Zhihu shares plummet in Hong Kong debut due to questionable profitability

China’s Zhihu, Quora-like Q&A platform, shares plummet 23.6% in Hong Kong debut, making it one of the worst ever secondary listing debuts in the city.

The Beijing-based company, which is China’s largest Q&A platform, raised $106 million by pricing its shares at HK$32.06 a piece in its dual primary listing. Zhihu is also listed in New York where it raised $523 million in its U.S. initial public offering in March 2021.

According to data released by Dealogic, the plunge was the largest ever decline for a secondary listing in Hong Kong, a little better than Ganfeng Lithium Co whose share plummet 29% on its first day trading in October 2018.

Zhihu’s share is facing pressure from the U.S. Securities and Exchange Commission (SEC) which added more Chinese firms including Baidu to a growing list of companies that may get delisted from American stock exchanges.

Founded in January 2011, Zhihu started off as an invite-only online platform that required a user registration code, it quickly earned a reputation as a community for quality contents and has attracted elite professionals and entrepreneurs such as Tencent founder and CEO Pony Ma and ZhenFund managing partner Xiaoping Xu.

Due to lack of quality question-and-answer platform in China, Zhihu gradually evolved from elite community into a universal community and social network for general public.

Despite the significant growth in users, Zhihu has struggled to make profit from its large user base. The company booked a total revenue of 2.95 billion yuan in 2021, which is more than doubled than total revenue in 2020. However, Zhihu still registered a net loss of 1.46 billion yuan in 2021, representing year-on-year decline of 22.63%.

According to the financial report, advertisement is Zhihu’s large revenue contributor, which accounted for roughly 40 percent of total revenue in 2021, business content solution and paid membership were the second and third largest revenue contributor, combining for 55 percent in 2021.  

Explaining the financial difficulty, Zhihu said in a statement that “We are still in an early stage of monetization, but we are discovering and growing various new monetization channels.”

The company has been trying to diversify its revenue streams, from live-streaming to content e-commerce. Since 2016, Zhihu has launched its paid course service called Zhihu Live, inviting verified experts to teach courses or offer Q&A sessions to audiences on the section, the prices for these 1-2 hours-long courses varied from CNY20 to CNY600.

The company’s efforts have saw slight return as its e-commerce business accounted for greater shares growing from 3.9 percent in 2020 to 5.2 percent in 2021

Despite Zhihu’s revenue diversification, analysts remained skeptical about its long-term profitability.

“Zhihu’s poisoning itself as a largely text-based content platform that could limit its monetisation to online advertising and paid memberships in the medium-term. Meanwhile, any attempt to broaden its user and content base could require substantial investments which will keep the company loss-making at the operating level,” said Vey-Sern Ling, a senior analyst at Bloomberg Intelligence.