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spk08: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the CoinShow Technology second quarter and interim 2024 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 Jiang, VP of Capital Market and Investor Relations at Kuaishou Technology. Thank you, operator. Good evening and good morning to everyone. Welcome to our second quarter and interim 2024 Financial Results Conference call. Joining us today are Mr. Cheng Yi-Hsiao, Co-Founder, Chairman, and CEO. Mr. Jim Vane, Chief Financial Officer. Before we start, please know that today's discussion may contain forward-looking statements which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information except as required by law. For all important information about this call, including forward-looking statements, please refer to the company's public information or the second quarter and interim 2024 results announcement ended June 30, 2024, issued earlier today. During today's call, management will also discuss certain non-FRS financial measures. These are provided for additional information and should not replace FRS-based financial results. For a definition of non-FRS financial measures and a reconciliation of IFRS to non-FRS, financial results, and related risk factors, please refer to our second quarter and interim 2024 results assets. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and a convective interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. Lastly, Unless otherwise stated, all current events mentioned are in RMB. Now I'll hand the call over to Yixiao. Hello, everyone. Welcome to Kuaishou's second quarter 2024 earnings conference call. In the second quarter, our total revenue grew by 11.6% year-over-year to 31 billion RMB with both online marketing services and other services, including e-commerce, achieving year-over-year growth of over 20%. In terms of profitability, we set a quarterly record with our gross margin topping 55%. Adjusted net profit reached 4.7 billion RMB with a margin of 15.1%, both hitting new highs. Despite ongoing challenges from a competitive external environment, our industry-leading AI technology, vibrant user and content ecosystem, healthy and sustainable commercial ecosystem, and efficient organizational synergy have all contributed to strong operating and financial results. As an AI-driven tech company, we've built an infrastructure that supports the training and inference of large models with trillions of parameters. Based on this infrastructure, we have developed industry-leading AI metrics, including Kauai LLMs, large visual generation models, and recommendation models, all of which we've integrated into our business operations. Notably, in Q2, we made considerable strides in large visual generation models, launching and testing our large video generation model, Cling AI, which gained broad acceptance among domestic and global users. We have since expanded it to full-beta testing globally, enhanced the model's capabilities, and introduced a membership program offering exclusive features. As of today, over a million users have tested Cling AI, creating over 10 million videos We also officially open sourced our text-to-image model, Colors, to foster a collaborative, robust text-to-model ecosystem. Our AI matrix is now seamlessly embedded across various business scenarios, supporting content creation, content understanding, and recommendations and user interactions. In the first half of the year, Nearly 20,000 merchants utilize our metrics to optimize their operations on the question platform and marketing clients average daily spending with AIGC marketing material reached 20 million in June this year. Demonstrating the significant potential for our large models and commercial scenarios. Next, I'll discuss our key business development in Q2. First, use growth and ecosystem construction. In Q2, the average DAUs and MAUs on the Questro app reached 395 million and 692 million, representing year-over-year increases of 5.1 and 2.7% respectively. The average daily time spent per DAU on the Questro app was 122 minutes, which even accelerated growth in user traffic, with total user time spent on Questro app increasing by 9.5% year-over-year. We also deepen our strategy for high-quality growth, improving our traffic allocation mechanism and creating more app opening scenarios to enhance user experiences while boosting revenue generation. We also enrich the community atmosphere and significantly improve the user long-term retention by optimizing measures such as hot comments ranking and introducing more interaction features, achieving high-quality growth in DAUs. Additionally, we improved the ROI of user retention costs through refined operating strategies across various business scenarios. We cultivated a vibrant, diverse content creation ecosystem, supporting exceptional content creators by refining our traffic algorithms. In Q2, active creators with over 100,000 followers grew nearly 10% year-over-year, and their short video posts increased over 40%. Daily short video uploads on Kuaishou exceeded 14 million. we use the tailored vertical operation strategy to deliver premium content showcasing our unique ethos. In sports, we focus on creating native content the public enjoys. As the rise-holding broadcaster for the Paris 2024 Olympics, to align with the Olympic themes, we launched a question of village Olympics with the traditional and rural sports, blending athletic competition with the rural culture. This attracted over 135,000 live spectators, 520 million online viewers, and 6.4 billion impressions, highlighting recreational sports charm. As a pioneer and leader in the short play industry, we launched nearly 50 Kuaishou Astro short plays in Q2, with 12 surpassing 100 million views. Supported by our Qling AI, we premiered the legendary Mirrors of Mountains and Seas, China's first original AIGC fantasy short play, attracting over 15 million views in two weeks, demonstrating our large model's potential in creating deep, meaningful content. For our search business, in Q2, we continued to optimize our search after watching feature and introduced a single column format for displaying search results. This enhanced the user experience and further unlocked the commercialization potential. As a result, our revenue from search marketing services and GMV from search induced e-commerce grew rapidly in Q2. Our search user penetration rate also improved further with MAUs for Kuaishou Search reaching nearly 500 million in Q2 and daily searches increasing by over 20% year-over-year. Second, online marketing services. In Q2, despite the ongoing economic pressures and softer consumer sentiment, Our revenue from online marketing services outperformed the industry, growing 22.1% year-over-year to 17.5 billion RMB and accounting for 56.5% of our total revenue, further boosting our market share. Our growth was fueled by enhanced smart marketing solutions and deeper sales funnel conversion paths for our marketing clients, which led to higher bids. Additionally, our advanced algorithms supported greater exploration of demographic interests and improvements in matching efficiency, significantly boosting the number of effective users with online marketing potential. Revenue from our external marketing services grew notably in Q2, with year-over-year growth surpassing that of Q1, especially in media information, e-commerce, and local services. For paid short plays in media information, We improved the user experience by refining native sales funnels and increasing paying users through smart subsidies. This drove rapid growth in paid short plays marketing placement, with the daily marketing spending more than doubling year over year. accounting for a high single-digit percentage of total external marketing service revenue. For smart placement, in Q2, the penetration of our external marketing product, Universal Auto X, or UAX, increased across industries, with the UAX marketing spending over 30% of our overall external marketing spending. We also provided marketing clients with efficient customer acquisition tools, including a native private message sales funnel, spending through this funnel grew more than two-fold quarter over quarter. Revenue from our in-close-loop marketing services grew robustly in Q2, driven by improvements in smart placement strategies and capabilities. Merchants using our Omni platform marketing solution or smart hosting products accounted for 40% of in-close-loop marketing spending. For small and medium-sized merchants, we boosted marketing placement during promotional events with a simplified auto-placement product This enhanced their stability and efficiency, increasing their spending by 60% year-over-year in Q2. In brand marketing, we partnered with the fashion media to launch an initiative combining Eastern aesthetics, trendy culture, intangible cultural heritage, and avocade art, attracting leading brands in cosmetics, food and beverage, apparel, and 3C products. Major brands like Tmall renewed sponsorships for our Quasio Astro short plates, resulting in over 20-fold revenue growth year-over-year from marketing sponsorship of Kuaishou Astro short plays in Q2. Third, our e-commerce business. Despite a short-term slowdown in consumer demand and heightened competition in domestic e-commerce, the accelerated restructuring of e-commerce fundamentals will continue to drive an increase in e-commerce share of retail sales, lower-tier markets, with the largest population and greatest growth potential are emerging as mainstream markets. Amid these trends, we will focus on helping customers discover affordable quality products that fit their needs through trustworthy streamers and content. We remain committed to fostering a sustainable, healthy KOL ecosystem while advancing our multifaceted, omni-domain operations for brands and merchants in software-operated, live streaming, shelf-based e-commerce and shorter video e-commerce In Q2, our e-commerce GMB grew by 15% year-over-year to 305.3 billion RMB. On the demand side, e-commerce monthly active paying users increased by 14.1% year-over-year to 131 million in Q2. And our MAU penetration rate reached a new high of 18.9%. Our user-centric strategy coupled with a focused approach on tapping Specific industries empowers us to swiftly capture and respond to factors involving consumer preferences. Significantly, especially, we remain focused on iterating initiatives for acquiring new users as well as growing active users, expanding our user reach through products and subsidy measures that encourage repeated engagement. We also enhance the user shopping experience by streamlining marketing processes and facilitating a use-first and pay-later purchase option. Supply side, monthly active merchants grew over 50% in Q2 driven by our support for new merchants' co-starts, growth, and sustained operations, and by empowering existing merchants with Omni domain operations. Our set sale initiative offers up to 100 billion RMB in traffic resources to new merchants, with the Uplift initiative helping them scale post-co-start. In Q2, these initiatives covered all new merchants, providing product menus, operational guidance, and tailored traffic support. We also enhance the merchant's overall Omni domain operating capabilities with follower growth and content integration. For KOL strategies, we recommend high-quality merchandise to KOLs internally and use external facilitators to help mid-tier KOLs select merchandise targeting recommendations based on follower profiles. We also use AI marketing and operation