Kuaishou Technology

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology First Quarter 2024 Financial Results Conference Call. Please know that English simultaneous interpretation will be provided for management's prepared remarks. This English line will be in listen-only mode. I will now turn the call over to Mr. Matthew Zhao, VP of Capital Market and Investor Relations at Kuaishou Technology. Thank you, Operator. Good evening and good morning to everyone. Welcome to our first quarter 2024 financial results conference call. Joining us today are Mr. Cheng Yi Xiao, co-founder, chairman, and CEO. Mr. Jin Beng, chief financial officer. Before we start, please note that today's discussion may contain forward-looking statements which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information except as required by law. For all important information about this call, including forward-looking statements, please refer to the company's public information or the first quarter 2024 results announcement for the three months ended March 31, 2024 issued earlier today. During today's call, management will also discuss certain non-FRS financial measures These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures, a reconciliation of IFRS to non-IFRS financial results, and related risk factors, please refer to our first quarter 2024 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and consecutive interpretation during the Q&A session. Please know that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now, I'll hand the call over to Yixiao. Hello everyone and welcome to QYSHA's first quarter 2024 earnings conference call. In Q1, our total revenue grew by 16.6% year-over-year to 29.4 billion RMB with a gross margin close to 55%, adjusted net profit of 4.4 billion RMB and adjusted net margin of 14.9%. These results greatly outperformed the market. Despite being the typical slow season, we delivered robust operating and financial performance, highlighting strong business resilience and economic mode created by our users and commercial ecosystems. We're off to a great start in 2024. In Q1, we rolled out traffic recommendation mechanism to all users, boosting user experience and monetization efficiency. Our smart marketing solution helped marketing clients improve performances attracting more budgets. We're committed to creating an excellent shopping experience for users and have steadily grown our e-commerce business with a do-drive approach of live streaming e-commerce and shelf-based e-commerce. In Q1, we continue to foster a healthier live streaming ecosystem, laying a solid foundation for the platform's sustainable development. We also steadily advance the R&D and training of our self-developed large language models to empower various business scenarios with AI technology, enabling growth through increased efficiency. Next, I'll discuss our key business developments in Q1. First, user growth and ecosystem construction. In Q1, average DAUs and MAUs on the Kuaishou app reached 394 million and 697 million, growing by 5.2% and 6.6% year-over-year respectively. The average daily time spent per DAU on the Kuaishou app was 129.5 minutes. Our total user time spent in Q1 grew by 8.6% year over year. These increases reflect our commitment to advancing our high-quality user growth strategy. By catering user needs with great content and continuously improving user experience, we provide more value to our users. For user growth, We optimized our user acquisition channel mix, combining algorithm-based forecast on new user retention rates to increase the ROI of our user growth. We also launched initiatives like exploring diversity of user interest, refining shorter video elements, and enhancing shorter video common ranking strategies. These efforts improve the user experience and increase the user time spent on our platform. For content supply, we backed quality creators with a distinct Kuaishou characteristics and generated differentiated, high-quality, unique Kuaishou IP content for special occasions, giving users more reasons to open the Kuaishou app. For instance, to celebrate the Year of the Dragon with our vast user base of nearly 400 million, we continued our A Taste of Chinese New Year on Kuaishou activities in 2024, offering a variety of Chinese New Year-themed content. A highlight was Dragon Night, a fan celebration on Kuaishou hosted by Jackie Chen, who welcomed numerous celebrity friends and Kuaishou chaos. This event attracted over 260 million views with over 690 million cumulative likes and over 6.63 million peak concurrent users. Additionally, themed programs like Kuaishou 1001 Nights, Fans Gala, Online Festival Fairs, and the Village Basketball Association not only provide a stage for creators to showcase their talent, but also increase the user's thickness on Kuaishou. During the Chinese New Year season, 20 titles of Kuaishou Astro short plays received more than 100 million views, with seven exceeding 300 million views. More various diverse short play series like Super Powered Team and Grandpa and I generated huge social buzz. From celebrity-led to koala-led, Kuaishou's short play