AI Integration And Premium Content Will Expand Engagement In China

Key Takeaways

• AI-driven engagement and premium content expansion are expected to boost user retention, advertiser appeal, and shift revenue mix toward higher-margin streams.
  
• Rising digital literacy and an evolving vocational training model position Zhihu to benefit from the secular growth in knowledge-based content consumption.
  
• Regulatory pressures, shrinking core revenues, rising moderation costs, fierce competition, and demographic shifts threaten Zhihu's growth prospects and long-term profitability.

Catalysts

Operates an online content community in the People’s Republic of China.

• Zhihu's continued investment and integration of AI-powered recommendations, attribution, and content moderation are increasing user engagement, deepening time spent (up 17.6% YOY), and boosting core user retention, which should meaningfully drive higher ad inventory and sustained revenue growth in the medium-to-long term.
  
• The rising prevalence of AI and digital literacy in China, alongside expanding internet penetration, positions Zhihu to capture a broader audience and benefit from the secular shift toward knowledge-based content consumption, laying the foundation for sustained increases in user base and engagement-supporting future topline expansion.
  
• Strategic expansion into premium, diverse paid content formats (short-form, mid-/long-form, audio) and new knowledge products directly targets higher ARPU and margin accretive revenue streams, expected to shift Zhihu's revenue mix toward more profitable sources and lift net margins over time.
  
• Optimizing the client mix and leveraging Zhihu's reputation for credible, high-quality expert content enhances advertiser trust and pricing power, increasing advertising efficiency and the ability to command premium ad rates, supporting stronger gross earnings and advertising revenues as the market seeks trustworthy platforms.
  
• The ongoing transformation of vocational training to a socially interactive, content-driven model leverages Zhihu's creator network and community strengths, expected to improve operational efficiency and profitability, resulting in improved earnings visibility and gross margin expansion over the long term.

Zhihu Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zhihu's revenue will grow by 2.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.5% today to 10.1% in 3 years time.
• Analysts expect earnings to reach CN¥361.2 million (and earnings per share of CN¥3.97) by about July 2028, up from CN¥-17.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from -168.7x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.68%, as per the Simply Wall St company report.

Zhihu Future Earnings Per Share Growth

Risks

• Intensifying regulatory scrutiny and evolving compliance demands in China's internet and content sectors may increase operational costs and limit product innovation, directly pressuring Zhihu's net margins and ability to scale revenue.
  
• Ongoing declines in core revenue segments-marketing services (down 40.4% YoY) and paid membership (down from RMB 449.7M to RMB 417.9M YoY)-despite operational improvements suggest challenges in monetization and scale, risking prolonged stagnation in total revenue and earnings.
  
• The platform's heavy reliance on user-generated content demands significant content moderation and quality assurance investments, particularly as regulations focus on misinformation and content quality, potentially raising compliance costs and further impacting net margins.
  
• Increasing competition from larger, diversified digital content and social platforms (e.g., ByteDance, Tencent), as well as shifting advertiser budgets toward short-video and entertainment-focused ecosystems, could erode Zhihu's market share, advertising revenue, and long-term earnings power.
  
• Demographic headwinds in China, such as a shrinking youth population and slower digital-native user growth, may constrain the expansion of Zhihu's user base and limit future increases in user engagement, directly threatening sustainable growth in revenue and community-driven profitability.

Valuation

• The analysts have a consensus price target of $5.677 for Zhihu based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.63, and the most bearish reporting a price target of just $4.82.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥3.6 billion, earnings will come to CN¥361.2 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 8.7%.
• Given the current share price of $4.79, the analyst price target of $5.68 is 15.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.