ZHIHU(ZH) - 2025 Q2 - Quarterly Report

Executive Summary & Business Highlights Q2 2025 Performance Highlights Zhihu Inc. achieved its third consecutive quarter of non-GAAP profitability in Q2 2025, driven by improved gross margin and a shift from net loss to net income - Achieved third consecutive quarter of non-GAAP profitability[4] Q2 2025 Key Financial Highlights (YoY) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :-------------------------- | :-------------------- | :-------------------- | :------------- | | Total Revenues | 716.9 | 933.8 | -23.2% | | Gross Margin | 62.5% | 59.6% | +2.9 ppts | | Net Income (GAAP) | 72.5 | (80.6) | Turnaround | | Adjusted Net Income (Non-GAAP) | 91.3 | (44.6) | Turnaround | - Average monthly subscribing members reached 13.2 million in Q2 2025[6] Management Commentary Management emphasized refined operational strategies and AI integration driving efficiency, profitability, and a vibrant community with improved user engagement - CEO Yuan Zhou highlighted refined operational strategies and AI integration driving efficiency and non-GAAP profitability[4] - The community remains vibrant with stable user base, improved DAU time spent, core user retention, and creator activity[4] - CFO Han Wang noted gross margin improved to 62.5% and RMB91.3 million non-GAAP net income, reflecting AI-driven efficiency gains[4] Financial Results Overview Total Revenues Total revenues for Q2 2025 decreased by 23.2% year-over-year, driven by strategic refinements in service offerings Total Revenues (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :----------- | :-------------------- | :-------------------- | :------------- | | Total Revenues | 716.9 | 933.8 | -23.2% | Gross Profit and Margin Gross margin expanded significantly to 62.5% in Q2 2025, driven by reduced cost of revenues and improved efficiency Gross Profit and Margin (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :---------- | :-------------------- | :-------------------- | :------------- | | Gross Profit| 448.2 | 556.5 | -19.5% | | Gross Margin| 62.5% | 59.6% | +2.9 ppts | - Gross margin expansion primarily attributable to monetization enhancements and improvements in operating efficiency[10] Net Income and Profitability Zhihu achieved a significant profitability turnaround in Q2 2025, reporting net income due to improved efficiency and investment income Net Income (Loss) (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :------------------------- | :-------------------- | :-------------------- | :------------- | | Net Income (GAAP) | 72.5 | (80.6) | Turnaround | | Adjusted Net Income (Non-GAAP) | 91.3 | (44.6) | Turnaround | - Adjusted net income (non-GAAP) was RMB91.3 million, a turnaround from RMB44.6 million adjusted net loss in Q2 2024[16] Earnings Per Share (EPS) Diluted net income per ADS was RMB0.88 in Q2 2025, a positive shift from a RMB0.89 net loss per ADS Diluted Net Income (Loss) Per ADS (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB) | Q2 2024 (RMB) | | :------------------------- | :------------ | :------------ | | Diluted Net Income per ADS | 0.88 | (0.89) | Revenue Stream Analysis Marketing Services Revenue Marketing services revenue decreased significantly due to strategic refinement of service offerings focused on margin improvement Marketing Services Revenue (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :---------------------- | :-------------------- | :-------------------- | :------------- | | Marketing Services Revenue | 222.8 | 344.0 | -35.2% | - Decrease primarily due to proactive refinement of service offerings to strategically focus on margin improvement[7] Paid Membership Revenue Paid membership revenue saw a slight decrease year-over-year, mainly due to a decline in average monthly subscribing members Paid Membership Revenue (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :--------------------- | :-------------------- | :-------------------- | :------------- | | Paid Membership Revenue | 402.0 | 432.7 | -7.1% | - Slight decrease primarily due to a decline in the number of average monthly subscribing members[7] Vocational Training Revenue Vocational training revenue substantially decreased year-over-year due to strategic refinement of businesses in this segment Vocational Training Revenue (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :------------------------ | :-------------------- | :-------------------- | :------------- | | Vocational Training Revenue | 62.1 | 133.6 | -53.5% | - Decrease primarily due to the strategic refinement of businesses[8] Other