How did ZH's Q3 earnings surprise investors?

Zhihu Inc.'s (ZH) Q3 earnings report revealed a significant improvement in profitability despite challenges in revenue streams, leading to a mixed sentiment among investors. Here's a detailed analysis:

1. **Profitability Turnaround**: Zhihu reported its first-ever adjusted net income of RMB97.1 million, a stark contrast to the adjusted net loss of RMB91.3 million in the same period last year. This turnaround was driven by effective cost management, as evidenced by an 88% year-over-year reduction in community user acquisition-related expenses.
2. **Strategic Focus**: The company's strategic realignment, including the optimization of service offerings and a refined approach to acquired businesses, contributed to the decline in revenue from vocational training by 50.4% year-over-year. However, this focus on profitability led to a substantial narrowing of net loss, which was narrowed by 96.8% to RMB9.0 million.
3. **Revenue Challenges**: While profitability improved, Zhihu faced challenges in its revenue streams, such as marketing services and vocational training. For instance, marketing services revenue decreased by 33%, but paid membership revenue surged to RMB469.4 million. Additionally, performance-based advertising revenue increased by 28.4% year-over-year.
4. **User Engagement and AI Integration**: The company's focus on community enhancement and AI integration paid off, with an increase in average monthly active users to 81.4 million. The AI platform, Zhida, reached over 10 million monthly active users, highlighting the effectiveness of AI in community engagement.

Overall, Zhihu's Q3 earnings showcased a strong profitability turnaround, which likely surprised investors with a positive sentiment. The company's strategic initiatives and effective cost management were key factors in this surprise. However, the decline in certain revenue streams, such as marketing services and vocational training, presented challenges that investors were likely aware of. The positive user engagement metrics and successful AI integration likely balanced the negative impact of these revenue declines, leading to a mixed but generally positive surprise.