ZKH Group: A Risky Bet in Troubled Waters

Investors eyeing ZKH Group (NYSE: ZKH) should proceed with caution. Despite its position as a leading MRO procurement platform, the company’s recent financial struggles, operational headwinds, and strategic risks paint a bleak picture for 2025 and beyond. Let’s dissect the warning signs.

The GMV Decline: A Structural Problem

ZKH’s core metric—Gross Merchandise Volume (GMV)—has been in free fall. In Q4 2024, total GMV plummeted 16.1% year-over-year to RMB2.69 billion, driven by a catastrophic 58.6% drop in its Marketplace (3P) segment. While management attributes this to “strategic business optimization,” the reality is stark: slashing low-margin operations has killed growth in its key revenue driver. Full-year 2024 GMV fell 5.4%, with Marketplace GMV contributing just 18.6% of total GMV—a historic low.

The reliance on the Product Sales (1P) model, which now dominates GMV, carries its own risks. Private-label products may boost margins, but they lack the scalability of a thriving marketplace. This imbalance leaves ZKH vulnerable to supplier dependency and inventory overhang.

Profitability: A Long Road Back

ZKH’s Q4 2024 financials were disastrous. The company posted an operating loss of RMB325.89 million, a 380.7% jump from the prior year, while net losses hit RMB29.1 million. Full-year 2024 net losses remained at RMB268 million, despite cost-cutting. Even cash flow, once a bright spot, shows cracks: operating cash flow fell to RMB229.1 million for the year, down from RMB2.12 billion in cash reserves, now RMB2.06 billion.

CEO Eric Chen’s pledge to achieve “full-year domestic profitability in 2025” clashes with these numbers. To turn profitable, ZKH must reverse its GMV decline, reduce operational costs further, and stabilize its marketplace model—all while facing macroeconomic headwinds.

Customer Dynamics: Growth Without Loyalty

Total customers rose 26.1% to 83,958 in 2024, but this masks deeper issues. The GBB platform, targeting SMEs, saw customers drop 8.8% in Q4, signaling dissatisfaction or competitive pressures. Worse, the company’s customer retention strategies hinge on unproven AI-driven solutions. Without tangible results, this could lead to a loyalty crisis.

Regulatory and Market Risks

ZKH operates in a tightly regulated sector. China’s MRO industry is sensitive to policy shifts, and the company’s reliance on credit terms with customers introduces liquidity risks. Competitors, particularly those leveraging advanced AI or cheaper supply chains, could undercut ZKH’s pricing advantages.

The Q1 2025 Outlook: More of the Same?

ZKH’s Q1 2025 results, due May 20, will be critical. Given the downward trends in GMV and profit margins, investors should brace for another quarter of losses. Management’s conference call (live at 8:00 AM ET on May 20) will likely emphasize “strategic progress,” but without concrete revenue gains or margin improvements, skepticism is warranted.

Conclusion: Why ZKH is a High-Risk Bet

The data is clear: ZKH is not out of the woods. Its GMV decline, persistent losses, and reliance on unstable marketplace dynamics make it a risky investment. Key red flags include:

• GMV Collapse: Marketplace GMV down 58.6% in Q4 2024, dragging total GMV lower.
• Profitability Gaps: Net loss of RMB268 million in 2024, with no path to positive net margins yet.
• Customer Uncertainty: GBB platform losing users despite overall growth.
• Execution Risks: AI and international expansion plans remain unproven.

Investors seeking stability should look elsewhere. ZKH’s stock—already down 35% since 2023—faces further downside unless Q1 2025 delivers a miracle.

In summary, ZKH’s struggles are structural, not cyclical. Until it reverses GMV declines and proves profitability, this is a bet best avoided.