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spk06: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology second quarter and interim 2023 financial results conference call. Please note that English simultaneous interpretation will be provided for the management's prepared remarks. And please join the English line, listen to the interpretation. The English line will be in listening mode. And now I will turn the call over to Mr. Matthew Zhao, VP of Capital Market and Best Relations at Kuaishou Technology. Thank you, operator. Good evening and good morning to everyone. Welcome to the second quarter and interim 2023 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, co-founder, executive director, and CEO, and Mr. Jin 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 forward-looking information if that is required by law. Any information that is important and forward-looking statement is referred to the public information and also the information published on the ARRA website as of the end of June of 2023. During today's call,
spk07: Management will also discuss certain non-RFRS financial measures for comparison purposes only.
spk06: For a definition of non-RFRS financial measures and a reconciliation of RFRs to non-RFRS financial results, please refer to our results announcement for the three and six months ended June 30th of 2023 issue earlier today. For today's call, management will use Chinese as the main language A third-party interpreter will provide simultaneous English interpretation in a prepared remark session and consecutive interpretation during the Q&A section. Please note that English interpretation is for convenience purpose only. In a case of any discrepancy, management statements in the Russian language will prevail. And also, as required and stated, all the currencies in this call is Renminbi. Please turn the call over to Yixiao. Hello, everyone. Welcome to Questro's second quarter 2023 earnings conference call. For the second quarter of 2023, we're proud to announce another key profitability milestone brought upon the positive adjusted net profit we attained in the first quarter. We achieved our first-ever group-level net profit of Barnard Prize things are listing totaling 1.48 billion RMB. Meanwhile, adjusted net profit continued to rose quarter-by-quarter reaching 2.69 billion RMB. These reflect our ongoing efforts to scale our vibrant user and content ecosystem, optimize our monetization models, and enhance our operating efficiency. With the average DAUs and MAUs on the Kuaishou app hitting another set of record highs in the second quarter, our total revenue grew by 27.9% year-over-year to 27.7 billion RMB, This growth highlights the effectiveness of our thriving commercialization ecosystem. Revenues from e-commerce, online marketing, and live broadcasting also experience strong growth, outperforming the market even outside the peak seasons. Furthermore, our pursuit of new business avenues continues. In the second quarter, we made rapid progress in our overseas and local service businesses. Through exploring brand new scenarios and products, we aim to offer users
spk07: in-house content consumption experiences, and high-quality services. Next, I'll discuss our key business developments in the second quarter. First, I'd like to talk about the user growth and ecosystem construction.
spk06: In the second quarter of 2023, average DAUs and MAUs on EquatIO reached 376 million and 673.3 million, representing year-over-year increases of 8.3% and 14.8% respectively, taking the scale of our user community to a new record high. Average daily time span per DAU on the Kuaishou app was 117.2 minutes. Despite a slight year-over-year decrease in average daily time span per DAU due to the shifting user time allocation online and offline and post-pandemic, our total user time span continued to grow year-over-year, mainly driven by the rapid DAU growth. This reinforces the fact that short video apps remain one of the most compelling and captivating mobile products in the post-pandemic era. To propel these improvements, we refine our user growth strategies during the second quarter of 2023. In addition to lowering our user acquisition retention costs on both quarter-over-quarter and year-over-year basis through technological and operation means, we also leverage our high-quality original content for user growth. and upgrade a one-stop smart targeting platform while improving our content production efficiency and quality through AI capabilities such as multimedia understanding. This, in turn, helped to increase our user acquisition efficiency. We are also actively exploring new channels for user growth. In the second quarter of 2023, we approved the feasibility of user growth through promotion-related content placement by acquiring new users through advertisement-related e-commerce and local services. We have always been committed to building an inclusive, highly interactive, and engaged community for users. By the end of the second quarter of 2023, pairs of mutual followers on Quastro app exceeded 31.1 billion community fee, representing growth of nearly 50% year-over-year. In addition, in the second quarter of 2023, every daily interactions, including likes, comments, and response on Quastro app reached 8 billion. With respect to content operations, we constantly operate events in a way that we appeal to public and create native sports programs that public enjoys. We are focused on sports categories with a solid existing fan base. We support a group of influential sports co-ops and create original sports IPs with quite short characteristics. One example was quite short Village Basketball Association in June this year, while it attracted 300 million total live streaming viewers and 2.38 million peak co-current viewers. In the second quarter, we also introduced several broadcasts of summer entertainment IPs, such as Summer Star Wish Party, Entertainment Havens, and Summer Short Plays series. These IPs cover diverse content formats, include celebrity themes, variety shows, and short plays. In addition, entertainment industry celebrity site J.Joe actively engaged with fans on platform, providing users with rich content to consume and enjoyable social experiences. For our search business, we continue to improve user satisfaction and retention through our optimized search experience and personalized strategy. Meanwhile, we continue to increase the penetration rate of search users through smart recommendations with word generation based on large language models. In the second quarter of 2023, quite sure searches average monthly users exceeded 440 million, and the number of average daily searches increased by over 30% year-over-year. Meanwhile, benefiting from our growing search traffic, product upgrades and improved matching efficiency brought by advertised algorithm iterations We continue to make progress in the commercialization of our search function, evidenced by a doubling of search and advertising revenue over the year, in addition to the second quarter, when truly testing our smart question-answer product of question-research-improved intelligence of searches that will leverage the technical capabilities of large language models. Second, online marketing services. As the advertising market gradually recovered, we further increased the monetization efficiency of our online marketing services by enhancing our product capabilities and infrastructure, knocking the value of high-quality traffic. in the second quarter of 2023. Our revenue from online marketing services reached 14.3 billion RMB, growing by 30.4% year-over-year, outperforming the market and accounting for 51.7% of our total revenue. Meanwhile, the number of active advertisers on our platform almost doubled in the second quarter of 2023, compared with the same period of last year. Advertising