This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Good day, ladies and gentlemen. Thank you for staying by. Welcome to Kuaishou Technology First Quarter 2023 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for the management prepared remarks. The English line will be in listen-only mode. And now, I will turn the call over to Mr. Matthew Zhao, VP of Capital Market Investor Relations at Kuaishou Technology. Thank you, Operator. Good evening and good morning to everyone. Welcome to our first Qualified Fundraiser Financial Results Conference call. Joining us today are Mr. Cheng Yi-Hsiao, Co-Founder, Executive Director, and CEO. Also, we have Mr. Jing Bing, 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. Actual 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, during today's call, we are going to also discuss the ESERPTION non-IFRS financial measures for comparison purposes only. for a definition of non-IFRS financial measures and a reconciliation of IFRS and to non-IFRS financial results, please refer to our results announcement for the first quarter ended March the 31st of 2023, issued earlier today. For today's call, management will use Chinese as main language. A third-party interpreter will provide simultaneous English interpretation in a prepared remark session and conceptive interpretation during the Q&A section. 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 as otherwise stated, for all the currency mentioned, we are talking about renminbi. Now, I'll hand the call over to Isha. Hello, everyone. Welcome to AcquireShows' first quarter 2023 earnings conference call. In the first quarter of 2023, we recorded group-level adjusted net profit for the first time since our listing, a significant breakthrough in our profitability. This milestone was achieved on the back of a strong first quarter performance driven by new records and user metrics, revenue growth, and operating efficiency improvements. In addition to healthy growth in the DAUs and MAUs, we continue to grow a number of content creators, advertisers, and merchants on our platform while promoting a more integrated commercialization and traffic ecosystem. We also made substantial progress with our store-wide ROI strategy in driving end-to-end sales funnel conversion for both our advertising and e-commerce businesses. As a result of these accomplishments, combined with macroeconomic tailwinds Our revenue growth accelerated across all three business segments in the first quarter of 2023 and outperformed their respective industries. Our effective initiatives to enhance monetization and operation efficiency while maintaining our pace of business growth played a pivotal role in our profitability turnaround, leading to adjusted net profit at the group level in the first quarter of 2023. Next, I'll discuss our key business developments in the first quarter. First, user growth and ecosystem construction. In the first quarter of 2023, we set a new record for the scale of our user community by calculating on growth opportunities from some seasonal festivals, including Chinese New Year. Average day use and MA use on the Kuaishou app reached 374.3 million and 654.4 million, representing year-to-year increase of 8.3% and 9.4% respectively. Average daily time span. Per DAU, on-question staff was 126.8 minutes, while total views on a short video and live streaming content increased by over 10% year-over-year, representing a higher growth rate and a total user spend. With a focus on both efficiency and quality of user growth, we lowered our user acquisition and retention costs in the first quarter of 2023 on both a quarter-over-quarter and year-over-year basis. This was the result of our refined management and technological tools, as well as the automated placement on original high-quality short play and short video and live streaming content. Meanwhile, we further advance our eye on user acquisition by growing the proportion of users with online and lifetime value. We reinforce the virtuous cycle of content supply and consumption by optimizing the content supply through our enhanced algorithm-based learning system targeting different user groups. We also continue to strengthen the social attributes and community vitality of our platform, key factors setting us apart from our competitors. By the end of the first quarter of 2023, pairs of mutual followers on Quasio averaged a community of 29.6%, representing a 56.6% year-over-year. The Chinese New Year period has always been an important window for user growth and brand promotion. During this year's Chinese New Year, combined with the content and interaction, we provide users with dual venues to celebrate New Year on Kuaishou. On the interaction side, we offer a variety of interesting interactive features and social games. In terms of content, we provide a diverse range of Spring Festival-related operator activities, including CCTV Spring Festival Gala, Kuaishou 101 and Night Fans Gala, online festival fairs, 1-2-3 Spring Hierarchy Party, and more. Among them, Kuaishou 101 Night Fans Gala, And our self-produced program attracted more than 270 million viewers and received over 520 million likes in the first round. We launched a total of 55 short plays produced by Project Astro during the 2023 winter break period. Among them, Don and So, accumulated 100 million viewers with a record-breaking 40 hours of its launch. Our high-quality short play content and growing brand awareness in this area have also been recognized by advertisers. In the first quarter of 2023, revenue from advertising sponsored by Project Astral's show play has increased by more than 300% year-over-year. In terms of pan-knowledge content, we continue to enrich our inclusive education program, Neurology Open Class. Under our pan-knowledge IP, questions on new knowledge, we have collaborated with top-notch institutions such as Tsinghua University and Peking University to offer courses covering a wide variety of fields, including history, science, and technology, economics, and finance, attracting close to 10 million viewers. We have also further refined the search function at our platform, which has led to stronger user habits on searching. In the first quarter of 2023, quite a search average monthly user exceeded 420 million, and number of daily searches on our platform peaked at more than 650 million. Meanwhile, we'd like to see continuous progress in the commercialization of our search function, as evidenced by doubling of search-generated e-commerce GMB year-over-year. That's what is over 50% year-over-year growth in the search advertising revenue in the first quarter of 2023. Second, online marketing services. In the first quarter, a considerable number of advertisers remain cautiously optimistic towards the recovery of macroeconomy and consumption plans in 2023, but through efforts to further strengthen our commercialization data infrastructure, optimize our product capabilities, and refine our industry-specific management strategies, advertising revenue growth gradually recover. Our revenue from online marketing service for the first quarter of 2023 grew by 15.1% year-over-year to reach $13.1 billion, accounting for 51.8% of our total revenue. The number of advertisers on the platform also continued to grow rapidly year-over-year and quarter-over-quarter in the first quarter of 2023. Advertising services provided our native e-commerce merchants maintain robust growth momentum propelled by the growth in e-commerce GMB on our platform. In the first quarter, we pioneered an industry-leading operating philosophy for strong wide ROI and completed pilot runs on certain brands' advertisers during the Valentine's Day and March 8th Women's Day Shopping Festival. These trials proved the capabilities