Zhihu Inc. Reports Unaudited First Quarter 2024 Financial Results

Rhea-AI Summary

Zhihu Inc. (NYSE: ZH; HKEX: 2390) announced its unaudited financial results for Q1 2024, ending March 31. Total revenues amounted to RMB960.9 million (US$133.1 million), a slight decline from RMB994.2 million YOY. Gross margin increased to 56.6% from 51.5%. The net loss was RMB165.8 million (US$23.0 million), a 7.4% reduction from the same period in 2023. Average MAUs reached 89.0 million, and average monthly subscribing members were 14.8 million. The company emphasizes strides toward break-even, with enhanced operating efficiency and cost structure optimization. A share repurchase program extension until June 2025 is proposed, pending shareholder approval. The company held RMB5,216.9 million in cash and equivalents as of March 31, 2024.

Positive

• Gross margin improved to 56.6% from 51.5% YOY.
• Net loss reduced by 7.4% YOY to RMB165.8 million (US$23.0 million).
• Cost of revenues decreased by 13.4% to RMB417.4 million (US$57.8 million).
• Vocational training revenue grew by 35.9% to RMB145.4 million (US$20.1 million).
• Gross profit increased by 6.1% to RMB543.5 million (US$75.3 million).
• General and administrative expenses decreased to RMB92.9 million (US$12.9 million).
• The company repurchased 31.1 million Class A ordinary shares for US$66.5 million.
• Cash and cash equivalents stood at RMB5,216.9 million (US$722.5 million) as of March 31, 2024.

Negative

• Total revenues declined to RMB960.9 million (US$133.1 million) from RMB994.2 million YOY.
• Marketing services revenue decreased to RMB330.5 million (US$45.8 million) from RMB392.1 million YOY.
• Paid membership revenue slightly declined to RMB449.7 million (US$62.3 million) from RMB454.8 million.
• Other revenues fell to RMB35.2 million (US$4.9 million) from RMB40.3 million YOY.
• Total operating expenses increased to RMB768.2 million (US$106.4 million) from RMB729.0 million YOY.
• Selling and marketing expenses rose to RMB478.0 million (US$66.2 million) from RMB445.6 million.
• R&D expenses increased to RMB197.4 million (US$27.3 million) from RMB183.0 million.
• Adjusted net loss (non-GAAP) was RMB135.7 million (US$18.8 million), higher than RMB120.2 million YOY.

Insights

Financial Analyst

Zhihu Inc.'s financial results for the first quarter of 2024 show mixed performance. Although total revenue saw a slight decline to RMB960.9 million, there was a notable 5.1% improvement in their gross margin, rising to 56.6%. This indicates a positive shift towards more efficient revenue-generating activities and cost management.

The narrowing of net loss by 7.4% to RMB165.8 million is a step towards financial health, but the rise in Adjusted net loss (non-GAAP) to RMB135.7 million signifies underlying challenges, possibly due to increased operational expenses. Importantly, Zhihu's cash reserves remain robust at RMB5,216.9 million, a positive indicator of liquidity and financial stability.

However, the decline in marketing services and paid membership revenues, which are down by 15.7% and 1.1% respectively, highlights user and monetization challenges. Investors should closely monitor how these areas evolve, especially given the company's strategic focus on improving margins and reducing acquisition costs.

Market Research Analyst

The average monthly active users (MAUs) remained stable at 89 million, reflecting a solid user base. However, the slight decline in subscribing members' revenue points to potential issues in user retention or subscription attractiveness. The company has made efforts to refine their service offerings and enhance monetization, but the mixed results suggest a need for further strategy refinement.

It's also worth noting Zhihu's investment in AI technologies and enriched online course offerings, which saw a 35.9% growth in vocational training revenue. This diversification could prove beneficial in the long term, tapping into new revenue streams and reducing reliance on traditional advertising and subscription models.

The share repurchase programs demonstrate management's confidence in the company's future, aiming to boost EPS and shareholder value. Yet, this approach needs to be balanced with maintaining sufficient cash for strategic investments and operational needs.

Tech Expert

Zhihu's emphasis on AI and technological innovation is a critical aspect of their long-term strategy. The increased R&D expenses, now at RMB197.4 million, underscore their commitment to improving platform capabilities. Enhancements in AI search features could drive user engagement and retention, offering personalized experiences that keep users within the ecosystem longer.

While these investments are promising, their success will depend on the execution and user adoption. The improvements in gross margin and reduced content costs indicate that initial steps are effective, but continuous innovation and user feedback will be necessary to maintain this momentum.

