Executive Summary / Key Takeaways

• Zhihu Inc. has undergone a significant strategic transformation, pivoting towards a model centered on high-quality, trustworthy content and deep AI integration, which has driven three consecutive quarters of non-GAAP profitability.
• The company's proprietary AI product, Zhihu Zhida, leveraging its extensive network of experts and human-generated content, is emerging as a critical differentiator, combating AI hallucinations and positioning Zhihu as a foundational source for the Chinese AI ecosystem.
• Despite a period of revenue adjustments, Zhihu has demonstrated strong cost control and margin expansion, with a clear outlook to approach near breakeven on a non-GAAP basis for the full year 2025, supported by segment recoveries and efficient operations.
• Zhihu's substantial cash reserves provide strategic flexibility for continued investment in AI initiatives and robust shareholder returns through ongoing share repurchase programs, signaling management's confidence in the company's long-term value.
• The company's unique competitive positioning, emphasizing professional credibility and in-depth discussions, allows it to attract high-value users and advertisers, creating a sustainable flywheel in the evolving digital content and AI landscape.

The Foundation of Knowledge: Zhihu's Strategic Evolution

Zhihu Inc., established in 2010, has long been a cornerstone of China's online content community, renowned for its in-depth Q&A format and a vibrant network of professional experts. In an era increasingly shaped by artificial intelligence, the demand for credible, trustworthy information has surged, creating a unique opportunity for platforms that can reliably deliver high-quality content. Zhihu has strategically embraced this shift, undergoing a transformative turnaround that prioritizes community trust, enhanced user experience, and deep AI integration. This strategic pivot, initiated in 2024, has not only reshaped its operational model but also laid the groundwork for sustainable profitability.

The company's business model is built upon leveraging its vast repository of user-generated content and its expert network. Monetization primarily stems from marketing services, paid memberships, and vocational training. This foundation, coupled with a deliberate focus on quality over sheer user volume, has enabled Zhihu to carve out a distinct niche in China's competitive internet landscape.

AI as the Core Moat: Differentiated Technology and Impact

Zhihu's most significant technological differentiator is its AI-powered search and knowledge base, Zhihu Zhida. This product is not merely an AI search tool; it is evolving into an AI agent embedded within the community, designed to deliver a seamless AI interaction experience for creators and users across various use cases, including reading, Q&A, and search. A critical benefit of Zhida is its ability to reduce AI hallucinations in professional domains, a common challenge for large language models. This is achieved by directly tracing inquiry results back to actual community contributors and allowing users to engage with specific, verified experts.

The impact of Zhida's integration has been substantial and quantifiable. Its user base has grown remarkably, with monthly active users (MAU) expanding from approximately 1 million to 10 million on its app and PC platforms within six months by Q4 2024. By September 2024, Zhida's traffic reached 4.7 million, marking an increase of over 180% compared to August. The Qubit Research Institute reported that AI assistants cite community platform content 62.4% of the time in professional domains, with Zhihu ranking highest, being cited almost four times as much as the next platform. This underscores the importance of Zhihu's content quality and professional credibility in the AI era.

Zhihu's commitment to AI extends to its content creation and operational efficiency. AI-related professional content has maintained over 45% year-over-year growth for two consecutive quarters, and daily high-quality content creation increased by over 10% sequentially in Q2 2025. The company has also integrated user-friendly AI tools into its creation workflows, boosting efficiency while strictly controlling AI-generated content (AIGC). Operationally, AI drove conversion efficiency gains by 10% and reduced costs by 20% for Zhihu's proprietary live streaming platform in Q4 2024.

The company's strategic roadmap for AI includes further enhancing user and creator experiences through features like personal knowledge assistance and integrating Zhida across its broader suite of products once it achieves critical penetration and quality milestones. Zhihu views its AI strategy as a "scaling law of trust," a formula of trusted content multiplied by an expert network and AI capabilities. This approach is designed to establish Zhihu as a foundational source of reliable content for the Chinese AI ecosystem, widening its competitive moat and driving long-term value for investors through enhanced market positioning and commercialization opportunities.

Competitive Arena: Trust as the Ultimate Differentiator

Zhihu operates within a dynamic and highly competitive Chinese internet landscape, facing direct competition from diversified tech giants and specialized content platforms. Key competitors include Bilibili Inc. (BILI), Weibo Corporation (WB), Tencent Holdings Limited (TCEHY), and Baidu, Inc. (BIDU). While these rivals offer broad ecosystems or high-traffic entertainment, Zhihu differentiates itself through its unwavering focus on professional, in-depth, and trustworthy human-generated content. This emphasis on credibility is particularly crucial in the AI era, where the proliferation of AI-generated content often raises concerns about accuracy and "hallucinations."