of our store-wide ROI-based bidding system and validated its objectives in the end-to-end sales funnel conversion from brand promotion and from those ads, and ultimately to transactions. For our closed-loop advertising algorithms, we complete the end-to-end ROI production and productization plan, ensuring the alignment of the advertising e-commerce from traffic distribution and factory advertising into your omni-domain e-commerce traffic allegation algorithm. In addition, we launched a project of growing our small and medium-sized e-commerce merchant client base, in particular, within our client acquisition and marketing capabilities, upgrade our magnetic tolerance platform for e-commerce, marketing solutions on mobile devices to capitalize advertising needs, enhance penetration, and optimize our merchant ecosystem. In terms of our external advertising services, as most of our external clients are online businesses, the recoveries have left relatively to offline businesses. However, an encouraging graduate recovery plan began to take shape during the first quarter in the industry, such as information services, medical care, finance, and education, to explore advertisers' long-term goals, to empower our clients to achieve in-depth conversion of our target users. We're leveraging products and algorithms that are well integrated with industry attributes to promote discovery, accumulation, and user brand matching of high-quality user cohorts, and also build a post-click model. At the same time, we actively monitor the healthiness of external advertisements on our platform, ensuring the penetration of high-value users through our optimized traffic allocation mechanism. In addition, we have established review standards and systems for native advertisement materials to improve the quality of creative materials and reduce the negative impact on user experience and our ecosystem. These efforts, together with our organic and commercial traffic allocation mechanism to enhance conversion efficiency and ROI for advertisers, have propelled the growth of our external advertising services. With respect to brand advertising, we focus on strengthening our product capabilities. We established a rich advertising product portfolio, which included splash ads and sponsorships for our self-produced IPs that are on KOL's homepages and searches, further expanding our brand advertising scenarios and sources. Furthermore, we design and customize solutions for brand advertisers at various stages across different industries. We systematically establish user assets for brand advertisers and create an end-to-end conversion path, including integrating brand promotion, performance ads, and transaction, leading to increased recognition of our platform value from a growing number of brand advertisers. Driven by these initiatives and benefiting from key promotion events such as the Chinese New Year and March Day, Women's Day in the first quarter, our revenue from brand advertising increased over 20% year over year. Third, our e-commerce business. In the first quarter of 2023, we continue to strengthen our trust-based e-commerce ecosystem and execute our Omni domain operating strategy. We further stratify or satisfy our users' needs by enriching our mechanism, improving matching accuracy between buyers and sellers, and harness the high-quality streaming resources and e-commerce content, which in turn drove a yearly rate increase in GMB of 28.4% to 224.8 billion RMB. On the merchandise side, We continue to reinforce our merchandising capabilities, amplifying the exposure of more high-quality products for recommendations through product evaluation and rating based on a broader array of metrics. At the same time, we guide merchants to continue enhancing the product information quality and quantity as well as elevating their service capabilities. On the merchant side, we further upgraded the cooperative mechanism between merchants and KOLs. We facilitated more accurate product management for KOLs engaged in product distribution through a more refined tiered operation strategy, leading to an overall 50% year-on-year increase in GMB through the KOL distribution channel in this quarter. We expanded our commercial revenue generated from KOL distribution to continue contributing to incremental e-commerce revenue growth going forward. Moreover, by leveraging our stream initiative to build a bridge between merchants and KOLs, we have created a flywheel of merchandise and traffic driving increased both sides of our platform. With respect to onboarding and development on merchants, with that cooperation with more brand merchants across a growing range of industries, first quarter catering to our users' increasing needs and consumption of branded merchandise, leveraging our deep insights into users' consumption behavior, we carried out types of promotions leading to approximately 30% year-over-year increase in average number of brands on board that promote in the first quarter. Invite promotion events such as Super Brand Day, the growth rate of GMV from brands, including quiet brands, was much higher than the over platform, accounting about 30% of our total e-commerce GMB in the first quarter. We also facilitate brand self-operated live streaming through creative content format, such as press conferences, product launches, and live streaming by bosses to better cater to users' purchasing needs for brand merchandise. In the first quarter, GMV of our brand self-operated live-streaming group by approximately 70% year-over-year. Going forward, we aim to more brands expand their user base while achieving GMV ramp-up and sustainable operations. Additionally, we work with service providers to attract merchants in industrial zones and improve our merchant empowerment system. In the first quarter, we launched a gold rush initiative with the exclusive policy and traffic support. to house more medium-sized for merchants to grow. In March, a number of both monthly operated onboarded business merchants and monthly active business merchants increased by over 50% year-over-year. And for merchants with steady operations on Kuaishou, we leveraged promotion activities such as Spring Festival Goods Festival and Monthly Women's Day promotions to refine our subsidy strategies, optimize traffic allocation, and enhance conversion efficiency, thus fostering GMV scale-up for small and medium-sized businesses. On our user front, we're keen to refine our tiered operations for e-commerce business payer users. We cultivate the user mindset through recommendations and reinforce our conversion of new playing users and potential customers via smart subsidies, promotions, and traffic allocation adjustments. In the first quarter of 2023, new e-commerce paying users monthly purchased frequency increased continuously year-over-year and quarter-over-quarter, with retention rates improving every month. With respect to relatively less active paying users, we strengthened the identification and reactivation of users with the support experience. As for active paying users, we launched our early warning and targeted anti-churn strategies in the first quarter to provide better services to high-value users. In the first quarter, the number of monthly active e-commerce main users averaged over the price and monthly order frequency or increased the overview. Algorithm-wise, we mitigated the impact of e-commerce content on user time span by modeling the relationship between the e-commerce related user interaction and consumption times map. The optimized users e-commerce consumption experience leading to a more effective recommendations and conversion. Shelf-based e-commerce is another major realm in Kuaishou's opening domain e-commerce business strategy. In the first quarter, we