is making great advancement. Regarding our search business, we optimized the search function by leveraging large language model technology and refining the landing page for search after watching feature to enhance the user experience. These efforts resulted in improved user penetration and overall search experience. In Q1, the monthly average users for Kuaishou's search increased by more than 15% a year over year. With the daily searches reaching a peak of nearly 800 million, we actively promoted search commercialization revenue from such. Search marketing services grew by over 50% a year over year in Q1. Second, online marketing services. In Q1, with the macroeconomy and consumer markets showing signs of stabilization and gradual recovery, our revenue from online marketing services rose by 27.4% a year over year to 16.7 billion RMB, accounting for 56.6% of our total revenue. We vigorously promoted the use of our smart marketing solution across various scenarios, boosting active marketing clients by nearly 90% a year over year in Q1, Furthermore, we guided traditional external marketing clients to shift their operations natively onto Kuaisha through our self-developed sales funnel conversion path. This transition helped them convert targeted users and complete closed-loop transactions on our platform, enriching our insights to users. By using algorithms to model the conversion of active users into transactions through our marketing activities, we further unlocked the monetization potential of our online marketing services. In Q1, leveraging our AI and LLM capabilities, our smart marketing solution provided clients with end-to-end solutions to improve efficiency, covering smart creation, smart replacement, smart connection. With our AIGC capabilities for smart creation, we could quickly generate higher quality creative content, diversifying our creative deployments. In Q1, the peak daily spending from the clients with AIGC marketing materials exceeded 10 million RMB. Regarding smart placement, our UAX product and Omni platform marketing solution offer clients a range of automated placement functions, like beating real-time tracking and adjustments. In terms of a smart connection, our AI-driven customer service helps clients communicate with targeted users, significantly improving marketing conversion efficiency. In specific industries, the conversion rate from content exposures to lead generation has increased by over 40%. In Q1, Revenue from our enclosed loop marketing services grew rapidly year-over-year, outpacing the overall e-commerce GMV growth. We further iterated our Omni platform marketing solution strategy and capabilities. Especially, our Omni platform merchandise marketing solution introduced new core features like marketing material data disclosure, content creation, and editing optimization. We provided all clients with access to these new features in March to help them explore high-quality traffic and expand their GMV. Regarding smart hosting products, we tested and unveiled live streaming hosting functions for major promotion scenarios, improving clients' marketing performance and a willingness to place ads with us. Merchants' total marketing spending through our Omni platform marketing solution or smart hosting products accounted for 30% of overall enclosed closed-loop marketing spending in Q1. In Q1, our year-over-year revenue growth in external marketing services continued to outperform the market, especially in new media information gaming education sectors. Within the media information sector, average daily spending in marketing for paid short videos short plays rose over fourfold year-over-year. This was fueled by our ongoing optimization of the self-developed sales funnel conversion path and increased supply and demand resulting from incentives policies. On the gaming front, in Q1, we validated the effectiveness of the IAA marketing model for Kuaishou's mini-program games, boosting the marketing spending of our gaming clients. Marketing spending in the education sector nearly doubled year-over-year in Q1, driven by our ability to meet growing user demand, resulting in increased budget from marketing clients. Our smart placement product under external marketing services, UEX, provides tailored full lifecycle automated marketing solutions to clients in diverse industries, enhancing their marketing conversion efficiency, total marketing spending through UAX, increased by over four times, quarter over quarter in Q1. In brand marketing services, we've established a rich brand marketing metrics and customized solutions for our clients. By leveraging our superior content, precise demographics, targeting, and efficient conversion, we help clients achieve their marketing goals of improving brand awareness and sales conversion. As a result, we have successfully attracted customers budgets from a wider range of brand clients, and the number of brand marketing clients during the 2024 Chinese New Year soared by more than 120% year-over-year. The blockbusters from Kuaishou Astro Short Plays delivered highly effective exposure and targeted demographics reach for brands like