Kuaishou Technology B

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology fourth quarter and full year 2022 financial results conference call. Please note that the 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 fourth quarter and four-year 2022 financial results conference call. Joining us today are Mr. Chen Yixiao, co-founder, executive director, and CEO, and Mr. Jinping, chief financial officer. Before we start, we would like to remind you that today's discussion may contain forward-looking statements. which involve a number of risks and uncertainties, better results, and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update any forelooking information except as required by law. And also, please refer to the information announced on our website as of the 31st of December of 2022. And also, during today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. And also, for a definition of non-IFRS financial measures and the reconciliation of IFRS to non-IFRS financial results, please refer to our results announcement for the fourth quarter and four-year report ended December 31st of 2022, issued earlier today. So for today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remark session and conceptive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in the original language will prevail. And also, for all the currency mentioned, it's in renminbi. Now I'll give the call to Yixiao. Hello, everyone. Welcome to Kuaishou's fourth quarter and full year 2022 earnings conference call. In 2022, amidst the challenging macro environment, we remain steadfast in our commitment to elevate an inclusive and diverse user and content ecosystem. With extensive video-lized scenarios and the mindset of embrace all lifestyles, our platform has attracted a broad user base. Average DAUs on Kuaishou have paid a record high of $366.2 million, We also continue to connect our dynamic community with our partners, including advertisers and merchants, to optimize their experience and financial returns on our platform while creating more monetization levers for our company. As a result, our total revenue increased by 16.2% to 94.18 billion RMB. In addition, we upgraded our organizational capabilities to set a foundation for even more integrated commercial ecosystem in order to further unleash the monetization potential of our integrated public and private domain. Today, our user, content, and commercial ecosystem are increasingly vibrant and mutually reinforcing, with trust at the core, thereby maximizing the flywheel effect of our platform. Next, I'll discuss our key business developments in the fourth quarter. First, User growth and ecosystem construction. In the fourth quarter of 2022, we continue to improve our user acquisition efficiency by upgrading our user growth strategy. We also further enrich our creative ecosystem and strengthen the supply of high-quality content through our in-house algorithm-based learning system targeted at different user groups. We also statistically optimize our operation metrics, such as user time span and interactions, and improve user retention. Average DAUs and MAUs on Kuaishou App both hit record highs in the fourth quarter of 2022, reaching $266.2 million and $640 million, respectively, representing year-on-year increases of 13.3% and 10.7%, respectively. In addition, the average daily time span per DAU on Kuaishou App increased by 12.6% year-over-year to 133.9 minutes, The steady growth in our user traffic demonstrates the strong appeal of our short video and live streaming community. Kuaizhou has become a one-step platform for more users to find useful and interesting short video and live streaming content and to obtain services. With a look back to our user growth strategy, we'll continue to refine our personalized subsidy strategy and optimize user retention efficiency through algorithms. In addition, we have been actively exploring user acquisition opportunities by leveraging more high quality native short videos and live streaming content. As we drive the growth of high quality users, The vitality of Kuaishou's community has also been continuously increasing. By the end of 2022, ads of mutual followers on Kuaishou app reached a curative 26.7 billion, increasing by 63.4% year-over-year. In addition, in the fourth quarter of 2022, average daily short video interactions increased by more than 50% year-over-year. In the fourth quarter of 2022, with a sound, creative ecosystem as our foundation, we continue to enrich our content supply across various verticals, Specifically, we further strengthened our leadership in the short play segment by the end of 2022. Project Estro produced over 100 short plays, each of which had achieved a cumulative streaming volume of over 100 million as of December 31st of 2022. In addition to ensuring the supply of high-quality short plays, we are actively striving to commercialize our short plays by advertising, e-commerce, and paid viewship to build a sustainable wing-wing ecosystem for creators and our platform. In the fourth quarter of 2022, revenue from the brand's sponsorship in the project has dropped more than double year-over-year, and the number of short-play creators earning income through e-commerce grew by nearly 35% year-over-year. With regard to knowledge-based content, we created a quiet show, New Knowledge, a pan-knowledge IP currently covering more than 10 fields such as education, humanities, art, and science. In the fourth quarter of 2022, the number of news uploads by professional media increased by more than 100% year over year, and the users who have been prompt to consume news on our platform by major events have