Intrinsic Value Zhihu Inc. (2390.HK)

• Previous Close: HK$9.60
• Intrinsic Value: HK$11.89
• Upside potential: +24%

Stock Valuation Context

Business Model And Market Position

Zhihu Inc. operates a premier online content community in China, functioning as a knowledge-sharing and Q&A platform where users seek inspiration, find solutions, and make decisions. Its core revenue model is multifaceted, primarily driven by online advertising, paid membership subscriptions, and content-commerce solutions that monetize its vast user-generated content. The company operates within the competitive Internet Content & Information sector, characterized by intense competition from tech giants and specialized platforms. Zhihu's strategic market position is built on its reputation for high-quality, in-depth content from a knowledgeable user base, which differentiates it from more entertainment-focused social media. This focus on credible, long-form content has cultivated a loyal, educated demographic, making it an attractive channel for targeted advertising and premium content services. The company further leverages its community through vocational training and technology services, aiming to build a comprehensive ecosystem around knowledge consumption.

Revenue Profitability And Efficiency

For the fiscal year, Zhihu generated HKD 3.60 billion in revenue. However, the company reported a net loss of HKD 171.80 million, indicating ongoing challenges in achieving profitability. Operational efficiency remains a concern, as evidenced by negative operating cash flow of HKD 280.19 million, highlighting significant cash consumption from its core business activities despite its substantial top-line figure.

Earnings Power And Capital Efficiency

The company's current earnings power is negative, with a diluted EPS of -HKD 0.63. Capital expenditure was reported as zero for the period, suggesting a asset-light operational model that does not require significant investment in physical assets. The primary focus for capital efficiency is on scaling its user community and monetization strategies rather than heavy infrastructure investment.

Balance Sheet And Financial Health

Zhihu maintains a robust liquidity position with HKD 3.99 billion in cash and equivalents, providing a substantial buffer against its operational cash burn. The balance sheet is notably low-leveraged, with minimal total debt of just HKD 19.13 million. This strong cash position and minimal debt obligations contribute to a solid financial health profile despite the lack of profitability.

Growth Trends And Dividend Policy

The company does not pay a dividend, consistent with its growth-stage status and current lack of profitability. All capital is being reinvested into the business to fund user growth, content acquisition, and the development of new monetization avenues. The focus remains entirely on top-line expansion and achieving a path to sustainable profitability in the future.

Valuation And Market Expectations

With a market capitalization of approximately HKD 3.44 billion, the market is valuing the company at roughly 0.95 times its annual revenue. A beta of 0.222 suggests the stock is perceived as less volatile than the broader market. This valuation reflects investor expectations for future monetization of its large user base rather than its current financial performance.

Strategic Advantages And Outlook

Zhihu's key strategic advantage is its established brand as a trusted knowledge platform with a high-quality user base. The outlook hinges on its ability to effectively monetize this community through enhanced advertising technology, expanded premium content offerings, and successful content-commerce initiatives. Success is contingent on reversing its negative cash flow and narrowing its net losses to achieve sustainable growth.

Sources

Company Annual ReportHong Kong Stock Exchange Filings