Tmall.com and Honor Smartphones, among others. We upgraded our marketing solutions, integrating brand awareness, operational marketing, and sales conversion for clients, in the automotive industry, aiming to a more efficient brand marketing and lead operation. Recently, we collaborated with Dongfeng Nissan to attract traffic using celebrity IPs and KOL recommendations. Our auto dealer network on the platform then engaged with this traffic, converting it into sales. This resulted in nearly 800 million views for the brand-related content, achieving omni-domain operations for the launch of new vehicle models. Third, our e-commerce business. In Q1, we enhanced buyer conversion efficiency by our refining operations, further enriching merchandise offerings, and expanding e-commerce scenarios. As a result, our e-commerce GMB grew by 28.8% year-over-year to R288.1 billion. On the user front, our e-commerce monthly active paying users grew by 22.4% to R126 million in Q1, mainly due to the expanding shopping scenarios like shelf-based and short-video e-commerce and the ongoing upgrade of marketing tools and features. We also reinforced policy guidance to enhance the end-to-end experience for consumers during and after sales. These policies, including speedy refund and proactive service takeover by platform, greatly improved the overall customer experience. During the Chinese New Year promotion, the number of paying users surged by over 60% compared with the last few years. On the supply side, the number of monthly active merchants grew by nearly 70% year-over-year in Q1, mainly due to the sustained activity level of newly onboarded merchants. We greatly optimized our policies to attract merchants and augmented marketing capabilities to cover a diverse range of supplier types, from brands and large merchants to small and medium-sized merchants. Consequently, the number of newly Onboarded monthly active merchants continue to grow with a high speed year-over-year in Q1. For small and medium-sized merchants, we rolled out generous incentives for new merchants under the gold-bound policy, supporting their co-start with initiatives for deposits, traffic generation, distribution, and training. The improved incubation and educational resources have equipped merchants to scale up their business on our platform. We maintained strong growth among branded merchants in Q1. During the Chinese New Year promotion, brand GMV surged by over 70% compared with last year. Brand merchants significantly increased their focus on both short videos and shelf-based e-commerce. In Q1, brand GMV leaped by more than 110% in short video segment and over 80% in shelf-based segment year-over-year. Across verticals like consumer electronics and home appliances, men's apparel and sports and gems and jewelry contributed relatively high growth rates. We encourage new small and medium-sized companies KOLs to collaborate with brands in live streaming through the Supermona initiative. We also provided additional marketing tools for large-scale live streaming to assist leading KOLs in making breakthroughs. For KOL distribution, we recommended high-quality merchandise to KOLs and helped small and medium-sized KOLs to select merchandise via external coordinators. This strategy strengthens our platform's matching capabilities greatly in our streamers' willingness to host live streaming sessions and amplify their commercial contributions. in short video and other e-commerce scenarios. Our shelf-based e-commerce continued its strong growth in Q1. Shelf-based e-commerce GMV outpaced the overall platform growth, accounting for a promising 25% of total GMV. We achieved remarkable strides on both the supply and demand fronts, with more than 50% and 60% of year-over-year increases in average daily active merchants and average daily paying users, respectively, in Q1. We also further enhanced the merchandise infrastructure, enriched merchandise offerings and improved the price management system. These efforts enable us to fulfill core user groups' needs in key categories such as fresh produce, food, personal care, and daily necessities. Meanwhile, our short video e-commerce GMV maintained its rapid growth in Q1, nearly doubling year-over-year. Within short video e-commerce, monthly and daily active paying users continue to rise, supported by consistently enriched content offerings. For example, the order volume of our shopping mall during the Chinese New Year promotion soared by 98% compared with the last year, with impressive performances across short video search-induced and shelf-based e-commerce. GMV from short video embedded shopping link search-induced e-commerce and shelf-based e-commerce surged by 345%, 164%, and 383% respectively compared with the last year. These stellar results highlighted how our new engine of live streaming and shelf-based e-commerce have been unlocking has been unlocked, you know, more new business opportunity for merchants. Next, regarding our live streaming businesses, in Q1, we continued to build a healthy live stream ecosystem, laying a solid foundation for long-term and sustainable growth. We strongly supported