tools to enrich KOL marketing strategies, simplify operations, encourage user interactions, and enhance platforms' capabilities in matching KOLs with products. For brand merchants, we prioritize the trade-in, trade-off program, membership operations, and the big brand, big subsidy channel to attract diverse brand offerings. During the 6-18 shopping festival, GMV from consumer electronics brands and household items grew over 83% year-over-year. E-commerce GMV from pan-shelf-based scenarios in Q2 exceeded the overall platform, making up over 25% of total GMV. Orders during the 6-18 shopping festival rose 65% year-over-year, driving e-commerce growth. In our shopping mall segment, daily active merchants and paying users increased by over 50% and 70%, respectively, in Q2. User engagement measured by product cart views and product searches surged, highlighting a growing consumer trend to browse and search products in the Kuaishou shopping mall. The introduction of our large models has also improved our ability to identify user purchasing intentions driving a more than 80% year-over-year increase in search-induced e-commerce GMV in Q2. In addition, we launched a sales hosting solution for Kuaishou Shopping Mall that integrated our platform's omni-domain traffic and offered commission-based and price-based hosting, aiming to lower merchants' operational barriers and provide merchants with predictable sales channels. Moreover, our short-view e-commerce GMV continued to grow rapidly in Q2 with a year-over-year increase of nearly 70%. Merchants leverage short videos to attract users before live streaming, and extended product sales cycles, enhancing the synergy between short videos and live streaming scenarios. Next, our live streaming business. Revenue from our live streaming business was 9.3 billion RMB in Q2, declining less quarter over quarter. We continue to iterate our refined operating approach to bolster a healthy and positive live streaming ecosystem. On the supply side, we established regional teams dedicated to recruiting high-quality talent agencies through targeted industry promotions and offline presentations. We also supported leading talent agencies through policies and project guidance, leading to a nearly 50% increase in the number of partnering talent agencies and 60% growth in the number of talent agency-managed streamers, by the end of Q2 year-over-year. Meanwhile, we continue to promote emerging streaming features such as multi-host live streaming and at the grand stage, significantly attracting more talent agencies and streamers, driving core growth in our live streaming business. We're committed to enriching premium content, attracting mid-tier streamers, enhancing interactive live streaming features, and encouraging streamers to produce high-quality content, thereby promoting more reasons for app opening. As the official short video partner for Crossfire and King Pro League, we have effectively boosted visibility of these events by leveraging our short video plus live streaming plus community ecosystem. In late June, Kuaishou was also named the strategic short video and live streaming platform for the 2024 Esports World Cup in Saudi Arabia, attracting more quality users across various protocols through innovative crossover efforts. Underscoring how live streaming plus services can empower traditional industries, we continue to scale up our Recruitment and real estate transaction services with rapid growth in both the number of users we serve and the transaction volume in Q2. Daily average number of resume submissions on QI higher, increased by more than 130%, and matching rate grew by over 150% year-over-year. Daily lead generation on our ideal housing also expanded by 9% compared to the same period last year. Finally, on our overseas business progress. In Q2, we continue to deepen our presence in key overseas markets through targeted content offerings, operations, and marketing efforts, and our ROI-driven growth strategies. We've been refining operations in traditional marketing channels and exploring new growth avenues. These initiatives drove steady growth in average DAUs in key overseas markets, including Brazil and Indonesia. Notably, DAUs in Brazil rose by 15.4% year-over-year and also improved quarter-over-quarter. Regarding content operation overseas, we continue to engage more high-quality content creators across articles like film, news, comedy, and sports in helping content diversity, quality, and the health of our community-based ecosystem. Meanwhile, we optimize the algorithms and cost traffic mechanism and diverse monetization channels have gradually strengthened the positive flywheel effect of content production, consumption, and monetization for creators. Average daily time spent per DAU in key overseas markets increased by 5% year-over-year to nearly 80 minutes in Q2. In terms of monetization capabilities, our overseas revenue increased by 141.4% year-over-year to 1.1 billion in Q2 thanks to our targeted monetization strategies implemented across different countries. Our overseas online marketing team actively expanded our client base across multiple industries by optimizing product capabilities and involving online marketing experiences. As a result, online marketing revenue from our overseas business increased by over 200% a year over year and continued to grow quarter over quarter. Leveraging our traffic and advantage in countries like Brazil and Indonesia, we've become an important marketing channel for Chinese companies expanding overseas and for local brands. With improved overseas monetization efficiency, gained further operating leverage, gradually reducing the negative impact on the company's profitability. In Q2, operating loss from overseas business was 277 million RMB with a 64.5% decrease year-over-year. Reflecting on the first half of the year, despite numerous external challenges, we firmly executed our high-quality growth strategy. We continue to refine our traffic allegation mechanism and focus on the housing user content and product difference. while balancing revenue efficiency. This approach has cultivated healthier and more sustainable content and a commercial ecosystem leading to a satisfying financial results. Looking ahead to the second half of the year, we'll capitalize on our deep technological expertise to further explore how AI can enhance existing business hours and create a new one, while striving to achieve significant breakthroughs in new business areas, creating more value for our users, partners, and shareholders. This concludes my remarks. Thank you. Next, our CFO, Jing Vang. We'll discuss the company's financial performance for Q2 2024. Thank you, Yuxiang. Hello, everyone. In the second quarter of Q2 2024, we made significant advancements in our AI infrastructure, enhancing quality and efficiency across our platform. We focused on high-quality user growth, bringing our users exceptional experiences that reinforce our user ecosystem. By deepening the application of large model technologies, we've consolidated a steady growth momentum across our core business segments, including online marketing services and e-commerce, further energizing our commercial ecosystem. Through our proactive strategies to enhance quality and efficiency, we saw further improvements. Our groups operating efficiency and ongoing breakthroughs in profitability. Adjusted net profit reached 4.7 billion RMB in Q2, with an adjusted net margin of 15.1%, both recording historic high. Now let's have a closer look at our Q2 financial performance. Our revenues grew by 11.6% year-over-year to 31 billion RMB, mainly driven by growth in online marketing services and e-commerce businesses. Online marketing services revenue increased by 22.1% to 17.5 billion RMB from 14.3 billion in Q2 last year and accounted for 56.5% of total revenues. Growth was primarily driven by our optimized smart marketing solutions. Meanwhile, by leveraging industry-leading larger models and enhanced algorithms, we gained deeper insights into user needs, offering end-to-end efficiency and enhancement for our clients. These efforts have significantly elevated user experience, enabling our marketing clients to convert sales more actively and efficiently. This led to a significant increase in the number of marketing clients and a corresponding surge in marketing spending. Revenue from other services, including e-commerce, reached 4.2 billion RMB in Q2 up. 21.3% from 3.4 billion RMB in the same period last year, mainly driven by the increase in e-commerce GMV, which boosted e-commerce commission income. We continue to advance our diversified Omni domain operation strategy, actively empowering both new and existing merchants, leading to a notable year-over-year growth in the number of monthly active merchants. We also strengthened the QLL ecosystem and enriched our product supply by effectively capturing consumer demand and refining our operating strategies to expand our user reach. We consistently enhance the user shopping experience, driving ongoing growth in monthly active paying users. Our live streaming revenue was 9.3 billion RMB, a decrease of 6.7% from 10 billion in Q2 last year. Despite of industry challenges, we responded proactively committed to building a healthy live streaming ecosystem by optimizing talent agency management, enriching our diverse and high-quality live streaming content, and enhancing the interactive experience between streamers and followers so we ensure sustainable and positive development of our live streaming ecosystem. In Q2, our cost of revenues remained stable at 13.8 billion RMB and accounted for 44.7% of total revenues Gross profit grew by 23% year-over-year to 17.1 billion RMB. Gross margin was 55.3%, an increase of 5.1 and 0.5 percentage points year-over-year and quarter-over-quarter, respectively. Both gross profit and gross margin reached historic highs. Moving to expenses. Selling and marketing expenses increased by 16.3% year-over-year to 10 billion, accounting for 32.4% of total revenues growth was mainly due to increased spending on business promotions, including e-commerce business. Research and development expenses were 2.8 billion RMB, decreasing by 11.11% year-over-year. RMB accounted for 9.1% of total revenues, dropping from 11.4% in Q2 last year. Administrative expenses decreased by 16.2% year-over-year to 790 million RMB, accounting for 2.6% of total revenues, down from 3.4% in the same period last year. The reduction in R&D and administrative expenses was mainly due to lower employee benefit expenses, including share-based compensation expenses. Group-level net profit for Q2 rose by 169% year-over-year to 4 billion RMB, a significant improvement from 1.5 billion RMB in Q2 last year. Group level adjusted net profit rose by 73.7% year-over-year to 4.7 billion RMB, with an adjusted net margin of 15.1%. These adjusted figures reached record highs. Our balance sheet remains robust, with cash and cash equivalents, time deposits, restricted cash, and wealth management products of 77.7 billion RMB as of June 30. Through our enhanced monetization capabilities and efficient working capital management, we generated a positive operating net cash flow of 7.6 billion RMB in Q2. Looking ahead, We'll continue to explore diverse monetization channels and new avenues for profit growth, leveraging technological innovation to drive efficient business growth and enhance operating efficiency. Therefore, boost the company's long-term sustainable profitability. This concludes our prepared remarks. Operator, please now open the call for questions.
