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spk02: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology fourth quarter and full year 2023 financial results conference call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. This English line will be in listen-only mode. I will now turn the call over to Mr. Matthew Zhao, VP of Capital Market and IR at Kuaishou Technology. Thank you, operator. Good evening and good morning to everyone. Welcome to our fourth quarter and third year 2023 financial results conference call. Joining us today are Mr. Cheng Yixiao, co-founder, executive director, and CEO, 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 except as required by law. During today's call, management will also discuss certain non-FRS financial measures for comparison purposes only. For definition of non-FRS financial measures and the reconciliation of IFRS to non-FRS financial results, please refer to our results announcement for the fourth quarter and full year ended December 31st, 2023 issued earlier today. For today's call, management will use Chinese as the main language. A third party interpreter will provide some English interpretation in the prepared remarks session. and a consecutive interpretation during the Q&A session. Please know that English interpretation is for convenience purposes only. In case of any discrepancy, management statement in their original language will prevail. I will now hand the call over to Yixiao. Hello, everyone. Welcome to Kuaishou's fourth quarter and three-year 2023 earnings conference call. Despite external market challenges in 2023, we remain true to our long-term vision of creating value for users and partners by building a healthier and more inclusive content and commercial ecosystem. We supported the high-quality content and expanded recommendations for useful and entertaining content, including short videos and live streaming. We continually refine our entertainment live streaming ecosystem, making it healthier and sustainable by supporting small and medium streamers and Chinese traditional culture streamers. We also use the scoring system for merchandise store experiences and KLS reputations in our traffic distribution, striving for a more satisfying e-commerce ecosystem. We upgraded our traffic distribution mechanism across organic marketing and e-commerce channels, by including users' experience indicators in our recommendation algorithm to align content quality and commercialization efficiency. Last, we optimized our organizational structure to better integrate content and a commercial ecosystem within the team, promoting synergy. As a result, our use base reached greater highs in 2023. In Q4, average MAUs on the Kuaizhou app exceeded 700 million, a new record. More e-commerce merchants and marketing clients choose Kuaishou as their go-to platform for long-term operations, with monthly active merchants on Kuaishou up by 50%, and marketing clients doubling in 2023. These two businesses also outperformed the market in growth rate, increasing their market share. In overseas markets, we targeted key countries, considerably increasing revenues and decreasing losses, Our innovative business-like local services like QuiHire and IDU Housing focus on building strength for rapid future expansion. Progress in our content and commercial ecosystem also led to robust financial improvement. Our group's total revenue reached 113.5 billion RMB in 2023, representing a 20.5% year-over-year increase. Moreover, we turned losses into gains in both adjusted net profit and profit for the year in 2023. Our full-year adjusted net profit surpassed the 10 billion market to reach 10.3 billion RMB, which demonstrates the company ushered in a new era of sustainable profitability. Next, I will discuss our key business developments for the quarter. First, user growth and ecosystem construction. In Q4, we optimized the user growth strategies, viewed scenarios for user demand insight, and explored user interest with refined algorithms. As a result, average DAUs and MAUs on the quite show app reached 382.5 million and 700.4 million, a 4.5% and 9.4% year-over-year increase, respectively. In Q4, the average daily time spent per DAU on the quite show app was 124.5 minutes. Furthermore, we fostered a vibrant user community by optimizing user-to-user relationships. By the end of 2023, there were 33 billion pairs of mutual followers on the Kuaishou app. We focused on acquiring high-value users with high retention potential to drive growth quality and reduce the acquisition cost per new user year-over-year in Q4 by optimizing efficiency in growth across multiple channels. The subsidy cost per DAU of Kuaishou expressed decreased year-over-year in Q4 due to our refined operations strategy. Content consumption is the core value that we offer users at Kuaishou. We have built a sustainable content supply ecosystem that highlights content showcasing Kuaishou's unique characteristics. For example, Kuaishou has always led as a pioneer in the short play video, launching almost 1,000 short plays by Kuaishou Astro Short Plays. With over 300 blockbusters, each garnering more than 100 million views by the end of 2023, We've also introduced tens of thousands of subscription-based short plays from third parties. We created a superior native user experience with a self-developed sales funnel conversion path, boosting supply and demand through efficient traffic distribution. In Q4, heavy users watching over 10 episodes a day reached 94 million, a 50% year-over-year increase. High-quality short plays also increased the user's willingness to pay. with the daily average ranking users on Huizhou trickling year-over-year in Q4. Another example is in the three rural verticals, including agriculture, rural areas, and rural inhabitants, where we built a warm online community for rural users with fair and inclusive traffic distribution. In Q4, the number of short videos posted by active creators with over 10,000 followers in this vertical increased by over 30%, with average views rising over 20% year-over-year. Growth in this vertical showcases more rural creators are gaining exposure. On Kuaishou, we also provided diverse monetization channels to support this burgeoning group of creators. As a result, rural content creators with over 10,000 followers who earn income from e-commerce and marketing services rose by over 30% year-over-year in Q4, playing an important role in promoting rural revitalization. For our search business, by refining the search after watching scenario and giving more weight to social relations and useful content in search result rankings, we enhanced search user penetration and search experience. In Q4, Kuaishou search saw a more than 16% increase in average monthly users and average daily searches continue to rise both on year-over-year basis in terms of commercialization revenue from search marketing services nearly doubled year-over-year in Q4. Second, online marketing services In Q4, online marketing services revenue grew by 20.6% year-over-year to 18.2 billion RMB, representing 55.9% of the group's total revenue, a new record. This robust growth resulted from refined industry-specific operations, upgraded smart marketing placement products, and optimized algorithms. Additionally, the allocation of several marketing clients heavily weighted year-end marketing budgets bolstered this growth. In Q4, the number of active participants marketing clients rose by over 160% year-over-year. In Q4, native marketing services remained a key driver of online marketing revenue growth. We unveiled new features for our Omni platform marketing solutions, such as in-placement analysis, post-placement