gradually become our loyal users. Meanwhile, popular variety shows have also had a positive impact on the new user acquisition and fortified our brand image and the user's mindset. For example, the JHO online friend club held in the fourth quarter had over 11.29 million concurrent online users at its peak and received over 1.05 billion likes, making it a hot topic across the internet. We continuously and constantly optimize our search function in the fourth quarter of 2020 400 million users of quite show app use question search every month on average and the average number of daily searches nearly double year-over-year our efforts to establish users search mindset not only provide more user insights for us and more accurate content solutions for users but also add incremental room for the development of our online marketing and e-commerce services second online marketing services in 2022 we face challenges from slowdown in the macro economy and the online advertising market as consumption recovered after the pandemic control policies was adjusted in December, Kuaishou outperformed the industry in growth by virtue of our continuously growing traffic advantages, our rich product portfolio, and our enhanced organization efficiency. In the fourth quarter of 2022, revenue from online marketing services increased by 14% year-over-year to 15.09 billion RMB, accounting for 53.4% of our total revenue. In addition, we provided advertisers with comprehensive industry solutions and elevated their performance and conversion efficiency through refined operations algorithms and products with in-depth integration of industry attributes. With a focus on holistic health of our advertising ecosystem, we promoted advertiser growth via various channels and through proactive industrial-specific support policies and other measures. The number of advertisers maintained high year-over-year growth in the fourth quarter. And also, we can see that the main growth driver of our online advertising revenue in the fourth quarter was our native e-commerce advertising. As the macroeconomy and consumption gradually recovered, fueled by various e-commerce promotions in the fourth quarter, revenue from our e-commerce merchants continued to grow at a happier pace, particularly in the FMCG food and beverage industries. We also improve advertising conversion through a dual strategy employing both short video and live streaming, which boosted short video's contribution to our online marketing revenue. In addition, the advancement we made in our original content programs allowed us to tap further into the organic traffic pool. This helped native e-commerce advertisers enhance traffic efficiency across public and private domains and realize long-term operational targets. With regards to brand advertising, we increased our brand advertising inventory and optimized our sell-through rates by leveraging key promotions and our marketing programs in the fourth quarter. We also boosted this result by continuous iteration of brand products. During the Double 11 sales promotion, we teamed with Henan TV to organize the China Chic Ceremony Evening Gala, which we customized our advertisers' needs. Through characteristics, content planning, and co-creations with KOLs, we achieved high-quality content dissemination with realizing commercial values. Advertisers have further recognized the value of promoting brands on a quite short platform, driving an over 20% year-over-year increase in our brand advertising revenue in the fourth quarter of 2022. Third, our e-commerce business. To foster long-term trust among customers and merchants on our platform, we have taken various initiatives, including building merchandising for structure and enhancing our ecosystem governance. These efforts are intended to develop a worry-free, trust-based community for merchants and consumers. In the fourth quarter of 2022, disruptions in the merchandise supply and fulfill costs by pandemic challenge the traditional e-commerce peak season. We responded swiftly to ensure logistic capacity and availability of e-commerce streamers. These actions, coupled with algorithm-based, are minimizing the pandemic impact on our user experience. As a result, our e-commerce GMV maintained fast growth in the fourth quarter of 2022, up 30% year-over-year, successfully taking our four-year GMV beyond our 900 billion RMB target. On the supply side, we focus on long-term initiatives, including merchant operations, branding, and merchandise infrastructure. We continue to onboard new merchants with an emphasis on growing the number of high-quality active merchants by adopting classified and more precise promotional policies. We upgraded our service provider team to our merchant development department by integrating the capacities of service providers, products, and also our traffic capabilities to provide a one-stop service for merchants, especially high potential medium to small merchants that they need support, helping them to make a smooth transition from co-starts to sales ramp up. We're going to need to refine products and operating strategies, updating the store, scores system based on merchandise quality, logistics, timeliness, and service competencies to better identify high-quality merchants to trap the support adopted more refined tiered operations. Furthermore, we can use strength in relationship modeling between long-term high-value users and merchants through algorithms, which then hopefully contributed the increase in our overall GMB. At the same time, we further improve the accuracy of merchandise recognition and matching and live streaming GPM of public domain traffic. In the fourth