services provided by our native e-commerce merchants maintain robust growth momentum, continue to outpace GMB growth in the second quarter of 2023, This was partially driven by increased amount of full ads placement during the e-commerce promotional season, as well as the merchant's strong willingness to place ads on our platform as a result of higher ROI driven by expanding the nature of e-commerce advertising product capabilities. We introduced our platform-wide advertising product, upgraded our store-wide ROI, aiming to help our native advertisers rely on omni-channel operations through the alignment of advertising e-commerce and traffic distribution. This also allowed advertisers to more scientifically and creatively review and evaluate their overall business performance on our platform. The second quarter of 2023, we launched advertising placement as scale for optimized processes mechanism tailored for brand, merchant, and individual clients achieving primary progress in the driving of client GMV growth. Furthermore, to enhance our product efficiency through a high level of intelligence, we brought a smarter hosting service for small and medium-sized e-commerce merchants based on platform automatic placement abilities. This increases convenience by adding placement for advertisers and lowering their labor costs while improving their placement stability in our life. During the year, OVN quarter will increase its And among the small and medium-sized e-commerce merchants, we're tracking acquisition in terms of building e-commerce-related advertising ecosystem. We develop a tiered approach for traffic distribution mechanism and support policies, and also product capabilities and data infrastructure optimizations, helping merchants in different stages of operations with diverse needs by allowing development of advertising and e-commerce services. These initiatives also fostering the healthy growth and prosperity across the native e-commerce and the type ecosystem. Our external advising services show clear signs of recovery and recorded year-over-year growth in the tech quarter of 2023, with quarter-over-quarter growth from industries such as e-commerce, platform, information services, and healthcare, as well as education and training. With a steady fast commitment to improving our advertising performances, We've continued to fortify our product capabilities. First, we improved the quality of our advertiser content, especially through native advertising, which has considerably higher click-through rates and user conversion rates than the hard-sell advertising, leading to higher ROI for advertisers as well as half user experience. As a result, in the second quarter of 2023, our native advertising penetration rate rose continuously and constantly, quarter over quarter. Second, we launched an optimized bidding model, focusing on optimized conversion through deep links and retention metrics further down the funnel for some industries. As a result, ad spending from these industries gradually increased.
spk07: Our revenue from brand advertising increased by over 30% year-over-year in the second quarter of 2023.
spk06: as the third largest app in china quite sure brand promotion value has gained increasing recognition from a growing number of brand advertisers as we study and span our brand advertising resources optimize our brand product capabilities further iterate our product development roadmap and increase demand from brand advertisers during promotional events in june 2023 we launched a quite show index platform for our brand advertisers providing them with insights into the ecosystem's content and creators. This platform offers them effective strategic guidance ranging from pre-placement elements to a and post-placement based on multi-dimensional data. This platform aims to help brand advertisers continuously improve their brand value and in addition, we continue to reinforce the brand advertiser's infrastructure, facilitating precise user accumulation and construction of a complete brand marketing matrix to provide advertisers with scenario-specific industrial solutions. We aim to empower brands to operate on question more effectively on a longer horizon. Third, our e-commerce business. In the second quarter of 2023, we made solid progress in our e-commerce business through synergetic effect in the supply, demand, and infrastructure along with the major promotions. The result of GMB increased by 38.9% year-over-year to reach 265.5 billion RMB, far outpacing the industry and further boosting our market share. In terms of infrastructure, we comprehensively popularize an applied scoring system for merchandise, merchant experience, and QL reputation. This application of such indicators for identifying high-quality merchant service and content help to funnel the traffic on a platform to premium merchants thereby continuously enhancing supply quality. On this basis, we synergize user content consumption behavior via algorithm-refined and wing-richly structured merchandise information, optimize algorithm models to improve real-time interest match and accuracy, and enhance the conversion efficiency of e-commerce content through a more logical and intelligent traffic sorting mechanism. Our supply side, we're delighted to see an increased number of merchants and brands viewing Kuaishou as one of the main home bases during the second quarter of 2023. We focus our efforts on 10 major industries, including apparel, 3C, and other categories. We amplify our platform's influence through activities such as inviting merchants in 100 cities and merchandise selection meetings while building benchmarking cases to attract new merchants. As a result, we achieved high double-digit year-over-year growth in the number of newly onboarded business merchants during the second quarter. Regarding merchant empowerment, we offer the preferential traffic allocation and other supportive policies to our targeted high-potential merchants while improving the merchant training systems, all together driving a high double-digit year-over-year growth in GMV for small and medium-sized merchants in the quarter. In the second quarter, while brand e-commerce continues to deliver impressive results, GMV from brands, including quiet brands, continues to increase quarter-to-quarter, accounting for over 30% of our total GMV for e-commerce. Brand self-operated live streaming continued to gain momentum and brand GMB increased by about 80% year-over-year. This was attributable to several factors. First, our promotions of trap brands have been progressing smoothly, leveraging the average quality of the platform influence and also the deep insights for users' needs. We implemented target promotions on our onboarded brands, leading to our front-line annual year-over-year increase in number of newly added brands in the second quarter of the three-second operation. Fourth, we achieved a major breakthrough in industry measures. Specifically, we upgraded our traffic strategy in the second quarter empowering the more merchants to achieve farmer traffic. We also leverage the Kuaishou KOL ecosystem, unique advantages to our brand, and identify consumers at various operating stages, including during initial operations and following the launch of new products, thereby enhancing the conversion efficiency. For example, a well-known out-branded brand experienced a 30-fold increase in average monthly GMP of its self-operated live streaming, thanks to the support of our streaming ship. This was significantly a growth but I'll promote Prompter to scale up their advertising placement on a platform by orders of magnitude. Aided by the stream initiative, KOLs have been gaining the access to a broader selection of high-quality products for distribution by efficient management products. Our platform will continue to improve the supply quality, providing