Zhihu’s AI Platform Integration with DeepSeek Yields First Profit
Zhihu’s Path to Profitability: A New Strategy and AI Integration
Zhihu Inc., known as the "Quora of China," has finally achieved profitability, marking a significant milestone in the company’s journey since its launch in 2010. Despite a challenging financial landscape, Zhihu’s strategic shifts and the embrace of artificial intelligence (AI) have sparked optimism among investors and stakeholders.
Key Financial Developments
First Quarter with Profit
Zhihu reported its first-ever profit in the fourth quarter of 2024, a remarkable turnaround from a loss a year earlier. The company recorded a profit of 86.4 million yuan, compared to a net loss of 103.1 million yuan during the same period in 2023. However, this achievement came alongside a notable revenue decline of 25%, falling to 859.2 million yuan.
User Base Dynamics
The revenue drop is attributed to a decrease in average monthly users, which fell by 18% year-over-year from 99 million to 81.4 million. This shift reflects a broader trend among Chinese firms prioritizing quality users over sheer volume. While Zhihu still reported a net annual loss of 169 million yuan, this was a significant improvement from the previous year, when losses reached 840 million yuan.
Strategic Focus on Quality
Zhihu’s founder and Chairman, Zhou Yuan, emphasized the importance of having a strategic focus. The company has become more selective about its user base, opting to engage with higher-spending users while moving away from less profitable segments. This decision aligns with the company’s broader goal of enhancing its knowledge-sharing offerings, improved by the integration of AI technologies.
The Role of AI: Zhida.ai
Introduction of Zhida.ai
In June 2023, Zhihu launched its AI-driven search platform, Zhida.ai, aiming to revolutionize its traditional Q&A services. This new service has already attracted 10 million monthly active users (MAUs). Zhida.ai harnesses input from experts in the Zhihu community along with verified data sources, offering users reliable answers to their questions.
Growth in Content Creation
As of December 2024, Zhihu boasted a community of 71.7 million content creators and 874.6 million individual content pieces. The number of AI-focused content creators increased by 50% year-over-year, which indicates growing engagement from industry leaders and experts eager to provide high-quality insights.
Business Segments Performance
Zhihu segments its business into three main areas: paid memberships, core marketing services, and vocational training education services.
Marketing Services: Revenue from this segment fell significantly, dropping by about a third year-on-year. This decline was part of a strategic decision to eliminate lower-quality revenue streams.
Paid Subscriptions: Despite a slight decrease of 8% year-over-year, this category became the largest source of revenue for Zhihu, totaling 420 million yuan.
- Vocational Training: Unfortunately, this sector experienced the steepest decline, with revenues halving to only 84 million yuan.
Challenges in Monetization
According to CFO Wang Han, Zhihu’s unique content and knowledgeable user base have historically posed challenges for monetization. Traditional internet platforms often prioritize user traffic and engagement, which differ from Zhihu’s focus on expertise and quality. In the current AI landscape, however, there is potential for meaningful monetization as advertisers seek high-quality content and validated information.
Looking Ahead: Investor Sentiment
Zhihu’s recent stock performance reflects growing investor confidence. Following the announcement of Zhida.ai’s integration with other technological improvements, shares rose by 13%. Although Zhihu’s stock price is still lower than its all-time highs from its IPO, analysts share optimistic views of its future profitability.
Despite the company’s current losses, many believe that Zhihu’s focus on expert content combined with AI capabilities could mark a turning point in its financial trajectory. Seven analysts reported strong buy ratings for Zhihu, indicating that the stock is potentially undervalued compared to similar companies in the market.
In summary, Zhihu’s strategic shift toward quality users and the integration of AI technology positions it as a distinctive player in the knowledge-sharing arena. The company’s recent advancements suggest a promising future as it continues to refine its offerings and attract a more engaged audience.