spk03: Thank you. I would like to remind everyone, if you need any questions,
spk07: As a reminder to ask questions, please press star 1 and wait for a name to be announced. The first question comes from Lincoln Kong from Goldman Sachs. Please go ahead.
spk06: Thank you very much for taking my questions about AI. What is the company's latest progress in AI large language model? And what are the upcoming strategies, especially the commercialization or monetization plan in this field, particularly on occurring AI? Thank you.
spk07: Thank you for your question. Last year, we launched a new AI strategy and defined clear strategic goals to ensure the leading position of the domestic industry in the future AI technology breakthrough. combined with the existing business scenarios. At the same time, we have improved the market pattern by leading the business with progressive technical innovation. In the past year or so, we have continued to increase and increase our results, and at the same time, we have further improved the performance of all major models, strengthening major models in the application of content production and understanding, content recommendation, e-commerce and online marketing, and other business scenarios.
spk08: Thanks for your question. We kicked off our new AI strategy last year with clearly defined strategic goals. We aim to maintain our industry-leading position in China in the upcoming global AI breakthroughs, leveraging these technologies to empower our existing business operations. At the same time, we aim to secure our competitive edge through groundbreaking innovations that have the potential to transform market dynamics. Over the past few years, we've made steady progress, achieving one milestone after another. While continuously optimizing the performance of our foundation large models on all fronts, we kept strengthening their applications across various business scenarios, including content creation and understanding, content recommendation, e-commerce, and online marketing, and more.
spk07: In the second quarter of 2024, we made a major breakthrough in the IBC field. In terms of visual production models, our self-portrait video production model KOLIN has been widely praised by domestic and foreign users after its opening review. KOLIN uses 3D time and space joint attention mechanism to better model complex time and space movements, and produces video based on the real-world physical rules to show the image quality and interaction effect at the film level. It can simulate large-scale logistics operations and break the limit of traditional video production technology. In recent years, we have also launched a member payment system for global users to upgrade the model effect and bring better experience to users. We have also actively progressed in exploring the user payment model. In addition, our 17.5 billion yuan The large-dimensional model is now more than GDP4.0 in the Chinese context. Our multi-modal large-dimensional model has also reached the level of GDPCV in terms of the understanding of video content, and has set a solid foundation for the expansion of the after-sales capacity. In addition, in recent weeks, our tattooed large-dimensional model KOTU has also announced a resumption.
spk08: In Q2 2024, we achieved milestone breakthroughs in AIGC. Regarding visual generation large models, our self-developed large video generation model, Cling, was widely acclaimed by users both domestically and internationally following its beta testing. Colleen incorporates a 3D spatial temporal joint attention mechanism to better model complex spatial temporal movements. By adhering to real-world physical principles, Colleen produces videos that exhibit cinematic image quality and dynamic effects that stimulate life-like physical movements with large motion and break the limitations of traditional video generation technologies. We recently introduced a subscription-based membership for our global users and upgraded to claims performance to provide a better user experience while also making positive strides in exploring user payment models. Secondly, in Q2, our 175 billion parameter QI ELLM outperformed TPT 4.0 in Chinese language scenarios. Our multi-model ELLM has also matched the capabilities of TPT for V in video content comprehension, providing a strong foundation for expanding future application capabilities. In addition, we recently officially open-sourced our text-to-image large model, Colors, as the most proficient Chinese text-to-image model. Colors' overall performance has surpassed Mid-Journey version 5, following several upgrades.
spk07: One important thing is that we pay more attention to large model applications in commercialized scenarios. Based on the production of large-model video and live broadcast scripts, advertising clues are overcome, and digital technology is added to help commercialize advertisers. Low-cost production of high-quality videos and live content improves clue conversion efficiency. In the first half of 2024, nearly 20,000 merchants took advantage of large-model capabilities on fast platforms to realize smart management. AI-based marketing materials also reached 20 million in June this year.
spk08: particularly significant was our enhanced focus on deploying large models in commercial and vision scenarios. Leveraging our QAE large model, we have developed video script generation, live streaming script generation, and advertising lead customer service, all integrated with digital human technology. These investments enable advertisers produce high quality video and live streaming content affordably, thereby improving lead conversion efficiency. In the first half of 2024, nearly 20,000 merchants on the Kuaishou platform leveraged our large model capabilities for intelligent operations. And average daily spending with AIGC marketing materials reached 20 million RMB in June this year, showcasing the enormous commercial potential of large models.
spk07: 最后呢,我再简单讲一下接下来的AI领域的发展策略。 在大语言模型方面,我们将侧重研发跟适配业务场景的专项语言模型, 大规模降低模型的成语成本。 In terms of visual production models, we will continue to upgrade KOLIN's large model to further improve model performance to maintain the leading position in the industry. In terms of KOLIN's commercialization transformation, in addition to strengthening the global audience of West End members, we will also explore the possibilities of more B-end cooperative transformation, and strive to achieve an objective commercialization transformation scale as soon as possible. In addition, we also look forward to the significant improvement in the commercialization of large models, to increase the income of online marketing services and provide stronger support. In short, we will establish a firm AI strategy, and while there is no current business scenario, we will work hard to create a new business boundary model to contribute more value to the group.
spk08: Lastly, let me briefly talk about our upcoming AI development strategies. With respect to large language models, we will focus on developing and training specialized language models that are better suited to specific business scenarios, significantly reducing the model's overall inference cost on a large scale. In terms of visual generation models, we will continue to enhance Culling's large model to further improve its performance and maintain our industry-leading position. Speaking of claims monetization, in addition to strengthening the global operations for membership programs, we will also explore more B2B monetization possibilities, aiming for significant gains in the near future. Moreover, we anticipate that large models will greatly enhance the efficiency of our commercial recommendation algorithm, providing strong support for our online marketing services growth. In conclusion, We're committed to executing our AI strategy, empowering existing business areas, and striving to create new monetization models to deliver greater value to the group.
spk03: Thank you, operator.
spk07: Next question, please. The next question comes from Thomas Chong from Jefferies. Please ask your question. Please ask your question.
spk02: My question is about our e-commerce business. In this industry competition, how can Kuaishou's e-commerce device take the growth momentum from the supply side, especially mid- and small-sized merchants? What is Kuaishou's e-commerce strategy in the second half of the year? Thank you.
spk07: Thank you for your question. From the supply side, with the rapid development of e-commerce, we see more and more new businesses coming to Kuaishou. There are also more and more mature businesses growing fast. In the second quarter of 2024, the number of monthly sales increased by more than 50% from the bottom. The main reason is that we strongly promote the growth and long-term management of new businesses. At the same time, we can help old businesses achieve full management.
spk08: Thanks for your question. On the supply side, with the rapid development of Quest 3D Thomas, more and more new merchants have joined us, and our existing merchants continue to grow. In Q2 of 2024, The number of average monthly active merchants grew by more than 50% year-over-year, primarily due to our concerted efforts in new merchants' cold starts, growth, and sustained operations, in addition to empowering existing merchants to tap into Omni domain operations.
spk07: In addition, we will continue to invest more than 70 billion yuan in the supply chain through the Fuyao project to further improve the scale of J&V in the large-scale market. At the same time, through the Doujin project, the new business will achieve the corresponding J&V threshold within 90 days of the first sale. through the set-sale initiative with up to 100 billion video view traffic resources, we guarantee 100% of newly onboarded merchants in traffic from their code start
spk08: As quality merchants reach certain milestones, we further support their growth with over 70 billion video view traffic resources through our Uplift initiative, driving vision MV through large scale promotional events to help merchants make operational breakthroughs. Meanwhile, New merchants meeting the GMB thresholds within their first 90 days can receive compounded rebates through our Golden Bounty initiative, ensuring that they maintain confidence in their initial operations and receive substantial traffic support from the platforms.
spk07: After the second quarter of 2018, we felt that both e-commerce platforms and businessmen are facing challenges of short-term demand and slowdown of domestic consumers. In a large environment where traffic is weak, e-commerce business needs to achieve better balance in terms of content and commercial efficiency. As a major participant in content e-commerce platform, We believe that live e-commerce platforms are better suited to provide diversified product choices from business policies, data capabilities, sales capabilities, and so on, and provide diverse business choices, thereby inspiring consumers to explore uncertain e-commerce needs and stimulate purchase behavior.