KOLs by submitting a stream initiative with corresponding traffic support. This was during the virus cycle of the virtual cycle of online platform KOLs and brand merchants, resulting in a continuous increase of brands' attention and investment on platform. In addition to a streaming initiative, we launched a traffic support plan for brands that are co-staffed, staged, and housed the self-operated live streaming communities and content quality through daily marketing and promotion events, helping them to explore their distinctive selling parts. As a result, the number of branded merchants with the scale exceeding 100 million may be increased by over 90%. during the 18th Shopping Festival. A number of major brands achieved close-look conversions from making the recommendations and following traffic through short video and the transaction-to-transaction via live streaming. Furthermore, they innovated the marketing content and collaborated with KOLs for distributors to create a broadcast immersion, increasing to 200% year-to-year growth and branded value during the period and further user asset accumulation laying a solid foundation for sustainable operations. On the demand side, the number of monthly active paying users with exceeding 110 million in the second quarter remained the main driver for GMV growth as their penetration rate rose to high teens. The solid performance was primarily attributable to the more refined approach of the tier user operational platform as well as the smart subsidies and the product future iterations further expand the premium paying users consumption practice and increase the thickness as operating our supply with our users of better products and services while enhancing their experience. Both average order price and monthly purchase frequency achieved year-over-year growth in the second quarter of 2023. In the second quarter, we continue to make efforts in a shelf-based realm of complementing our content e-commerce and better meet the intent Driven shopping needs of highly active paying users. We achieved good progress by promoting new shopping by entering the button on a brand landing page, diversifying the supply of merchandise cards, and exploring the card situation with content. Additionally, we further optimized our product search function to better identify the intention through algorithm. We improved the product relevance of search results, leading to a 90% year-over-year growth in search DMV in the second quarter. Next, regarding our live streaming business. In the second quarter of 2023, live streaming revenue grew by 16.4% year-over-year to approximately 10 billion RMB as we achieved up to the year-over-year growth in monthly output. This increases will contribute to our constant efforts in enriching our live streaming offerings, optimizing the live streaming ecosystem, exploring user preferences and needs. On the supply side, we further enhance the professionalism of live streamers by fostering close collaborations with talent agencies, We implemented differentiated policies to cater to talent agencies' diverse operating models, offering a more intensive to new and small-sized talent agencies and empower them to enhance their operational value. In the second quarter of 2023, the monthly number of talent agencies we partnered with grew by over 40% year-over-year, while the number of active streamers managed by agencies increased by over 70% year-over-year, reaching to a record high in terms of penetration of our percentage of our total active streamers we will continue our policy support for high quality content providing high quality talent agencies while with the greater flexibility assistance in nurturing streamers to empower both talent agencies and streamers to achieve operational growth As we place the significant emphasis on fostering a healthy and sustainable live streaming ecosystem, we remain dedicated on investing in popular content verticals and nurturing the streamers, principally driven by our pursuit of high-quality content. For example, in the traditional Chinese cultural vertical, we identified promising streamers by factors such as content quality, growth potential, follower base, and revenue-generating capabilities in adjusted traffic support to the content vertical accordingly. We also increased traditional cultural content in the overall distributional platform, Furthermore, we actively developed more innovative interactive live streaming tools to stimulate user engagement, incubating the fresh categories that combine interactive activities and with live streaming. Furthermore, our live streaming plus services empowering the traditional industries also continue to progress. A benchmark case of this, the net availability exploration was quite high, which experienced a 290% year-over-year increase in daily average resume submissions during the second quarter of 2023, with daily average number of users submitting resumes also more than double year-over-year. Moreover, by the end of June 23rd, ideal housing expanded its reach in over 90 different cities nationwide, achieving commercially gross transaction value of more than $10 billion in the second quarter of 2023. Also, in the second quarter of 2023, the daily average viewers are quite base, Live streaming reached over 25 million, showing a steady penetration increase. Finally, in terms of overseas business progress, in the second quarter of 2023, we further deepened our presence and efforts in key overseas markets, redefining our content ecosystem for creators, refining monetization strategies, and continuously optimizing operation efficiency. The use and user time span in core overseas markets managed to grow year over year. Total revenue for overseas businesses reached $447 million in the second quarter of 2023, recording year-over-year growth for over 300%. Meanwhile, we remain committed to cost reduction efficiency improvement, leading to a 51.4% year-over-year decrease in overall operating losses overseas in the second quarter of 2023, which also further narrowed quarter-by-quarter. On the advertising front, we focus on key advertisers' industries, improving product features, and optimizing their performance. while enhancing product infrastructure and expanding grand advertising resources by expressing local operational capabilities. Moreover, by following new monetization models, we aim to boost our traffic monetization efficiency and drive revenue multiplication. As for live streaming services, we maintain our efforts in expanding collaboration with talent agencies, enriching content supply and offering enhanced interactive experiences, headed by the introduction of new monetization features and activities. Our revenue generation efficiency also improved along with the optimization of live streaming traffic distribution as we pay ratio in our core regions constantly experience continued growth. Looking ahead, we will remain committed to building a vibrant community with a fair, inclusive traffic distribution mechanism as the foundation. We also further develop online marketing, e-commerce, and live streaming businesses by threatening infrastructure technologies to better engage our users and business partners while capturing incremental growth opportunities with new initiatives such as local services. With these advancements, Alongside the tremendous traffic and deeply embedded trust across our ecosystem, we are confident that we will continue to expand our business with a brand awareness across the complementary business segment. Meanwhile, with a keen focus on operational excellence, we look forward to further our goal of sustainable development. This concludes my prepared remarks. Thank you. And next, our CFO, Mr. Jim Bing, will discuss the company's financial performance for the second quarter of 2023. Thank you, Michelle.
spk07: And hello, everyone.