started to test the new Shopping More entry button we placed on the landing page of Kuaishou to better meet the intended proven shopping needs of high active paying users. We aim to validate our Shopping More business model and cultivate user mindshare Through this access point, laying a solid foundation for full-scale launch of our shopping mall service in the future. Meanwhile, as we optimize our search function to better identify user intention, we improved the product relevance of search results leading to a doubling of GMB generated from the searches year-over-year in the first quarter. Next, regarding our live streaming business. In the first quarter of 2023, live streaming revenue grew by 18.8% year-over-year to 9.3 billion RMB, driven by year-over-year increases in both average NPUs and monthly ARPUs. Specifically, average MPUs increased by 6.4% year-over-year to 60.1 million, while monthly ARPU rose by double digits year-over-year. These achievements are as a result of the consistent improvement of live streaming content quality and optimization of user content matching efficiency through algorithm interactions. On the supply side, we focus on promoting the development of live streaming as a professional and also the continuous advanced or diverse cooperation with top talent agencies and streamers. In the first quarter, the number of active streamers from the talent agencies increased by over 140% year-over-year. We also provided private support to high-quality mid-level streamers to optimize the constituents of live streaming supply. At the same time, we continue to explore different live streaming categories, including knowledge base and virtual person live streaming, to bring out users to analysts for a few types of live streaming content. Our initiative, Live Streaming Plus, services made steady progress in the first quarter. We averaged daily resume submissions on quite high, rolling by over 300% year-over-year, and peak daily resume submission exceeded 500,000. As at the end of the first quarter, ideal housing covered more than 70 cities nationwide, with a cumulative growth transaction value surpassing 8 billion renminbi in the first quarter. In addition, QuietDate's matchmaking service facilitated over 100,000 voice chats in the live streaming rooms on average every day in the first quarter. Finally, in terms of overseas business progress, in the first quarter of 2023, we further deepened our key country-focused strategy to optimize resource allocation while establishing more agile collaboration to elevate the operational efficiency In core market regions such as Brazil and Indonesia, DAUs and yearly time spans continue to grow year-over-year and quarter-over-quarter. And revenue from overseas businesses grew at an accelerated pace to reach around 38 million RMB in the first quarter of 2023, increased by over six times year-over-year. Meanwhile, we continue to narrow our overall operating loss in overall markets by 45.1% over quarter in the first quarter as we further enhance operating efficiency and continue to reduce costs through an ROI-based investment approach in our overseas businesses. Our overseas live streaming business optimized its content supply by adding a vast area of talent agencies into a partner roster and energizing its existing talent agency partners to produce more and better streaming content. Meanwhile, a ramp up exploration in live streaming revenue products and roll out its new iterations of operating process. They need to study improvements in live streaming and paying user ratio in our pool. In addition, success being past the growth profit margin of live streaming business through a series of measures improving the top talent agency efficiency. Advertising front, Advertisements has achieved better than expected revenue growth thanks to its efforts to strengthen local operation capabilities. Expanding advertiser coverage, more industry sets optimized product portfolio and service capabilities. In addition, e-commerce service was launched in Brazil in the first quarter and test quarter and primarily verify their processes. Looking ahead to the rest of 2023, Weisha will continue to leverage technology to deliver high-quality experiences and services to our users and empower content creators, advertisers, and merchants, while at the same time unlocking monetization potential through our vast and vibrant ecosystems to ultimately create long-term value for our shareholders and stakeholders. This concludes my prepared remarks. Thank you. And our CFO, Mr. Jane Bing, will discuss companies' financial performance for the first quarter of 2023. Thank you, Weisha. We started the year of 2023 with remarkable performance and delivered a positive adjusted net profit at the group level in the first time of our listing. This milestone was a result of our persistent efforts in advancing integration of user content and commercialization ecosystem and our continued commitment to refining operation efficiency. Specifically, we achieved a healthy expansion of our user base, taking our average DAUs and MAUs to new record highs. At the same time, we continue to optimize our monetization models and enhance monetization efficiency to unlock the vast potential of our ecosystem, preparing solid revenue growth across our business segments. This, coupled with our effective cost control and efficiency enhancement measures, leading to an operating profit in our domestic business for both consecutive quarters and 55.4% reduction operating loss in overseas business year-over-year. Next, let me walk you through our performance for the first quarter of 2023 in detail. In the first quarter of 2023, our group revenue increased 19.7% year-over-year to 25.2 billion RMB, accelerating from 15.8% in the fourth quarter of 2022. This increase was driven by role-based strengths in all our main businesses, including online marketing services, live streaming, and other services, particularly the e-commerce business. Revenue from our online marketing services increased 15.1% year-over-year to 13.1 billion RMB in the first quarter, with strong performance in our closed-loop advertising and brand advertising services. This growth was driven by our efforts to further strengthen our data infrastructure to support commercialization, optimize our product capabilities, and refine our industry-specific management strategies. In the first quarter, revenue from a live streaming business grew by 18.8% year-over-year to 9.3 billion RMB. We continue to enrich content supply by deepening cooperation with the top talent agencies and expanding high-quality streamer base and constantly expand our live streaming usage scenarios and content categories to strengthen user engagement. Our average NPUs reached 16.1 million in the first quarter, while our monthly output also achieved double-digit year-over-year growth. On the other services, revenue surged 51.3% year-over-year in the first quarter, reaching $2.8 billion, primarily propelled by our strong e-commerce revenue growth. We continue to onboard and cultivate new merchants, bring forward our merchandising capabilities, and optimize our KOL operation strategy, which will help convert more of our users into active e-commerce paying users and increase their average order value and monthly order frequency, fostering a virtual cycle of merchant growth, KOL growth, and e-commerce user growth. As a result, our e-commerce GMV increased 28.4% year-over-year, reaching 224.8 billion RMB. and the year-over-year growth rate of e-commerce revenue outpays the overall revenue growth of other services. For the first quarter of 2023, our cost of revenues increased 9.9% year-over-year to 13.5 billion RMB, accounting for 53.6% of total revenues. This increase was