Compared to Bilibili and Tencent, which excel in entertainment and broad user ecosystems, Zhihu offers deeper, more focused content interactions. While Bilibili and Tencent may demonstrate faster user growth and broader monetization avenues, Zhihu's specialized role as a knowledge hub fosters stronger user loyalty within professional networks. Against Weibo's fast-paced microblogging, Zhihu provides a platform for substantive discussions, attracting users seeking solutions and verified expertise rather than fleeting trends. Similarly, while Baidu leverages its search engine and AI capabilities for broad content discovery, Zhihu's community-centric model emphasizes peer-to-peer expertise and human connection, offering a distinct value proposition.

Zhihu's competitive advantages, or moats, are rooted in its strong brand as a trusted knowledge community, robust network effects from its extensive user-generated content, and a user-friendly Q&A interface. These advantages translate into high user loyalty and potentially superior margins through efficient customer acquisition, as its proprietary content algorithms enhance engagement. The company's unique asset of human-generated content, curated by a network of real experts, directly addresses the credibility issues faced by many AI products, positioning Zhihu as an indispensable resource. This allows Zhihu to attract high-value advertisers and users who prioritize authenticity and expertise, enabling it to maintain pricing power in its marketing services and paid membership segments.

Despite these strengths, Zhihu faces vulnerabilities, including a reliance on its concentrated user base in China and the ongoing challenge of technological integration in a rapidly evolving AI landscape. However, the company's strategic investments in AI, such as the integration with DeepSeek's R1 model and the development of public knowledge bases, are designed to mitigate these risks and amplify its unique strengths.

Financial Transformation: From Losses to Sustainable Gains

Zhihu's strategic pivot has yielded a remarkable financial transformation, moving from a history of losses to consistent profitability. The company achieved its first-ever adjusted net income of RMB 97.1 million and an adjusted operating profit of RMB 23.1 million in Q4 2024, marking a "transformative turnaround." This momentum continued into 2025, with Zhihu reporting a non-GAAP net income of RMB 6.9 million in Q1 2025, the first time achieving profitability in a first quarter since its IPO. The positive trend extended to Q2 2025, with adjusted net income reaching RMB 91.3 million, marking the third consecutive quarter of non-GAAP profitability.

This profitability has been underpinned by significant improvements in operational efficiency and disciplined cost management. Gross margin expanded to 62.5% in Q2 2025, an increase of approximately 3 percentage points year-over-year, driven by monetization enhancements and operating efficiency gains. Total operating expenses in Q2 2025 declined by 27.2% year-over-year. This reduction was broad-based, with selling and marketing expenses decreasing by 21.8% due to more disciplined promotional spending, research and development expenses falling by 30.4% from improved efficiency, and general and administrative expenses dropping by 41.1% due to lower share-based compensation and expected credit losses. Notably, user acquisition-related expenses decreased by 88% year-over-year in Q4 2024, a key driver of the profitability turnaround.

While total revenue for Q2 2025 was RMB 716.9 million, reflecting a moderating year-over-year decline, the company's strategic adjustments away from lower-quality revenue streams impacted full-year 2024 revenues, which stood at RMB 3,598.9 million, a 14.3% decrease from 2023.

Segment-specific performance highlights the impact of these strategic shifts:

• Marketing Services: Revenue reached RMB 222.8 million in Q2 2025, growing 13.1% quarter-over-quarter, with the year-over-year decline narrowing substantially. This segment has seen a rigorous crackdown on low-quality marketing content, reducing its consumption by over 90% year-over-year in Q2 2025. Advertising spend from the gaming sector increased fourfold year-over-year, and the client base expanded by 75% in Q2 2025, demonstrating the value of Zhihu's high-quality user base to advertisers.
• Paid Membership: This segment generated RMB 402 million in Q2 2025, experiencing a slight sequential decline of 3.8%. This was a result of a strategic emphasis on acquiring users with longer life cycles and higher ROI potential, which temporarily impacted new member sign-ups. Average monthly subscribing members totaled 13.2 million in Q2 2025. The "Yanyan story" brand continues to strengthen its leadership in premium short-form paid content, with IP licensing revenue growing by triple digits year-over-year and quarter-over-quarter in Q2 2025.
• Vocational Training: Revenue for this segment was RMB 62.1 million in Q2 2025, down 34.3% quarter-over-quarter. This decline is a direct consequence of the strategic decision to focus resources on high-performing course categories and phase out less profitable offerings. Despite the revenue decrease, the operating profit for the vocational training business increased by an impressive 90% year-over-year in Q2 2025, underscoring the effectiveness of the efficiency-driven strategy.