spk06: As I mentioned at the beginning, we made another profitability breakthrough during the second quarter of 2023, achieving our first quarterly IFRS net profit of 1.48 billion RMB at the group level. Our adjusted net profit continued to rise quarter over quarter, reaching 2.69 billion RMB. This progress was driven by the healthy and continuous expansion of our ecosystem, our reinforced monetization capabilities across our business line, and our unremitting efforts to strengthen operation efficiency. Thanks to our continuous, refined user experience and community operations, as well as premium content and services supported by our constantly iterative infrastructure construction algorithms, our user community continued to flourish during the second quarter, evidenced by record highs in average DAUs and average MAUs. We also strove to unlock the potential of high-quality traffic and create additional value for users, merchants, and advertisers while focusing on business planning, expenses management, and sustainable development with quality improvement and efficiency enhancement. As a result, we delivered a turnaround of our group's bottom line. Now, let's have a closer look at the financial performance for the second quarter of 2023. In the second quarter of 2023, our group's revenues grew by 27.9% year-over-year to 27.7 billion RMB, accelerating from 19.7% in the first quarter of 2023. This acceleration was driven by significantly higher quarter-over-quarter growth rate in our online marketing services and other services, in particular, our e-commerce business. Revenue from our online marketing services increased by 30.4% year-over-year to 14.3 billion RMB in the second quarter. This growth was driven by our merchants' continuous investments in user assets, as well as the robust growth momentum of advertising services by our native e-commerce merchants, which continued to outpace GMB growth. These were propelled by e-commerce promotions during second quarter. This was also driven by efforts of further strengthening our data infrastructure, optimize the product capabilities, leading to a resumption of positive year-over-year growth after external advertising service during the quarter. Our other services revenues reached a 3.4 billion in the second quarter, representing a robust growth of 61.4% year-over-year growth, primarily built on our e-commerce business strong growth momentum with e-commerce, GMB up, nearly 40% a year over year. During the quarter, we continued to optimize our e-commerce operating strategy, focusing on enhancing infrastructure and amplifying our platform's share of voice while empowering brands and merchants with our adverse trends in e-commerce capabilities. As a result, the most number of active merchants and monthly active buyers increased year over year. Revenue from live streaming business grew by 16.4% year over year to 10 billion RMB in the second quarter. This increase was primarily propelled by our sustained year-over-year monthly output growth As we remain committed to exploring user needs and constantly enhancing user experience by enriching content offerings and optimizing our live streaming ecosystem. For the second quarter of 2023, our cost of revenues increased by 15.8% year-over-year to $13.8 billion, representing 49.8% total revenue. This increase was due to the increase in revenue sharing costs and related taxes in line with our revenue growth. Gross profit for the second quarter of 2023 grew by 42.6% year-over-year and 19% quarter-over-quarter to 13.9 billion RMB. Gross profit margin reached 50.2% this quarter, expanding 5.2% and 3.8% year-over-year and quarter-over-quarter, respectively, benefiting from our top-line threat and effective cost control measures. Moving to expenses. Selling and marketing expenses for the second quarter of 2023 decreased by 1.4% year-over-year to 8.6 billion RMB, accounting for 31.1% of total revenues in this quarter, down from 40.4% in the second quarter of 2022, largely due to our more efficient and disciplined spending of user acquisition and retention. Research and development expenses were 3.2 billion RMB for the second quarter. decreasing by 3.9% year-over-year and accounting for 11.4% of total revenues in this quarter, dropping from 15.1% in the second quarter of 2022, primarily due to the decrease in employee benefit expenses, including related share-based compensation expenses. Administrative expenses decreased by 1.1% year-over-year to 900 million RMB for the second quarter, accounting for 3.4% of total revenues, down from 4.4% in the second quarter of 2022. In the second quarter of 2023, we achieved a net profit of 1.5 billion RMB at the group level, marking our group's first IFRS net profit since listing anything different turnaround from a net loss of 900 million RMB in the first quarter of 2023 and a net loss of 3.2 billion RMB in the second quarter of 2022. Our balance sheet remains strong with cash and cashier equivalents, time deposits, restricted cash, and wealth management products of 50.5 billion RMB as of June 30th of 2023. Owing to our enhanced monetization capabilities and working capital management efficiency, we generated a positive operating net cash flow of 6.4 billion RMB for the second quarter of 2023. In conclusion, our trust-based ecosystem vibrant development and our sustainably improved profitability demonstrated the effectiveness of our business strategies going forward. We will continue to enhance our platform's appeal to users, advertisers, and merchants by honoring our infrastructure, offering premium content, and optimizing user experience by leveraging our enhanced full suite of online marketing and e-commerce capabilities to empower advertisers and merchants. Meanwhile, we will remain focused on bolstering our monetization efficiency and operation efficiency We are confident that these measures will drive further operating efficiency enhancements and reinforce our competitive market position for the rest of 2023 and years to come. This concludes our prepared remarks, and now we open for questions. Operator, please go ahead.
spk04: We will now begin the question and answer session. To ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. Please ask your question in Chinese first and repeat your question again in English. 我们现在进入问答环节。 第一道问题来自于Goldman Sachs的Lincoln Kong。 Your first question comes from Lincoln Kong of Goldman Sachs. 请读问。
spk09: Thank you, Mr. Yi. Thank you, Matthew. Congratulations to the company for achieving a very strong second quarter performance. My question is about e-commerce. In the second quarter, our e-commerce GMB and income growth are very rapid. How should we think about the trend of e-commerce business in the second half of the year? Especially, can you tell us about the current progress of retail e-commerce and commercialization? Thank you, management, for taking my question. So congrats on a very strong second quarter result. So my question is about the e-commerce business. We have seen the second quarter very strong GMV and the revenue growth. How should we think about the second half e-commerce outlook, especially good management, elaborate a bit on the shelf-based e-commerce or shopping mall and its development and progress. Thank you.
spk11: Thank you for your question. Everyone has been very concerned about the progress of the fast e-commerce. Finally, as we emphasized to the managers at this year's Fast e-commerce Innovation Conference, the price of our products is the extension of the content industry and also the fast e-commerce Thanks to your questions.
spk06: Our shopping mall has attracted broad attention. As we emphasized to our merchant at this year's Kuaishou e-commerce Gravity Conference, shelf-based e-commerce is an extension of our content and an important aspect of Kuaishou's omni-domain e-commerce business strategy. Although the more is still in the testing and ramp-up stage, shelf-based GMV still achieved high double-digit year-over-year growth in the second quarter.