BEIJING, June 12, 2024 /PRNewswire/ -- Zhihu Inc. ("Zhihu" or the "Company") (NYSE: ZH; HKEX: 2390), a leading online content community in China, today announced its unaudited financial results for the quarter ended March 31, 2024.

First Quarter 2024 Highlights

• Total revenues were RMB960.9 million (US$133.1 million) in the first quarter of 2024, compared with RMB994.2 million in the same period of 2023.
• Gross margin expanded to 56.6% in the first quarter of 2024 from 51.5% in the same period of 2023.
• Net loss was RMB165.8 million (US$23.0 million) in the first quarter of 2024, narrowed by 7.4% from the same period of 2023.
• Adjusted net loss (non-GAAP)^[1] was RMB135.7 million (US$18.8 million) in the first quarter of 2024, compared with RMB120.2 million in the same period of 2023.
• Average monthly active users (MAUs)^[2] were 89.0 million in the first quarter of 2024. 
• Average monthly subscribing members^[3] were 14.8 million in the first quarter of 2024.

"We are delighted to start 2024 with a solid financial and operating performance," said Mr. Yuan Zhou, chairman and chief executive officer of Zhihu. "We made substantial strides toward our break-even target by enhancing operating efficiency and accelerating loss reduction. Furthermore, our efforts to enhance 'trustworthiness' within the Zhihu community continued to drive community prosperity, resulting in significant increases in core users' engagement and retention rates, as well as our DAU time spent. We believe that our AI search feature's emerging potential and the value we continue to unlock across the trustworthy Zhihu community will provide fresh momentum for our sustainable growth and a clear path to profitability for the remaining quarters of the year."

Mr. Han Wang, chief financial officer of Zhihu, added, "We optimized our cost structure and enhanced monetization efficiency during the quarter. Our gross profit margin has improved year-over-year for six consecutive quarters. In terms of operating expenses, we significantly reduced community-related new user acquisition costs and maintained a high ROI across our multiple business lines, while investing prudently in AI. We are confident that with continued strong strategic execution, we will remain on track to achieve our profitability goals."

First Quarter 2024 Financial Results

Total revenues were RMB960.9 million (US$133.1 million) in the first quarter of 2024, compared with RMB994.2 million in the same period of 2023.

Marketing services revenue was RMB330.5 million (US$45.8 million), compared with RMB392.1 million in the same period of 2023. The decrease was primarily due to our ongoing refinement of service offerings to strategically focus on margin improvement.

Paid membership revenue was RMB449.7 million (US$62.3 million), compared with RMB454.8 million in the same period of 2023. The slight decrease was primarily attributable to a slight decline in our average monthly subscribing members.

Vocational training revenue was RMB145.4 million (US$20.1 million), representing a 35.9% increase from RMB107.0 million in the first quarter of 2023. The increase was primarily due to our further enriched online course offerings.

Other revenues were RMB35.2 million (US$4.9 million), compared with RMB40.3 million in the same period of 2023.

Cost of revenues decreased by 13.4% to RMB417.4 million (US$57.8 million) from RMB482.0 million in the same period of 2023. The decrease was primarily due to a decrease in content and operating costs in connection with the decline in our revenues.

Gross profit was RMB543.5 million (US$75.3 million), representing a 6.1% increase from RMB512.2 million in the same period of 2023. Gross margin expanded to 56.6% from 51.5% in the same period of 2023, primarily attributable to our monetization enhancements.

Total operating expenses were RMB768.2 million (US$106.4 million) in the first quarter of 2024, compared with RMB729.0 million in the same period of 2023.

Selling and marketing expenses increased to RMB478.0 million (US$66.2 million) from RMB445.6 million in the same period of 2023. The increase reflects our continued efforts in promoting our product and service offerings.

Research and development expenses increased to RMB197.4 million (US$27.3 million) from RMB183.0 million in the same period of 2023. The increase was primarily due to our increased spending on technology innovation.

General and administrative expenses decreased to RMB92.9 million (US$12.9 million) from RMB100.4 million in the same period of 2023. The decrease was primarily due to lower share-based compensation expenses.

Loss from operations was RMB224.7 million (US$31.1 million) in the first quarter of 2024, compared with RMB216.7 million in the same period of 2023.

Adjusted loss from operations (non-GAAP)^[1] was RMB193.6 million (US$26.8 million) in the first quarter of 2024, compared with RMB157.3 million in the same period of 2023.

Net loss was RMB165.8 million (US$23.0 million) in the first quarter of 2024, compared with RMB179.0 million in the same period of 2023.