review, and real-time material analysis, empowering merchants to utilize our high-quality traffic and maximize their GMV. In Q4, merchants' consumption on Omni platform marketing solutions soared by over 200% quarter-over-quarter. Smart hosting products, including live streaming hosting, merchandise hosting, and search hosting, were widely used, reducing the placement threshold for small and medium-sized merchants and enhancing marketing consumption and performance. Merchants' consumption through live streaming hosting grew by over 150% quarter over quarter in Q4. In Q4, the year-over-year revenue growth rate of external performance marketing services continue to increase, especially in industries like media information, education, and training, and gaming. For paid short plays in the media information industry, we consistently optimize our self-developed sales funnel conversion path, creating a higher quality short play ecosystem and enhancing user experience. Meanwhile, we improved our real-time forecasting model through algorithms, boosting users' willingness to pay, and encouraged marketing clients to advertise on our platform. In Q4, the marketing consumption of the rapid short play increased by over three-fold year over year. To enhance our product capabilities, we introduced UAL, which stands for Universal Auto Ads for Leads, and utilized AIGC to improve product efficiency and marketing materials quality. This provided our clients with smart marketing capabilities for targeted demographics and improved placement stability. Integrating native marketing content with organic content, we achieved a true marketing-as-a-content approach. In Q4, the consumption of external native products Marketing materials increased by over 50% quarter-to-quarter, with consistent increase in the share of excellent marketing consumption from native marketing materials. Regarding brands, our brand marketing revenue grew by over 80% quarter-to-quarter in Q4, boosted by key promotional events, including the Double 11 sales promotion and our own marketing program. We introduced marketing solutions integrating brand awareness, sales conversion, operational marketing for clients in the automotive industry, reaching potential users, and improving conversion efficiency. Utilizing our unique traffic and distinctive brand portfolios, we established a deep marketing collaboration with the leading automotive brands such as FAW, Volkswagen Audi, and NIO. Moreover, we boosted brand budget allocations by leveraging high-quality content. Kuaishou Astral Short Place became a preferred marketing tool for many brands. In Q4, revenue from marketing sponsorship of Kuaishou Astral Short Plays surged by over six-fold quarter-over-quarter, attracting customers from industries like fast-moving and zoomable goods, e-commerce, as well as cosmetics and skincare. Third, our e-commerce business. In Q4, our e-commerce GMV maintained a rapid growth rate of 29.3% year-over-year. reaching 403.9 billion RMB. This growth boosted our annual GMV to more than 1.18 trillion RMB and propelled our ongoing marketing share gains. By reinforcing our infrastructure, enhancing supply, consistently nurturing a healthy e-commerce ecosystem and upgrading user experience, we made a strong progress across user schools and venues. On the user side, in Q4, the average number of MPUs reached a new high, exceeding $130 billion, and the MAU penetration rate increased to 18.6% due to enriched shopping scenarios like shelf-based e-commerce, an ongoing product, and feature enhancement. Notably, we introduced the e-commerce black card membership for top users alongside Kwaito's Shop's money-saving monthly card, increasing engagement and purchase frequency for high-value users. Meanwhile, we refined smart subsidies and strengthened the governance of the e-commerce system. Bolstered by the 2011 and 2012 sales promotions, we maintained a year-over-year increase in both monthly purchasing frequency and ARPPU. On the supply side, over 1 million merchants joined the 2011 sales promotion, boosting the monthly active merchant by over 50% year-over-year. Numerous merchants and KOLs benefited from increased platform traffic, attracting new merchants continuously. In December, around 660,000 merchants were onboarded, reaching a new record for 2023. To support merchant growth on Kuaishou App, we introduced initiatives like the Merchant Training Camp and our Uplift initiative to assist in the CoStar stage. Additionally, we also built service centers and product selection centers in the industry zones of 14 core cities, leveraging services Provider resources, we offered localized operations and training tailored to small and medium-sized merchants. For example, in the apparel industry zone in Suzhou, the service centers led to 40% growth in both attractive active merchants and GMV. For brand merchants, we maintained robust growth in Q4 during the sales promotion period. GMV from brands rose by 155% year-over-year, with nearly 2,500 brands doubling their GMV in Q4. GMV from well-known brands to self-operated live streaming more than doubled year over year, primarily driven by brand-intensive industries like consumer electronics, home appliances, men's apparel, and sports. Additionally, we enhanced brand retrieval with outperforming distribution products through the Stream initiative and encouraged them to focus on self-operated live streaming. In terms of KOLs, we prioritized the health of our KOL ecosystem, encouraging new KOLs to engage in live streaming through KOLs The Spark initiative, resulting in a nearly 7% point rise in proportion of mid-tier KOLs in overall KOL-related GMB year-over-year. KOLs use short videos for product recommendations, integrated shopping links, and optimized shop window displays to complement their live streaming efforts. On the distribution side, we boosted KOL sales enthusiasm through precise matching services and promotion events, such as spring new launches, end-of-season clearance sales, and winter closing sales, As a result, the number of active streamers in the sports and outdoors category increased by almost 200,000. In terms of e-commerce scenarios in Q4, we strengthened the infrastructure of our e-commerce ecosystem to meet user demand. Meanwhile, we also made significant strides in the shelf-based and short of video e-commerce realm. In Q4, the growth of a shelf-based e-commerce GMV outpaced that of overall platform, accounting for over 20% of total GMV. This growth was driven by increased supply and demand, leading to over 60% a year over the increase in average daily active merchants and average daily paying users. We provided full access to the Shopping tab on our homepage during the promotional season to boost traffic. We enriched the merchandise supply based on the user preferences, extending standard merchandise categories and brand merchandise. At the same time, we strengthened the user's mindset for the most valuable money shopping through marketing initiatives like Big Brand, Big Subsidy, unlocking additional shopping needs and leading to over 70% growth year-over-year in average daily buyers in Q4. In addition, we explored the diversity for user shopping needs through algorithms and dynamically adjusted exploration traffic to incrementally reinforce user shopping mindset at our shopping mall. In the search realm, user search-induced e-commerce mindset was continuously strengthened. We increased the accuracy of users' intention, identification, and merchant display, leading to a sustained increase in conversion efficiency. As a result, GMV expanded more than 60% year-over-year. Short video e-commerce GMV grew rapidly in Q4 and more than doubled year over