spk11: The user's certainty of shopping needs has been better satisfied. In the first half of this year, we further optimized the infrastructure of e-commerce, and then the search business. In terms of the line of entry, we have optimized and guided the e-commerce content to strengthen the search demand layer and increase the number of entrances. During the second quarter, we have improved the exposure density of e-commerce related words, and strengthened the search recovery. to drive the number of e-commerce search users and the overall number of search users to continue to increase. At the same time, we will strengthen the identification of search intentions, optimize the display of materials, and increase the flow efficiency of the whole chain. The second quarter, the growth of search GNV maintains a high rate of growth, and increases by more than 90%. In the second half of the year, we will continue to increase the accuracy of identification of intentions and display the same relationship. Specifically, search has always been a critical component of our shelf-based e-commerce business.
spk06: As Kuaishou users' e-commerce mindset matures, their intent-driven shopping needs can be better satisfied through the search function. In the first half of this year, we further optimized our e-commerce infrastructure to empower the search function. First, we optimized the landing page display for e-commerce content by strengthening the post-view search feature and adding more entry points. During the promotion period in the second quarter, we also increased the exposure of e-commerce-related keywords and enhanced search retrievals, which drove a constantly higher share of e-commerce search users as a proportion of overall search users. Meanwhile, we strengthened the search intent recognition, optimized merchandise display, and improved end-to-end purchase path efficiency. In the second quarter, SearchDMV maintained rapid growth, increasing by 90% year-over-year. In the second half of the year, we will continue to improve the accuracy of intent recognition and relevance of display products, aiming to unlock more demand and strengthen the sales conversion through more accurate matching and more refined operations.
spk11: In terms of the store, we have improved the quality of the store in four aspects, including the content and price of the store, and the flow of the store in all areas. Through the trust of the store, the experience of the store's decoration, the construction of hangers and hangers, and other optimized users, in this quarter, the store continues to contribute to the increase in the turnover price of J&V.
spk06: In terms of stores, we will focus on content shelf, sales conversion improvement, and mindshare building. To that end, we will strive to capitalize on omni-domain traffic while optimizing user experience through trust building, improved store decoration, and unshelf products. In the second quarter, stores continue to contribute to increase in the shelf-based GMB. In the third quarter, we will further optimize the store infrastructure and traffic distribution mechanism and foster user demand through various channels.
spk11: In the second quarter, the mall has also made good progress. We have promoted the product card in the buyer's homepage. The construction and generalization of product points and other measures have deepened the platform's understanding of products. to build a foundation for commercial business. In the supply chain, stores, warehouses, businesses, and commercial information optimization, perfecting, explaining, and recycling, etc. will continue to be non-commercial. In terms of the introduction of social resources, more and more businessmen this year have set up goods prices as the main business areas in the cold stage. Therefore, there is a need for more potential digging at the commercial level. In the second quarter,
spk06: we also made a good progress in our shopping mall. Notably, we promoted merchandise cards on the new shopping mall interface section of buyers' home pages. This, in addition to our construction and popularization of merchandise scores, has deepened our understanding of products and laid a foundation for shelf-based e-commerce. On the supply side, Merchandising infrastructure such as on-shelf items in stores, merchandise information optimisation and improved playback continues to empower the shopping mall. In terms of resource aggregation, we have seen that this year, more and more merchants have chosen shelf-based e-commerce operations as their main focus during the costar stage and the shopping mall's penetration, I mean, potential need to be further tapped. In the second half of the year, we will implement the grayscale testing of shopping mall's primary entrance and utilize the test results along with user feedback to continuously optimize our shopping mall. In the longer term, we will integrate shelf-based e-commerce with live streaming and capitalize on repeat purchases and other strong shopping mentalities in the shopping mall features. and other shelf-based fields, while strengthening the key merchandise operations and marketing capabilities to make the shelf-based e-commerce a new growth engine for the omni-domain operations of Kuaishou e-commerce.
spk03: Thank you, Operator. Next question, please.
spk04: The next question is from Credit Suisse's Kenneth Fong. Your next question comes from Kenneth Fong, Credit Suisse. Please ask your question.
spk01: Hi, I'm Matthew. Thank you for accepting my question. I also congratulate you for a very strong performance. I have a question about advertising. We are slowly slowing down the growth of large-scale traffic. How should we think about the driving factors behind the growth of commercialization? Where will it come from? In addition, I would like to share with you the trend and performance of external circulation advertising that has been observed by management. 以及下半年的主要机会点。我积极翻译一下。 Thank you, management, for taking my questions and congrats on the very strong set of results. As the overall traffic growth gradually slows, what is the future growth driver for our platform monetization going forward? Can management also share with us what we have seen in external ad performance and the key opportunities for second half? Thank you. 谢谢你的问题啊。
spk11: Thank you for your questions. From the traffic point of view, either from the total user time span or the total number of video views,
spk06: Each seems sufficient at present. The primary drivers of future monetization growth mainly come from the AdLoad's upside potential as well as the CPM improvement.
spk11: Looking back at the past two years, our commercialization loading rate has been stable under a controllable rhythm. But AdLoad has always been based on the premise that it has a limited impact on users. In other words, in the production and inspection, our flow distribution and delivery mechanism We will continue to explore new things and improve high-value people. We will do a good job of matching content and business. The second point is that we will focus on the originality of this year. By increasing the supply of high-quality materials, designing advertising sensitivity and other strategies, we will further ensure the user experience and impact on the market. Based on this, we believe that on the basis of user experience and security, the future delivery rate still has room for improvement.
spk06: Looking back at the past two years, our ad load has been steadily improving at a controllable pace, under the premise of limited negative impact on the user experience. First, on the product and research side, we continue to explore traffic allocation and its sales mechanisms, aiming to improve ad load with a high-value user and enhanced content advertising matches. Second, through native advertising, one of the key projects this year we further ensured user experience and time span by elevating the supply of high-quality ad materials and designing advertising with user sensitivity, among other strategies. Taking these efforts into consideration, we believe that AdLog still has upside potential, provided that user experience is preserved.