quarter of 2020, we continue to maintain a rapid year-on-year growth. As a result, the number of monthly active merchants grew by over 50% year-over-year in the fourth quarter of 2022, while the average monthly unit store sales of heading merchants increased by double-digits year-over-year. In 2022, we achieved strong progress in the brand e-commerce in the fourth quarter, on the back of grand sales promotions during the period, Leveraging high-quality private domain traffic and trust-based private domain traffic in our dual-engine model, we established an end-to-end path from recommendation to transaction, driving consistent growth in our brand GMB, overall brand GMB, including quiet brands, group at an accelerated pace, quarter over quarter, and shared of a total GMB, GMB, total e-commerce GMB expanded further to almost 30% in the fourth quarter of 2022. For Quiet Brands, we focus on the development and launch of the SuperQuiet Brands event to increase brand exposure and reinforce brand awareness through the integrated online and offline activities. As a result, Quiet Brands delivered GMB growth above 80% year-over-year during the November 6th round promotions. We also set up a disqualification system for lower performers to make Quiet Brands able to continue to provide high-quality products and services. As a result, white brands achieved better results in this return and repeat purchase rate compared with their overall platform. For more established brand merchants, we fully harnessed the high-quality KOL resources and helped refine their product and content operations to better cater to our ecosystem and users. This fostered more cluster products and facilitated deeper connections with our brand followers. In the fourth quarter, levering the various promotions, we strengthened the closed loop from user acquisition to order replacement and repeated purchase, all together resulting in Merge in the brand's share of voice and shadow sales and fourth quarter of 2022 the number of brands with sales above 100 million may be increased by over 50% a year and more brands have adopted quite as the main platform for operations with growing recognition of a user value and unique e-commerce ecosystem. In 2022, the number of brand merchants maintained rapid growth and more than 19 of famous brands were active merchants. in fourth quarter of 2022. To further strengthen our e-commerce merchandising capabilities, we continue to increase the accuracy, diversity, and coverage of product labels, gaining deeper insights into merchandise prices and brand attributes and transaction trends. At the same time, we profile good merchandise for quite short users, based on users' needs before, during, and after sales. We continuously optimize the system from the moment of merchandise landed on platform, providing relevant, reliable, and high-quality information to whatever user's shopping experience. We also incorporated merchandise characteristics into our algorithm-based recognition system to enhance user and merchandise matching efficiency and users' product awareness, further fortifying the shopping mentality. On the consumption side, we continue to improve user conversion efficiency by refining our user operation strategies and constantly optimizing our smart subsidy promotion. In these efforts, we benefited from our efficient identification of potential consumers. In the fourth quarter of 2022, monthly active e-commerce paying users further increased year-over-year and quarter-over-quarter, representing a penetration rate of high double digits. Monthly purchase frequency also improved quarter-over-quarter, while average order value expanded year-over-year and quarter-over-quarter. Moreover, our user review system gradually matured in the fourth quarter of 2022. By monitoring order-specific recommendation scores, we collaborated with the merchants to address those issues or user issues in a timely manner, sequentially improving our platform over recommendation score during November 6th grant promotions and New Year Day promotions. With increased weight of user satisfaction metrics and algorithms, we constantly decrease negative merchandise feedback and also customer complaint rates, demonstrating notable improvement in e-commerce shopping experience with us. In addition, upholding the standard of reliable quality and worry-free after-sales service, We have rolled out over 20 consumer rights and interest protection services on our platform. Meanwhile, our coverage of e-commerce orders with trusted purchase rights grew by 460% compared with 2021. Next, regarding our live streaming business, in the fourth quarter of 2022, Live streaming revenue increased by 13.7% year-over-year to 10.03 billion RMB, reaching a quarterly high. Average MPUs for live streaming grew by 20.4% year-over-year to 58.4 million. Our efforts to consistently diversify our content offerings, optimize our live streaming ecosystem, and iterate our algorithms propel these achievements. On a supply side, We continue to strengthen our operation with top talent agencies and streamers while attracting more high-quality streamers to join our platform. We also launched a recruitment policy to sign up top-notch streamers and promote the development of live streaming as a professional. We have attached increasing importance to the healthy and sustainable development of our live streaming ecosystem. To enrich high-quality live streaming content by applying various verticals on our platform, we arranged vertical programs in folk music, opera, and dance in our annual live streaming ceremony. Through the top 100 streamer selection, we encourage leading streamers