inc. will report its unaudited financial results for the quarter ended September 30, 2024, before the U.S. market opens on November 26, 2024 [1] Group 1: Financial Reporting - The financial results announcement is scheduled for November 26, 2024, before U.S. market opening [1] - A conference call will be hosted by the company's management at 6:00 A.M. U.S. Eastern Time on the same day [1] - Participants must pre-register online to join the conference call and will receive dial-in numbers and a unique registrant ID [2] Group 2: Company Overview - Zhihu Inc. is a leading online content community in China, evolving from a Q&A platform to a comprehensive online content community since its launch in 2010 [4] - The company is recognized as the largest Q&A-inspired online content community in China [4]

Core Points - Zhihu Inc. announced the results of its cash tender offers to buy back up to 46,921,448 Class A ordinary shares, with 33,016,016 shares validly tendered and accepted for buyback [1][2] - The total consideration for the buyback is HK$300,775,906, with completion expected on or before November 8, 2024 [1] - Following the buyback, there will be 261,860,348 shares issued and outstanding, comprising 246,413,570 Class A ordinary shares and 15,446,778 Class B ordinary shares [2] Company Overview - Zhihu Inc. is a leading online content community in China, evolving from a Q&A platform to a comprehensive online content community since its launch in 2010 [5]