spk11: On the other hand, about CPF, With the gradual warm-up of the advertising market supply chain, CPM is expected to gradually improve. At the same time, we are also continuously promoting the optimization of matching efficiency to improve the related production measures of CPM. Specifically, it is focused on model optimization, population exploration, etc., optimization of user conversion rate, and the upgrade of the raw material investment mechanism that I just mentioned. will help to increase the conversion rate of advertising groups and improve CPM.
spk06: On the other hand, with respect to CPM, we expect it to gradually increase alongside the gradual recovery of advertising on the supply side. We also anticipate improvement as we continue to promote matching efficiency optimization while upgrading the CPM-related product and research. Specifically, we will focus more on model optimization, user cohort explorations, and other measures to enhance the user conversion rate. We will also continue to upgrade placement mechanisms for native advertising materials, as I just mentioned. We expect these to drive the advertising conversion rate for advertisers, thereby further improving our CPM.
spk11: Welcome to your second question. Recently, in the summer, we observed that the leading industry in some key industries, such as the game industry and media information, has increased significantly. The e-commerce platform has decreased significantly due to the recent five major discount points. Other industries, such as education and finance, have also been affected by the summer winter, and have increased significantly. In July, the overall consumption of the external circulation was created,
spk06: regarding your second question as we entered the summer holiday and implemented our support policies for certain key industries we have seen continued sequential growth of advertising placement from top industries including gaming and information services due to the recent lack of large-scale promotion events advertising placement from e-commerce platforms experienced a sequential decline however Advertising expenditures from other industries such as education and finance also improved but sequentially as they entered a peak period during the summer holiday. As such, full-July ad expenditures for external advertising services reached the highest level since April of last year.
spk11: As for the next half of the year, the game industry, especially the small program games that were launched last year, It is estimated that this year, the scale of the small game industry will reach 3.5 billion, and there are more new games released by game manufacturers in recent years. Game industry customers have a clear demand for the current flow, and there are a large number of young and not yet introduced by traditional channels. But at present, our market share in small game is still relatively low. As for opportunities on external advertising services in the second half of this year, first, the gaming industry. We noticed that Dark Hole's emergence of mini-program games last year
spk06: And in 2023, the market size of the industry's segment will reach 35 billion RMB. In addition, game developers have launched a large number of new releases recently, and they have clear advertising needs for summer traffic. Kuaishou has a large young user base in Tier 3 and Tier 4 cities who have not yet been reached via traditional channels. But currently, our advertising share in the mini program game industry is relatively low. This year, we built a dedicated team to provide these advertisers with the integrated solution to optimize game effects. We also ramp up our incentives and support policies for ad agents, all in an effort to gain additional market share.
spk11: Part of the social tools will also have a good chance of growth under the stimulation of the flow of the period. That is based on the short-term short-term short-term short-term short-term is one of the three ways to increase the fastest. In the first half of the year, we further optimized the chain of small programs and short-term short-term. In July, we started to provide the ability to put in the original small programs online. We want to make sure that paid short-term payments can be returned within a short period of time, so that paid short-term payments can get more natural flow and better improve ROI. Therefore, we also hope to get more volume on paid short-term payments. In addition, in terms of the original production line, the volume is mainly consumed by the game and media industries. We are also further expanding the scope of industry promotion of raw materials, and increasing the investment in raw materials such as finance and education. I believe it will also bring a new consumption increase in the industry. Of course, with the end of the second half of the year, the e-commerce industry sales peak, plus the impact of the epidemic in the second half of last year, the advertising team of the comprehensive platform of e-commerce in the second half of this year will also pull the recovery and rebound of investment.
spk06: Second, in the information services industry, SurePlayz and certain social tools will provide better opportunities on the stimulation of abundant summer traffic. Leveraging Kuaishou's pregnant massive user base of 260 million BAUs, paid SurePlayz is one of the fastest growing tracks of Kuaishou. In the first half of the year, we further optimized the existing purchase path for mini programs and SurePlayz. In July, we launched our native mini program advertising services, closing the loop for paid short plays within the Kuaishou platform. This can not only drive more organic traffic for paid short plays, but also improve their ROI. Thus, we expect to gain additional advertising placements from paid short plays. Additionally, for our native advertising project, incremental and spending historically came mainly from the gaming and information services industries. We are further expanding the scope of native materials in industries such as finance and education, which we believe that will drive incremental ad spend growth. Finally, with many e-commerce industry promotional events coming up in the second half of the year and considering the pandemic impact at the end of last year, we expect e-commerce platforms, advertising placements will rebound and recover in the second half.
spk03: Thank you, operator. Next question, please.
spk04: The next question is from Alex Poon from Morgan Stanley. Your next question comes from Alex Poon of Morgan Stanley.
spk02: Please ask your question. Thank you. Congratulations on your strong performance. My question is about new business, such as local life and fast work. I would like to ask if you can tell us about the recent situation. Thank you. My question is related to our new businesses, such as local services and blue-collar recruitment, etc. Can management share the latest update of these new businesses? Thank you so much.
spk11: Thank you for your question. The competition in the local life market has intensified, but competition also represents more possibilities. Thank you for your question.
spk06: The local service market is becoming increasingly competitive, but competition translates to more possibilities. As a short video platform with high quality traffic, we are ready to seize the opportunities that come with the industry advancement and the reshaping of the competitive landscape to grab the market share. Currently, our local service business is in the early rapid growth stage. with a quarter-over-quarter GMV increase of around 200% in the second quarter.
