Zhihu Inc. (ZH) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Zhihu, Inc. Second Quarter 2026 Financial Results Conference Call. [Operator Instructions]. Today's conference is being recorded and webcasted. At this time, I would like to turn the conference over to [indiscernible] of Investor Relations. Please go ahead, ma'am.

Thank you, Sharon. Hello, everyone. Welcome to Zhihu Second Quarter 2026 Financial Results Conference Call. Joining me today from our senior management team are Mr. Zhou Yuan, Founder, Chairman Keurig Office; Mr. Wang Han, Chief Financial Officer; and Mr. [ Jan Long Wu ], Chief Operating Officer. Before we begin, I'd like to remind you that today's discussion will include forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Ligation Reform Act of 1995. This statement involve inherent risks and uncertainties. As such, actual results may be materially different from the views expressed today. Further information regarding this included in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Additionally, today's discussion will include both GAAP and non-GAAP financial measures for comparation purposes only. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please refer to our earnings release issued earlier today. A replay of this conference call will be available on our IR website at ir.zhihu.com. And today, Mr. Zhou Yuan will deliver prepared remarks in Chinese and followed by English translation. Please go ahead, sir.

[Interpreted] Hello, everyone, and thank you for joining Zhihu Second Quarter 2026 Earnings Call. Today, I will cover 3 areas. Our core business performance in the second quarter, how AI is expanding the value of our community content, IP and expert network and our priorities for [indiscernible]. Let me start with our core businesses. Overall, our core business remains stable, while some areas continue to address and recover. In the second quarter, total revenue were RMB 619 million, down 3.7% year-over-year and up 5.9% sequentially with a year-over-year decline narrowing further. Adjusted net loss were RMB 10.25 million, reflecting changes in the revenue mix and faced business investments. Our CFO will discuss the financial details shortly. Community engagement among core users remained stable. Average daily time spent was about 39 minutes, broadly for daily creation of high-quality content grew more than 16%. As [ AIGC ] makes content creation easier, authentic experiences, clear sourcing and professional judgment are becoming more valuable. These remain the foundation of Zhihu and our long-term value. Turning to Marketing Services. Revenue were RMB 199 million, down 10.7% year-over-year and up 4% sequentially. We continue to focus on key verticals, including technology, automotive, consumer electronics and home appliances and gaming, spanning our performance sequentially, including a 22% increase in gaming. This has not yet translated into a broader recovery in the marketing revenue. but it supports our strategy of strengthening key verticals, products and algorithms. Marketing services remain in structural recovery, and we'll continue to improve the matching of professional content, user needs and client demand. Revenue reached RMB 426 million, up 4.4% year-over-year and 5.9% sequentially. Average monthly subscriber numbers were 13.11 million, broadly stable while member ARPU also remains stable. We continue to improve membership content and product experience while expanding knowledge-based offerings. IP operations continued to contribute incremental growth. Licensing increasing 105% sequentially and 6% year-over-year. We're expanding [indiscernible] story IP from onetime licensing toward multi-format for life cycle development. Overall, challenges remain, but our business mix continues to adjust and our strategic direction remains unchanged. We'll continue to stabilize our core businesses while maintaining the investment discipline. I would like to focus on Zhihu in the AI area, Zhihu starts with the community, in bringing the value accumulated within Zhihu to more people through new product formats and use cases real users, professional content IP and our next expert network remain our most important assets. AI is helping expand this capability into new applications and commercial scenarios. First, the community will become more open. They are changing how content is discovered and used. For Zhihu, openness does not mean changing our positioning, it means enabling the high-quality cost to reach more eases and developers through the AI tools and applications. This requires clear cultures around content sourcing, greater rights and community values. We are further integrating Zhihu [ Chida ] with Zhihu Search making AI-powered such a new gateway community content rather than a substitute for it. Earlier testing has shown positive signals for user retention. We're also exploring community agents AI [indiscernible] is one example. Rather than another general purpose chatbot, we wanted to help users explore Zhihu and discover real people professional content and diverse perspectives. The product remains at an early testing stage and our focus is on content discovery, interaction