year. This was mainly due to the enriched short video supply and improved content quality. For example, during the pre-sale period of Double 11 sales promotion, merchants expanded their exposure through short video, getting new pre-sale GMV records. Through the promotion period, merchants created blockbusters by leveraging short video and live streaming. After the promotion, short videos were used as steady and high-quality e-commerce content that was widely disseminated to convert more views into buyers. In terms of the infrastructure of our e-commerce ecosystem, we strengthened our pricing capability in the Q4 by incorporating pricing signals into short video and shelf-based e-commerce scenarios. We improved the visibility of highly cost-effective merchandise to further boost our platform's efficiency and optimize the user experience. Meanwhile, we stepped up our efforts to improve product labeling for new items and blockbusters and upgraded the three-score system, which heightened the overall traffic allocation efficiency. Next, regarding our live streaming business, in Q4 2023, revenue from our live streaming business remained stable year-over-year, increasing by 3.4% per quarter to 10 billion RMB. This was due to our unwavering commitment to fostering our ecosystem's long-term health and our focus on high-quality content as the core driving force behind our live streaming business. On the supply side, we have dependent abroad and our local operations in major regions nationwide, driving an increase in the number of regional talent agencies and streamers while increasing talent agencies' gross revenue. In Q4, the number of regional talent agencies collaborating with us exceeded 1,300. Meanwhile, we'll continue to develop new content, interactive scenarios, and product features to meet users' diverse consumption needs. Notably, we are consistently promoting emerging product categories such as multi-host live streaming and grand stage while integrating our policies, refining our product features, and expanding user scenarios Those combined efforts have been instrumental in driving our steady revenue growth. In Q4, the number of streamers on Kuaishou managed by talent agencies increased by nearly 40%, and the average daily live streaming time of streamers increased by more than 30%, both on a year-over-year basis. We continue to explore and cultivate high-quality live streaming content and streamers, carving out Kuaishou's distinctive characteristics. We strongly supported the key categories of traditional culture, such as opera and folk music, In 2023, the number of traditional culture streamers, including those involved in tangible cultural heritage and inheritance, exceeded to 190,000. In December 2023, Kuaishou Live collaborated with the Xinhua News Agency to create the new episodes of the National Arts live streaming program. This initiative effectively supported the growth of many traditional culture streamers. Moreover, at the 2023 Grand Prix, At any grant ceremony, we widened our range of development tracks, created growth opportunities for streamers, and brought in support to encompass a larger pool of mid-tier streamers. This has led to a continued rise in the ratio of streamers possessing professional talents and skills, showcasing an enhanced long-term value. In addition, as a prime example of our live streaming services empowering traditional industries, our quite higher live streaming platform for blue-collar recruitment increased by over 200% year-over-year in the average daily resume submissions during COVID-19. with the daily average number of users submitting resumes growing by over 10% year-over-year. Similarly, our ideal housing live streaming in real estate agency achieved a cumulative gross transaction value of more than $16 billion in Q4. Finally, in terms of our overseas business progress, in Q4 2023, we continued our focus of strategy on overseas key markets, DAUs, and the user time spending core overseas, such as the Brazil and Indonesia grow steadily year over year. While developing our user ecosystem, we continue to promote the production of localized or regional content, offering diverse content such as workplace, mini-games, paid courses in sports, among others. We sponsored popular shows in Latin America, continuing to enhance our media brand influence. Moreover, we intensified our monetization efforts. In Q4, total revenue of our overseas business reached $847 billion. increasing by nearly 200% year-over-year. We continued to improve operating efficiency, resulting in significant reduction in user growth costs by more than 30%. We successfully narrowed our overseas operating losses by 63.2% year-over-year in Q4 and further reduced our operating loss quarter-over-quarter. On overseas online marketing services, we focused on deep industry cultivation at the content level and fostered development of key industries and localized marketing capabilities. We continue to advance the development and enhance our product ecosystem with focus on bid product, live streaming traffic, and original content, stimulating rapid growth of revenue and consumption for clients across multiple industries, such as e-commerce and gaming. In Q4, marketing revenue of our overseas business surged over 300% year-over-year. Moreover, we expanded the network of top-tier KOLs and cultivated a selective group of KOLs, providing clients with a supportive environment and boosting their creative potential to generate high-quality content, thereby improving marketing efficiency. Looking forward to 2024, we'll continue to make progress across multiple growth engines, including infrastructure, algorithms, content, and in commercial scenarios. As the ancient poem goes, at a time we'll come to right of the wind and cleave the waves, I'll set my cloud-like sail to cross the sea which raves. Facing external challenges, we're doubling down on internal efforts, gathering momentum for when we will unlock more potential and achieve faster development. No matter how the competitive landscape changes will uphold our founding aspiration of enabling everyone to be seen. Delivering enhanced content and value services to our users. We strive to celebrate greater economic value for our partners, energizing our unique trust-based constant and commercial ecosystem. This concludes my prepared remarks. Next, our CFO, Jim Bing, will discuss the company's financial performance for Q4 and so year 2023. Thank you, Yixiao, and hello, everyone. We delivered a robust financial performance for 2023. As our revenues and profits soared to new heights, our total revenues for the year crossed $100 billion mark RMB for the first time, reaching $100 a $113.47 billion R&B, a 20.5% increase from last year. We also achieved the milestone profit levels with our first-ever annual ADVARS profit and a record-setting adjusted net profit of $10.27 billion R&B, a result of refined operations and an effective cost to control us. We expanded and retained our user base with improved algorithms and integrated monetization channels enhancing user experience and unlocking user traffic value. As a result, our DAUs remained robust and MAUs hit a new record in Q4. Next, now I'll have a closer look at our financial performance for Q4 2023. In Q4, our group's revenue grew by 15.1% year-over-year to 32.56 billion RMB, driven by growth across each of our core businesses, including online marketing services and e-commerce business. Online marketing services revenue increased by 20.6% to 18.2 billion RMB for Q4 from 15.1% billion RMB for the same period of 2022 and accounted for 55.9% of total revenues. Growth came from more marketing clients and their increased ad placement, especially