Kuaishou Technology B

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.

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.

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.