from all walks of life to continue providing users with high-quality live streaming content. We also screwed up traffic support to accelerate growth and improve the retention of new streamers while guiding the traditional KOLs to further enhance content quality. Through refined recommendations and algorithms, We improved the conversion of users' rewarding behavior in the public domain based on the generalized modeling of users' gifting interests, growing our public domain live streaming revenue by over 150% year-over-year in the fourth quarter of 2022. In addition, we make continuous efforts to expand live streaming usage scenarios and build associated infrastructure to better satisfy users' and business partners' needs. In the fourth quarter of 2022, the average daily resume submissions, some quite higher, doubled compared with the first quarter of 2022. Meanwhile, cumulative transaction volume on ideal housing exceeded $10 billion just half a year after its launch. Finally, in terms of our overseas business progress, In the fall quarter of 2020, we continue to focus on developing our market presence in key countries, optimizing resource allocation, and elevating operation efficiency. These efforts help us further improve the bottom line of our overseas business. In addition of improving the customer acquisition costs across all channels, our overseas user base achieved healthy, steady growth. Through rich, constructive content offerings, we built the mindset for consuming news on our platform as a short place and other content verticals in which we excel. Moreover, we kept upgrading our products and algorithms to further strengthen user engagement, with average daily time spent per QU grew to over 65 minutes in our overseas markets in the fourth quarter. We also steadily improved our commercial ecosystem and enhanced our monetization capabilities, leading to rapid revenue expansion in overseas markets. On the advertising front, we constantly created success cases and expanded our advertiser base. Through refined customer operations, we empower advertisers to broaden their brand influence and achieve more growth upside with enhanced marketing and campaigns. In terms of live streaming, we onboarded more streamers and talent agencies. which enriched our content offerings and deepened our live streaming penetration. Meanwhile, we continue to grow our live streaming revenue via refined operations and diverse entertainment activities. Additionally, we have been actively exploring e-commerce opportunities in overseas markets. Looking ahead, we will continue making strides in our content infrastructure algorithms, user scenarios, and also the multiple growth engines of our business. These efforts will be in tandem with optimizing our cost structure and improving our operation efficiency. We are confident our efforts to create value for all our ecosystem participants and our inclusive and balanced traffic distribution strategy will draw in more users, creative talent, advertisers, and e-commerce merchants to our platform. As such, taking our unique trust-based user live streaming and short video content communities and our commercial ecosystem to new highs. This concludes my prepared remarks. Thank you. Next, our CFO, Mr. Jin Bin, will discuss companies' financial performance for the fourth quarter and full year of 2022. Thank you, Risha, and hello, everyone. Our solid fourth quarter performance capped a year of significant business progress against challenges in quite short. In 2022, we achieved high-quality growth in our user scale and content ecosystem, and strive to further enhance our monetization capabilities enabling us to deliver increasing value to our users, content creators, and business partners. For the full year of 2022, our group's total revenues reached 94.2 billion RMB, up 16.2% year-over-year. At the same time, we realized significant increase of operating efficiency leading to continuous improvement in our financial performance. For the full year of 2022, the operating profit of our domestic business and our adjusted EBITDA at the group level both turned positive. In addition, the operating loss of our overseas business in 2022 narrowed by 44.7% year-over-year, driven by our RA-oriented global strategy. Next, let's walk you through our performance for the fourth quarter of 2022 in details. In the fourth quarter of 2022, our group revenues increased 15.8% year-over-year and 22.3% quarter-over-quarter to R28.3 billion. This increase was primarily driven by growth of online marketing services and other e-commerce business, which is included in other services. Our online marketing services demonstrated strong resilience. In the fourth quarter of 2022, its revenue reached 15.09 billion RMB, representing an increase of 14% year-over-year and 30.2% quarter-over-quarter. Our comprehensive industry solutions and our dual content strategy employing short video and live streaming delivered strong results in facilitating advertiser-consumer connections and ad conversion. This, coupled with our vast and continuously growing traffic, have attracted increasingly more advertisers. The robust growth of our native e-commerce and brand advertising also played an integral part in defending our relatively rapid growth in an uncertain market. Other services revenue from the fourth quarter of 2022 increased by 37.7% year-over-year and 22.1% quarter-over-quarter to 3.16 billion RMB, mainly due to the strong growth in e-commerce revenues. As we build out our merchandising infrastructure and enhance our ecosystem governance to further differentiate our trust-based e-commerce model, our e-commerce GMV reached 