in the native ads from e-commerce merchants. These results were driven by our improved product capabilities and refined industry-specific operations focusing on customers' needs. We continuously improved recommendation algorithms and devised smarter marketing placement strategies. Native marketing services were the largest contributors as we upgraded our Omni platform marketing solutions and smart hosting product to help merchants use our high-quality traffic to maximize their GMV across platform. Our other services revenue increased by 36.2% to 4.3 billion RMB for Q4 from 3.2 billion RMB for the same period of 2022, driven by our expanding e-commerce business and GMV. E-commerce GMV grew by 29.3% year-over-year in Q4 due to an increased number of active merchants and active paying users. By enriching shopping scenarios, innovating products, improving e-commerce ecosystem governance, and using smart subsidy strategies, we increased merchant engagement and supported their growth. Concurrently, we have enhanced the shopping experience for users, delivering a more immersive and fulfilling journey. Our live streaming revenue maintained stable at 10 billion RMB for Q4, in line with the same period of 2022, due to our commitment to ecosystem's long-term health and focus on high-quality content. By deepening regional expansion, introducing new content and interactive features, and supporting traditional culture streamers, we saw growth in the number and engagement of streamers and talent agencies. For Q4, our cost of revenues decreased by 1% year-over-year to 15.3 billion RMB and accounted for 46.9% of total revenues. This decrease was primarily due to tech upgrades, which kept down on both bandwidth expenses and server custody costs year-over-year. Gross profit for Q4 grew by 34%. and 19.6% quarter-over-quarter to 17.3 billion RMB. Gross profit margin reached 53.1% in Q4, expanding by 7.6 and 1.4 percentage points year-over-year and quarter-over-quarter, respectively. Moving to expenses, selling and marketing expenses for Q4 increased by 4.7% year-over-year to 10.2 billion RMB, accounting for 31.3% percent of total revenues, down from 34.4 in the same period of 2022. The increase in selling and marketing expenses was largely due to the heightened expenditure on promoting our product and marketing activities. Research and development expenses were 3.3 billion RMB for Q4, decreasing by 4.4 percent year-over-year, accounting for 10 percent of 1 percent of our total revenues, dropping from 12.2 percent in the same period of 2022. The decline in R&D expenses was mainly the result of decreased employee benefit expenses, including related share-based compensation expenses. But administrative expenses decreased by 27.3% year-over-year to $800 million for Q4, accounting for 2.3% of total revenues, down from 3.7% in the same period of 2022, primarily due to a decrease in employee benefit expenses, including related share-based compensation expenses. Group-level net profit for Q4 rose to 3.6 billion RMB, representing a significant improvement with a net profit of 2.2 billion RMB in Q3 and a net loss of 1.5 billion RMB in Q4 2022. Group-level adjusted net profit rose to 4.4 billion RMB compared with adjusted net profit of 3.2 billion RMB in Q3. and adjusted net loss of 45 million RMB in Q4 2022, showcasing our substantial profitability improvement. We have a robust balance sheet with cash and cash equivalents, time deposits, restricted cash, and wealth management products of 61.6 billion RMB as of December 31, 2023. Through our enhanced monetization capabilities and efficient working capital management, we generated positive operating net cash flow of 8.9 billion RMB for Q4 2023. Now, let's have a quick overview about our financial performance for 2023. For the full year 2023, our group's total revenues reached 113.5 billion RMB, up 20.5% year-over-year. This includes our online marketing services revenue of 60.3 billion RMB, a 23% rise year-over-year. Revenue from live streaming business increased by 10.4% year-over-year to reach 39.1 billion RMB. Revenue from other services, including e-commerce business, totaled 14.11 billion RMB, reflecting an increase of 44.7% year-over-year. Gross profit margin expanded by 5.8 percentage points year-over-year to 60.6% year-over-year in 2023. Our adjusted net income for the full year of 2023 was 10.3 billion RMB, a turnaround from 5.8 billion RMB in 2022. Our adjusted net margin was 9.1%. Adjusted EBITDA reached $17.1 billion in 2023 and a remarkable increase from $1.8 billion in 2022. And that is my preparative speech.
spk10: At this time, if you would like to ask questions, please press star 1. If you'd like to cancel your request, please press the pound or hash key. The first question comes from Lincoln Kong from Goldman Sachs. Please go ahead.
spk03: Thank you for accepting my question. I also congratulate the company for achieving a very bright result in the first three years. My question is about e-commerce. Can you share with us the progress of e-commerce business, driving factors, and a space for future growth? 我自己翻译一下。 So thank you, management, for taking my question. Congrats on a very strong 2023 result. Can management share the latest progress, driving forces, and the future growth potential for the e-commerce shopping mall business? Thank you.
spk09: there will be a higher rate in the future. We will further strengthen and coordinate the content in the content field, explore the needs of users, and improve the efficiency of purchase conversion. The mall provides users with a more certain area of daily shopping needs, rich marketing scenarios, and strengthens our users' repurchase. Our four seasons of malls have made very good progress, with more than 50% of G&V's same rate, Thanks for your question.
spk02: Firstly, I'd like to highlight that our e-commerce business is still experiencing rapid growth. We expect both our content-based e-commerce and shelf-based e-commerce segments to continue showing high growth trends. On the content-based e-commerce side, our goal is to enhance content synergy further. and explore user demand to increase conversion efficiency. In terms of our shopping mall, we aim to provide merchants with more predictable business opportunities to meet users' day-to-day shopping needs. Additionally, we plan to enrich marketing scenarios to drive repeat purchases. In Q4, we made remarkable progress in our shopping mall, with GMV up more than 50% year over year. There is still room for the growth.
spk09: The growth of high-speed J&V can't be separated from the double-wheel drive of supply and demand vehicles. In the fourth quarter, the number of retail stores in the shopping district has increased by more than 130%. We fully utilize the advantageous supply of the content factory. Through the co-cooperation of the content factory and the shopping district, we help the merchants to make a lot of money. With the innovation play, Wan Ren Tuan opened up the goods factory and content factory. Through platform-based remote products, we achieved a double sales explosion. In addition to cooperating with the content industry, we also launched a phase-free policy for new business owners to encourage business owners to enter. At the same time, the focus is on developing a unique platform for economic operation in the business world to introduce more SKUs that are suitable for business scenarios, including different categories, different price ranges of brand products, and more standard products. In addition, we continue to enrich the infrastructure construction of malls by continuously optimizing the algorithm to help users in mall areas find extremely cost-effective goods.