a mid-tier streamers improving their activity and quality through online training, offline lectures, and streamer tasks. This approach accelerated a new streamer's growth and incentivized talent agencies to drive their evidence. We also continue to promote emerging categories such as multi-host live streaming and grand stage, iterating product features and reaching our live streaming ecosystem. By the end of Q1, we had partnered with 50% of more talent agencies and grown the number of talent agency-managed streamers on Kuaishou by 50% year-over-year. In addition, as examples of our live streaming plus services empowering traditional industries, Kuaishou launched the New Year job fair in Q1 to address job-seeking and recruitment needs following the Chinese New Year. The event featured various online activities hosted by KOLs and well-known enterprises. In Q1, daily average number of resume submissions soared by over 180% and the daily average number of users submitting resumes increased by over 120% both on a year-over-year basis. Additionally, by the end of Q1, IDU Housing expanded its reach to over 100 cities nationwide and established partnerships with over 50,000 streamers. Finally, regarding our overseas business progress, We've established differentiated advantages in key overseas markets by effectively expanding our user base and implementing a robust localization strategy. With a focus on localized original content generation, we rapidly grow our content supply by optimizing our platform's traffic mechanism and diversifying creators' income sources. We capitalize on events like Brazilian Carnival and Brazil's largest reality show, BBB24, among others, to consistently increase user activities. These initiatives helped to fortify Kuwait's bearing awareness and recognition, laying the groundwork for enhancing monetization. As one of the BBB sponsors, Kuwait created related topics on social media specifically for BBB. By the time the show ended on April 16th, it had attracted 14 billion cumulative views. In Q1, DAUs in our key markets grew rapidly, with average daily time spent per DAU improving both year-on-year and quarter-of-quarter. Notably, DAUs in Brazil rose by 13% year-over-year, and the average daily time spent per DAU exceeded 75 minutes. As a result, revenue from overseas business reached R191 million, being Q1, up 193.2% year-over-year. As we continued to boost operating efficiency, we successfully narrowed our overseas operating loss by 67.4% year-over-year, with operating loss also reduced quarter-over-quarter. In terms of overseas online marketing services, we continuously refine our localized marketing capabilities and enhance our product ecosystem. These efforts have further improved advertisers' marketing efficiency and placement stability. Additionally, we focus on developing platform credibility, service quality, and creativity. By leveraging marketing opportunities from events such as the Brazilian Carnival, we've also boosted both brand awareness and sales conversion for international and Chinese brands operating overseas. In Q1, marketing revenue from overseas business surged by nearly threefold year-over-year, During the Brazilian Carnival, CAI helped Chinese smartphone brand Realme create a blockbuster marketing campaign through diversified creative solutions, leading to a total of 95.6 million exposures. This successful event shaped Realme's brand awareness and product reputation in the Brazilian market. CAI also developed a detailed user profile analysis for Realme, providing valuable data points for the brand's ongoing expansion efforts in Brazil and targeted promotional strategies and long-term operations. To sum up the business model and the future potential of short video combined with the live streaming continues to be where we see one of the greatest opportunities for our business. We are also committed to building healthier and more sustainable community content and commercial ecosystem, investing in AI technology and empowering more business scenarios. Dedicating our resources to those areas will help us elevate users' content consumption experience and deliver augmented value to our users, providing more possibilities for quality and efficient improvements for merchants and marketing clients in the ecosystem. This concludes my prepared remarks. Next, you will hear from our CEO, Mr. Jinbin, who will discuss the company's financial performance for Q1. Thank you, Yixiao, and hello, everyone. In the first quarter, we actively navigated the market challenges adhering to the strategy of high-quality, efficient business growth. By integrating technology and boosting efficiency, we reinforced our core strengths. Our sustainable strategies across all of our business are well-educated, showing a healthy and robust financial position that marks a strong start to the year. Our focus on the user growth and efficiency and equality coupled with significant enhancements in technology and premium content quality has laid a solid foundation for the sustainable monetization and profitability. Our adjusted net profit reached 4.39 billion RMB in Q1, with an adjusted