and retention. AI works now holds more than 2,600 AI projects. While the data -- open data platform, [ API ] has attracted more than 17,600 professional developers, about 20% was not previously Zhihu created. We also released an update Zhihu [indiscernible] AI, making it easy to discover and use who content across AI tool. Through AI search, agents open platforms and developer tools, Zhihu's content and professional capabilities can reach more easiest developers and clients beyond the Zhihu app. We believe AI is becoming a new medium that can help existing content reach new audiences, enable new applications and create new opportunities in content licensing, brand content assets and export services. Second, marketing services are evolving from traffic value towards the content asset value. As more information discovery happens through AI, brands increasingly care not only about visibility, but also whether the professional information can be accurately understood and cited by AI, while helping brands build promotional content assets with clear sourcing. Unlike a one-off campaign, these assets can continue to be discovered and used across such AI and other channels, creating longer-term value. Our AI content asset offering remains at early stage. In the second quarter, the number of clients increased 50% sequentially. This does not yet represent a stable or scalable revenue contribution but it's beginning to demonstrate new commercial value. Going forward, we'll focus on client outcomes with demand and product standardization. AI is accelerating the expansion of IP into [indiscernible]. AI is lowering the cost and barriers of timing tax multimedia formats. For Zhihu, this allows our large base of original content to be developed more efficiently into comic dramas, short dramas, film and television and other formats. A meaningful portion of the comic drama projects monetized this quarter came from the work created in 2025 or earlier. This shows that high-quality IP can return value over time. what technology improves the development efficiency and expense its reach. In the first half, we also explored income with some projects showing encouraging early results. However, we'll remain disciplined and will not materially increase asset heavy investments. We'll flexibly choose more licensing in-house and commission production based on the project economics. Going forward, we'll continue to strengthen our capabilities in IP selection, development and cross-format operations to unlock more value from our content library. Fourth, expert data solutions are evolving from project delivery towards reusable capabilities. AI is creating new ways to use Zhihu's expert capabilities, not only creating content for uses, experts cannot help translate the professional judgment into model capabilities through training data, model evaluation and complex design. We position as a research-driven data lab. We identify modern capability gaps and develop training data, evaluation systems and complex task environment to help improve the model performance. In the first half, we completed projects across coating, search and deep research varying and agents. While building capability spending model analysis, our expert network plays an important role in defining the professional tasks setting quality standards and evaluating whether [ motor ] output meet the professional requirements. We're also becoming more proactive in identifying motor gaps, developing training data and valuation methods in-house and validating the value through the actual model performance. Our goal is not one or it's not one-off data delivery, but reusable capabilities that can evolve across clients and model iterations. In the next phase, we'll continue and extend them into products, complex tasks and environment. And finally, let me briefly summarize. In the second quarter, our core community remains resilient. [ PET ] content remained stable. IP operation continues to grow and Marketing Services improved sequentially. Our position in the AI area is also becoming clear. Our authentic professional and trustworthy community remain the foundation while AI helps us which uses applications to commercial scenarios. In the second half, we'll focus on 2 priorities: first, words by improving in experience, maintaining a stable membership base improving IP development efficiency and advancing the structural recovery of marketing services. And second, we'll continue to validate AI-driven opportunities across our open community ecosystem. AI content assets IP and export data solution by focusing on real demand client value capability reuse and ROI. Initial validation does not mean these initiatives have become stable growth drivers. Ability may fluctuate due to the business timing and safe investments. Our long-term goals of improving operating efficiency and returning sustainable profitability remain unchanged. Over the long term, we want Zhihu to be not only an authentic professional and trustworthy community but also an important platform, connecting content, knowledge and AI applications. Thank you. I will now hand over to our CFO to review the quarter's financial performance.