spk08: Moving on to our e-commerce strategy for the second half of the year, after the 6-18 shopping festival in Q2, we realized that both domestic e-commerce platforms and merchants are facing challenges with the temporary slowdown in consumer demand in the e-commerce market. As traffic benefits diminish across the board, e-commerce businesses need to better balance content and commercial efficiency. As a major player in content-driven e-commerce, we believe that live streaming platforms are more effective at helping merchants tailor their operations and offer a wide variety of products through smart policies, data insights, and marketing strategies. This not only attracts consumers by encouraging them to explore new shopping opportunities, but also stimulates purchase decisions.
spk07: Therefore, in the next half of the year, we will steadily and vigorously develop e-commerce, the basic platform of social e-commerce, focus on the core value of live broadcasts and short-term products, and fully play a major role in e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users in the e-commerce users to fully play out the core advantages of the head office and large-scale live broadcasts. At the same time, we will strengthen the training and operation of the central office, and jointly build users' low-cost efforts in the live broadcasts, promote the size of the live broadcasts, and improve the resource transformation efficiency of the live broadcasts. We will also improve the explosive power of the content factory in most cases, and focus more on the large-scale play and operation mechanism of the content factory. Before the live broadcast, through the live broadcast room, and after the live broadcast, through the live broadcast mode, consumers can buy low-cost goods on the whole platform and in the whole field. In addition to increasing the size of JV, we will also strengthen the supply and availability of products, increase the efficiency of search and comparison, and continue to improve the user experience and supplementary efficiency of the goods factory through the same efforts of operation and algorithm. and gradually build up the ability of users to take the initiative to use the new products and services. I believe that through these strategies, we can continue to dig into the electronic needs of 700 million fast-track users and maintain the differentiated advantages and unique values of fast-track e-commerce in the industry.
spk08: As we look to the second half of the year, we will cement and vigorously develop our foundational strengths in content e-commerce and social e-commerce, focus on the core value of live streaming and short video, and fully leverage the primary role of content-based scenarios in attracting and activating e-commerce users. In shelf-based scenarios, we aim to enhance user purchasing frequency and steadily develop a broader hand-shelf-based e-commerce environment. We will also fortify the development of a long-term healthy KOL ecosystem, thoroughly harnessing the key advantages of leading KOLs and larger-scale live streaming events while enhancing the cultivation and operation of mid-tier KOLs. We will work with KOLs to jointly build users' mentality for a great deal in live streaming, promote the scale of large live streaming events and improve live streaming resource conversion efficiency. We will also boost the impact of content during major promotions by focusing on key features and operational strategies. This includes using short videos to drive traffic to live streams before they start and reintroducing blockbuster products through short videos afterward. Our goal is to ensure consumers can find great deals across the platform and in every e-commerce scenario. For shelf-based e-commerce, in addition to increasing GMV, we will focus on strengthening merchandise supply and variety, as well as upgrading search and match efficiency. Through coordinated efforts and operations and algorithms, we will persistently improve the user experience and subsidy efficiency in shelf-based e-commerce that cultivates a proactive user mindset for shelf-based e-commerce. We believe that through these strategies, we can continue to tap into the e-commerce needs of the 700 million MAUs on Kuaishou and maintain the differentiation and unique value of Kuaishou's e-commerce business and industry.
spk07: Thank you. Next question, please, operator. The next question comes from Felix Liu of UBS. Please ask your question.
spk19: Thank you for accepting my question. My question is about the online marketing business of the company. Our online marketing business has made a good growth in the first half of the year. Thank you, Benjamin, for taking my question. My question is on your online marketing business. In the first half, your online marketing business achieved strong growth. For looking into the second half, what are the major growth opportunities for this segment? Thank you.
spk07: Thank you for your question. In the first half of the year, through the economic operation of the industry, we have used our large-scale capabilities to provide smart marketing solutions for online sales customers. At the same time, we have used the transformation of the更生链路 to achieve about 25% of the total growth of online sales service revenue in the first half of the year, and continue to increase the market share. In the second half of the year, we will continue to use smart marketing products to optimize and improve, and through content management, Thanks for your question. In the first half of this year, we provided intelligent marketing solutions to our marketing clients through refined industry operations and large models. We offered deeper sales funnel conversion pathways for our clients,
spk08: resulting in a year-over-year increase of about 25% in our revenue from online marketing services in the first half of the year and consistently gaining market share. In the second half of the year, we will optimize our intelligent marketing products and algorithms to continue empowering diverse industry clients' sustained operations on Kuaishou through content operations, e-commerce operations, and local service operations. We will also leverage major marketing events such as the W11 to realize further operational breakthroughs.
spk07: In terms of content management, the content-oriented industry such as short stories, novels, and games is naturally adapted to Kuaishou as a content platform. It has more space to do content and marketing together. For example, in the first half of this year, we have created a cloud network for paid short films. Users can complete paid and viewing short films in the quick hand app. Not only can it improve users' content consumption experience, but it can also improve the head flow and management transfer efficiency of marketing customers. In the second quarter, the head flow of the quick hand paid short film customers increased by more than 300% and the head flow of the short film segment increased by more than 30%. In terms of content operations, industries with content attributes such as short plays, novels, and mini-games naturally align with the question as a content platform.
spk08: This synergy enables the successful integration of content creation in the marketing, opening up significant growth opportunities. Short plays, for example, in the first half of the year, we've built a native sales funnel for paid short plays, allowing users to complete payment and watch short plays directly within the Quattro app. This not only enhanced the content consumption experience for users, but also improved ad placements and conversion efficiency for our marketing clients. In Q2 2024, the number of active marketing clients per question's page short plays more than tripled with the number of active short plays with ad placements by over 30%, both on a quarter-over-quarter basis. This kind of operation model and native sales funnel capability have also been replicated in novels, mini games, and other industries. and are expected to bring significant incremental marketing placements in the second half of the year.
spk07: Next, we will improve from the perspective of industrial capability optimization and flow support, to improve the investment and conversion efficiency of short-term and short-term logistics, and provide more space for marketing consumption. In the external circulation of the head of the business, there has been a significant improvement in the flow rate of the business that has developed through the head in the past half year. In the future, we will optimize the product chain including payment, improve user experience, improve mutual conversion, and meet the demand for diversified business in the business.
spk08: Regarding e-commerce, operations still have tremendous room for growth in areas such as short videos, driving traffic to live streaming rooms for enclosed-loop merchants, and Click ID as a replacement for external merchants. In terms of enclosed-loop marketing services in Q2 2024, our marketing spending on driving traffic to live streaming rooms through short video scored by over 45% year-over-year. Our next step will be continuously to improve the associated advertising performance and conversion efficiency by optimizing production and research capabilities, and fortifying policy support, providing incremental growth for marketing spending. In terms of a click ID as replacement for external merchants, there has been a significant increase in the retention rate of merchants operating through a click ID as replacement in the past six months. In the future, we will improve the user experience and increase the conversion rate of payments by optimizing the product chain, including payment process, to meet the diverse business needs of merchants with more policy incentives.
spk07: In terms of local management, in the context of the transformation of the consumer structure, we observed a huge demand for local life services for QI users, and a new increase in demand for local businesses. In the second quarter, the local commercial investment consumption has increased by more than 60%. Among them, the demand for legal consulting services and home decoration services is rising. In the second half of the year, we believe that by using UAX, digital live broadcasts and in-house original messaging and other product capabilities will continue to greatly improve the efficiency of local life and business. It will also lead to further growth in commercial investment.
spk08: As for local operations, with the overall transformation of the consumption mix, we have observed a huge demand for local services from our 700 million Quattro users, which has also brought new business upside to our local services merchants. In Q2, the marketing spending of local services merchants rose by more than 60% year-over-year and demand from industries like legal counseling and home decoration was very strong, we plan to leverage our product capabilities of the UAX digital human life streaming and in-app native private messaging to significantly improve the customer acquisition efficiency of local services merchants, leading to further increase in their marketing placements. In summary, we will continue to zero in on refund industry operations, intelligent marketing product integration, and algorithm optimization to elevate marketing placement and conversion for our clients. We also remain confident that our online marketing services revenue will outperform the industry's year-over-year growth rate. Thank you all very much.
