Kuaishou Technology B

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.

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.

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.