Zhihu (ZH) Q2 2025: Gross Margin Expands to 62.5% as AI Content Drives Engagement
Disciplined cost control and AI-led platform enhancements propelled Zhihu’s gross margin to a new high, even as top-line pressure persisted. User engagement and creator activity surged, underpinned by deepening AI integration and content quality initiatives. Management signals further monetization and product upgrades ahead, with buybacks reinforcing shareholder return priorities.
Summary
- AI Integration Deepens: Zhihu’s platform is now a key launchpad for AI products and expertise, boosting user and creator engagement.
- Content Quality and Trust: Focused suppression of low-quality content and creator incentives drove higher retention and time spent.
- Margin Expansion Signals Leverage: Cost discipline and operational efficiency unlocked record gross margin, setting up for sustainable profitability.
Performance Analysis
Zhihu delivered its third consecutive quarter of non-GAAP profitability, with adjusted net income swinging to RMB 91.3 million from a loss a year ago. Total revenue declined year-over-year to RMB 716.9 million, but the pace of decline moderated, reflecting stabilization in the business mix. Gross margin expanded to 62.5%, up nearly three points YoY, driven by operational efficiencies and a higher-quality revenue mix.
Segment performance was mixed. Marketing services revenue grew 13.1% sequentially, though still down YoY as Zhihu continued to refine its client mix and suppress low-quality content. Paid membership revenue softened modestly as the company prioritized users with longer life cycles and higher ROI potential, resulting in a slight sequential and YoY decline. Vocational training revenue contracted sharply as low-potential offerings were phased out, but the segment’s operating profit surged 90% YoY, underscoring improved quality.
- Cost Structure Transformation: Operating expenses fell 27.2% YoY, reflecting tight cost controls and productivity gains from AI.
- Shareholder Returns: Share repurchases exceeded 49.7 million shares YTD, with management reiterating commitment to capital return.
- Cash Position: Liquidity remained robust at RMB 4.8 billion, supporting continued investment and buybacks.
Net investment income was a standout driver, with RMB 140.8 million in gains from revalued private investments, providing incremental bottom-line support. Overall, the quarter marked a transition toward higher-margin, more resilient growth levers, even as revenue recovery remains a work in progress.
Executive Commentary
"Zhihu's ecosystem continues to flourish with our trustworthy content and professional creators, enriching the experience for users and creators alike. Our expanding in-house AI capabilities and growing industry influence have reinforced our platform's unique value proposition as the go-to destination for professional, trustworthy Chinese language content."
Victor Zhou (AI voice agent for Zhou Yuan), Founder, Chairman & CEO
"Gross margin expanded to 62.5% up from 59.6% in the same period of 2024 and 61.8% in the previous quarter. This was largely driven by improvements to our monetization capabilities and continued gains in operating efficiency."
Han (AI voice agent for Wang Han), Chief Financial Officer
Strategic Positioning
1. AI as Platform Backbone
AI is now embedded across Zhihu’s content creation, curation, and search workflows, with flagship products like Zhihu Zhida (AI-powered knowledge base) seeing rising penetration. The platform is increasingly cited as a trusted source for large language models and is the destination for new AI product launches by leading Chinese tech teams. This positions Zhihu as a foundational layer in the Chinese AI ecosystem, reinforcing its moat in professional, credible content.
2. Content Trust and Quality Flywheel
Management aggressively suppressed low-quality content, reducing its distribution by 98% YoY, while investing in creator incentives, new column formats, and long-form writing marathons. These initiatives lifted daily high-quality content creation by over 10% sequentially and drove a 15% YoY increase in average daily user time spent. The focus is on scaling “trust” as the core currency in the AI era, with human-generated, expert-validated content at the center.
3. Monetization and Segment Rebalancing
Marketing services are emerging from a reset, with a sequential rebound and a narrowing YoY decline. The company is shifting toward high-value clients and branded campaigns, leveraging its trusted user base. Paid memberships are being optimized for retention and ARPU growth, with new content formats like voice live streaming and IP monetization (e.g., Yanyan Story) outperforming expectations. Vocational training is being pruned for profitability, moving to a more community-driven, knowledge-sharing model.
4. Capital Allocation and Shareholder Alignment
Share repurchases accelerated, with nearly 3% of shares bought back in open markets by mid-year and management signaling continued buybacks as a core capital return lever. The company’s strong cash position and cost discipline provide flexibility for both investment and returns, underscoring a focus on long-term shareholder value.
Key Considerations
Zhihu’s Q2 reflected a strategic pivot toward quality, trust, and AI-driven leverage, even as legacy revenue streams remain in transition. The company is prioritizing sustainable, high-margin growth over short-term top-line gains, with a clear focus on platform integrity and ecosystem health.
Key Considerations:
- AI Product Penetration: Zhihu Zhida’s integration into daily workflows is redefining the user and creator experience, with further upgrades planned for Q4.
- Creator Ecosystem Expansion: High-tier creator engagement and new content formats are driving deeper platform stickiness and retention.
- Commercial Mix Shift: Marketing services are stabilizing, but full recovery will depend on continued client mix optimization and product innovation.
- Cost and Margin Management: Sustained reductions in operating expenses and improved gross margin signal structural profitability improvements.
Risks
Revenue growth remains pressured as strategic resets in marketing and vocational training continue. Competitive intensity in content and AI ecosystems is high, with user acquisition and retention requiring ongoing investment. Regulatory scrutiny of online content and data may pose future headwinds. Management’s outlook on stabilization is constructive, but execution risk remains in scaling new monetization levers and maintaining platform trust at scale.
Forward Outlook
For Q3 2025, Zhihu guided to:
- Continued sequential growth in marketing services, with year-over-year revenue stabilization expected to turn positive in coming quarters.
- Paid membership focus on retention, ARPU, and premium content expansion, with new media formats and IP monetization as key growth drivers.
For full-year 2025, management maintained a near break-even non-GAAP profitability target, citing:
- Ongoing cost discipline and margin expansion
- Accelerated product upgrades and ecosystem enhancements
Management highlighted that AI integration and high-quality content investment will remain core priorities, with sustained share repurchases reinforcing shareholder return commitment.
Takeaways
Zhihu is transitioning from a growth-at-any-cost model to one centered on trust, quality, and AI-enabled efficiency. The business is now structurally leaner, with a more resilient margin profile and a clear path to sustainable profitability, even as revenue growth normalizes.
- AI-Driven Engagement: Platform usage and creator activity are benefiting from deep AI integration, with new products and workflows driving higher engagement.
- Margin and Cost Leverage: Gross margin expansion and expense discipline are unlocking profitability, providing a buffer against top-line volatility.
- Monetization Rebuild: Recovery in marketing services and new paid content formats will be key to reigniting growth, with execution risk as legacy segments recalibrate.
Conclusion
Zhihu’s Q2 marked a decisive shift toward a higher-quality, AI-powered content ecosystem, delivering margin gains and improved profitability despite ongoing revenue headwinds. With a strong balance sheet and clear focus on trust and innovation, the company is positioned to capitalize on emerging AI and content monetization opportunities as legacy transitions play out.
Industry Read-Through
Zhihu’s results highlight a broader sector pivot toward quality, trust, and AI-driven differentiation in China’s digital content landscape. Platforms that successfully integrate AI to enhance user engagement and creator productivity are likely to sustain higher margins and user loyalty. The crackdown on low-quality content and focus on expert-driven ecosystems may set a new standard for monetization and regulatory compliance. For peers in online content, education, and community platforms, the Zhihu playbook of cost discipline, AI integration, and capital return provides a template for navigating platform fatigue and evolving user expectations in the AI era.