In an era where online platforms are struggling for profitability, Zhihu, a Chinese question-and-answer website similar to Quora, has reached a noteworthy milestone yet still grapples with its financial viabilityAfter 13 years of operation, Zhihu has accumulated staggering losses amounting to 5.5 billion yuan over the past five years, an amount substantial enough to consider acquiring two of its own companiesDespite this grim backdrop, the company’s market capitalization stands at roughly 24.76 billion Hong Kong dollars as of the latest closing, equivalent to about 23.08 billion yuan.
Recent developments have provided a glimmer of hope for Zhihu as it announced its third-quarter results, reflecting a reduction in net losses by an impressive 96.8%, narrowing down to just 9 million yuan—a record low since its IPOThis has sparked optimism among stakeholders, particularly as the company’s chairman and CEO, Zhou Yuan, previously set an ambitious goal for Zhihu to achieve break-even status by the end of the year, marking a significant shift towards cost-cutting and efficiency enhancements as vital components of the company's strategy.
In tandem with this cost reduction initiative, Zhihu has seen a drop in operating expenses by 30.5%, totaling 624 million yuan for the quarterWhile lower expenditures have inevitably led to decreased revenue, there is a silver lining; the improvements in commercialization and operational efficiency have seen the company's gross margin rise from 53.7% in the same quarter last year to 63.9%, the highest level since going public.
However, despite the encouraging developments on the earnings front, the stock market has responded tepidlySince its dual listing in the Hong Kong Stock Exchange over two years ago, Zhihu's share price has plummeted by about 70%, closing at 9.45 Hong Kong dollars, compared to its initial public offering price of 32.06 Hong Kong dollarsThis decline highlights the broader skepticism within the market regarding Zhihu's sustainability and long-term viability, despite apparent operational improvements
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In contrast, another content-based community platform, Bilibili, has turned its losses into a robust profit margin, with an adjusted net profit of 240 million yuan this quarter.
The cost-saving measures implemented by Zhihu this year have become a crucial instrument in its quest for profitabilityThroughout the initial three quarters, the company has systematically reduced its spending, particularly on marketing and staffingThese cuts have put extra pressure on the commercialization team, which now bears the dual responsibility of driving revenue while also curtailing costsThe result of this austerity is evident, as Zhihu’s total revenue for the third quarter dipped 17.32% to 845 million yuan compared to the previous year’s 1.022 billion yuan.
The main benefit of these stringent measures is the notable decrease in losses, with the third quarter showcasing a 96.8% reduction in net lossesNevertheless, the revenue decline has left Zhihu in a precarious situation, reliant predominantly on its paid membership program for revenue stabilityThis shift has been particularly pronounced since the beginning of 2023, when Zhihu restructured its revenue recognition to categorize income into marketing services, paid memberships, vocational training, and other streams.
The changing dynamics within Zhihu’s revenue streams are clear as paid memberships overtook advertising revenue for the first time, constituting 54.32% of the total compared to a mere 30.41% from marketing servicesThis evolution marks a significant pivot for the company as it seeks a sustainable model in a competitive ecosystem.
Paid memberships, particularly through the 'Yanjun' program, largely cater to users interested in short-form stories and educational contentDespite efforts to diversify and enhance the portfolio with other types of paid offerings, short essays remain the fastest-growing categoryIndustry observers note that while Zhihu has laid a strong foundation in terms of content quality and user experience, it faces escalating competition from other platforms attempting to penetrate the lucrative paid content market.
As user engagement rises, the commercialization team at Zhihu faces mounting pressure amid dwindling advertising revenues contributing to the overall income
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As highlighted by industry analyst Chen Li, navigating this landscape requires distinct strategies as competitors including Douyin (TikTok) and Xiaohongshu (Little Red Book) leverage their existing infrastructures to enhance their market positions.
Financial figures paint a stark reminder of the competitiveness enveloping content-based platformsZhihu's average monthly active users (MAU) peaked at 81.1 million in the most recent quarter, while Bilibili's MAU exceeded 348 million, revealing the disparity in user engagement that directly correlates with revenue strength.
As Bilibili adjusts its strategies—pivoting back towards game partnerships to maximize profit from established revenue streams—its position solidifies further away from Zhihu, which continues to grapple with its transformationThe video platform is witnessing success in its advertising revenues while Zhihu, despite deepening its focus on paid memberships, is losing ground in a market where advertisement effectiveness wanes.
This loss of foothold in advertising revenue, driven by shifts in user preferences favoring video-heavy platforms, places Zhihu’s revenue potential in a precarious position as advertisers search for more impactful avenues for their promotional strategiesAs both Bilibili and Xiaohongshu capitalize on their influential reach, the need for Zhihu to evolve not only its user base but also its content quality becomes critical.
Looking forward, the pivotal question lingering is whether Zhihu can deliver profitability in its fourth quarterGiven the trajectory and rapid changes within the industry, many analysts suggest that achieving quarterly profitability hinges significantly on the company's adaptability and strategic execution moving forward.
In terms of addressing its bottom line, Zhihu has increasingly emphasized the potential of vocational education as a lucrative revenue sourceThe launch of “Zhihu Zhixuetang” marks a return to fundamental education principles amid spiking competition while attempting to establish unique positioning that resonates with existing and new users alike
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