NYSE:ZH

Track all markets on TradingView - Graphs are not on time
Zhihu Slips Despite 147% Surge in Adjusted Profit as Revenue Declines Continue to Overshadow Recovery Efforts

Zhihu (ZH) edged 0.33% lower after reporting first-quarter 2026 results that showed substantial profitability improvement but continued top-line contraction, leaving investors weighing operational progress against ongoing revenue challenges.

The Chinese online content platform generated revenue of RMB651.6 million, down 10.7% year-over-year from RMB729.7 million. Revenue declines were broad-based, with marketing services, paid content, and other business segments all reporting lower sales. Management attributed the weakness primarily to strategic refinements in advertising services, a decline in paying subscribers, and restructuring within its vocational training business.

Despite the revenue decline, profitability improved significantly. Adjusted net income surged 147.2% year-over-year to RMB17.2 million, while net loss narrowed 15.6% to RMB8.5 million. The company also reduced total operating expenses by more than 10%, reflecting disciplined cost control and efficiency initiatives. Research and development expenses fell 22.4%, while marketing expenses declined 11.1%, helping support earnings quality despite weaker revenue.

Management highlighted encouraging progress in its high-quality growth strategy, pointing to stronger user engagement, vibrant creator activity, and increasing integration of artificial intelligence across both community functions and business operations. The company believes these AI initiatives will create new monetization opportunities and strengthen the value of its content ecosystem over time.

Investors may have been concerned, however, that several core operating metrics remain under pressure. Paid content revenue declined, and average monthly subscribing members fell to 13.1 million. Gross margin also slipped to 59.6% from 61.8% a year earlier, indicating that profitability improvements were driven primarily by expense reductions rather than revenue growth.

On the positive side, Zhihu maintains a strong balance sheet with approximately RMB4.49 billion ($651 million) in cash, term deposits, restricted cash, and short-term investments. The company also continued returning capital to shareholders, repurchasing 3.7 million shares during the quarter and spending a total of $70.7 million under its ongoing buyback programs.

Overall, the market's muted reaction reflects a balance between two competing narratives. On one hand, Zhihu is demonstrating meaningful progress in profitability, cost discipline, and AI-driven transformation. On the other hand, revenue continues to decline and subscriber growth remains a challenge. Investors appear to be waiting for clearer evidence that the company's improving profitability can eventually translate into sustainable top-line growth.
💬 🔗
Author
Global Finance News 06-03-26