Adjusted net loss (non-GAAP)^[1] was RMB135.7 million (US$18.8 million) in the first quarter of 2024, compared with RMB120.2 million in the same period of 2023.

Diluted net loss per American depositary share ("ADS")^[4] was RMB1.76 (US$0.24), compared with RMB1.78 in the same period of 2023.

Cash and cash equivalents, term deposits and short-term investments

As of March 31, 2024, the Company had cash and cash equivalents, term deposits and short-term investments of RMB5,216.9 million (US$722.5 million), compared with RMB5,462.9 million as of December 31, 2023.

Share Repurchase Programs

As of March 31, 2024, the Company had repurchased 31.1 million Class A ordinary shares (including Class A ordinary shares underlying the ADSs) for a total price of US$66.5 million on both the New York Stock Exchange and The Stock Exchange of Hong Kong Limited under the Company's existing US$100 million share repurchase program (the "2022 Repurchase Program") established in May 2022, extended in May 2023, and effective until June 10, 2024. The repurchases made under the 2022 Repurchase Program were covered by the general unconditional mandate to purchase the Company's own shares approved by shareholders at the Company's annual general meetings held on June 10, 2022 and June 30, 2023, respectively.

The board of directors of the Company has approved an extension of the 2022 Repurchase Program until June 26, 2025, which is subject to shareholder approval for granting a general mandate to the board of directors to repurchase shares and/or ADSs of the Company not exceeding 10% of the total number of issued shares of the Company (excluding any treasury shares) as of the date of such approval (the "2024 Repurchase Mandate") at the forthcoming annual general meeting of the Company to be held on June 26, 2024 (the "2024 Shareholder Approval").

The board of directors of the Company further announces that, in addition to the extended 2022 Repurchase Program, it proposes to conduct a concurrent share repurchase program effective until June 26, 2025 (the "2024 Repurchase Program"). The maximum number of shares (including shares underlying the ADSs) that can be repurchased under the 2024 Repurchase Program, together with the remaining number of shares (including shares underlying the ADSs) that can be repurchased under the 2022 Repurchase Program, will not exceed the 2024 Repurchase Mandate, subject to the 2024 Shareholder Approval. The Company's proposed repurchases, if approved, may be made from time to time in the open market at prevailing market prices or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. The Company plans to fund any such repurchases from its existing cash balance.

[1] Adjusted loss from operations and adjusted net loss are non-GAAP financial measures. For more information on the non-GAAP financial measures, please see the section "Use of Non-GAAP Financial Measures" and the table captioned "Unaudited Reconciliations of GAAP and Non-GAAP Results" set forth at the end of this press release.

[2] MAUs refers to the sum of the number of mobile devices that launch our mobile apps at least once in a given month, or mobile MAUs, and the number of logged-in users who visit our PC or mobile website at least once in a given month, after eliminating duplicates.

[3] Monthly subscribing members refers to the number of our Yan Selection members in a specified month. Average monthly subscribing members for a period is calculated by dividing the sum of monthly subscribing members for each month during the specified period by the number of months in such period.

[4] On May 10, 2024, we effected a change in the ratio of our ADSs to Class A ordinary shares from two ADSs representing one Class A ordinary share to a new ratio of one ADS representing three Class A ordinary shares. Basic and diluted net loss per ADS have been retrospectively adjusted to reflect this ADS ratio change for all periods presented.

Conference Call

The Company's management will host an earnings conference call at 7:00 a.m. U.S. Eastern Time on June 12, 2024 (7:00 p.m. Beijing/Hong Kong time on June 12, 2024).

All participants wishing to join the conference call must pre-register online using the link provided below. Once the pre-registration has been completed, each participant will receive a set of dial-in numbers, a passcode, and a unique registrant ID which can be used to join the conference call. Participants may pre-register at any time, including up to and after the call start time.

Participant Online Registration: https://dpregister.com/sreg/10189533/fc960a34f7

Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at https://ir.zhihu.com.

A replay of the conference call will be accessible approximately one hour after the conclusion of the live call, until June 19, 2024, by dialing the following telephone numbers:

United States (toll free):	+1-877-344-7529
International:	+1-412-317-0088
Replay Access Code:	6946527

About Zhihu Inc.

Zhihu Inc. (NYSE: ZH; HKEX: 2390) is a leading online content community in China where people come to find solutions, make decisions, seek inspiration, and have fun. Since the initial launch in 2010, we have grown from a Q&A community into one of the top comprehensive online content communities and the largest Q&A-inspired online content community in China. For more information, please visit https://ir.zhihu.com. 