312.4 billion RMB in the fourth quarter of 2022, increasing 30% year-over-year despite the supply chain logistics disruptions caused by the pandemic. Our four-year e-commerce GMV was 901.2 billion RMB, representing an increase of 32.5% year-over-year and demonstrating the further market share expansion of our e-commerce business. Revenue from our live-streaming business market, a new quarterly record in the fourth quarter of 2022, reaching $10.03 billion, up 13.7% year-on-year and 12.2% quarter-to-quarter. This is primarily attributable to the continuous enrichment of our high-quality content and expansion of contextualized live-streaming user scenarios on our platform, all of which inspire more user-gifting behaviors. During the fourth quarter, average MPUs on our live-streaming business increased by 20.4% year-over-year, amounting to $58.4 million. Our cost of revenues for the fourth quarter of 2022 increased by 7.9% year-over-year to 15.4 billion RMB, representing 54.5% of the total revenues. This increase was due to the increase in revenue sharing costs and related taxes in line with our revenue growth. This was partially offset by the decrease in employee benefit expenses and the appreciation of the poverty and equipment of right of use of assets and amortization of intangible assets. Our group's gross profit in the fourth quarter of 2022 reached 12.9 billion RMB, growing 26.9% year-over-year, representing a profit margin of 45.5%, expanding 4 percentage points from 41.5% in the fourth quarter of 2021. This benefited from our optimized revenue mix and improved cost management. Setting and marketing expenses were 9.7 billion RMB for the fourth quarter of 2022, representing a 4.8% year-over-year decrease, This decrease of selling and marketing expenses was primarily due to our more efficient and disciplined spending on user acquisition and retention. Selling and marketing expenses as percentage of total revenues decreased from 41.9% in the fourth quarter of 2021 to 34.4% this quarter. Administrative expenses for the fourth quarter of 2022 increased by 12.5% year-over-year to $1 billion, primarily due to an increase in the employee benefits expenses, including the related share-based compensation expenses. The fourth quarter administrative expenses represented 3.7% of the total revenues, roughly in line with the fourth quarter of 2021. Research and development expenses were 3.4 billion RMB for the fourth quarter of 2022, decreasing by 14.2% year-over-year, primarily due to the decrease in employee benefit expenses, including related share-based compensation expenses. Our R&D expenses represented 12.2% of our total revenues in the quarter, down from 15.3% in the previous quarter, and 16.4% in the fourth quarter of 2021. Our group's operating loss narrowed to 1.2 billion RMB in the fourth quarter of 2022, improving substantially from the loss of 2.6 billion RMB in the third quarter of 2022 and 5.8 billion RMB in the fourth quarter of 2021, as we achieved an operating profit of 1.3 billion RMB at our domestic business and a significant loss reduction overseas market. Operation margin expanded by 19.3 percentage points year-over-year and 6.9 percentage points quarter-over-quarter to negative 4.4% in the quarter, from negative 23.7% in the fourth quarter of 2021 and negative 11.3% in the prior quarter. Our group's adjusted net loss also narrowed significantly to 45.3 million RMB for the fourth quarter of 2022 and from 671.9 million RMB in the third quarter and 3.6 billion RMB in the prior year period. And our adjusted net margin improved 2.7 percentage points quarter over quarter and 14.4 percentage points year over year. Our balance sheet remained healthy with cash and cash equivalents, time deposits, restricted cash and wealth management products of 44.7 billion RMB as of December 31st, 2022. Thanks to our multiple monetization revenues and efficient working capital management, we generated positive operation Nash cash flow of 2.2 billion RMB for the full year of 2022. Let me briefly review our performance for the full fiscal year of 2022. For the full year 2022, our group's total revenues reached 94.18 billion RMB, up 16.2% year-over-year, These included online marketing services revenue 49.04 billion RMB, increasing by 14.9% year-over-year. Revenue from live streaming business increased by 14.2% year-over-year to 35.39 billion RMB. Revenue from other services, including e-commerce business, reached a 9.75 billion RMB, representing an increase of 31.4% year-over-year. Gross profit margin expanded by 2.7 percentage points year-over-year to 44.7% in 2022. For the full year of 2022, our adjusted net loss was 5.75 billion RMB, significantly narrow from the loss of 18.85 billion RMB in 2021. Our adjusted net margin was negative 6.1%, improving by 17.2 percentage points year over year. Adjusted EBITDA turned positive and reached 1.81 billion RMB in 2022, compared to negative 12.95 billion RMB in 2021. In conclusion, As we weathered the external challenges in 2022, we took important steps to strengthen our infrastructure, monetization capabilities, and efficiency. We are now on our way to establishing more integrated user content and commercial ecosystems, which sets us on a stronger footing for our future business growth. Going forward, we will strive to further unlock the monetization potential across our business segments while continuing to scale our trust-based ecosystem. We'll also continue to try to operate efficiency improvement and cost reductions, aiming to deliver long-term sustainable profitability. This concludes our prepared remarks. Now we're open for questions, operator. Please go ahead.