Business Context and Reporting Period
Zhihu Inc. (NYSE: ZH; HKEX: 2390) is a Cayman Islands holding company operating a leading online content community in China. The company utilizes a Variable Interest Entity (VIE) structure to conduct its operations in China, as foreign ownership in value-added telecommunications services is restricted. This Form 20-F covers the fiscal year ended December 31, 2024.
Key operational metrics for 2024 include:
- Average Monthly Active Users (MAUs): 83.0 million (down from 105.3 million in 2023).
- Average Monthly Subscribing Members: 15.0 million (up from 14.5 million in 2023).
- Cumulative Content Creators: 77.7 million as of December 31, 2024.
Key Financial Metrics (Year Ended December 31, 2024)
| Metric | 2024 (RMB '000) | 2024 (US$ '000) | 2023 (RMB '000) |
|---|---|---|---|
| Total Revenues | 3,598,905 | 493,048 | 4,198,889 |
| Gross Profit | 2,180,829 | 298,772 | 2,295,848 |
| Gross Margin | 60.6% | 60.6% | 54.7% |
| Net Loss | (168,967) | (23,149) | (839,528) |
| Net Loss Attributable to Shareholders | (171,802) | (23,537) | (843,641) |
| Net Cash Used in Operating Activities | (280,185) | (38,385) | (415,527) |
| Cash, Cash Equivalents, and Restricted Cash | 4,000,060 | 548,006 | 2,106,639 |
Material Changes vs. Prior Period
Revenue Decline: Total revenue decreased by 14.3% to RMB3.6 billion (US$0.5 billion) in 2024 compared to 2023. This was driven by a 24.6% decline in marketing services revenue (due to strategic refinement of offerings) and a 17.2% decline in vocational training revenue. Paid membership revenue remained relatively stable, decreasing only 3.5%.
Improved Profitability: Despite lower revenue, the company significantly narrowed its net loss by 79.9% to RMB169.0 million. Gross margin expanded to 60.6% from 54.7% due to monetization enhancements and improved operating efficiency. Operating expenses decreased by 21.0% year-over-year, primarily due to disciplined spending on marketing, R&D, and lower share-based compensation.
Liquidity Position: Cash and cash equivalents increased significantly to RMB4.0 billion (US$548 million) as of December 31, 2024, compared to RMB2.1 billion in 2023, supported by net cash provided by investing activities (RMB2.6 billion) from the maturity of short-term investments and term deposits.
Guidance, Outlook, and Risks
Outlook and Strategy: Management continues to prioritize user experience and organic growth over aggressive user acquisition spending. The company is investing in AI applications (e.g., Zhihu Zhida) to enhance operating efficiency and content discovery. While the company is not yet profitable, it believes it has sufficient working capital for at least the next 12 months.
Key Risks:
- VIE Structure: The company operates through contractual arrangements with VIEs in China. If PRC authorities deem these arrangements non-compliant, the company could lose control of its operations or face severe penalties.
- Regulatory Environment: The company faces evolving regulations regarding data security, cybersecurity, content moderation, and foreign investment in China. Changes in these laws could materially impact operations.
- HFCAA and Delisting Risk: While the PCAOB currently has access to inspect auditors in China, future inability to inspect could lead to delisting from U.S. exchanges under the Holding Foreign Companies Accountable Act (HFCAA).
- PFIC Status: The company believes it was a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes in 2024, which could subject U.S. investors to adverse tax consequences.
Investor Verification Checklist
- Verify the sustainability of the 60.6% gross margin given the decline in marketing services revenue.
- Monitor the trajectory of Average MAUs, which declined significantly in 2024, to assess the success of the shift to organic growth.
- Review the status of the VIE contractual arrangements and any updates on PRC regulatory enforcement regarding foreign investment in internet services.
- Assess the impact of the company's PFIC status on U.S. investor tax liabilities.
- Track the deployment of AI initiatives (Zhihu Zhida) and their contribution to revenue or efficiency gains in future quarters.