Use of Non-GAAP Financial Measures

In evaluating the business, the Company considers and uses non-GAAP financial measures, such as adjusted loss from operations and adjusted net loss, to supplement the review and assessment of its operating performance. The Company defines non-GAAP financial measures by excluding the impact of share-based compensation expenses, amortization of intangible assets resulting from business acquisitions and the tax effects of the non-GAAP adjustments, which are non-cash expenses. The Company believes that the non-GAAP financial measures facilitate comparisons of operating performance from period to period and company to company by adjusting for potential impacts of items, which the Company's management considers to be indicative of its operating performance. The Company believes that the non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company's consolidated results of operations in the same manner as it helps the Company's management.

The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The presentation of the non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies. The use of the non-GAAP financial measures has limitations as an analytical tool, and investors should not consider it in isolation from, or as a substitute for analysis of, our results of operations or financial condition as reported under U.S. GAAP. For more information on the non-GAAP financial measures, please see the tables captioned "Unaudited Reconciliations of GAAP and Non-GAAP Results" set forth at the end of this press release.

Exchange Rate Information

This announcement contains translations of certain Renminbi amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at a rate of RMB7.2203 to US$1.00, the exchange rate in effect as of March 29, 2024 as set forth in the H.10 statistical release of the Federal Reserve Board.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to," or other similar expressions. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the SEC and the Hong Kong Stock Exchange. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law.

For investor and media inquiries, please contact:

In China:

Zhihu Inc.
Email: ir@zhihu.com

Piacente Financial Communications
Helen Wu
Tel: +86-10-6508-0677
Email: zhihu@tpg-ir.com 

In the United States:

Piacente Financial Communications
Brandi Piacente
Phone: +1-212-481-2050
Email: zhihu@tpg-ir.com

 

 

ZHIHU INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except share, ADS, per share data and per ADS data)
		For the Three Months Ended
		March 31, 2023		December 31, 2023		March 31, 2024
		RMB		RMB		RMB		US$
Revenues:
Marketing services		392,137		465,153		330,542		45,780
Paid membership		454,769		455,906		449,724		62,286
Vocational training		106,998		169,272		145,436		20,143
Others		40,316		47,966		35,161		4,870
Total revenues		994,220		1,138,297		960,863		133,079
Cost of revenues		(482,001)		(465,197)		(417,384)		(57,807)
Gross profit		512,219		673,100		543,479		75,272
Selling and marketing expenses		(445,565)		(527,604)		(477,954)		(66,196)
Research and development expenses		(182,960)		(232,585)		(197,356)		(27,333)
General and administrative expenses		(100,438)		(91,069)		(92,917)		(12,869)
Total operating expenses		(728,963)		(851,258)		(768,227)		(106,398)
Loss from operations		(216,744)		(178,158)		(224,748)		(31,126)
Other income/(expenses):
Investment income		6,006		12,279		16,902		2,341
Interest income		39,493		38,828		30,763		4,261
Fair value change of financial instruments		(3,582)		14,780		9,408		1,303
Exchange (losses)/gains		(5,649)		(937)		120		17
Others, net		6,333		15,032		3,043		421
Loss before income tax		(174,143)		(98,176)		(164,512)		(22,783)
Income tax expense		(4,829)		(4,929)		(1,284)		(178)
Net loss		(178,972)		(103,105)		(165,796)		(22,961)
Net (income)/loss attributable to    noncontrolling interests		(2,383)		(666)		950		132
Net loss attributable to Zhihu Inc.'s    shareholders		(181,355)		(103,771)		(164,846)		(22,829)
Net loss per share
Basic		(0.59)		(0.36)		(0.59)		(0.08)
Diluted		(0.59)		(0.36)		(0.59)		(0.08)
Net loss per ADS (One ADS represents     three Class A ordinary shares)
Basic		(1.78)		(1.07)		(1.76)		(0.24)
Diluted		(1.78)		(1.07)		(1.76)		(0.24)
Weighted average number of ordinary    shares outstanding
Basic		305,245,036		291,056,615		281,549,707		281,549,707
Diluted		305,245,036		291,056,615		281,549,707		281,549,707

 

 

ZHIHU INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(All amounts in thousands, except share, ADS, per share data and per ADS data)
		For the Three Months Ended
		March 31, 2023		December 31, 2023		March 31, 2024
		RMB		RMB		RMB		US$
Share-based compensation expenses included in:
Cost of revenues		4,400		1,575		2,497		346
Selling and marketing expenses		8,758		(7,001)		3,272		453
Research and development expenses		21,205		(57)		3,680		510
General and administrative expenses		21,555		12,983		16,363		2,266

