ZKH Group (ZKH) Q4 2025 earnings review
Profitability Inflection Reached, but Unit Economics Crack
ZKH achieved a critical milestone in Q4 2025: its first-ever GAAP net profit (RMB 4.8M), breaking a long history of structural losses. Top-line growth is officially accelerating, with GMV up 8.5% YoY and Revenue up 7.9%, fueled by a massive 60% surge in transacting customers. However, the quality of this revenue is highly concerning. Gross margin collapsed by nearly 160 basis points to 15.5%, meaning gross profit actually declined YoY despite the revenue bump. ZKH has successfully used AI to crush operating expenses, but the data suggests they are buying volume with lower-margin product mixes.
🐂 Bull Case
The return to GAAP profitability was entirely driven by ruthless Opex control. Operating expenses fell 3.0% YoY in absolute terms, shrinking to 16.6% of revenue from 18.5% a year ago, proving the scalability of their AI investments.
Customer count skyrocketed 59.8% YoY to nearly 74,000 in Q4. This permanent expansion of the top-of-funnel creates a massive base for future cross-selling and private-label penetration.
🐻 Bear Case
Gross margin decelerated violently from 17.1% in 24Q4 to 15.5% in 25Q4. Management blamed 'product mix changes', indicating that the recent customer acquisition spree relies heavily on lower-margin items.
The highly lucrative 3P Marketplace segment saw its take rate drop from 14.0% to 11.9% YoY in Q4, causing 3P revenues to decline 3% even as segment GMV grew 14%.
⚖️ Verdict: ⚪
Cautiously Bullish. Reaching GAAP profitability is a monumental de-risking event. However, the compression in gross margins and take rates suggests the core business model has less pricing power than the AI narrative implies.
Key Themes
AI is Creating Tangible Financial Value
ZKH is not just using AI as a buzzword; it is directly impacting the P&L. The deployment of 5,000 RPA digital employees (now exceeding their human workforce) drove an 8% YoY decline in fulfillment costs and a 6% drop in G&A. Meanwhile, the 'ProductRecom Agent' generated over RMB 200 million in cumulative sales in 2025. Customer service and procurement productivity are up 45% and 50% respectively. This is a best-in-class example of AI driving operating leverage.
Contradiction: Private Label Growth Fails to Protect Margins
Management frequently touts its higher-margin private-label products, which grew to 8.3% of total GMV in 2025 (up from 6.7%). However, the data contradicts the margin-expansion narrative: overall gross margin compressed by 159 bps to 15.5% in Q4. If private-label is growing, but aggregate margins are falling, it means the core 1P product mix is deteriorating rapidly, likely as a byproduct of aggressive SME customer acquisition.
Customer Acquisition Accelerating Dramatically
Following a period of 'strategic optimization' where ZKH purged low-margin accounts, the customer base has exploded. Q4 transacting customers hit 73,803, up 59.8% YoY. This broad-based SME expansion is the primary driver reversing the top-line from negative growth earlier in the year back to +8.5% GMV growth in Q4.
Marketplace (3P) Economics Deteriorating
The 3P Marketplace model—which carries a 100% gross margin on net revenue recognition—is showing weakness. While 3P GMV grew 14.3% in Q4, net service revenues actually fell 3.0%. This reveals a severe drop in the take rate, reversing from 14.0% a year ago to 11.9% today. The company appears to be subsidizing marketplace participants to drive volume.
International Expansion Capitalizing on Macro Shifts
ZKH is actively following Chinese manufacturers abroad, an essential macro-hedge against domestic weakness. The international business delivered 50% sequential GMV growth in Q4. Fulfillment coverage now extends to 17 countries. While management previously noted (Q3) that they are controlling the investment pace in the US, the broader overseas footprint remains a vital long-term growth engine.
Operating Cash Flow Plunges for the Full Year
While Q4 saw positive Operating Cash Flow of RMB 116.1M, the full-year 2025 picture is highly concerning. FY25 OCF was a mere RMB 13.7M, an aggressive deceleration from the RMB 229.1M generated in FY24. This signals that working capital requirements (like the RMB 44M YoY increase in inventories) are eating up the cash generated by the newly profitable P&L.
Other KPIs
GMV growth on the GBB platform (+9.7% YoY) slightly outpaced the core ZKH platform (+8.3% YoY). This platform caters specifically to different customer tiers and is showing solid traction alongside the broader SME expansion.
Fulfillment efficiency continues to accelerate. This marks the eighth consecutive quarter of declining through-warehouse fees, supported by a network of 30 distribution centers, over 100 transit warehouses, and the new Chengdu chemical warehouse.
Guidance
While omitted from the Q4 release, management previously stated a forward goal of 15-20% annual GMV growth. Achieving this would require significant acceleration from the -3.3% contraction seen in FY25, though Q4's +8.5% exit rate indicates momentum is building toward this target.
Management expects AI token usage (currently at 80 billion tokens monthly) to scale by at least 10x over the next 2-3 years, underscoring their commitment to shifting from a high-touch to a low-touch, automated operating model.
Based on prior management commentary, the international expansion is currently a margin drag, but is targeted to reach breakeven by 2026 as the company throttles its investment cadence in the US market to prioritize high-certainty geographies.
Key Questions
Gross Margin Contradiction
You highlighted the increase in higher-margin private-label GMV to 8.3%, yet overall gross margin compressed by 159 bps. What specific product categories in the 1P mix are dragging down the aggregate margin, and is this the new structural normal for servicing the expanded SME base?
Take Rate Collapse
The Marketplace take rate dropped from 14.0% to 11.9% in Q4. Was this a deliberate pricing strategy to re-accelerate 3P GMV growth, or are you facing increased competitive fee pressure from peers like JD Industrial?
Working Capital and Cash Flow
Operating Cash Flow plummeted from RMB 229M in FY24 to just RMB 14M in FY25 despite narrowing net losses. As you accelerate GMV growth toward your 15-20% target in FY26, how will you prevent working capital from becoming a severe cash drain?