spk07: Next question, please. The next question comes from the line of Brian Gong from Citi. Please ask your question. Thank you for accepting my question. My question is about local life. We have seen that Quasar and Meituan have recently approved a new strategic cooperation agreement. I would like to ask what the local life business is like and what its goals are. Please share the latest progress. Thank you. I will translate for myself. Thank you for taking my question. My question is regarding local service. So we noticed that Kuaishou and Maitre have recently renewed their strategic cooperation by signing a new agreement. How does Kuaishou position the local service business and what are the goals? Also, could you please share the business latest update? Thank you. In December 2021, Kuaishou announced its strategic cooperation with Meituan at the Ecological Development Conference. After nearly three years of planning, both sides believed that the cooperation achieved the expected result. In June this year, Meituan's share of J&V on Kuaishou's platform increased by more than 38 times, and the order volume increased by more than 10 times. Based on the previous cooperation basis, we have recently adopted a new three-year strategic cooperation agreement. The scope and depth of the cooperation will be strengthened. In terms of the scope of the cooperation, the two sides will expand the cooperation to 100,000 stores nationwide. Secondly, in terms of the depth of the cooperation, the supply provided by the U.S. Group to Queshou will expand from group purchases to products with gold coins, membership products, bird nests, and so on. In the future, it will also continue to expand to Daozong and Jiuyu and other categories. Thanks for your question. The strategic partnership between Kuaishou and Meituan was first announced at the Ecosystem Development Conference in December 2021.
spk08: After nearly three years of concerted efforts, both parties believe that the corporation has exceeded expectations. In June this year, Meituan merged with GMB on Kuaishou, skyrocketed by more than 38 times, with order volume soaring by more than tenfold, both on a year-over-year basis. Based on this, we have recently renewed the partnership with a new three-year strategic cooperation agreement, further strengthening the scope and depth of our cooperation. First, our corporation scope will extend to cover 10,000 stores in 100 cities nationwide. Second, our corporation will deepen as Maitland broadens its supply to Kuaishou from group buying to more marketing formats, including vouchers, membership merchandise, and flash sales. Going forward, this may further expand to general in-store business and hotel and travel business, among other categories. We believe that by leveraging Matron's supply advantages, we can quickly widen the merchant and product coverage of Kuaishou's local services, providing a richer, more compelling local services experience for Kuaishou's users.
spk07: With the progress of our recent business, I am also talking about the position and goals of our local business. The market size of our local business is large, and the industry is spreading. Currently, the market share rate is generally low, and the ceiling is rising. We hope to find our own unique positioning around the value-added capabilities of users and merchants through the advantage of fast-tracking at the new-line level. User-centered, based on users' preferences for relevant local content, we can accurately recommend local products and services that meet personal needs. At the same time, we can optimize platform operation capabilities. With the joint supply and demand strategy of fast-tracking and merchants, we can establish the core of users' value-added performance for the platform. to meet the needs of local consumers in various scenarios. This is the original purpose of our local business and has never changed. We can also see that users have gradually built up the will to keep up with local life. In the second quarter, the number of paid users in Japan has continued to grow, reaching 37% of the total increase.
spk08: With our recent business updates in mind, I would like to discuss the positioning and goals of local services. This market is huge, yet fragmented with low online penetration and plenty of room for growth. We aim to reduce QIATCH's large user base in lower tier markets to find our unique positioning based on our value proposition to users and merchants. For users, we provide precise local goods and services recommendations that meet users' personal needs, tailored to their preferences for relevant and local content. Meanwhile, we strengthen the users' mentality for value for money shopping through refining operation capabilities and the question of merchants' joint subsidy strategy, satisfying users' local consumption needs across various scenarios. This was original aspiration for the local services business and has never changed. We are happy to observe a growing trend among users consuming local services on Kuaishou. In Q2, average daily paying users of local services continued to grow steadily, up 37% compared with Q1.
spk07: Kuaishou has a vast new market base and active communication ecosystem. Under the transition of the consumer structure, to provide lower cost and better conversion rate of marketing and operation solution. In the second quarter, our supply ecosystem is further enriched. The number of retail stores and Japanese-made retail products has increased by 22% and 33% respectively. Of course, the better conversion rate cannot be separated from the construction of our high-quality content. With the support of the platform's rich staff, under the discipline of policy adoption and flow division and distribution, to attract people to produce high-quality local life content. The GPM recommended by Doren Ting and Zipo increased by 42% and 37% compared to the previous year, prompting the platform to pay for GNV to grow rapidly.
spk08: For merchants, Kuaisha has a massive user base in the lower tier markets and an active social ecosystem. Leveraging the consumption transformation, we aim to offer merchants cost-effective marketing and operational solutions with higher conversion rates. In Q2, as we further enriched our supply ecosystem, the number of active merchants and the average daily number of active merchandise grew by 22% and 33% from Q1, respectively. Of course, higher converting rates also depend on the high-quality content. Utilizing our extensive KLL resources supported by our favorable policies and strategic traffic distribution, we guide them to produce high-quality local services content. In Q2, the GPM of short video and live streaming recommendations rose by 42% and 37% from Q1, respectively, propelling rapid growth in platform GMV.
spk07: Overall, our goal is to make steady, solid progress in our local services business while improving subsidy efficiency and managing costs effectively.
spk08: thereby better meeting users' needs, empowering merchants, and ultimately creating both user and commercial value for the platform. Thank you, operator.
spk03: Last question, please.
spk07: The next question is from Xueqing Zhang of CICC. The next question comes from Xueqing Zhang of CICC. Please ask your question.
spk18: Good evening, everyone. Thank you for listening to my question. My question is about the ability of medium and long-term businesses to grow. I have seen that the company has achieved a positive improvement in this quarter. We noticed that the company's adjusted net profit was $4.7 billion this quarter, and the adjusted net margin was 15.1%. Give me a story of what's the company's potential for profitability in the mid to long term, and how will recent AI investment impact this? Thank you. Thank you for your question.
spk07: Since the first quarter of 2023, the company has achieved the net profit and net profit margin of net profit and net profit margin of net profit and net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin of net profit margin
spk08: Thanks for your question. Since we've achieved a positive adjusted net profit in Q1 2023, we have seen six consecutive quarters of growth in both adjusted net profit and adjusted net margins. This reflects our ongoing improvements in operating efficiency and profitability. In Q2, our adjusted net profit amounted to 4.7 billion RMB with adjusted net margin of 15.1%. This represents that we've reached our goal of a 15% adjusted net margin one year ahead of schedule.
spk07: The above financial results are due to the continuous optimization of our financial results, the high-performance online marketing service, as well as the increase in the proportion of e-commerce business, the effective control and optimization of cost-dividing, and the continuous improvement of the use efficiency of the service period and bandwidth by means of technological innovation methods. The above measures have made this quarter's net profit rate exceed 55%, creating a new high in the single quarter. At the same time, in terms of sales costs, we have implemented a high-quality growth strategy. In terms of user growth and maintenance costs overall, it has achieved a steady growth in user traffic. But in the short term, we will increase the investment in related business promotion in e-commerce, commercialization, local life, etc., to further strengthen the user mindset and lay a better foundation for driving income and e-commerce GDP growth. In terms of development costs, we will also have a certain amount of investment in AI, but the impact is very small. In the mid-term, we believe that with the improvement of the income structure and the further improvement of operating efficiency, including the gradual reduction and profit of new businesses such as overseas businesses and local businesses, we are confident that we will achieve 20% of our mid-term goals by adjusting the operating rate.
spk08: these strong financial results can be attributed to three key factors firstly we continue to optimize revenue mix by increasing the proportion of higher margin services like online marketing services and e-commerce secondly we effectively controlled and improved revenue sharing costs and finally we heightened the utilization efficiency of servers and bandwidth through technological innovations these efforts further boosted our gross margin to a quarterly record high of over 55 percent in q2 in terms of our selling in the marketing expense to revenue ratio our high quality growth strategy has enabled us to achieve steady user growth while growth while maintaining largely stable costs for user acquisition and maintenance although in the short term we will be increasing promotional spending we aim to deepen users mind share in e-commerce advertising and local services and drive the growth of the revenue and e-commerce gmv additionally we will continue to invest incrementally in ai while limiting the impact on our R&D expense-to-revenue ratio to a minimum. Our revenue mix and operational efficiency continue to improve. We are confident in achieving our mid-term target of 20% adjusted net margin driven by gradual loss reductions or profits from our overseas businesses, local services, and other new initiatives.
spk07: In addition, regarding the overall impact of AI investment on efficiency, In the short term, our investment in the AI model will not have a significant impact on the company's profitability. In the long term, AI can also improve the value of AI-related investment in company business development through the current and innovative business scenarios.
spk08: Regarding our United Investments, while they may not have a significant impact on our profitability in the short term, their long-term value creation is substantial. These investments will empower our existing business and foster innovation, creating new business opportunities and driving sustainable growth.
spk07: In short, strategic efficiency is the company's long-term strategic mechanism. The company will include relevant considerations in the design and implementation of each strategic decision in the future. The AI strategy also gives us more opportunities to expand our income growth and growth improvement, bringing us more confidence to make continuous improvements and improvements in long-term profitability.