Revenues Other revenues demonstrated positive growth, increasing by 27.6% year-over-year in Q2 2025 Other Revenues (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :----------- | :-------------------- | :-------------------- | :------------- | | Other Revenues | 30.0 | 23.5 | +27.6% | Cost and Operating Expense Analysis Cost of Revenues Cost of revenues decreased by 28.8% year-over-year, driven by reduced content, operating costs, and improved technological efficiency Cost of Revenues (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :-------------- | :-------------------- | :-------------------- | :------------- | | Cost of Revenues | 268.7 | 377.3 | -28.8% | - Decrease primarily due to reduced content and operating costs, lower personnel expenses, and decreased cloud services costs from improved technological efficiency[9] Operating Expenses Breakdown Total operating expenses decreased by 27.2% year-over-year, reflecting enhanced operational efficiency and disciplined spending Total Operating Expenses (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :------------------- | :-------------------- | :-------------------- | :------------- | | Total Operating Expenses | 539.2 | 740.4 | -27.2% | Selling and Marketing Expenses Selling and marketing expenses decreased by 21.8% year-over-year due to disciplined promotional spending and reduced personnel costs Selling and Marketing Expenses (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :------------------------- | :-------------------- | :-------------------- | :------------- | | Selling and Marketing Expenses | 326.3 | 417.0 | -21.8% | - Decrease primarily due to more disciplined promotional spending and a decrease in personnel-related expenses[11] Research and Development Expenses Research and development expenses decreased by 30.4% year-over-year, mainly due to improvements in R&D efficiency Research and Development Expenses (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :----------------------------- | :-------------------- | :-------------------- | :------------- | | Research and Development Expenses | 145.7 | 209.3 | -30.4% | - Decrease primarily attributable to improvements in research and development efficiency[11] General and Administrative Expenses General and administrative expenses decreased by 41.1% year-over-year, driven by lower credit loss allowance and share-based compensation General and Administrative Expenses (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :------------------------------- | :-------------------- | :-------------------- | :------------- | | General and Administrative Expenses | 67.3 | 114.1 | -41.1% | - Decrease primarily attributable to a decline in the allowance for expected credit losses and lower share-based compensation expenses[12] Loss from Operations Loss from operations narrowed significantly by 50.5% (GAAP) and 51.4% (non-GAAP), reflecting improved efficiency and cost control Loss from Operations (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :------------------------- | :-------------------- | :-------------------- | :------------- | | Loss from Operations (GAAP) | 91.0 | 183.9 | -50.5% | | Adjusted Loss from Operations (Non-GAAP) | 71.5 | 147.1 | -51.4% | Balance Sheet and Cash Flow Items Investment Income Investment income substantially increased in Q2 2025, driven by unrealized gains from re-measuring a private investment Investment Income (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (RMB million) | Q2 2024 (RMB million) | Change (YoY) | | :--------------- | :-------------------- | :-------------------- | :------------- | | Investment Income | 140.8 | 21.8 | +545.9% | - Increase primarily attributable to unrealized gains from re-measuring the fair value of a privately held company investment[15] Cash and Cash Equivalents As of June 30, 2025, total liquidity was RMB4,820.8 million, a slight decrease from December 31, 2024 Cash and Cash Equivalents, Term Deposits, Restricted Cash and Short-term Investments | Metric | As of June 30, 2025 (RMB million) | As of December 31, 2024 (RMB million) | | :------------------------------------------------------------------ | :-------------------------------- | :------------------------------------ | | Cash and cash equivalents, term deposits, restricted cash and short-term investments | 4,820.8 | 4,859.0 | Corporate Information and Disclosures Share Repurchase Programs As of June 30, 2025, 31.1 million Class A shares were repurchased for US$66.5 million under existing programs - As of June 30, 2025, the Company