spk02: Both supply and demand drove the rapid growth in GMV. During Q4, our shopping mall's average daily active merchant count surged by over 130% year-over-year. We effectively leveraged high-quality content to synergize with our shelf-based e-commerce scenarios, such as the shopping mall assisting merchants in creating blockbuster products. Notably, our innovative feature Group Buy for 10,000 buyers seamlessly integrated content with shelf-based e-commerce, resulting in a surge in sales through product hosting on our platform. Additionally, we roll out a limited-time, commission-free policy for new merchants to incentivize their participation in our shopping mall. Furthermore, we focus on developing and refining the unique offerings of the shopping mall, introducing a wider range of SKUs suitable for diverse shopping scenarios, including brand name and standard merchandise across various categories and price points to cater to our users' diverse needs. Moreover, we continuously improve the shopping mall's infrastructure by enhancing ongoing algorithms to help users discover products that offer the best development for that money.
spk09: At the demand and traffic end, in the fourth quarter, we gradually opened the traffic entrance. In December, the shopping type was fully opened. For users to carry out traffic operation, it is better to collect differentiated traffic. For example, for new users, we provide refined subsidies, and launched a new version of shopping. In the transaction page, the choice of goods and services is more friendly to new users. The low price goods of the big brand and big supply channels have also transformed many new users in e-commerce.
spk02: In terms of demand and traffic, we gradually expanded traffic access in Q4 and granted full access to the shopping mall tab in December. We implemented tiered user operations to optimize the use of our diverse traffic resources. For example, we offer tailored subsidies to new users, launch a dedicated shopping mall version for them, and enhance the shopping mall's interface and merchandise selections to be more user-friendly for this segment. Attractive deals in the big brand, big subsidy section also gain traction. These converted many new e-commerce paying users, with the daily average of paying users in the shopping mall increasing by more than 70% year-over-year in Q4.
spk09: On the other hand, we also combine the nodes of sales, continue to strengthen the construction of commercial sales scenarios, help our business to achieve full operation, strengthen the customer's value-added shopping mindset, and strengthen the resale of users. During the Double 11, we brought users and commercial JNV double growth with the theme of big cards and big profits. During the New Year's Day, we launched a low-cost special sales channel, In the recent years, 38 major stores and malls have also continued to play a leading role in marketing values, helping merchants gain a more certain exposure. The platform has gained the full recognition of the business owners through the flow of subsidies and exclusive discounts, and the high growth and future sales potential of commercial GNV users. More business owners are willing to take advantage of the commercial scene of the commercial market to create exposure to the content scene. The creation of commercial and e-commerce scenes is also very limited to our profit end. This is mainly due to our refined operation strategy,
spk02: For the more, we have continued enhancing our shopping mall's marketing scenarios by leveraging various promotional events to support omni-domain operations for merchants, reinforcing the idea of value for money to users and encouraging repeat purchases. The double 11 cents promotion for shopping mall themed building big brand subsidies not only led to significant user growth, but also increased the shopping mall's GMB. For the Chinese New Year promotion, we introduced the special sale at low prices section to attract merchants selling daily essentials and provide users with a wide range of attractive deals. This initiative enabled merchants to take advantage of shelf-based promotions, and realize the surge in the sales of highly cost-effective goods. During the recent Women's Day promotion, we leveraged our marketing capabilities to enhance visibility and exposure for merchants, offering traffic subsidies and exclusive discounts to boost users' shopping mood. This approach has been well-received by merchants, leading to increased blockbuster sales and benefiting the shopping mall's daily operations through content-driven synergies. Our e-commerce marketing scenarios have a limited impact on our bottom line because of our cost-effective approach to driving greater marketing conversions. This approach worked well with minimal spend due to our refined operational strategies and active engagement with merchants. Overall, through enriching our supply and developing our ecosystem, we anticipate that the shopping mall business will continue to outperform our platform in the future, steadily increasing its share of the total GMV.
spk08: Thank you, operator. Next question, please.
spk10: Thank you. The next question is from Thomas Chong from Jefferies. The next question comes from Thomas Chong from Jefferies. Please ask your question. 晚上好,謝謝管理長介紹我的提問。 我的問題是關於我們線上零售業務的。 公司提到CG度我們內循環是推動線上零售服務收入增長的主要的動力。
spk05: Thanks, management, for taking my question. My question is about our online marketing services. As the company mentioned that native marketing service was the key driver for online marketing service revenue in Q4, can management elaborate about the strategies for optimizing merchant placement performance, i.e., the ROI? Thank you.
spk09: Thank you for your question. In the past few seasons, our internal circulation revenue has maintained a strong growth trend. We have launched a differentiated internal circulation product capability for different business scenarios and different stages of management, to provide better flow support to help businesses quickly expand their GMV scale and grow better in QS. More businesses are willing to do long-term strategic management in QS. Thanks for your question.
spk02: Our internal closed-loop marketing services revenue has maintained strong growth momentum during past quarters. We have introduced differentiated native products tailored to different types of merchants at various stages. These products are backed up by high-quality traffic support that lets merchants rapidly expand their GMV and grow their businesses more effectively on Kuaishou. It's seen that more and more merchants are choosing Kuaishou as their platform for long-term operations. In Q4 2023, the number of merchants utilizing ad placements increased by 50% compared with Q1 2023. Next, I will outline our Omni Platform Marketing Solution and Smart Marketing Placement products.