attributable to the increase in revenue sharing costs and related taxes in line with our revenue growth. Growth profit for the first quarter of 2023 rose 33.4% year-over-year to 11.7 billion RMB. Of course, property margin also increased significantly year-over-year, expanding 4.7% points from 41.7% in the first quarter of 2022 to 46.4% this quarter as a result of our improved cost management. Moving to expenses. Selling and marketing expenses for the first quarter of 2023 decreased by 8.1% year-over-year to 8.7 billion RMB, primarily due to our efficient and disciplined spending on user acquisition and retention. Selling and marketing expenses as a percentage of total revenues also decreased from 45% in the first quarter of 2022 to 34.6% in this quarter. Research and development expenses for the first quarter decreased by 17.1% year-over-year to 2.9 billion RMB, primarily due to the decrease in employee benefit expenses, including related share-based compensation expenses. R&D expenses represented 11.6% of our total revenues in the first quarter, also down materially from 16.7% in the first quarter of 2022. Underestimated expenses increased by 5.5% year-over-year to reach 900 million RMB for the first quarter, primarily due to the increase in employee benefit expenses, including related share-based compensation expenses. As a percentage of total revenues, it decreased from 4.1% in the first quarter of 2022 to 3.6% in this quarter. In the first quarter of 2023, our group achieved adjusted net profit for the first time, which amounted to 42 million RMB, a turnaround of adjusted net loss of 45.3 million RMB in the fourth quarter of 2022, and 3.7 billion RMB in the same period of last year. Our balance sheet maintained a very healthy trend with cash and cash equivalent time deposits, restricted cash, and wealth management products of 44.8 billion RMB of March 31st of 2023. Our enhanced monetization capabilities and efficient working capital management empowered us to generate a positive operation net cash flow of 1.8 billion RMB for the first quarter of 2023. In summary, additionally, as you may have seen, we announced a share repurchase plan of HK$4 billion, which demonstrates the confidence of our board and the management of our company's long-term and sustainable growth potential. So overall in summary, we continue to prepare the high quality development of our ecosystem and strove to maximize value for our content advertising and e-commerce merchant partners. Looking ahead, we will remain focused on monetization efficiency gain across our business lines, which are built on foundation of ever improving user experience and user trust. This coupled with our ongoing focus on enhancing our cost efficiency positions as well to further improve our operating profitability while creating values for all the shareholders. This concludes prepared remarks. Now open for questions, operator. Please go ahead.
spk10: As a reminder, to ask a question, you need to press star 1 on your telephone. To remove your request, please press the pound or hash key. Please stand by while we compile the Q&A roster. 第一道问题来自Credit Suisse的Kenneth Fung. First question comes from the line of Kenneth Fung from Credit Suisse. Please go ahead.
spk11: 请提问。 Hi, 医教总,饼哥,Matthew,你们好。 谢谢接受我的提问,也恭喜一个非常强劲的业绩。 我一个问题是关于变相的。 Under the current competitive landscape, how should we think about the upside potential for our e-commerce business? Can management share some of the key drivers behind? Also, we'd appreciate some updates on the progress and status of the marketplace e-commerce business. Thank you.
spk09: Thank you for your question. According to the data recently released by the National Bureau of Statistics, this year, the net net sales of the entire country have increased by about 8.6%. The scale of the e-commerce industry is still growing. As a later stage, Thank you for your questions.
spk04: According to the recent MBS data, national-wide online retail sales grew by 8.6% year-over-year in the first quarter of this year, and the scale of the e-commerce industry continued to expand. As an up-and-comer with an advantageous position, In live streaming e-commerce, we are still growing rapidly. We are fully confident that we will continue to gain market share going forward.
spk09: to accurately promote and transform the high-quality products with competitive price. We encourage the merchants and people to not only achieve high efficiency through the content of short-time products, but also promote down-to-earth sales. Currently, short-time products' GNV ratio is at a low unit number level. In the future, it can still contribute a greater amount. In terms of brandization, remember that our brand products' GNV can be compared to a large-scale market. In the future, brands will use more precise deals, subsidies, and service policies to encourage business live broadcasts, and use high-quality human resources to expand the brand's volume to improve conversion efficiency. At the same time, our product range is also continuously rich, and the advantageous service range maintains a high growth rate, of which outdoor sports increase speed is relatively obvious. Fast-sale home digital GNV is temporarily increasing, Among them, home appliances and products with higher retail prices are growing faster. Although the growth rate of GNV is relatively small, the growth rate is very strong. This type of product, such as tea leaves, is nearly three times higher than the growth rate. It is mainly due to the deep excavation, operation, and efficient transformation of potential buyers in the industrial area. We are confident that we can also help more industry merchants achieve online sales.
spk04: As to the specific drivers of our growth, first, on the supply side, the constant enrichment of merchandising infrastructure, short video content, brand e-commerce, and different merchandise categories drives demand growth for our e-commerce business. We will improve our merchandising infrastructure to select competitively priced, high-quality merchandise for precise user targeting and conversion. We will also encourage merchants and KOLs to not only make effective recommendations through short video content, but also to promote order placement and transactions. At present, e-commerce GMV from show video recommendations accounts for a low single digit of total GMV of e-commerce, with considerable future upside potential. As for brand e-commerce, in the first quarter, brand GMV grew at a significantly faster pace on a year-over-year basis than our overall e-commerce GMV. Going forward, We will improve sales conversion through more precise marketing, subsidy, and support policies to encourage self-operated live streaming by merchants, while leveraging our high-quality KOL resources to expand brands' share of voice. At the same time, our merchandise categories have been growing. The apparel category, which we are in a advantageous position to maintain rapid growth, with a major increase in the sports and outdoor subcategories. GMV from FMCG home furnishings and 3C continue to increase as a percentage of total GMV, with products carrying a higher average order value, such as home appliances, growing at a notably faster rate. GMV from fresh produced plant and path products has also displayed a strong growth momentum. While it still accounts for a relatively small proportion overall impact, In fact, GMV of tea and other subcategories nearly tripled year over year. This is primarily due to our in-depth discovery and operation of high-quality merchants in industrial zones, as well as the efficient conversion of potential paying users. We are confident in our ability to help merchants from a wider range of industries achieve a quantum leap in their online sales.
