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In the continuous game of “yes” and “no” played through the main question-and-answer site, Zhihu Inc. (NYSE: ZH; 2390. HK), the answer to the question of whether the company can also make its first profit in its latest cash report was a clear “no. “But Zhihu, called China’s Quora, made great efforts. Its most recent effects show that, despite everything, it could have found an answer to the challenge of profit in vocational education services, which experienced an explosive expansion in the first quarter.
Zhihu’s most recent earnings report released last Wednesday, the first since its dual board in Hong Kong, showed its profits rose 55. 4% year-on-year to 743 million yuan ($111 million) in the first quarter of 2022. But its adjusted loss rose even more than 89. 8 percent to 367 million yuan from 194 million yuan a year earlier.
Despite developing losses, Zhihu still made gains that exceeded his own previous forecasts amid repeated Covid outbreaks that led to major shutdowns and other macroeconomic hurdles. This shows that founder and CEO Zhou Yuan continues his quest to “turn smart content into revenue” by diversifying the company’s profit streams.
Investors gave the impression of being encouraged by the report, boosting Zhihu’s U. S. stock. In the U. S. as much as 10% on the day the effects were released, then stocks dumped much of the gains to close at 2. 26%. But more people saw it the next day, prompting a 22% increase in inventories, giving Zhihu a book value-to-book (P/B) ratio of just over 1. However, at its latest $1. 55 close, inventory is well below the $9. 50 value of its IPO inventories in March last year.
The latest monetary samples show that Zhihu is constantly making progress in optimizing its profit structure, which is mainly based on online advertising, advertising content responses, and paid subscriptions. While it is experiencing an immediate expansion in the number of users, advertising content responses have become the company’s main source of profit, accounting for 30. 5% of its total, with an 87. 7% year-on-year increase in profits to 227 million yuan in the first quarter.
Another highlight was the emergence of Zhihu’s vocational education as a new engine of expansion, with an explosive annual expansion of 1196%, accounting for just over 5% of total revenue. This was basically due to more diversified vocational education courses and similar mergers and acquisitions at the time of part of 2021, the company said, taking advantage of China’s stimulus for the personal sector to play a bigger role in adult vocational education.
It’s also worth noting that Zhihu’s average number of monthly active users (MAUs) grew by 19. 4% in the first quarter to 102 million year-over-year, and its monthly average of paying members increased by 72. 8% to 6. 9 million over the same period. exceeding all market expectations.
Analysts were pleased with the results, noting that the company’s most recent execution performance shows that it can perform well even in the face of the many demanding situations faced by Chinese corporations lately and that it takes advantage of a higher valuation premium.
The company’s ability to grow in the face of such headwinds contrasts with older content communities, such as Hupu and Douban, which have grown much more slowly and have been unable to create their own listings. One of the reasons for Zhihu’s low rating possibly lies in its lower use. of images and videos that are the most popular in the market and most attractive to investors. This made it difficult for Zhihu to compete with video specialists such as Bilibili (BILI; 9626. HK) and Kuaishou (OTCPK:KUASF) (OTCPK:KSHTY) (1024. HK), which have much higher P/B ratios of 2. 54 and 5. 78, respectively.
In the face of his low valuation, Zhihu cannot be blamed for his lack of efforts to improve his potency and help his actions.
The company announced a $100 million percentage buyback with its most recent results. And while it didn’t provide any forecasts for the current quarter in its most recent report, likely due to all the economic uncertainties, Zhou said Zhihu’s earnings demand that advertising and advertising content respond. I still want to achieve double-digit expansion in the moment. quarter. He added that lowering prices and expanding power will be a key task this year and next.
Zhihu has frequently lost cash since its inception in 2010. In the past, that red ink didn’t worry investors, who valued corporations like Zhihu for their prospects rather than their profits. profitability has become more important. This leads Zhihu and his peers to try to reduce prices and increase power to regain the favor of investors.
Companies are turning to task cuts as part of this strategy, and Zhihu was no exception. Rumors of job cuts at the company began earlier this year and Zhihu reportedly made a fourth round of layoffs in its technology, marketing, education and networking sections recently. before the release of its most recent results. Reports imply that the cuts have affected 20% to 30% of the company’s workforce.
Zhihu did not verify any figures, but called those cuts an overall component of his business and organizational optimization. of the network. Zhihu is just the latest web company to resort to such cost layoffs, following similar moves through big names like Alibaba (BABA; 9988. HK), Tencent (OTCPK: TCEHY) (0700. HK) and Huya (HUYA).
Internet analyst Zhang Shule pointed out that it is to decrease red ink only through task cuts, and that the improvement in profits is more important.
Since starting his marketing crusade in earnest in 2016, Zhihu has embarked on live streaming, short videos, e-commerce, and other areas, in addition to his fundamental advertising and paid subscriptions. of their failed attempts to take off. In this regard, it turns out that Zhihu has still found a new winner in the vocational education sector, which could help him in his business crusade.
China has actively promoted the progression of vocational education through the personal sector, in contrast to its recent crackdown on K-12 education service providers. The Council of State first published a national plan for the implementation of vocational education reform in January 2019. Since then, other government agencies have published a steady stream of guidance documents highlighting the importance of fashionable vocational education and lifelong learning. The state has also provided money for those efforts.
Based on this support, Zhou proposed to make vocational education one of Zhihu’s long-term strategies. Since last year, the company has introduced its vocational education applications “Product Trainees” and “Zhixue Tang”, and has also invested in two adult education platforms. , Shanghai Pinzhi Education and Papa Education.
But Zhihu is not the only one chasing the sector and may face a tough festival. in space. And there are also festivals from others like Beijing Offcn Education Technology (002607. SZ) and Huatu Hongyang Corp.
Disclosure: None
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