spk08: In conclusion, our commitment to enhancing quality and efficiency is deeply embedded in our long-term strategy, guiding every decision we make and implement. Our AI strategy plays a pivotal role in this endeavor. opening up new avenues for driving revenue growth and improving quality and efficiency, giving us greater confidence in achieving sustainable long-term profitability. Thank you.
spk07: That's the end of the Q&A session. Back to you, operator. Okay, operator. 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.
spk08: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. So, Thank you. Thank you. Thank you. you Good day, ladies and gentlemen. Thank you for standing by. Welcome to the CoinShow Technology second quarter and interim 2024 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 Jiang, VP of Capital Market and Investor Relations at Kuaishou Technology. Thank you, Operator. Good evening and good morning to everyone. Welcome to our second quarter and interim 2024 financial results conference call. Joining us today are Mr. Cheng Yi Xiao, Co-Founder, Chairman, and CEO. Mr. Jim Bain, Chief Financial Officer. Before we start, please note that today's discussion may contain forward-looking statements which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information except as required by law. For all important information about this call, including forward-looking statements, please refer to the company's public information or the second quarter and interim 2024 results announcement ended June 30, 2024, issued earlier today. During today's call, management will also discuss certain non-FRS financial measures. These are provided for additional information and should not replace FRS-based financial results. For a definition of non-FRS financial measures and a reconciliation of IFRS to non-FRS, financial results, and related risk factors, please refer to our second quarter and interim 2024 results assets. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the preferred remark session and a convective interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. Lastly, Unless otherwise stated, all currency units mentioned are in RMB. Now I'll hand the call over to Yixiao. Hello, everyone. Welcome to Kuaishou's second quarter 2024 earnings conference call. In the second quarter, our total revenue grew by 11.6% year-over-year to 31 billion RMB with both online marketing services and other services, including e-commerce, achieving year-over-year growth of over 20%. In terms of profitability, we set a quarterly record with our gross margin topping 55%. Adjusted net profit reached 4.7 billion RMB with a margin of 15.1%, both hitting new highs. Despite ongoing challenges from a competitive external environment, our industry-leading AI technology, vibrant user and content ecosystem, healthy and sustainable commercial ecosystem, and efficient organizational synergy have all contributed to strong operating and financial results. As an AI-driven tech company, we've built an infrastructure that supports the training and inference of large models with trillions of parameters. Based on this infrastructure, we have developed industry-leading AI metrics, including Kauai LLMs, large visual generation models, and recommendation models, all of which we've integrated into our business operations. Notably, in Q2, we made considerable strides in large visual generation models, launching and testing our large video generation model, Cling AI, which gained broad acceptance among domestic and global users. We have since expanded it to full-beta testing globally, enhanced the model's capabilities, and introduced a membership program offering exclusive features. As of today, over a million users have tested Cling AI, creating over 10 million videos We also officially open sourced our text-to-image model, Colors, to foster a collaborative, robust text-to-model ecosystem. Our AI matrix is now seamlessly embedded across various business scenarios, supporting content creation, content understanding, and recommendations and user interactions. In the first half of the year, Nearly 20,000 merchants utilize our AI metrics to optimize their operations on the question platform and a marketing clients average daily spending with AIGC marketing material reached 20 million in June this year, demonstrating the significant potential for our large models and commercial scenarios. Next, I'll discuss our key business development in Q2. First, use growth and ecosystem construction. In Q2, the average DAUs and MAUs on the Quasio app reached 395 million and 692 million, representing year-over-year increases of 5.1 and 2.7% respectively. The average daily time spent per DAU on the Quasio app was 122 minutes, which even accelerated growth in user traffic, with total user time spent on the Quasio app increasing by 9.5% year-over-year. We also deepen our strategy for high-quality growth, improving our traffic allocation mechanism, and creating more app opening scenarios to enhance user experiences while boosting revenue generation. We also enrich the community atmosphere and significantly improve the user long-term retention by optimizing measures such as hot comments ranking and introducing more interaction features, achieving high-quality growth in DAUs. Additionally, we improved the ROI of user retention costs through refined operating strategies across various business scenarios. We conveyed a vibrant, diverse content creation ecosystem, supporting exceptional content creators by refining our traffic algorithms. In Q2, active creators with over 100,000 followers grew nearly 10% year-over-year, and their short video posts increased over 40%. Daily short video uploads on Kuaishou exceeded 14 million. we use the tailored vertical operation strategy to deliver premium content showcasing our unique ethos. In sports, we focus on creating native content the public enjoys. As the rise holding broadcaster for the Paris 2024 Olympics, to align with the Olympic themes, we launched a question of village Olympics with the traditional and rural sports, blending athletic competition with the rural culture. This attracted over 135,000 live spectators, 520 million online viewers, and 6.4 billion impressions, highlighting recreational sports charm. As a pioneer and leader in the short play industry, we launched nearly 50 Kuaishou Astro short plays in Q2, with 12 surpassing 100 million views. Supported by our Kling AI, we premiered the legendary Mirrors of Mountains and Seas, China's first original AIGC fantasy short play, attracting over 15 million views in two weeks, demonstrating our large model's potential in creating deep, meaningful content. For our search business, in Q2, we continued to optimize our search after watching feature and introduced a single column format for displaying search results. This enhanced the user experience and further unlocked the commercialization potential. As a result, our revenue from search marketing services and GMV from search-induced e-commerce grew rapidly in Q2. Our search user penetration rate also improved further with MAUs for Kuaishou Search reaching nearly 500 million in Q2 and daily searches increasing by over 20% year-over-year. Second, online marketing services. In Q2, despite the ongoing economic pressures and softer consumer sentiment, Our revenue from online marketing services outperformed the industry, growing 22.1% year-over-year to 17.5 billion RMB and accounting for 56.5% of our total revenue, further boosting our market share. Our growth was fueled by enhanced smart marketing solutions and deeper sales funnel conversion paths for our marketing clients, which led to higher bids. Additionally, our advanced algorithms supported greater exploration of demographic interests and improvements in matching efficiency, significantly boosting the number of effective users with online marketing potential. Revenue from our external marketing services grew notably in Q2, with the year-over-year growth surpassing that of Q1, especially in media information, e-commerce, and local services. For paid short plays in media information, We improved the user experience by refining native sales funnels and increasing paying users through smart subsidies. This drove rapid growth in paid short plays marketing placement, with the daily marketing spending more than doubling year over year. accounting for a high single-digit percentage of total external marketing service revenue. For smart placement, in Q2, the penetration of our external marketing product, Universal Auto X, or UAX, increased across industries, with the UAX marketing spending over 30% of our overall external marketing spending. We also provided marketing clients with efficient customer acquisition tools, including a native private message sales funnel, spending through this funnel grew more than two-fold quarter over quarter. Revenue from our in-close-loop marketing services grew robustly in Q2, driven by improvements in smart placement strategies and capabilities. Merchants using our Omni platform marketing solution or smart hosting products accounted for 40% of in-close-loop marketing spending. For small and medium-sized merchants, we boosted marketing placement during promotional events with a simplified auto placement product This enhanced their stability and efficiency, increasing their spending by 60% year-over-year in Q2. In brand marketing, we partnered with the fashion media to launch an initiative combining Eastern aesthetics, trendy culture, intangible cultural heritage, and avocade art, attracting leading brands in cosmetics, food and beverage, apparel, and 3C products. Major brands like Tmall renewed sponsorships for our Quasio Astro short plates, resulting in over 20-fold revenue growth year-over-year from marketing sponsorship of Kwaito Astro short plays in Q2. Third, our e-commerce business. Despite a short-term slowdown in consumer demand and heightened competition in domestic e-commerce, the accelerated restructuring of e-commerce fundamentals will continue to drive an increase in e-commerce share of retail sales, lower-tier markets, with the largest population and greatest growth potential are emerging as mainstream markets. Amid these trends, we will focus on helping customers discover affordable quality products that fit their needs through trustworthy streamers and content. We remain committed to fostering a sustainable, healthy KOL ecosystem while advancing our multifaceted, omni-domain operations for brands and merchants in software-operated, live streaming, shelf-based e-commerce and shorter video e-commerce In Q2, our e-commerce GMB grew by 15% year-over-year to 305.3 billion RMB. On the demand side, e-commerce monthly active paying users increased by 14.1% year-over-year to 131 million in Q2. And our MAU penetration rate reached a new high of 18.9%. Our user-centric strategy coupled with a focused approach on tapping Specific industries empowers us to swiftly capture and respond to factors involving consumer preferences. Significantly, especially, we remain focused on iterating initiatives for acquiring new users as well as growing active users, expanding our user reach through products and subsidy measures that encourage repeated engagement. We also enhance the user shopping experience by streamlining marketing processes and facilitating a use-first and pay-later purchase option. Supply side, monthly active merchants grew over 50% in Q2 driven by our support for new merchants' co-starts, growth, and sustained operations, and by empowering existing merchants with all many domain operations. Our Set Sale initiative offers up to 100 billion RMB in traffic resources to new merchants, with the Uplift initiative helping them scale post-co-start. In Q2, these initiatives covered all new merchants, providing product menus, operational guidance, and tailored traffic support. We also enhance the merchant's overall Omni