spk09: Yarna. From the demand side, the flow rate, buyer penetration rate, and purchase frequency duration improvement are the main driving factors. As a high-quality content platform, our flow rate is still growing and creating new heights. Our effort is to continuously improve the quality and accuracy of e-commerce content, making e-commerce an important component of high-quality content, and increasing the flow rate of e-commerce platforms. With the advantage of high traffic flow, our e-commerce is more active and the buyer penetration rate is stabilized at about 15% in the first quarter, and there is still a greater room for improvement. As the market is more smooth, e-commerce business and content consumption are highly coordinated, algorithmic matching is more accurate, smart supplementation, and large-scale operation activities continue to release market power. We are confident in low-price goods.
spk04: Secondly, on the demand side, overall user traffic, rising paying user penetration and higher purchase frequency are the main growth drivers. As a platform with high-quality content, we continue to grow our user traffic to new highs. So the direction of our future efforts is to make e-commerce an integral part of our high-quality content ecosystem and raise the upside of our traffic growth through improvements in e-commerce content quality and matching accuracy. So far, the penetration rate of our monthly active e-commerce paying users has hovered around 15%, indicating considerable upside given our massive user traffic. We are further improving the path from product recommendation to transactions. and aligning content consumption with e-commerce needs and enhanced matching algorithm accuracy. Supported by these initiatives, as well as the momentum of our smart subsidy programs and the main app operation activities, we are confident that we can constantly enhance the conversion and retention efficiency of active e-commerce paying users with cost-effective goods, high-quality content, and customer-focused services. Taken together, These efforts will reinforce more users' e-commerce consumption habits on Kuaishou's platform, leading to further increases in purchase frequency.
spk09: Prosperity on both the supply and demand side of e-commerce can only be achieved through strong platform operation and governance. In the first quarter,
spk04: We basically finished upgrading our merchants' experience scoring system and our KOL's reputation scoring system, which are based on a comprehensive evaluation of merchandise and service quality, content, and user experience. These systems will allow us to better identify and support high-quality merchants, elevate users' overall shopping experience, and, together with our merchandise scores, help us further strengthen our trust-based e-commerce ecosystem in the future.
spk09: Regarding your second question, as the business infrastructure is gradually ripening, we are also continuously recommending our new mall services. In the first quarter, we opened up and tested the new mall services of the buyer's first business. In the second quarter, we will gradually increase the number of services and use a larger amount of GNV and high-capacity supply to do a good job of entering and improving efficiency for the mall. New malls help the platform to understand the shopping habits of active users and strengthen the shopping mindset of users. With the current situation, we will gradually test the first-class entry of commercial service in the future. In the selection and introduction of goods, we will use the existing goods and services on the platform to strengthen the infrastructure construction of long-term goods, goods, cards, and small businesses. At the same time, we will also use the social resources of goods to continue to introduce positive attacks. Currently, J&V has a turnover of more than 10%. Among them, guess what you like and search J&V. In the first quarter, the growth of the military supply line doubled. The more active the buyer is, the higher the penetration rate of the search is, up to 69%. It shows that fast-tracking users are increasingly mature in the fast-tracking platform. It is expected that this year's stock price gain will accelerate and will continue to improve.
spk04: And regarding your second question, as our merchandise infrastructure matures, we have been testing our new Shopping Mall service. In the first quarter, we opened testing of the Shopping Mall feature on buyers' homepages. We will gradually roll out access to this service in the second quarter on a larger scale and use the resulting GMV increase and growth momentum to propel supply-side enrichment, refine criteria for merchandise listings, and enhance its operating efficiency. The new shopping mall will also help us understand the shopping preferences of our active users and fortify users' shopping mindsets. With this as a home base for our e-commerce operations, we will progressively test level one access points for the shopping mall. With respect to merchandise selection and shelving, we will leverage our platform's existing merchandise pool and improve infrastructure such as unshelved goods and detailed merchandise information pages. Meanwhile, we will leverage all types of suppliers' resources to constantly bring in high-quality suppliers. Currently, Kuaishou's pen and shelf GMV accounts for over 10% of total GMV of e-commerce, of which GMV resulting from the Guess What You Like feature and searches both doubled in the first quarter. The penetration rate of our search function reached a high level of 69% among monthly active e-commerce paying users, reflecting our users' increasingly established shopping mentality on our platform. We expect our 10-shelf GMV to grow at an accelerated pace this year and account for a rising share of total GMV of e-commerce.
spk08: Thank you, Operator. Next question, please.
spk10: Next question is from Lincoln Gong from Goldman Sachs. Next question comes from the line of Lincoln Kong from Goldman Sachs. Please go ahead, 请提问。 很好,谢谢义孝中,谢谢秉格和曼特。 那我的问题是关于这个商业化这边, 就是相信关于产品预期以下, 就是我们的外循环效果类广告, 就是可以恢复到一个同比症的一个增长。
spk03: Thank you very much for taking my question. My question is about commercialization business. So can management give us any indication for the external ads, especially the performance ads, when can it recover to positive growth territory? And last quarter, management also talking about the traffic deficiency, the upgrade of our commercial service, as well as the store Y ROI. Could we elaborate a bit more in terms of the progress here? Thank you.
spk09: Thank you for your question. Since the second quarter, with the external circulation of each industry's annual frame agreement, signed continuous completion, and the arrival of the 618 marketing node, adding to our channel policy of some industries, we have noticed that the consumption of external circulation of effect-type advertisements shows a more obvious trend of main month recovery. From the trend of the industry, game, media, and e-commerce sales are still the main driving forces for growth. In addition, the financial, education, and other industries are also contributing to the growth of our product chain and focus on our customers. With the help of relevant knowledge policies, we have become an important pillar for the gradual growth of external circulation-based advertising. We expect that in the period of surge in traffic, the investment in the media and information industry will gradually increase, and the game industry will combine Thanks for your question.