spk09: 全站推广产品 刺激商家在快手全站流量的营销投放 和GNV规模作为优化目标 帮助商家进行全站优势流量探索 带动GNV的提升 更好地满足商家的经营诉求 Full-time promotion links marketing traffic and natural traffic. Breaking down the distribution logic of marketing traffic and natural traffic, releasing the value of full-time traffic. Full-time promotion products can be divided into full-time live promotion and full-time commercial promotion according to the use scenario. In terms of full-time live promotion, in the fourth quarter, we have improved the data capacity of new investors, The optimization of traffic strategy and the optimization of experience improved the product capability and the effect of the delivery, and increased the penetration rate of the consumer's delivery consumption. Double 11's daily consumption peak broke through 15 million. The customer also achieved a total increase of about 20% through the delivery of live broadcasts. In addition, we have also completed the basic ability to promote products throughout the war in the fourth quarter. Our Omni platform marketing solution aims to optimize the effectiveness of the marketing placement, ensuring their GMV growth through an ROI-oriented approach.
spk02: By leveraging high quality traffic on the platform, our goal is to increase GMV generated from live streaming or merchandise sales, meeting the operational needs of merchants. This innovative approach seamlessly integrates marketing and organic traffic, breaking traditional boundaries to unlock the platform's food traffic potential. The solution compromises two key components, Omni platform live streaming promotion and Omni platform product promotion. In Q4, we enhanced product capabilities and placement performance by onboarding new merchants, improving marketing material capabilities, fine-tuning traffic strategies, and strengthening the overall experience. As a result, merchant placement to consumption surged. At its peak during the 2011 sales promotion, ad placement from the merchants exceeded 15 million RMBs. The total GMV for merchants utilizing our Omni platform live streaming placement increased by approximately 20%. Additionally, in Q4, we laid the groundwork for our Omni platform product promotion and successfully launched for merchants during the Double 12 sales promotion. This initiative enabled merchants to achieve promising outcomes in blockbuster creation, serving as a valuable asset for short video merchants seeking to expand their business.
spk09: In terms of smart delivery products, we are focusing on small and medium-sized suppliers with insufficient delivery capabilities. To be more specific, for customers with low supply frequency and need to go through a group of suppliers, we use product upgrade and perfect new customer value analysis measures, and link e-commerce subsidies to improve supplier consumption. At the same time, it also breaks through the growth bottleneck of J&V by bringing back users and people who broke through the circle. In the live broadcast scene and the goods price scene, we have provided live broadcast and product control capabilities for the business owners respectively. The business owner only needs to simply express the budget, time period, and transformation goals of the live broadcast room or the product's marketing investment, and the system can help it automatically create a unit for marketing investment. According to the algorithm, it automatically completes the marketing material and target population optimization and can carry out real-time optimization according to the transformation effect. In the fourth quarter of 2023, we improved the exposure and GNV scale of the business through a multi-type combination optimization strategy. The consumption of marketing investment through live broadcasts has increased by more than 150%.
spk02: In developing our smart marketing placement products, we have focused on creating capabilities tailored for small and medium-sized merchants who lack effective placement strategies, focusing on people, goods, and venues. Specifically, we assisted merchants encountering challenges such as low repeat purchases rates or needing to target new customer segments by upgrading our products. and refining new customer value analysis. By integrating e-commerce subsidies, our goal is not only to improve marketing spending, but also boost repeat purchases, broaden the customer base, and overcome GMV growth constraints. In live streaming and shelf-based e-commerce scenarios, we offer capabilities for live streaming hosting and merchandise hosting. Merchants simply need to specify their marketing budget, timeframe, and expected conversion target for the live streaming or merchandise. Our system automatically generates marketing placement units, select appropriate marketing materials, and target demographics using algorithms, and adjust in real time based on conversion performance. In Q4, by implementing multiple optimization strategies, we successfully enhanced the exposure and GMV scale of the merchants. Consequently, merchants experienced a significant leap in consumption through live streaming hosting, with the growth rate exceeding 150% compared with Q3.
spk09: In the future, we will continue to support the demand of our customers through the internal circulation of smart products Going forward, we will continue enhancing our smart products for native e-commerce merchants.
spk02: Our goal is to cater to a broader range of scenarios and merchants, regardless of size, by offering products tailored to their needs. This will enable them to effectively leverage high-quality traffic on CoinShow, creating a flywheel effect that boosts both their GMB scale and marketing consumption.
spk08: Thank you, our creator.
spk10: Next question, please. Thank you. The next question comes from Felix Liu from UBS. Please ask your question, Qin Tiwen.
spk04: Thank you, management, for taking my question and congratulations on the strong fourth quarter results. Good management, share more color on the latest development in your new initiative businesses such as local service, et cetera. Thank you.
spk09: Thank you for your question. Local life businesses, as a high-quality content supply, not only contribute in a modest way, but can also better meet the needs of users, contribute to the value of users, and improve our users' annuality. It is one of the most important new businesses. 2023 is the real year of the local life business. We have made many breakthroughs from 0 to 1. This is because of the constant growth of high-speed growth, the business infrastructure is gradually mature, and more users are building on fast hands to achieve local life consumption. In the fourth quarter, the number of Japanese paid users increased by more than 40% in local life business.
spk02: Thanks for the question. Our local services business, which offers high-quality content, not only contributes to GMV, but also provides user value by meeting users' demand, thereby enhancing user retention on our platform. This makes it one of our most valued new ventures. In 2023, the true inaugural year of our local services business, we achieved breakthroughs on various fronts, transitioning from zero to one. Throughout the year, we witnessed rapid growth in GMB, continually enriched offerings, and gradually maturing business infrastructure, and our local services have gained the mind share of more and more users. In Q4, average daily paying users of the local services surged by over 40% compared with Q3.
spk09: The number of retail businesses in Japan has increased by more than 40%. We will further upgrade the core of the city, using differentiated traffic advantages, strengthen cooperation with more high-quality merchants, and continue to limit the number of claims. Harbin's well-known brand, Moon 8-Zen, has achieved a break in the double-billion group purchase activity. The overall online income is three times higher than the usual store revenue, and has been selected by the central government. As a case of short video marketing breaches In terms of content, we increase the support of the audience Through the flying bird project to recruit and train the newcomers Encourage the production of good local life content At the same time, short video live broadcasts two-handed Promote a team-building performance live broadcast specialization plan Help the group purchase audience to connect with the product group Provide traffic support Realize fast live fans In December of last year, the number of readers increased 10 times since March last year, leading to an increase of more than 100% in the number of effective Japanese broadcasts.