I will now go over our second quarter issued earlier today. During the second quarter, our revenue trend continued to improve sequentially, supported by growth in takeout and IP operations. At the same time, disciplined cost management drove year-over-year reduction in operating expenses and operating losses. Now turning to the financial highlights of the second quarter. Our total revenues for the quarter were [ RMB 690.1 million, ] down [ 7% ] year-over-year and up 5. 9% sequentially. The sequential growth was primarily driven by content and then the operations. Marketing services revenue was RMB 199 million compared with RMB 222.8 million in the same period of 2025. Decrease primarily reflected our proactive and ongoing refinement of service offerings. Sequentially, marketing services revenue increased by 4%, with improving traction in key verticals and performance-based for us. We also continue to make early progress in AI-related commercial use cases. Content and IP operations revenue was RMB 425.9 million, up 4.4% year-over-year and 5.9% sequentially, primarily driven by continued growth in IP operations. Average monthly subscriber members remained stable at 13.1 million. We will continue to strengthen our paid content offerings while developing and modernizing selected IP across multiple formats with disciplined attention to project returns and risk. Our revenues were RMB 86 million in the same period of 2025. The decrease was primarily due to the continued strategic refinements of our vocational training business. Sequentially, other revenues increased by 12.7%, year-over-year decline continue to narrow. Our gross profit for the quarter was RMB 393.4 million compared with RMB 448.2 million in the same period of 2025. Gross margin was 57% compared with 62.5% in period of 2025. The decline in gross margin primarily reflected our continued efforts to broaden and enhance our patent offerings. Total operating expenses decreased by 15% to RMB 469.4 million from RMB 539.2 million in the same period [indiscernible] reflecting continued efficiency improvements across our operations. Selling and marketing expenses decreased by 5.4% to RMB 308.7 million from RMB 326. 3 million, bringing in the same period disciplined marketing spending. Research and development expenses decreased by 25.4% to RMB 108.6 million from RMB 145.7 million in the same period of 2025, primarily attributable to the continued improvements in our research and development efficiency. General administrative expenses decreased by 22.7% to RMB 52 million from RMB 67.3 million in the same period of 2025, primarily attributable to lower personnel-related expenses [indiscernible] period. On a non-GAAP basis, adjusted loss from operations narrowed by 32% to RMB 48.7 million from RMB 71.5 million in the same period of 2025. Investment income was RMB 16.4 million compared with RMB 14.8 million in same period of 2025. The decrease was primarily due to unrealized gain from the fair value remeasurement of our investment in a privately hold company in the same period of 2025. RMB 37.4 million compared with net income of RMB 72.5 million in the same period of 2025. On a non-GAAP basis, adjusted [indiscernible] loss was RMB 10.3 million compared with adjusted net income of RMB 91.3 million in the same period of 2025. As of [indiscernible], 2026, we have RMB 4.4 billion in cash and cash equivalents, term deposits, restricted cash and short-term investments, maintaining a solid liquidity position to support our [indiscernible]. As of June 13, 2026, we had repurchased aggregate of $41.3 million Class A ordinary shares for a total consideration of USD 77.9 million on both New York Stock Exchange and the Stock Exchange of Hong Kong. During the second quarter, we repurchased 6.5 million Class A ordinary shares for a total consideration of USD 7.2 million. Looking ahead, we will continue to balance selective investments in new initiatives with operating [indiscernible]. In our quarterly profitability may be affected this investment. Our long-term objective of improving operating efficiency and return to sustainable profitability remains unchanged. We will also maintain a disciplined approach to our capital allocation and continue to execute share repurchase to enhance long-term shareholder returns. This concludes my prepared remarks on our financial performance for the quarter. I'll turn the call over to the operator for the Q&A session.

[Operator Instructions]. And your first question today comes from the line of Thomas Chong from Jefferies.

[Interpreted] So my question is how should we think the revenue and profit trend in the second half of the year. And under the business adjustments and new business investment, are there any fluctuation between quarters?

[Interpreted] Looking into the second half, we do not think it's a -- like the sequential improvement seen in the second quarter and different businesses have different operating [indiscernible] and marketing services remain in a period of structural recovery like we mentioned before and may continue to be affected by changes in client budgets and industrial demand. We'll strengthen our product R&D and especially the performance advertising capabilities and also increase the value per unit of traffic rather than drive. Paid content remains relatively stable while IP operations will be influenced by project timing. Recent changes in industry standards and filing requirements may also affect the launch timing of certain projects. At the same time, we're still validating the new capabilities like AI content assets and export data solutions. We have seen like [indiscernible] client validation but it might take time until we see scalable revenue contribution and will also require some near-term investments. So at this stage, we are more focused on the stability of our core businesses, while the new initiatives can create real client value and reuse [indiscernible] and ROI. We'll continue to invest prudently. Our long-term goals remain to improve our revenue mix and return to sustainable profitability segments.