spk11: In the second quarter, we introduced a high-quality opening strategy to lead to an increase in MVP, and introduced more local merchants and product attacks. We also added Beijing and other core operating cities. In the key cities, we built BD to match the target, with abundant attacks. The number of high-quality answers and high product quality points and other high-quality products have increased by 200%. In terms of supply type, we continue to strengthen the food delivery business, expand the sales, and at the same time grasp the big trend of offline travel recovery. In the core city, we create a long-term product explosion, and continue to strengthen the user mindset. At the same time, In this episode, on the basis of短信品, we launched a live broadcast to increase the participation and interaction of users through richer content forms, provide more detailed products and mechanism explanations, and at the same time strengthen the governance of content ecology, fully utilize our traffic advantage to optimize the traffic distribution system, assist in high-quality supply and demand, and direct the transaction efficiency to optimize live broadcasts, short-term products, and search transactions and commercial networks. In the second quarter, we accelerated the establishment of MVP leveraging a high quality city rollout strategy and onboarded more local merchants and merchandise. Also added operations in core cities like Beijing,
spk06: In key cities, we built our own BD team and matched merchants with local KOLs to enrich supply. This led to approximately 200% quarter-over-quarter increase in both the number of high-quality KOLs as well as the number of high-quality products with high merchandise scores. In terms of supply, we continued to strengthen our in-store dining supply to expand our share of voices. Meanwhile, we capitalized the trend of offline travel recovery to create blockbuster hotel and travel products in core cities, fortifying our mindshare among users. This quarter, we also leveraged live streaming on top of short videos, offering the richer content formats to increase user participation and interaction, while providing more detailed information on products and mechanisms. We also enhanced content ecosystem governance, fully utilized our traffic advantages, optimized our traffic distribution systems, facilitated high quality supply, and improved transaction and settlement paths in live streaming, plus your videos, plus search, with the goal of improving transaction efficiency. This not only significantly improved the user NPS, but also increased the overall local service buyer base by nearly fivefold from January to June.
spk11: In the second half of the year, our key cities will continue to grow, continuously enrich the supply chain, build up the trust ecosystem of men, optimize the flow structure on the wide public and stable private areas, and continue to improve GNV. At the same time, we will refine the supplementary policy to achieve more efficient user transformation. In recent years, we have launched the Fly Bird Project, which will provide more flow support, local goods,
spk06: Looking forward to the second half of the year, we will continue to cultivate our presence in key cities in which supply, build a trusted KOL ecosystem, and optimize our traffic mix based on a broad public domain and a stable private domain. While continuing to increase GMB, we will refine our subsidy strategy to achieve more efficient user conversions. Recently, we launched the Flying Bird project, which will provide more support in the forms of traffic, high-quality local products, training sessions, and cash incentives, etc., to co-build Kuaishou's local service ecosystem with KOLs.
spk11: In the second quarter, our fast-paying business has also made some good progress. The total number of Japanese customers has increased by 2.9%. In July, the total number of Japanese customers has stabilized at more than 500,000. In terms of job supply, our jobs have already covered more than 200 cities nationwide. The second-tier jobs in the job market have also exceeded more than 200. The above business progress is mainly due to the continuous improvement of fast-paying product capabilities and the continuous optimization of traffic strategy. In terms of product capability upgrade, we focused on the three main scenes of content, consulting, and center. The whole scene is to stimulate the demand of users. In terms of traffic strategy optimization, we developed a recommended model for fast-tracking exclusive to do the traffic distribution of fast-tracking content, to improve the accuracy of the fast-tracking content and user matching, and also to let better customers with better service capabilities get more traffic support.
spk06: Our quite higher business also made good progress in the second quarter, with the average number of daily resume submissions increasing by 290% year-over-year. In July, the average number of daily resume submissions has stabilized at more than 500,000. On a supply side, our jobs have covered more than 200 cities across the country, with over 200 secondary position categories. This business progress is mainly due to our continuous upgrading of QI Hire's product capabilities and our ongoing optimization of traffic strategies. In terms of building product capabilities, we focus on three areas, including content, consultation, and our aggregation hub, which holistically stimulate our users' job hunting needs. To optimize traffic strategy, we have developed QI Hire's proprietary recommendation model to distribute its content traffic This has improved matching accuracy among quite highest content and users while allowing the businesses with better service capabilities to obtain greater traffic support.
spk03: Thank you all for your time.
spk04: Next question, please. 下一道问题来自于民宿后的方位。 Your next question comes from Wei Fang of Bizzouhou. 请提问。
spk08: Thanks for taking my questions and congrats on achieving positive IFRS net profits. Can you help update us on your four-year break-even offer?
spk07: as well as the trajectory for cross-margin and artifacts. Thank you.
spk10: Thank you for your question. With the joint efforts of all departments in the company, our sales performance has made another breakthrough in this quarter, and achieved another important profit milestone. Since its launch in 2021, the quarter's net profit at the group level under international accounting standards has reached RMB 14.8 billion, and the adjusted net profit has reached RMB 26.9 billion.
spk06: Thank you for the question. With the joint efforts of all Questro's departments, we made another breakthrough in our cost reduction and efficiency enhancement endeavors and hit another major profitability milestone. achieving the first-ever group-level quarterly IFRS net profit since our listing on a stock exchange in 2021. Our net profit reached 1.48 billion RMB and adjusted net profit reached 2.69 billion RMB. These achievements benefited from the healthy and continued expansion of our ecosystem, strengthened monetization capabilities across the business line, and our unremitting efforts to enhance our operation efficiency.
spk10: Looking forward to the whole year, we believe that the revenue of each business sector can continue to maintain a good growth status, and the operating efficiency will steadily increase. It is expected that the annual net profit rate will be close to 50%, which is a relatively obvious increase compared to last year's net profit rate level. The important factors that continue to improve the net profit rate have been mentioned in previous episodes, including the optimization of the revenue structure, the increase in the net profit rate of advertising and e-commerce businesses,
spk06: looking ahead for the full year, we expect our revenues for each business line will remain solid growth momentum, with further improvement in our operation efficiency. We expect our gross profit margin for the full year to be close to 50%, representing a significant increase compared to the prior year. As mentioned in previous quarters, the factors driving the continuous gross profit margin expansion include first, the change in the revenue mix as advertising and e-commerce businesses with higher gross profit margin contribute larger share of the revenue. And second, our effectively controlled and optimized revenue sharing costs. And third, we continue to leverage technologically innovations and to improve the server and bandwidth usage efficiency.