net profit margin close to 15%, showing a substantial increase in profitability. Now let's have a closer look at our financial performance for Q1. Our group's revenue grew by 16.6% a year to 29.4 billion RMB, mainly driven by growth in our online marketing services and e-commerce business. Online marketing services revenue increased by 27.4% to 16.7 billion RMB from 13.1 billion in Q1 last year and accounted for 56.6% of total revenues. This growth was mainly driven by more online marketing clients, higher spending, particularly from e-commerce merchants. Adoption of our smart marketing solutions and enhanced capabilities, our Omni platform marketing products further fueled this growth. Gradual recovery in the macro economy and consumer market also promoted advertisers' budget allocation. Leveraging our AI and LLM model capabilities, we have been able to deeply tap into users' needs, boosting marketing budget allocation opportunities. and conversion efficiency. Other services' revenue grew by 47.6% to 4.2 billion RMB from 2.8 billion RMB in Q1 last year, mainly driven by the continuous increase in e-commerce GMV, which boosted e-commerce commission income. We enriched our diverse shopping scenarios, expanded high-quality content offerings, upgraded marketing tools, and optimized platform policies. These efforts greatly improved the consumer experience and buyer conversion efficiency. leading to a rapid growth in monthly active merchants and monthly active paying users, driving 28.2% year-over-year increase in e-commerce GMV. Our live streaming revenue was 8.6 billion RMB, a decrease of 8% from 9.3 billion RMB in Q1 last year. Despite industry challenges, we continue to innovate live streaming scenarios, promote emerging categories, deepen our focus on high-quality content, to foster a sustainable and healthy live streaming ecosystem. In Q1, our cost of revenues decreased by 1.6% to 13.3 billion RMB and accounted for 45.2% of total revenues, mainly due to technology upgrades such as optimizing the structure of bandwidth resources, which cut down on both bandwidth expenses and the server custody costs year-over-year. Gross profit grew by 37.6% a year over year to 16.1 billion RMB. And our gross profit margin improved to 54.8%, expanding by 8.4% and 1.7% points year over year and quarter over quarter, respectively. Moving to expenses, selling and marketing expenses increased by 7.6% a year over year to 9.4 billion, accounting for 31.9% of total revenues, down from 34.6% in Q1 last year. The year-over-year growth was mainly due to increased spending on business promotions, including e-commerce business, etc. R&D expenses were 2.8 billion RMB, decreasing by 2.6 year-over-year. R&D accounted for 9.7 of total revenues, dropping from 11.6 in Q1 last year. Administrative expenses decreased by 40%. 9.7% year-over-year to 462 million RMB, accounting for 1.6% of total revenues, down from 3.6% in the same period last year. The decrease in R&D and administrative expenses was mainly due to lower employee benefit expenses, including related share-based compensation expenses. Group-level net profit for Q1 rose to 4.1 billion RMB, a significant improvement from a net loss of 876 million RMB in Q1 last year. Group-level adjusted net profit rose to 4.4 billion RMB, a considerable leap from 42 million RMB in Q1 last year. Our balance sheet remains robust with cash and cash equivalents, time deposits, restricted cash, and wealth management products of 63.7 billion RMB as of March 31st. Through our enhanced monetization capabilities and efficient working capital management, we generated a positive operating net cash flow of $5.8 billion in Q1. Looking ahead, we are committed to optimizing the balance between our traffic ecosystem and monetization strategies to cultivate a healthy and sustainable ecosystem for users and merchants. We'll continue improving efficiency and maximizing ROI as our revenues expand. Leveraging our advantages in technology and innovation, we aim to unlock more monetization potential and create long-term value for our shareholders and partners. This concludes our prepared remarks. Operator, please now open the call for questions.

We will now begin the question and answer session. To ask a question, please press star 1 on your telephone keypad. To answer a question, please press star 2. Please ask your question in Chinese first and repeat your question again in English. 我们现在进入问答环节。 第一道问题来自于Goldman Sachs的Lincoln Kong. Your first question comes from Lincoln Kong of Goldman Sachs. 请提问。

Thank you, Mr. Guan, for accepting my question. Congratulations to Mr. Guan for achieving a very strong performance in the first quarter. My question is about e-commerce. Could you please share with us the latest progress in e-commerce business? 我们最近要推出快手优选这个托管模式的一些考虑。 我自己翻译一下。 So thank you, management, for taking my question, and congrats on a very strong first quarter result. So my question is around the e-commerce business. Can management share the progress of our e-commerce shopping mall business? And any more thoughts around the launching of a快手 select, the sales hosting model here? Thank you. 今天的问题啊,