Zhihu recorded a profit in the first half of this year, but this achievement did not continue into the third quarter. The company's revenue and core indicators declined across the board, and losses widened, indicating that profitability and business model remain unstable.
<h4>Key Points:</h4>
<ul>
<li>The company's third-quarter revenue fell 22% year-on-year, and losses widened.</li>
<li>During the period, paid membership revenue fell 16% year-on-year to 385 million yuan.</li>
</ul>
Li Shida
Generative AI is reshaping the global content industry at an incredible speed. For short video platforms, AI lowers the barriers to content production, making explosive growth possible again; for search engines and image-text social platforms, AI enables faster and more interactive information retrieval, significantly amplifying platform value.
However, under the same AI wave, some traditional content platforms are facing unprecedented challenges. For example, Zhihu (ZH.US; 2390.HK), which focuses on high-quality Q&amp;A communities, finds that the power of AI has deepened the dilemma of its existing business model, forcing it to redefine its positioning.
According to the company's latest financial report, third-quarter revenue fell 22% year-on-year from 850 million yuan last year to 660 million yuan (USD 120 million); all three core revenue streams declined, with advertising and marketing service revenue down 26% year-on-year to 189 million yuan; paid membership revenue fell 16% year-on-year to 385 million yuan; other revenues, including vocational education, shrank from 129 million yuan to 83.92 million yuan, a decline of over 30%.
In the first half of this year, the company also recorded a revenue decline of 23.7%. Full-year revenue for 2024 is expected to decline by 14.3%. In terms of profit and loss, Zhihu had achieved profitability for three consecutive quarters, but fell back into losses this quarter. The third quarter recorded a loss attributable to shareholders of 46.65 million yuan, more than tripling from a loss of 10.49 million yuan in the same period last year. The gross profit margin also fell by 2.6 percentage points to 61.3%.
For the first three quarters, the company reported revenue of 2.11 billion yuan, a year-on-year decline of 23%, with a profit attributable to shareholders of 157.33 million yuan, compared to a net loss of 260 million yuan in the same period last year.
<h4>Continuous User Loss</h4>
The latest financial report did not provide a specific explanation for the overall decline in revenue, which somewhat raises doubts about its core business foundation.
Zhihu's pride in &#34;high-quality answers&#34; and &#34;in-depth knowledge output&#34; is now facing the impact of large AI models. Users previously turned to Zhihu to seek knowledge and experience organized by others, expecting high-quality answers. However, large AI models can provide structured answers in seconds and even connect a large amount of content to offer different viewpoints, making Zhihu seem replaceable.
As users begin to get used to asking AI questions directly, Zhihu's most critical entry traffic will be divided. User data can prove this point. By the end of the third quarter, Zhihu's average monthly subscription membership fell from 16.5 million in the same period last year to 14.3 million, a decline of 13.3%. In 2024, Zhihu's average monthly active users (MAU) decreased by 21.2% year-on-year
The company has stopped disclosing monthly active user data since this year.
<h4>AI+ Social Breakthrough</h4>
Zhihu founder Zhou Yuan did not deny the impact of AI technology on content platforms. He has repeatedly expressed his views on AI in interviews. He believes that as knowledge itself becomes more accessible, &#34;trust, expert networks, and genuine participation&#34; will become scarcer in the AI era, and proposed that Zhihu should become a dual carrier medium of &#34;information + trust,&#34; allowing the community to provide a collision of viewpoints, making Zhihu a &#34;trusted information infrastructure&#34; in the AI era.
This idea seems reasonable, but it is still difficult to reverse the existing weak business model in the short term. The payment motivation on the Zhihu platform is inherently more functional rather than social value or identity attributes, and its advertising scenarios are not as clear as short videos, making it naturally limited to embed commercial content in knowledge texts. If social scenarios cannot be clearly converted into measurable revenue, then this strategy is unlikely to reverse the downward trend in revenue in the short term.
In the second half of last year, Zhihu launched the &#34;Zhihu Direct Answer&#34; feature, which combines AI large models. After users input questions, AI automatically generates answers by combining Zhihu's past content and online information; it also supports both brief and in-depth answer modes. Additionally, it provides a &#34;Knowledge Base Subscription&#34; feature, emphasizing &#34;traceable content sources,&#34; theoretically increasing credibility. However, these features have limited differentiation from the continuously innovating capabilities of AI large models, making it difficult to provide users with a &#34;must-have Zhihu&#34; reason, and thus have not translated into significant, sustained traffic or paid growth since their launch.
On the first trading day after the earnings announcement, Zhihu's Hong Kong stock fell more than 8%, and its stock price has cumulatively dropped about 7% over the past six months, reflecting the market's pessimistic view of its short-term prospects. From a valuation perspective, Zhihu's current price-to-sales ratio in Hong Kong is less than 1 time, lower than Kuaishou (1024.HK) at 2.1 times and Baidu (BIDU.US; 9998.HK) at 2.2 times, indicating that the market does not see it as a beneficiary of AI, but rather as a content company losing growth support during its transformation

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Zhihu's revenue in the third quarter decreased by 22% year-on-year, with losses widening and paid membership revenue declining by 16%. The impact of AI technology on the content industry has exacerbated Zhihu's business model dilemma, leading to unstable profitability

- Zhihu reported a 22% year-on-year decline in revenue for Q3, with losses widening to 46.65 million yuan, reversing previous profitability.  
- The rise of generative AI has intensified competition, challenging Zhihu's traditional business model and leading to a 13.3% drop in average monthly subscribers.  
- Despite attempts to innovate with AI features, the company struggles to convert these into sustainable growth, resulting in a pessimistic market outlook reflected in its stock performance.

Is Zhihu unable to withstand the impact of AI?