spk10: In terms of market cost, we expect that this year, the whole year, when the DAU reaches a rise of more than the number of middle units, it can still maintain the absolute value of the whole year's market cost, which is basically the same as last year. We will use technology and operation methods under the premise of guaranteeing the growth of users and market goals to further optimize the customer cost of single users and the maintenance cost of single DAU through clean operation. In short, we believe that as we continue to implement the implementation
spk06: In terms of selling and marketing expenses, we expect the absolute number for the full year to remain stable compared to last year, while DAUs will achieve a mid-single-digit increase for this year. While ensuring the realization of our user growth and user time spent targets, we will refine operations to further optimize acquisition cost per user and retention cost per DAU through technological and operational means. In summary, we believe that with the continuous implementation of measures to improve quality and enhance efficiency, we could steadily improve our group's profitability.
spk03: Thank you, operator. Next question, please.
spk04: The next question is from Thomas Chong of Jefferies. Your next question comes from Thomas Chong of Jefferies. 晚上好,謝謝管理長介紹我的提問。 我的問題是關於AI的。 公司可以分享一下我們在AI的戰略, 尤其是我們在通通 大模型方面的進展。
spk05: Thanks, management, for taking my questions and congratulations on a very strong set of results. My question is about our AI strategies. Can management comment about the latest progress on large language models and thoughts about the future? Thank you.
spk11: The current R&D team is working on developing and training large models according to the plan. At the same time, we have developed and trained several large-scale models with hundreds of billion parameters. Currently, the large-scale model of the fast hand self-development has started to be tested and provided a standard API and customized project cooperation program for the business team. In the test of models of the same scale in the industry, our large model has many indicators that are at the top level. Thanks to your question. We disclosed some of our progress with respect to the LLMs at the recent annual Photosynthetic Creators Conference.
spk06: Currently, our R&D team is making progress in LLM development and training as planned. We have co-currently developed and trained multiple LLMs with tens of billions of parameters. At the same time, our self-developed LLM called Quai E is undergoing internal testing, providing business teams with standard APIs and customized product collaboration solutions. As indicated through testing various LLMs of the same scale in our industry, several of our LLMs indicators are at the industrial leading level. Yet, we think that it is more important to continue building our LLMs foundation and strive to benchmark the world's most advanced models. And when the time is right, we will disclose further details publicly of the progress of our LLMs.
spk11: Based on the technology accumulated in the large model, we have achieved the landing of multiple application scenarios. First of all, in terms of search, we started the internal search of smart Q&A products on July 8 this year. On August 8, we started the internal search of AI dialogue, and on August 18, we started the internal search of the quick hand AI dialogue function in the Android version of the quick hand app. On leveraging our accumulated technical expertise on NLens, we have successfully developed several application scenarios.
spk06: First, in terms of search, we conducted internal testing of our intelligent Q&A product on July 8, and launched internal testing of AI Dialog on August 8th. On August 18th, we officially launched the Kuaishou AI Dialog feature in the Android version of the Kuaishou app for internal testing. And this is the first L&M based intelligent Q&A product put into application in the short video and live streaming industries. It can provide users with new functions like intelligent Q&A and text creation in search scenarios.
spk11: 其次是在 AIGC方面, 我们打造了全模态大模型AIGC的解决方案。 基于自演的机座大模型, 我们能为用户提供包括文本生成, 图片生成,3D素材生成,音频生成, video production, and other various technical capabilities, covering from inspiration to creative production, from the supply of diverse materials to the entire process of intelligent creation. In addition, in the context of live broadcast e-commerce, local life, and fast ping, we have also launched digital products, quick hand live broadcast, support the streamer to quickly produce their own digital live broadcasts, use digital to quickly open live broadcasts and make short videos.
spk06: And second, in terms of AIGC, we created a full model LLM AIGC solution. Based on our self-developed foundation LLMs, we can provide users with multiple technical capabilities, including text, image, 3D, audio, and video generation, covering the whole creation process from inspiration to idea generation from a multifaceted provision of creative materials to intelligent production. In addition, All scenarios, such as live streaming e-commerce, local services, and quite higher. We also launched a digital human product, Kuaishou Smart Host, which empowers the host to quickly create their own digital twin and use digital humans to start hosting live streaming events and creating short videos.
spk11: Finally, in terms of implementation, Kuaishou has accumulated a lot of users' experience in behavioral modeling in the past few years. the user behavior modeling program and achieved significant business revenue. The success of the large model in resource language modeling also gave us a new inspiration. We believe that the large model of the user behavior series, the dialogue language series modeling, will help us improve our understanding of short-wave and live broadcast behavior. In the recommendation algorithm, we made a better match to improve the ROI of content recommendation.
spk06: Lastly, regarding recommendation algorithms, we have accumulated substantial experience in the modeling user behavior sequences over the past few years. We've developed a user behavior modeling solution, which has led to significant business benefits. The success of LLMs in natural language modeling has provided us with new insights. leading us to believe that user behavior sequences can be modeled similarly to the modeling of language sequences within LLM. This can thereby enhance our understanding of short video and live streaming behaviors, enabling better matching through recommendation algorithms and improving the ROI of content recommendations.
spk11: We always believe that our platform can fully benefit from the AI technology wave. We firmly believe that short video platforms can greatly benefit from the advances in AI technology. As such,
spk06: YSHO will persistently drive LLM development and training while ensuring the rational and efficient allocation of manpower and other resources. We will also actively seek opportunities to integrate LLMs into diverse business scenarios.
spk03: Thank you, Operator. That's the conclusion of our Q&A session.
spk04: 好,感谢。今天的问答环节到此结束。现在有请Melu做总结性发言。
spk03: 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.
spk06: Thank you.
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