domain operating capabilities with follower growth and content integration. For KOL strategies, we recommend high-quality merchandise to KOLs internally and use external facilitators to help mid-tier KOLs select merchandise targeting recommendations based on follower profiles. We also use AI, marketing, and operation tools to enrich KOL marketing strategies, simplify operations, encourage user interactions, and enhance platforms' capabilities in matching KOLs with products. For brand merchants, we prioritize the trade-in, trade-off program, membership operations, and the big brand, big subsidy channel to attract diverse brand offerings. During the 6-18 shopping festival, GMV from consumer electronics brands and household items grew over 83% year-over-year. E-commerce GMV from pan-shelf-based scenarios in Q2 exceeded the overall platform, making up over 25% of total GMV. Orders during the 6-18 shopping festival rose 65% year-over-year, driving e-commerce growth. In our shopping mall segment, daily active merchants and paying users increased by over 50% and 70%, respectively, in Q2. User engagement measured by product cart views and product searches surged, highlighting a growing consumer trend to browse and search products in the Kuaishou shopping mall. The introduction of our large models has also improved our ability to identify user purchasing intentions driving a more than 80% year-over-year increase in search-induced e-commerce GMV in Q2. In addition, we launched a sales hosting solution for Kuaishou Shopping Mall that integrated our platform's Omni domain traffic and offered commission-based and price-based hosting, aiming to lower merchants' operational barriers and provide merchants with predictable sales channels. Moreover, our short-view e-commerce GMV continued to grow rapidly in Q2 with a year-over-year increase of nearly 70%. Merchants leverage short videos to attract users before live streaming, and extended product sales cycles enhancing the synergy between short videos and live streaming scenarios. Next, our live streaming business. Revenue from our live streaming business was 9.3 billion RMB in Q2, declining less quarter over quarter. We continue to iterate our refined operating approach to bolster a healthy and positive live stream ecosystem. On the supply side, we established regional teams dedicated to recruiting high quality talent agencies through targeted industry promotions and offline presentations. We also supported leading talent agencies through policies and project guidance, leading to a nearly 50% increase in the number of partnering talent agencies and 60% growth in the number of talent agency-managed streamers by the end of Q2 year-over-year. Meanwhile, we continue to promote emerging streaming features such as multi-host live streaming and at the grand stage, significantly attracting more talent agencies and streamers, driving core growth in our live streaming business. We're committed to enriching premium content, attracting mid-tier streamers, enhancing interactive live streaming features, and encouraging streamers to produce high-quality content, thereby promoting more reasons for app opening. As the official short video partner for Crossfire and King Pro League, we have effectively boosted the visibility of these events by leveraging our short video plus live streaming plus community ecosystems. In late June, Kuaishou was also named the strategic short video and live streaming platform for the 2024 Esports World Cup in Saudi Arabia, attracting more quality users across various protocols through innovative crossover efforts. Underscoring how live streaming plus services can empower traditional industries, we continue to scale up our recruitment and real estate transaction services with a rapid growth in both the number of users we serve and the transaction volume in Q2. Daily average number of resume submissions are quite higher, increased by more than 130%, and the matching rate grew by over 150% year-over-year. Daily lead generation on our ideal housing also expanded by ninefold compared to the same period last year. Finally, on our overseas business progress. In Q2, we continue to deepen our presence in key overseas markets through targeted content offerings, operations, and marketing efforts. And our ROI-driven growth strategies, we've been refining operations in traditional marketing channels and exploring new growth avenues. These initiatives drove steady growth in average DAUs in key overseas markets, including Brazil and Indonesia. Notably, DAUs in Brazil rose by 15.4% year-over-year and also improved quarter-over-quarter. Regarding content operation overseas, we continue to engage more high-quality content creators across articles like film, news, comedy, and sports, enhancing content diversity, quality, and the health of our community-based ecosystem. Meanwhile, we optimize the algorithms, enhanced traffic mechanism, and diverse monetization channels have gradually strengthened the positive flywheel effect of content production, consumption, and monetization for creators. Average daily time spent per DAU in key overseas markets increased by 5% year-over-year to nearly 80 minutes in Q2. In terms of monetization capabilities, our overseas revenue increased by 141.4% year-over-year to $1.1 billion in Q2 thanks to our targeted monetization strategies implemented across different countries. Our overseas online marketing team actively expanded our client base across multiple industries by optimizing product capabilities and involving online marketing experiences. As a result, online marketing revenue from our overseas business increased by over 200% year-over-year and continued to grow quarter-over-quarter. Leveraging our traffic and advantage in countries like Brazil and Indonesia, we've become an important marketing channel for Chinese companies expanding overseas and for local brands. With improved overseas monetization efficiency, gained further operating leverage, gradually reducing the negative impact on the company's profitability. In Q2, operating loss from overseas business was 277 million RMB, with a 64.5% decrease year-over-year. Reflecting on the first half of the year, despite numerous external challenges, we firmly executed our high-quality growth strategy. We continued to refine our traffic allegation mechanism and focused on enhancing user content and product experience. while balancing revenue efficiency. This approach has cultivated healthier and more sustainable content and a commercial ecosystem leading to a satisfying financial results. Looking ahead to the second half of the year, we'll capitalize on our deep technological expertise to further explore how AI can enhance existing business hours and create a new one, while striving to achieve significant breakthroughs in new business areas, creating more value for our users, partners, and shareholders. This concludes my remarks. Thank you. Next, our CFO, Jing Vang. We'll discuss the company's financial performance for Q2 2024. Thank you, Yuxiang. Hello, everyone. In the second quarter of 2024, we made significant advancements in our AI infrastructure, enhanced quality and efficiency across our platform. We focused on high-quality user growth, bringing our users exceptional experiences that reinforce our user ecosystem. By deepening the application of large model technologies, we've consolidated a steady growth momentum across our core business segments, including online marketing services and e-commerce, further energizing our commercial ecosystem. Through our proactive strategies to enhance quality and efficiency, we saw further improvements. Our group's operating efficiency and ongoing breakthroughs in profitability. Adjusted net profit reached 4.7 billion RMB in Q2, with an adjusted net margin of 15.1%, both recording historic high. Now let's have a closer look at our Q2 financial performance. Our revenues grew by 11.6% year-over-year to 31 billion RMB, mainly driven by growth in online marketing services and e-commerce business. Online marketing services revenue increased by 22.1% to 17.5 billion RMB from 14.3 billion in Q2 last year and accounted for 56.5% of total revenues. Growth was primarily driven by our optimized smart marketing solutions. Meanwhile, by leveraging industry-leading larger models and enhanced algorithms, we gained deeper insights into user needs offering end-to-end efficiency and enhancement for our clients. These efforts have significantly elevated user experience, enabling our marketing clients to convert sales more actively and efficiently. This led to a significant increase in the number of marketing clients and a corresponding surge in marketing spending. Revenue from other services, including e-commerce, reached 4.2 billion RMB in Q2, up 21.3 from 3.4 billion rmb in the same period last year mainly driven by the increase in e-commerce gmv which boosted e-commerce commission income we continue to advance our diversified omni domain operation strategy actively empowering both new and existing merchants leading to a notable year-over-year growth in the number of monthly active merchants we also strengthened the killer ecosystem and enriched our product supply by effectively capturing consumer demand and refining our operating strategies to expand our user reach. We consistently enhance the user shopping experience, driving ongoing growth in monthly active paying users. Our live streaming revenue was 9.3 billion RMB, a decrease of 6.7% from 10 billion in Q2 last year. Despite of industry challenges, we responded proactively committed to building a healthy live streaming ecosystem by optimizing talent agency management, enriching our diverse and high-quality live streaming content, and enhancing the interactive experience between streamers and followers so we ensure sustainable and positive development of our live streaming ecosystem. In Q2, our cost of revenues remained stable at 13.8 billion RMB and accounted for 44.7% of total revenues Gross profit grew by 23% year-over-year to 17.1 billion RMB. Gross margin was 55.3%, an increase of 5.1 and 0.5 percentage points year-over-year and quarter-over-quarter, respectively. Both gross profit and gross margin reached historic highs. Moving to expenses. Selling and marketing expenses increased by 16.3% year-over-year to 10 billion, accounting for 32.4% of total revenues growth was mainly due to increased spending on business promotions, including e-commerce business. Research and development expenses were 2.8 billion RMB, decreasing by 11.11% year-over-year. R&D accounted for 9.1% of total revenues, dropping from 11.4% in Q2 last year. Administrative expenses decreased by 16.2% year-over-year to 790 million RMB, accounting for 2.6% of total revenues, down from 3.4% in the same period last year. The reduction in R&D and administrative expenses was mainly due to lower employee benefit expenses, including share-based compensation expenses. Group-level net profit for Q2 rose by 169% year-over-year to 4 billion RMB, a significant improvement from 1.5 billion RMB in Q2 last year. Group level adjusted net profit rose by 73.7% year-over-year to 4.7 billion RMB, with an adjusted net margin of 15.1%. These adjusted figures reached record highs. Our balance sheet remains robust, with cash and cash equivalents, time deposits, restricted cash, and wealth management products of 77.7 billion RMB as of June 30. Through our enhanced monetization capabilities and efficient working capital management, we generated a positive operating net cash flow of 7.6 billion RMB in Q2. Looking ahead, we'll continue to explore diverse monetization channels and new avenues for profit growth. leveraging technological innovation to drive efficient business growth and enhance operating efficiency. Therefore, boost the company's long-term sustainable profitability. This concludes our prepared remarks. Operator, please now open the call for questions.