spk04: In the second quarter, we have gradually completed the execution of four-year framework agreements with external advertising customers from various industries. Given this context, combined with the upcoming June 18th promotions and the implementation of our refined channel policies for some industries, we have noticed a clear month-by-month recovery trend in external performance and expenditures compared with the same period last year. Industry-wise, the main drivers of this recovery came from gaming, information services, e-commerce, and retail industries. The finance and education industries, among others, also underpinned the year-over-year growth of our external performance ads, thanks to our optimized sales funnel conversion, targeted efforts towards key clients, and associated supportive policies. We expect advertising placements in this information services industry to increase gradually during this year's summer break period, driven by ample user traffic. Advertising expenditures from gaming clients will also enter a peak period during summer break, propelled by the large number of new releases by game developers and some clients' clear traffic needs in this period. These factors have boosted our confidence that our external performance ads will resume growth starting from the second half of this year.
spk09: Regarding the progress of the internal work of commercialization business training mentioned in the last three seasons. First, in terms of commercialization flow improvement, we continue to strengthen the infrastructure of commercialization data. By better coordinating front-end business and product algorithms, Emotional exploration, internal data access, and encouraging advertising customers to actively repost and transform data in the game, social, and financial industries have clearly improved the investment effect of advertising customers. Second, in terms of product ability construction, we have just mentioned the moving-end functionalized product upgrade in the market, including investment chain and e-commerce. In March 2023, The growth rate of small and medium-sized businesses has increased by 72%, which has improved the penetration rate of small and medium-sized businesses, and optimized the internal circulation ecosystem. Search traffic. With the improvement of search functions and the gradual formation of new searches, the search traffic continues to grow rapidly, combining more conversion efficiency with search ads. We see that the number of search ads in the first quarter is more than 50%, provide a greater space for commercialized income. On brand advertising products, expand the expansion of brand resources such as traditional opening forms, and search and other brand resources to drive brand advertising growth higher than the big plate. Third, in terms of commercialized service upgrade, gradually improve the customer service system and response system at the customer level. to solve customer demand in time, and to promote industrialization at the industry level, to address industry supply issues and deeply transform goals, and to develop industry solutions.
spk04: Moving to our progress with respect to building our own strength in the online marketing services. First, in terms of improving advertising traffic efficiency, we continue to strengthen our commercialization data infrastructure. We also substantially elevated our advertising performance by reaching a broader audience among users in gaming, social networking, and financial industries through better coordination among our front-end business and our product and algorithm teams, exploration of targeted users' groups, interests, and internal data sharing, as well as by encouraging advertisers to send back in-depth user conversion data. Second, regarding strengthening our product capabilities, In my prepared remarks, I mentioned the intelligent upgrade of our magnetic torus platform for e-commerce and marketing solutions on mobile devices. This upgrade included the connecting ad placements with e-commerce services. As a result, we increased the penetration amongst more medium-sized merchants, as evidenced by the 72% year-over-year growth in the number of this type of merchants on magnetic torus on mobile devices in March. further optimizing our closed-loop advertising ecosystem. In terms of search traffic, with improvement of our search function and gradual establishment of users' search habits on our platform, our search traffic maintained rapid growth. As a result, and aided by its higher conversion efficiency, search advertising generated 50% higher revenue year-over-year in the first quarter. The rapid growth of search revenue will continue to provide upside potential for advertising revenue. As for brand advertising products, we expanded beyond traditional splash ads to KOL's homepages and searches, among other areas, driving higher growth for brand advertising versus an overall advertising services. Third, with respect to advertising services upgrades, we are on track to improve our customer service system and response mechanism to address customer service needs in a timely manner. At the industry level, we also promoted the development of product systems and formulated customized industry solutions to address common industry problems and achieve in-depth conversions.
spk09: In the end of March, RY of WeQuan has launched In the first quarter, we mainly ran through the model and product adjustment, focusing on increasing the capacity of consumption. Through 214 and 38 Queen's Festival, we completed a part of the brand customer test. We got a stage test experience and knowledge to verify the brand customer's space for fans to convert in the attention field. Many customers responded that the whole chain ROI promotion method and the investment in the audience will be lower. And turning to store-wide ROI, we already launched the associated product at the end of March. Our forecast in the first quarter was to validate our model and optimize product.
spk04: and this was our focus, and improving our ability for incremental ad expenditures. We completed pilot rounds for same-brand advertisers during the Valentine's Day and March the 8th Women's Day Shopping Festival, which provided us with testing experiences as well as insights while confirming the conversion potential of brand homepage followers. Many advertisers reported the lower personnel and tracking costs and significant improvements in ROI target achievements and add performance after the adoption of store-wide aura. We expect to commence the large-scale rollout of this product in the second quarter.
spk08: Thank you.
spk10: Operator, next question, please. The next question comes from the line of Thomas Chong from Jefferies. Please go ahead.
spk05: My question is about the new initiatives. Can management comment about local services and online recruitment? How's the progress so far? Thank you. Thank you for your question.
spk09: In the first quarter of the local life business exploration, we also made progress. Through comprehensive assessment of city attributes, user base, and team resources, we set the key operation core city to build MVP. Using the influence of local答人, the sea of resources of the team and the third-party cooperation team, we established the answer plus the business environment. At the same time, it is recommended that the product is hidden and selected again to understand the needs of users. For example, the performance of Qingdao is also prominent in the city that has just run through MVP. After opening, only within 50 days, the daily GMV has increased by 14 times, the order number has increased by 12 times, and the number of down-to-date users has increased by 9 times. In terms of business cooperation, for example, a well-known chain of fast-growing brands has been on the line for only a month, and the cold air is rapidly rising. Thanks for your question. In the first quarter, we also made progress in local services.
