Zhihu Posts Q2 Earnings Loss Amid High Operating Costs, Limited Market Impact on Earnings Beat

Introduction

Zhihu Inc. (NYSE: ZH), the Chinese Q&A platform, reported its second-quarter 2025 earnings on August 27, 2025. The results highlight a persistent challenge for the firm: expanding revenue while managing aggressive marketing and operational costs. Despite the broader market's sensitivity to earnings surprises in the tech sector, Zhihu’s stock has historically shown a mixed response, consistent with broader trends in the Interactive Media & Services industry. With the Chinese tech sector under regulatory and macroeconomic scrutiny, investors are watching for signs of sustainability and profitability in Zhihu's business model.

Earnings Overview & Context

For Q2 2025, Zhihu reported total revenue of RMB 1.895 billion, a solid figure but one that must now contend with a sharp rise in operating costs. The company incurred RMB 1.102 billion in marketing, selling, general, and administrative expenses, and RMB 406.68 million in R&D expenses, pushing total operating expenses to RMB 1.451 billion. As a result, Zhihu recorded an operating loss of RMB 351.1 million, and a net loss of RMB 246.4 million, or RMB -0.88 per share, both basic and diluted. This represents a continuation of a trend seen in recent quarters, where revenue growth has not yet translated into profitability.

The earnings release underscores the company’s ongoing investment in user acquisition and platform innovation, which, while potentially valuable for long-term growth, currently weigh heavily on profitability.

Backtest Analyses

Stock-Specific Backtest

Zhihu’s stock has historically experienced moderate positive returns following earnings beats, with a 3-day return of 4.58% and a 10-day return of 4.64% according to the backtest. The 30-day return, however, dips slightly to 3.79%, suggesting that while short-term upside is possible, longer-term gains are less certain. The win rate also fluctuates, peaking at 57.14% over 10 days, but falling in other windows.

These results imply that short-term trading around ZH's earnings beats may offer some potential for profit, but with limited consistency. Investors should approach with caution and consider these gains as modest and subject to risk.

Industry Backtest

By comparison, the broader Interactive Media & Services sector shows a much more muted response. Earnings beats in this industry typically yield no more than 0.91% in returns over 24 days, highlighting that the sector as a whole does not reward earnings surprises with strong price action.

This weak sectoral reaction suggests that Zhihu's stock price is more influenced by company-specific factors than by broader industry momentum, reinforcing the need for investors to look beyond earnings alone when assessing the firm's potential.

Driver Analysis & Implications

Zhihu’s earnings results are largely driven by its high operating expenses, particularly in marketing and R&D. These costs reflect its strategy to expand user engagement and maintain technological edge in a highly competitive market. However, without a corresponding increase in margins or revenue growth to offset these costs, the company remains unprofitable.

At a macro level, Zhihu is navigating a challenging environment for Chinese tech firms. Regulatory constraints, shifting user behaviors, and macroeconomic pressures all play into the firm’s performance and investor sentiment.

Investment Strategies & Recommendations

For short-term investors, the data suggests that Zhihu’s stock may offer limited upside immediately following earnings beats, especially within a 10-day window. However, the inconsistent win rate and weak 30-day returns caution against long-term holding strategies. Short-term traders should focus on timing and volatility, while also being mindful of the firm’s high cost base.

For long-term investors, the emphasis should be on Zhihu’s strategic initiatives and user growth. If the company can scale efficiently and demonstrate improved margin management, the fundamentals could justify long-term value creation. Investors should monitor guidance and any signs of cost optimization in future reports.

Conclusion & Outlook

Zhihu’s Q2 2025 earnings underscore the company’s continued investment in growth, at the expense of profitability. While the stock has shown limited but positive short-term returns following earnings beats, the broader industry context highlights the need for cautious, strategic positioning.

Looking ahead, the key catalysts to watch will be Zhihu’s guidance for future quarters and any progress in reducing operating costs or improving margins. The next earnings report, expected in early November 2025, will be a critical juncture for assessing the firm’s path to profitability and its ability to navigate the evolving tech landscape.