 

 

ZHIHU INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
		As of December 31, 2023		As of March 31, 2024
		RMB		RMB		US$
ASSETS
Current assets:
Cash and cash equivalents		2,106,639		2,194,419		303,923
Term deposits		1,586,469		1,553,663		215,180
Short-term investments		1,769,822		1,468,801		203,427
Trade receivables		664,615		638,226		88,393
Amounts due from related parties		18,319		31,277		4,332
Prepayments and other current assets		232,016		239,814		33,214
Total current assets		6,377,880		6,126,200		848,469
Non-current assets:
Property and equipment, net		10,849		10,794		1,495
Intangible assets, net		122,645		117,113		16,220
Goodwill		191,077		191,077		26,464
Long-term investments		44,621		51,176		7,088
Right-of-use assets		40,211		31,141		4,313
Other non-current assets		7,989		7,875		1,090
Total non-current assets		417,392		409,176		56,670
Total assets		6,795,272		6,535,376		905,139
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities		1,038,531		1,023,973		141,819
Salary and welfare payables		342,125		332,077		45,992
Taxes payables		21,394		16,328		2,261
Contract liabilities		303,574		310,307		42,977
Amounts due to related parties		26,032		9,491		1,314
Short term lease liabilities		42,089		33,729		4,672
Other current liabilities		171,743		165,873		22,973
Total current liabilities		1,945,488		1,891,778		262,008
Non-current liabilities
Long term lease liabilities		3,642		2,861		396
Deferred tax liabilities		22,574		21,505		2,979
Other non-current liabilities		121,958		111,664		15,465
Total non-current liabilities		148,174		136,030		18,840
Total liabilities		2,093,662		2,027,808		280,848
Total Zhihu Inc.'s shareholders' equity		4,599,810		4,393,324		608,468
Noncontrolling interests		101,800		114,244		15,823
Total shareholders' equity		4,701,610		4,507,568		624,291
Total liabilities and shareholders' equity		6,795,272		6,535,376		905,139

 

 

ZHIHU INC.
UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS
(All amounts in thousands)
		For the Three Months Ended
		March 31, 2023		December 31, 2023		March 31, 2024
		RMB		RMB		RMB		US$
Loss from operations		(216,744)		(178,158)		(224,748)		(31,126)
Add:
Share-based compensation expenses		55,918		7,500		25,812		3,575
Amortization of intangible assets resulting     from business acquisitions		3,490		5,365		5,365		743
Adjusted loss from operations		(157,336)		(165,293)		(193,571)		(26,808)
Net loss		(178,972)		(103,105)		(165,796)		(22,961)
Add:
Share-based compensation expenses		55,918		7,500		25,812		3,575
Amortization of intangible assets resulting     from business acquisitions		3,490		5,365		5,365		743
Tax effects on non-GAAP adjustments		(600)		(1,069)		(1,069)		(148)
Adjusted net loss		(120,164)		(91,309)		(135,688)		(18,791)

 

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SOURCE Zhihu Inc.

FAQ

What were Zhihu's revenues for Q1 2024?

Zhihu's total revenues for Q1 2024 were RMB960.9 million (US$133.1 million).

How did Zhihu's gross margin change in Q1 2024?

Zhihu's gross margin increased to 56.6% in Q1 2024 from 51.5% in the same period of 2023.

What was Zhihu's net loss in Q1 2024?

Zhihu's net loss for Q1 2024 was RMB165.8 million (US$23.0 million), a reduction of 7.4% YOY.

How many average MAUs did Zhihu report for Q1 2024?

Zhihu reported 89.0 million average monthly active users (MAUs) for Q1 2024.

What was the revenue from vocational training for Zhihu in Q1 2024?

The vocational training revenue for Zhihu in Q1 2024 was RMB145.4 million (US$20.1 million), a 35.9% increase YOY.

How has Zhihu's marketing services revenue changed in Q1 2024?

Zhihu's marketing services revenue decreased to RMB330.5 million (US$45.8 million) from RMB392.1 million YOY.

How much did Zhihu spend on selling and marketing expenses in Q1 2024?

Zhihu spent RMB478.0 million (US$66.2 million) on selling and marketing expenses in Q1 2024.

What is the status of Zhihu's share repurchase program as of Q1 2024?

As of Q1 2024, Zhihu repurchased 31.1 million Class A ordinary shares for US$66.5 million, and proposed an extension of the repurchase program until June 2025.