spk02: Specifically, in Q4, we made significant progress on the supply side. The number of average daily active merchants up over 40% quarter over quarter. We further deepened our focus on core cities and strengthen the partnerships with more high quality merchants by leveraging our differentiated traffic advantage. This approach led to the development of several blockbuster cases. One example is Sapor Reunion Food, a renowned brand in Harbin. It experienced a three-fold surge in overall online sales during the double 11 group purchase promotion, surpassing its regular offline store sales. The success earned it recognition from CCTV as a model of short video-driven sales breakthroughs. On the content front, we fortified support for KOLs by launching the Flying Bird Initiative, which aims to recruit and train new KOLs to create high-quality local service content. Concurrently, through a focus on both short video and live streaming, we introduced the Group Purchase Live Streaming Initiative, This initiative provided KOLs with popular product and traffic support, enabling them to attract a substantial following. In December 2023, the number of high-quality content creators skyrocketed tenfold compared with March 2023. This surge led to a quarter-over-quarter growth of over 100% in the number of daily average active streamers hosting live sessions in Qboard.
spk09: and online travel service partners have reached a cooperation to introduce more U-shaped store tickets and travel routes to the fast-tracking platform, further enriching the nine-tour product range. We hope to use the new trend of domestic travel in 2024 to create a nine-tour marketing new field through more vivid video presentation and explanation.
spk02: On the platform front, we continue to promote our smart subsidy strategy in Q4. Leveraging our core competitive advantage in providing the best value for money, we optimized the traffic distribution system. This boosted matching efficiency and improved the end-user experience. We deepened our collaboration with the supply side to further develop a more transparent and GPM-oriented traffic allocation mechanism. This initiative aimed to enhance exposure to high quality merchandise and content. Moreover, in January this year, we formed a collaboration with our online travel services partner. Our goal is to enrich our platform by expanding the range of premium attraction tickets and travel routes, thereby enhancing the variety within our hotel and travel categories. Our focus is on seizing the growing trends in domestic tourism for 2024. To accomplish this, we plan to utilize engaging video content and detailed explanations, transforming Kuaishou into a new marketing frontier for the hotel and travel market. 此外,关于创新业务,我还想简单提一下我们在复划中的游戏业务。
spk09: As a technology company driven by innovation, we have been exploring the development and operation of self-developed games in the past few years, and we have also gained more and more satisfied talents, experiences, and capabilities. We are confident in the progress of the Chinese game market and the current development of fast-paced games. In the future, we will continue to invest in game business under the premise of assessing the impact of group damage under the pretext of long-term vision 我们希望在今年年底前,关于游戏业务有一些实质的进展可以与大家进行分享。 Additionally, I'd like to briefly touch on our incubated gaming business.
spk02: Driven by our commitment to innovation, Kuaishou has spent the past few years on our own games developments, accumulating a solid pool of talent, operating experience, and capabilities. We're confident in China's gaming market and the current progress of Kuaishou's game development. Looking forward, we will continue to invest in our gaming business, holding on to our long-term outlook, and ensuring our investments are manageable from a P&L perspective. We hope to share some meaningful developments in our gaming business with everyone by the end of this year.
spk08: Thank you all for your time.
spk10: Next question, please. Thank you. The next question comes from Alex Poon of Morgan Stanley. Please ask your question, Qin Tiwen.
spk07: The company has achieved very strong revenue growth and profits in 2023. Can management share more color about the business outlook in 2024? Thank you so much.
spk06: Thank you for your question. With the joint efforts of all departments of the company, we have achieved considerable progress in the implementation process in 2023. We have also been able to continuously improve our performance. In the first quarter of 2023, the company achieved the first-ever profit transfer of the quarter after the adjustment of the first-ever group level. In the second quarter, the company achieved the first-ever profit transfer of the first-ever group level of the first-ever international accounting price. In the second half of the year, the profit-making capacity increased rapidly, bringing the net profit after the year-round financial adjustment and the net profit in the period of the year. The net profit of the year-round financial adjustment reached 102.7 billion yuan. This marked the development of the company into an era of comprehensive profit. This progress is due to the continuous health expansion of our ecological system, the strengthening of the ability to transform all business lines, and the unwavering efforts to improve business efficiency.
spk02: Thanks for your question. With the dedicated teamwork across our company, we made great strides in cutting costs and boosting efficiency in 2023, leading to a continuous improvement in our profitability. In Q1 2023, we recorded our first ever group level quarterly adjusted net profit since our IPO. This was followed by our inaugural positive quarterly IFRS net profit in Q2. And our profitability kept fast improving the second half of the year. We successfully turned annual losses into profits in both adjusted net profit and IFRS profit in 2023. Our annual adjusted net profit exceeded 10.27 billion RMB for the year. Marking our entry into an area of comprehensive profitability, this leap forward resulted from the sustained growth of our ecosystem, enhanced monetization capabilities across our business lines, and our relentless efforts to enhance operational efficiency.
spk06: In 2024, we believe that e-commerce business and online marketing services will continue to grow rapidly. Business efficiency will also increase gradually. It is expected that the annual net profit rate will increase further than last year. As we look to 2024, we expect ongoing strength, strong growth momentum from our e-commerce and online marketing services alongside consistent improvements to our operational efficiency.
spk02: We also expect our gross margin to increase further this year as we continue to optimize our revenue mix, boosting contributions from our higher margin e-commerce and marketing services. Effective management and optimization of our revenue sharing cost strategies and better server and bandwidth efficiency through technological innovations will also drive our margins.
spk06: In terms of sales and marketing costs, we expect that in 2024, the DAU will continue to grow throughout the year, and in the second half of the year, the average DAU of one quarter will reach 400 million, and the total amount of user growth and maintenance costs will be significantly increased by 2023. We will use technology and operating methods to optimize growth strategies and economic operations under the premise of ensuring that user growth and market goals are met, and further optimize the cost of single users and single DAU maintenance costs, and improve the ROI of user growth. For sales and marketing expenses, we expect to keep our 2024 user growth and maintenance costs largely in line with 2023 levels without meaningful year-over-year ramp-up.