repurchased 31.1 million Class A ordinary shares for US$66.5 million[18] Use of Non-GAAP Financial Measures Non-GAAP measures are used to supplement GAAP results, excluding specific non-cash items for clearer operating performance insights - Non-GAAP financial measures supplement GAAP results, including adjusted income/(loss) from operations and adjusted net income/(loss)[19][24] - Non-GAAP measures exclude share-based compensation expenses, amortization of intangible assets, and tax effects of non-GAAP adjustments[24] - These measures are not defined under U.S. GAAP and should not be considered in isolation or as a substitute for GAAP results[25] Key Definitions Key definitions clarify 'Monthly subscribing members' as those subscribed in a month and 'Average monthly subscribing members' as their average - Monthly subscribing members refers to those who subscribed for membership packages in a specified month[20] - Average monthly subscribing members are calculated by averaging monthly subscribing members over a given period[20] About Zhihu Inc. Zhihu Inc. is a leading Q&A-inspired online content community in China, established in 2010, fostering user engagement - Zhihu Inc. (NYSE: ZH; HKEX: 2390) is a leading online content community in China[23] - Launched in 2010, it is the largest Q&A-inspired online content community in China[23] Conference Call Information Zhihu hosted a conference call on August 27, 2025, for Q2 2025 results, with webcast available on its investor site - Conference call held on August 27, 2025, at 7:00 A.M. U.S. Eastern Time to discuss results[21] - Pre-registration was required for participants to receive dial-in numbers and a unique access PIN[21] - A live and archived webcast of the conference call is available on the Company's investor relations website[22] Safe Harbor Statement & Contacts The announcement contains forward-looking statements under 'safe harbor' provisions, with contact information for inquiries - Announcement contains forward-looking statements made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[27] - Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially[27] - Investor and media inquiries can be directed to Zhihu Inc. or Christensen Advisory[28] Unaudited Condensed Consolidated Financial Statements Statements of Operations Statements of operations detail financial performance for Q2 2025, including revenues, costs, gross profit, and net income/loss Unaudited Condensed Consolidated Statements of Operations (Key Figures for Three Months Ended June 30, 2025) | Metric (RMB thousand) | June 30, 2025 | | :--------------------- | :------------ | | Total revenues | 716,894 | | Cost of revenues | (268,711) | | Gross profit | 448,183 | | Total operating expenses | (539,189) | | Loss from operations | (91,006) | | Investment income | 140,836 | | Net income | 72,480 | | Diluted net income per ADS | 0.88 | Share-based Compensation Expenses (Three Months Ended June 30, 2025) | Category | June 30, 2025 (RMB thousand) | | :--------------------------- | :---------------------------- | | Cost of revenues | 10 | | Selling and marketing expenses | (294) | | Research and development expenses | (870) | | General and administrative expenses | 17,124 | Balance Sheets Balance sheets present the company's financial position as of December 31, 2024, and June 30, 2025, detailing assets, liabilities, and equity Unaudited Condensed Consolidated Balance Sheets (Key Figures as of June 30, 2025) | Metric (RMB thousand) | June 30, 2025 | | :--------------------- | :------------ | | Total current assets | 5,125,837 | | Total non-current assets | 620,695 | | Total assets | 5,746,532 | | Total current liabilities | 1,473,297 | | Total non-current liabilities | 65,687 | | Total liabilities | 1,538,984 | | Total shareholders' equity | 4,207,548 | Reconciliations of GAAP and Non-GAAP Results This section reconciles GAAP to non-GAAP financial measures for Q2 2025, detailing adjustments for compensation, amortization, and tax effects Reconciliation of GAAP to Non-GAAP Results (Three Months Ended June 30, 2025) | Metric (RMB thousand) | June 30, 2025 | | :--------------------- | :------------ | | Loss from operations (GAAP) | (91,006) | | Add: Share-based compensation expenses | 15,970 | | Add: Amortization of intangible assets | 3,490 | | Adjusted loss from operations | (71,546) | | Net income (GAAP) | 72,480 | | Add: Share-based compensation expenses | 15,970 | | Add: Amortization of intangible assets | 3,490 | | Tax effects on non-GAAP adjustments | (600) | | Adjusted net income | 91,340 |