spk04: MVP CTs for our key operations based on comprehensive evaluation of CT attributes, user base, and team resources. Next, leveraging local KOL's influence, our team's meticulous efforts, and our third-party partners' rich resources, we established localized ecosystems comprised of KOLs and merchants. Meanwhile, we advanced our merchandise engine to screen high-quality supplies and deepen our insights into users' needs. Among those MVP cities where we have completed our trial run, Qingdao was a standout, achieving remarkable growth. In just 50 days since its launch, average daily GMV of local services in Qingdao surged by 14 times. The number of orders grew by 12 times, and the number of users placing orders rose by 9 times. Regarding our merchant partners, a well-known fast food chain restaurant completed a quick sales ramp-up from CoStar only one month after the service's launch, generating a GMB of over 35 million RMB. Notably, transactions originated from searches that counted for nearly 30% of total sales. These encouraging results clearly reflect Kuaishou's users' strong desire and preference for local services.
spk09: In terms of strategy, with the rapid recovery of the offline economy, users' demand for local life content is rapidly growing. In the second quarter, we will continue to expand the number of core operations, improve local high-end商家商品供给, encourage the creation of useful content, strengthen the consumer mindset of local users, match the appropriate platform policy support, and create efficient and accurate short-term products and live broadcasts. Currently, it is a mature business model with many cities such as Qingdao, Harbin, and other cities as key points, and it will be quickly deployed to more cities. In terms of products, we will also expand the range of products, in addition to Daochan, to increase local products such as Daochong, Jiulv, and Menpiao. In addition to local businesses, we will further expand the SKA brand to help more national joint-stock brands expand user technology, and fully utilize the user advantage in the fast-growing market. And in terms of strategy, as the offline economy recovered an accelerated pace, users' consumption demand for local services content experienced rapid growth.
spk04: In the second quarter, We will continue to expand a number of our core operating cities, augment the availability of high-quality local merchants and products, motivate KOLs to create high-quality content, and strengthen local users' consumption mindset. These measures, coupled with our platform's supportive policies, will build an effective and accurate content distribution system, including both short video and live streaming. We will swiftly replicate our established business model from key hubs like Qingdao and Harbin to more cities. Product-wise, we will diversify our product categories from in-store dining to general in-store business, hotel, travel, and ticket sales. Also, apart from local merchants, we will further expand our coverage of SKA brands to help more national chain stores grow their user base and diversify their user mix. by leveraging QySHA's advantageous user resources in the lower tier markets. In terms of platform operations, we established an MPS user recommendation system in the first quarter to gain a deeper insight into user preferences, and we will continue to refine our local services, products, and consumption scenarios to elevate the overall user experience.
spk09: Yijidou's quick review is also a solid recommendation. The total number of headings for the Japanese army has increased by more than 300%. At the same time, the total number of headings for the Japanese army has increased by more than 500,000. The continuous progress of the fast-tracking business is due to the continuous increase in the number of positions we have. Through data infrastructure, we have improved the quality of the headings, and through the algorithm, we have improved the efficiency of matching the positions. At the same time, we are also actively exploring the production capacity of low-cost mass-produced content through AI technology and automated production of video. In the transformation test, our CPQL, which is a quantity-divided clue pricing model, is also running gradually and is being tested by key industry customers. It is expected that commercial transformation revenue will rise gradually in the next one to two seasons.
spk04: In the first quarter, we also made steady progress in quite higher. We observed a year-on-year increase of over 300% in average daily resume submissions, with daily peak submissions surpassing 500,000. This continued growth was resulted from our expanding job posting, the enhancement of resume quality through data infrastructure, and improved job supply and demand matching efficiency through algorithms. Furthermore, We are actively exploring ways to use AI technology to automatically generate recruitment videos and enabling low-cost mass production of content to support businesses' operations. On a monetization front, we have been validating our CPQL, or cost-per-qualified lead model, and also have completed tests with key industry clients. We expect monetization of quite higher to increasingly distribute to revenue within the next one to two quarters.
spk08: Thank you. Next question, please, operator.
spk10: Thank you. The next question is from Alex Poon from Morgan Sandy. The next question comes from Alex Poon from Morgan Sandy. Please go ahead.
spk02: Congratulations, Mr. Yixiao. Thank you, Matthew. Strong performance. 我的问题是想问一下关于利润率的趋势的。 请管理层能不能分享一下未来毛利率和降本增效的一些趋势应该怎么看? 谢谢。 Congrats on a very strong quarter. My question is related to our margin improvement trend. Can management share the future trend for growth margin and also the OPEX ratio? Thank you very much.
spk07: Thank you for your question. Looking back at the past five seasons, in the joint efforts of all departments of the company, the results of our stand-by results are still very significant. Group profit increased from 41.7% in Q1 last year to 46.4% in Q1 this year. Sales and sales revenue from Q1 last year fell from 45% to 34.6% in Q1 this year. Development revenue from Q1 last year Thank you for this question. Looking back on the past five quarters, with the joint efforts of all departments in the company,
spk04: Our cost reduction and efficiency enhancement initiatives delivered remarkable results. Our growth profit margin increased from 41.7% in Q1 last year to 46.4% in Q1 this year. Selling and marketing expenses as a percentage of revenue declined from 45% in Q1 last year to 34.6% in Q1 this year. and our indie expenses fell from 16.7% of our total revenue in Q1 last year to 11.6% in Q1 this year. As a result, our domestic business turned to an operating profit starting in Q2 last year, two quarters ahead of schedule. The operating loss in our overseas business has also gradually narrowed, and in the first quarter of this year, we realized that just did net profit at a group level for the first time since our listing.