spk02: We plan to hold this line while growing our DAUs year over year, including expectations for our average DAUs to reach 400 million in the second half of the year. We will accomplish this by leveraging technology and operational efficiencies to optimize our growth strategies and refine our operations. This approach will facilitate lower acquisition cost per user and retention cost per DAU, thereby boosting the ROI for user growth. As our e-commerce and local services, including our e-commerce shopping mall services, continue to expand, we will increase our total spend on promotions compared to last year. However, as the percent of total revenue sales and marketing expenses ratio will continue to decrease.
spk06: In short, we believe that as we continue to implement the proposed effective measures in the future, the overall profitability of the group can be gradually improved. We expect that in 2024, the annual achievement of the group level will be adjusted and the net profit will exceed the current market expected growth.
spk02: In conclusion, we are confident that with our ongoing efforts to enhance quality and efficiency, our group's overall profitability will continue to improve. For the full year of 2024, we expect to grow our group level adjustment net profit by exceeding the current street consensus.
spk08: Thank you, Albrecht. Last question, please.
spk10: We have a question from Zhang Lei from Bank of America Securities. The last question comes from Lei Zhang from Bank of America Securities.
spk01: Please ask a question. Hi, good evening, Manager Chen. Thank you for accepting my question. Congratulations on the very strong profit trend. My question is mainly about AICC. I would like to ask Manager Chen to share with us the company's latest progress in this large model. Thanks, management, for taking my question. Congrats on a solid profit. Could management share your latest updates on your AI and large language model? Especially, do you have any plans and developments in the video generated following the launch of Sora? Thank you.
spk09: Thank you for your question. At the beginning of 2023, we launched the AI strategy and defined the strategic goals and plans. Over the past year, we have steadily promoted the research and development training of the self-propelled large model and accelerated the location of the large model. The current actual progress is in line with our original plan and has achieved good results.
spk02: Thanks for your question. Early in 2023, we kicked off our AI strategy with a clear target and roadmap. Throughout the year, we steadily pushed forward with the development and training of our large language models, speeding up their actual practical use in real-world scenarios. Our progress is on track with our original plan, and we are pleased with the outcomes we've achieved so far.
spk09: In terms of the self-developed model, Based on our fast 130 billion and 660 billion models, we focused on developing and training 17.5 billion large-scale language models in four seasons. We obtained a satisfactory and confident evaluation result. The comprehensive performance of the current model and the significantly exceeded GDP 3.5, especially in terms of understanding, familiarity, and readability, showed good performance. Some of the indicators are close to the level of GDP 4.0, 我们有信心在未来的半年内结合大模型的综合性能达到GDP 4.0的水平。 在多模特态方面,我们的纹身图大模型可图模型经过多个版本的迭代模型的综合性能已经超过了MID Journey V5的水平。 关于你提到的纹身视频大模型。 In the field of video production technology, we have been researching and investing, and at the end of last year, we actively promoted the patent research and development of video production technology. The success of SORA has proven the feasibility of technology breakthroughs faster than we expected. We believe that for the short-time video production, it is a great opportunity. In the future, we will combine the production model and the production tool, and continue to help creators to build the foundation, create the threshold, and improve the quality and efficiency of short-time video production.
spk02: For our self-developed large language models, following our QI 13 billion and 66 billion models, we focus on developing and training a 175 billion scale model in Q4, achieving promising test results. This model significantly surpasses GPT 3.5 in overall performance, especially in understanding, detail, and readability. And it's approaching GPT 4.0 levels in certain metrics. We're confident that we can elevate our large language model within the next six months to match GPT-4's performance. In the multi-model realm, our K2 text-to-image large language model has outperformed Mid-Journey version 5 after several iterations, showcasing superior overall performance. Regarding your query about our text-to-video large language model, we've been actively engaged in video generation technology, pushing forward a specialized R&D in this area since the end of last year. The faster-than-expected launch of Sora not only demonstrates the feasibility of technological breakthroughs, but also opens up the immense opportunities for the short video ecosystem. Looking ahead, we plan to make generative models as tools for creators, further lowering the barriers to content creation and enhancing the quality and efficiency of short video production.
spk09: In terms of the application of the large model, we focused on the application of the large model in digital live broadcast scenarios in the fourth quarter. For example, we rely on the large model to automatically generate live scripts, assist digital people to broadcast, and also realize the problem of the digital streamer responding to users' questions in the live comment area. At the same time, we have also expanded the various interactive scenarios, including IAM, through the large model intelligent customer service assistant, and applied it to business scenarios such as fast payment and ideal home, to improve the service level of the customer service. In addition, we are also continuing to explore the deep integration of large models with fast IAP scenarios, and the detailed experience of applications such as fast delivery of AI small pieces, AI finished products, and AI search dialogue. 我们将继续坚持在AI大模型和相关应用方面的投入和探索,并在后续给大家更多相关进展的介绍。
spk02: For large language model applications in Q4, we focus on applying LLMs in digital human live streaming. For example, we used these models to automatically create live streaming scripts, facilitating digital human broadcasts and real-time responses to viewers' comments in live chats. We also enhance the various interactive scenarios, including instant messaging with our smart customer service assistant, improving our customer service across business like QI Hire and IDU Housing. Furthermore, we are constantly exploring how to integrate large language models more deeply with our QI Show app, rapidly iterating the details of our user experience for applications like AI QI and AI Image for Commons, as well as AI Search Dialog. Our goal is to make these models more useful, engaging, and heartwarming. all of which serve to improve user experience. As an AI-driven company, we are committed to continuing our investment in AI large language models and their applications, and we look forward to sharing more updates with you.
spk08: Thank you, operator. That is the conclusion of the Q&A session.
spk10: That is the end of today's Q&A session. Now, Matthew, please give a brief speech.
spk08: Thank you, operator. 感谢大家今天的参与。 如果您还有更多问题,欢迎随时与快手的资本市场及投资者关系团队取得联系。 谢谢大家。 Thank you once again for joining us today. If you have any further questions, please contact our Capital Market and IR team at any time.
spk02: Thank you.
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