Zhihu maintains a strong liquidity position, with RMB 4.8 billion in cash and cash equivalents, term deposits, restricted cash, and short-term investments as of June 30, 2025. This robust financial foundation provides the company with the flexibility to invest strategically in AI initiatives, even if they entail short-term losses, to secure long-term competitive advantages.

Strategic Outlook and Growth Catalysts

Zhihu's management has articulated a clear forward-looking strategy, aiming for sustainable growth and profitability. For the full year 2025, the company anticipates reaching near breakeven on a non-GAAP basis, a testament to the success of its ongoing business optimization and cost control efforts.

The outlook for marketing services is positive, with expectations for stabilization and recovery in the second half of 2025, leading to a return to positive year-over-year growth in the coming quarters. This recovery will be driven by continued optimization of client structures, an expansion into trust-driven categories like high-value FMCG and B2B clients, and enhanced monetization of Zhihu's high-profile commercial IPs. The deep integration of AI is expected to unlock new marketing product opportunities, further accelerating this recovery.

In the paid membership business, Zhihu is actively experimenting with strategies to improve renewal rates and retention. This includes optimizing new member acquisition to attract users with longer life cycles and expanding premium content formats and service benefits to enhance Average Revenue Per User (ARPU). The success of new offerings like voice live streaming, which has seen ARPU exceed expectations, and the strong performance of the "Yanyan story" long-form writing marathon, highlight the potential for continued growth in this segment.

The vocational training business is on track to achieve breakeven by the end of 2025. This will be accomplished by transitioning to a more socially interactive and knowledge-sharing oriented model, leveraging the community's strengths to foster deeper engagement and unlock new monetization opportunities for professional creators.

At the core of Zhihu's future growth is its unwavering commitment to AI. The company plans to integrate AI more deeply throughout its community, introducing intuitive features like personal knowledge assistance and developing Zhihu Zhida into a comprehensive productivity suite. Management anticipates that the "intelligence selling of AI models will continue rising" over the next two years, and Zhihu's focus on trustworthy content and its expert network will be paramount. These efforts are expected to solidify Zhihu's position as a foundational source of reliable content for the Chinese AI ecosystem, continuously widening its competitive moat.

Furthermore, Zhihu remains committed to enhancing shareholder returns. The company has a 10% share repurchase authorization approved by its Board and shareholders and has actively executed buybacks, demonstrating management's confidence in the company's long-term value. With an accelerating path to profitability and positive cash flow, Zhihu is exploring more diverse methods for shareholder returns in the future.

Key Investment Risks

Despite its promising trajectory, Zhihu faces several pertinent risks. The company is currently "navigating an adjustment cycle" that has led to a year-over-year top-line decline, albeit moderating. This strategic refinement, involving the sunsetting of lower-quality revenue streams and a focus on higher ROI users, entails short-term trade-offs that could continue to impact revenue growth. The strategic emphasis on acquiring users with longer life cycles and higher ROI potential has already impacted new member sign-ups for paid memberships, leading to a slight sequential decline in revenue for that segment. Similarly, the vocational training business's revenue has decreased due to the strategic phasing out of offerings with limited growth potential or lower profitability.

While Zhihu aims to mitigate AI "hallucination problems" through its expert network and content attribution, the broader industry's struggle with AI credibility could still pose challenges. The company's reliance on a concentrated user base in China also exposes it to potential regulatory changes and shifts in domestic market dynamics. Investors should monitor the pace of revenue recovery in marketing services and paid memberships, the successful execution of the vocational training segment's breakeven target, and the continued effective integration of AI across its platform.

Conclusion

Zhihu Inc. is undergoing a profound transformation, strategically positioning itself as an indispensable knowledge platform in the burgeoning AI era. By prioritizing quality, trust, and deep AI integration, the company has successfully pivoted to consistent non-GAAP profitability, demonstrating strong operational efficiency and a clear path to sustainable growth. Its unique asset of human-generated, expert-vetted content, amplified by AI-powered tools like Zhihu Zhida, provides a critical competitive advantage in a world increasingly demanding credible information.

The company's disciplined financial management, coupled with its robust cash reserves, offers the flexibility to invest in strategic AI initiatives while simultaneously enhancing shareholder value through buybacks. As Zhihu continues to refine its business segments and deepen its AI capabilities, it is poised to solidify its position as a foundational source of reliable content for the Chinese AI ecosystem. For discerning investors, Zhihu represents a compelling opportunity to participate in a company that is not merely adapting to the AI revolution but actively shaping it, leveraging trust and expertise to unlock long-term value.