spk07: So let's take a look at some of the big challenges we faced last year. First, in terms of real investment, under the premise that the flow continues to grow, the cost of user growth continues to limit the cost of single DAU. By perfecting the detailed investment and supplementing models, we have been able to diversify the channel, continuously reducing the cost of single DAU maintenance, and optimizing the investment structure of new users, which has led to a significant improvement in real investment ROI. Second, in terms of service provider bandwidth investment, we continue to improve the efficiency of service providers and bandwidth in the unit market through technical means. In the medium term, through the development efficiency, indicator system construction, and self-sufficiency operation data center and other projects, we continue to reduce the cost of service provider bandwidth. Third, in terms of human resources investment, we continue to optimize the continuous optimization of various indicators through the establishment of human resources cost control baseline. At the same time, we are more concerned about the improvement of human resources and original resources,
spk04: specifically, we launched several major campaigns last year to reduce our costs and enhance efficiencies. First, in terms of user growth costs, we focused on improving the cost per DAU while maintaining traffic growth. By refining our investment and subsidy models and taking differentiated approaches in engaging users through different channels, we continuously and continually lowered our retention cost per DAU and optimized our cost structure in user reactivation. This significantly improved our ROI on user growth. Second, regarding server and bandwidth costs, we continue to boost the efficiency of server and bandwidth usage per thousand minutes through technology. In the midterm, we have constantly lowered server and bandwidth costs as a percentage of revenue by creating a metric system and to measure R&D efficiency and building our own operating data center. Third, for personnel costs, we establish a personnel cost control baseline to effectively and also constantly optimize associated metrics. On top of that, we placed more emphasis on improving the labor productivity and resource productivity, while continuing to make a steady-fast investment in higher IRI segments.
spk07: The driving factors for the continuous improvement of the future profit margin are the following. First, the change in the income structure. High-profit advertising and e-commerce businesses are continuously improving. Second, the optimization of the long-term division mechanism of each business brings effective control of the cost of division. Third, through technical innovation, we continue to improve the efficiency of service providers and loans. On the basis of the improved interest rate, we will still pay attention to the continuous optimization of operating leverage. For example, sales revenue is guaranteed to complete the growth goals of users and the relatively stable potential of the market. Through the management of the pull-out channels, efficiency optimization, technology delivery, and other methods, we will further optimize the cost of single-user goods and services, as well as the cost of single DAU maintenance.
spk04: By looking ahead, continued growth profit margin improvements will be driven by the following factors. First, the change in our revenue mix as advertising and e-commerce businesses with higher growth profit margin contribute larger shares of revenue. and optimize the long-term revenue sharing mechanism among our business segments, which will effectively control revenue sharing costs. Third, we will leverage technological innovations to keep improving server and bandwidth usage efficiency. On the back of gross profit margin improvement, we will remain focused on optimizing our operating leverage. For instance, While ensuring the realization of our user growth target and relatively steady user time span, we will further improve acquisition cost per user and retention cost per DAU through the governance of new user acquisition channels, efficiency enhancement, and technological upgrades. In addition, our efforts to further iterate our organization and elevate efficiency will allow our personnel expenses as a percentage of revenue to gradually approach to industrial benchmark level.
spk07: In summary, the ultimate purpose of cost reduction and efficiency improvement is to boost quality and productivity. These are not simply financial measures,
spk04: but part of our sustainable strategic mechanism representing changes in our operating mindset integrated in our DNA. Going forward, we will take this into consideration every time we make and implement a strategic decision for the company.
spk08: Thank you. Operator, next question, please.
spk10: Certainly. Next question is from Zhang Xueqing from CICC. The next question comes from Xueqing Zhang from CICC. Please go ahead, Qingtiwen.
spk01: Good evening, management, and thanks for taking my question. Congratulations on a good level of profits. Can management share the company's progress in AI and what kind of large language model related products we can expect in the short video field? Thank you.
spk09: Thanks for the question. We have established an LLM research and development team.
spk04: Leveraging our technical expertise accumulated previously in AIGC algorithms and LLMs, we are advancing LLM development and training as planned. Currently, everything is progressing smoothly. As our model is still in the training phase and the revolution of AI technologies represents a long-term opportunity, we believe it is crucial to build a solid foundation with LLMs and strive to benchmark the most advanced models in the world. As such, we do not have a concrete plan for public release at the moment.
spk09: In addition, I would like to share with you our thoughts on the most likely application scenarios for AI in the short-term. It is also the direction that QS is currently trying to advance. First of all, in terms of search, the late-trade GDP model can expand the search boundary. From the current in-house short-term search expansion to full-on search, it can also bring better search materials and questions through content generation to enhance the user's search experience. Secondly, AIGC helps to generate image and video, to reduce creative thresholds for negative users, and to improve the quality and diversification of works. Specifically, AIGC can be used to Finally, in terms of recommendation methods, AI can also help us improve our understanding of short videos and live broadcast content, and thus make better matchments in recommendation methods to improve the R&D of content recommendations.
spk04: And now I'd like to share our thoughts on AI's first potential application scenarios and short videos, which are also Kuaishou's current focus and direction. Firstly, in terms of search, chat GPT-like models can expand the search boundaries beyond the current short video search within the platform to encompass the entire internet. It can also provide improved search summaries and Q&A through content generation to enhance the user's search experience. Secondly, AIGC can assist in the generation of graphics, texts, and videos, lowering the barrier to content generation and empowering users to create high-quality and more diverse content. It can be utilized in a wide variety of other scenarios. Some of these scenarios include assisting in the production of story scripts, developing a product advertising copy, and generating AI-powered special effects for video. Lastly, regarding recommendation algorithms, AI can enhance our understanding of short video and live streaming content, enabling better matching through recommendation algorithms and improving the RI of content recommendations.
spk09: We believe that short video platforms can fully benefit from the AI technology wave, and QIYI will also be able to use AI technology
spk04: In summary, we believe the short video platforms can fully benefit from the advances in AI technology. As such, Kuaishou will persistently drive the development and training of LLMs while ensuring rational and efficient allocation of manpower and other resources. We will also actively seek out opportunities to integrate LLMs into diverse business scenarios.
spk10: Thank you. Back to operator.
spk04: Thank you once again for joining us today. If you have any further questions, please contact our Capital Market and Investor Relations team at any time. Thank you.
Disclaimer