Zhihu significantly reduced losses for two consecutive quarters and achieved positive operating cash flow for the first time

According to news on May 25, Zhihu has achieved significant loss reduction for two consecutive quarters and achieved positive operating cash flow for the first time in more than two years since its listing. This good news boosted market expectations and made the company’s US stock price rise. It closed up nearly 4% on Wednesday.

The company released its first quarter 2023 financial report last Wednesday, showing that Zhihu has achieved exciting financial results. Revenue increased by 33.8% year-on-year to RMB 994 million; net loss narrowed significantly by 70.9% year-on-year to only RMB 179 million. This was the first loss reduction since the fourth quarter of last year, narrowing by 53.2% year-on-year; gross profit margin exceeded 50%, which increased to 51.5% year-on-year.

Sha Dachuan, Zhihu’s CFO, said the company achieved positive operating cash flow in the first quarter, totaling 59.9 million yuan, the first time since its listing. This achievement shows that Zhihu has made a substantial breakthrough in financial operations.

According to the editor’s understanding, Zhihu has adjusted its revenue structure. To better demonstrate the business and operational performance of the company's overall strategy, the advertising and content monetization solutions business has been merged with marketing services. Zhihu adjusted its revenue structure and divided it into four parts: marketing services, paid memberships, vocational training and others.

Zhihu’s substantial growth is mainly driven and adjusted by paid membership and vocational training business. Revenue from paid membership business increased by 105.2% year-on-year to 455 million yuan, mainly due to the substantial increase in the number of subscription members, which increased from 6.9 million in the same period last year to 14.9 million. Zhihu CEO Zhou Yuan concluded that the company's average monthly active users in March exceeded 110 million, which, coupled with the expansion of user coverage of the Zhihu community, pushed paid membership revenue to a record high.

Zhihu’s vocational training business revenue reached 107 million yuan in the first quarter, 1.7 times that of the same period last year. Zhihu's growth is mainly due to contributions from its further diversification of online courses and recently acquired businesses.

The vocational training business has become one of the focuses of Zhihu’s future development. During the earnings call, Zhou Yuan elaborated on the strategic direction of the business, including continuous innovation and the launch of multiple vocational education products, as well as improving the quality and efficiency of education through digital means.

During the reporting period, marketing service revenue, including advertising and content commercialization solution business, continued to decline, down 11.7% year-on-year to 392 million yuan. According to Zhihu estimates, the marketing services industry is expected to rebound in the second quarter, but the overall degree of recovery is limited, and significant recovery may be delayed until the second half of the year.

Taken together, Zhihu has made significant progress in financial performance. Revenue growth, loss narrowing and positive operating cash flow have all demonstrated the company's steady development trend. It is expected that Zhihu will continue to expand its business diversity push, with the development and growth of paid membership and professional training departments, and the recovery of market service business.

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