spk03: Thank you. I would like to remind everyone, if you need any questions,
spk07: As a reminder to ask questions, please press star 1 and wait for a name to be announced. 一道问题有来自高盛的Lincoln Kong. The first question comes from Lincoln Kong from Goldman Sachs. Please go ahead, 请提问。
spk06: Thank you for taking my questions about AI. What is the company's latest progress in AI large language model? And what are the upcoming strategies, especially in the commercialization or monetization plan in this field, particularly on occurring AI? Thank you.
spk07: Thank you for your question. We launched a new AI strategy last year and set clear strategic goals to ensure the leading position in the domestic industry in the future in terms of AI technology breakthrough. to combine with the existing business scenarios. At the same time, we strive to bring the leading advantage of the business through subversive technical innovation to change the market pattern. In the past year and a half, we have been working step by step to continue to achieve step-by-step results. At the same time, we have continued to optimize the performance of all major models and strengthened major models in the application of content production and understanding, content recommendation, e-commerce and online marketing, and other business scenarios. Thanks for your question.
spk08: We kicked off our new AI strategy last year with clearly defined strategic goals. We aim to maintain our industry-leading position in China in the upcoming global AI breakthroughs, leveraging these technologies to empower our existing business operations. At the same time, we aim to secure our competitive edge through groundbreaking innovations that have the potential to transform market dynamics. Over the past few years, we've made steady progress, achieving one milestone after another. While continuously optimizing the performance of our foundation large models on all fronts, we kept strengthening their applications across various business scenarios, including content creation and understanding, content recommendation, e-commerce, and online marketing, and more.
spk07: In the second quarter of 2020, we made a major breakthrough in the IBC field. In terms of visual production models, our self-portrait video production model Kling has been widely praised by domestic and foreign users after opening a survey. Kling uses 3D time and space joint focus mechanism to better model complex time and space movements. The production video is based on the real-world physical rules and shows the image quality and interaction effect at the film level. can simulate large-scale logistics operations and break the limit of traditional video production technology. In recent years, we have also launched a member payment system for global users to upgrade the model effect and bring better experience to users. We have also actively progressed in exploring the user payment model. Secondly, our 17.5 billion yuan The large-dimensional model is now more than the target of GDP4.0 in the Chinese market. Our multi-modal large-dimensional model has also reached the level of GDP4.0 in terms of understanding the content of the video, and has set a solid foundation for the expansion of the application field in the future. In addition, in recent days, we have also announced the opening of the Wenshengfu large-dimensional model.
spk08: In Q2 2024, we achieved milestone breakthroughs in AIGC. Regarding video generation large models, our self-developed large video generation model, Cling, was widely acclaimed by users both domestically and internationally following its beta testing. CLAIM incorporates a 3D spatial temporal joint attention mechanism to better model complex spatial temporal movements. By adhering to real-world physical principles, CLAIM produces videos that exhibit cinematic image quality and dynamic effects that stimulate life-like physical movements with large motion and break the limitations of traditional video generation technologies. we recently introduced a subscription-based membership for our global users and upgraded claims performance to provide a better user experience while also making positive strides in exploring user payment models. Secondly, in Q2, our 175 billion parameter QI ELLM outperformed TPT 4.0 in Chinese language scenarios. Our multi-model ELLM has also matched the capabilities of TPT for V in video content comprehension, providing a strong foundation for expanding future application capabilities. In addition, we recently officially open-sourced our text-to-image large model, Colors, as the most proficient Chinese text-to-image model, Colors, overall performance as the past Mid-Journey version 5 following several upgrades.
spk07: One important thing is that we pay more attention to large model applications in commercialization. Based on the production of large-model video and live broadcast scripts, advertising clues are overcome, and digital technology is added to help commercialize advertisers. Low-cost production of high-quality videos and live broadcast content improves the efficiency of clue conversion. In the first half of 2024, nearly 20,000 merchants took advantage of large-model capabilities on fast-tracking platforms to realize smart management. AI-based marketing data also reached 20 million in June this year.
spk08: particularly significant was our enhanced focus on deploying large models in commercial and vision scenarios. Leveraging our QAE large model, we have developed video script generation, live streaming script generation, and advertising lead customer service, all integrated with digital human technology. These investments enable advertisers produce high quality video and live streaming content affordably, thereby improving lead conversion efficiency. In the first half of 2024, nearly 20,000 merchants on the Kuaishou platform leveraged our large model capabilities for intelligent operations. And average daily spending with AIGC marketing materials reached 20 million RMB in June this year, showcasing the enormous commercial potential of large models.
spk07: Finally, let me briefly talk about the development strategy in the AI field. In terms of large-scale models, we will focus on developing specialized large-scale models that are more suitable for business scenarios, and reduce the cost of building models on a large scale. In terms of visual production models, we will continue to upgrade KOLIN's large model to further improve model performance to maintain the leading position in the industry. In terms of KOLIN's commercialization transformation, in addition to strengthening the global supply of West-end members, we will also explore more possibilities of B-end cooperative transformation, and strive to achieve an objective commercialization transformation scale as soon as possible. In addition, we also look forward to a significant improvement in the commercialization of large models, to increase the income of online marketing services and provide stronger support. In short, we will establish a firm IT and AI strategy in the midst of an unprecedented business scenario, and work hard to create a new business boundary model to contribute more value to the group.
spk08: Lastly, let me briefly talk about our upcoming AI development strategies. With respect to large language models, we will focus on developing and training specialized language models that are better suited to specific business scenarios, significantly reducing the model's overall inference cost on a large scale. In terms of visual generation models, we will continue to enhance Culling's large model to further improve its performance and maintain our industry-leading position. Speaking of claims monetization, in addition to strengthening the global operations for membership programs, we will also explore more B2B monetization possibilities, aiming for significant gains in the near future. Moreover, we anticipate that large models will greatly enhance the efficiency of our commercial recommendation algorithm, providing strong support for our online marketing services growth. We're committed to executing our AI strategy, empowering existing business areas, and striving to create new monetization models to deliver greater value to the group.
spk03: Thank you, operator.
spk07: Next question, please. The next question comes from Thomas Chong from Jefferies. Please ask your question.
spk02: My question is about our e-commerce business. In this industry competition, how can Kuaishou's e-commerce device take the growth momentum from the supply side, especially mid- and small-sized merchants? What is Kuaishou's e-commerce strategy in the second half of the year? Thank you.
spk07: Thank you for your question. From the supply side, we see more and more new businesses coming to Kuaishou. Also, more and more mature businesses are growing fast. In the second quarter of 2024, the monthly sales of businesses increased by more than 50%. The main reason is that we strongly promote the growth and long-term management of new businesses. At the same time, we can help old businesses achieve full management.
spk08: Thanks for your question. On the supply side, with the rapid development of Quest for e-commerce, more and more new merchants have joined us, and our existing merchants continue to grow. In Q2 of 2024, The number of average monthly active merchants grew by more than 50% year-over-year, primarily due to our concerted efforts in new merchants' cold starts, growth, and sustained operations, in addition to empowering existing merchants to tap into Omni domain operations.
spk07: In addition, we will continue to invest more than 70 billion yuan in the supply chain through the Puyall project to further improve the scale of J&V for the new business owners to help the business owners to get a breakthrough in the business. At the same time, we will continue to invest more than 70 billion yuan in the supply chain for the new business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get a breakthrough in the business owners to help the business owners to get through the set sale initiative with up to 100 billion video view traffic resources, we guarantee 100% of newly onboarded merchants in traffic from their code start
spk08: As quality merchants reach certain milestones, we further support their growth with over 70 billion video view traffic resources through our Uplift initiative, driving vision MV through large scale promotional events to help merchants make operational breakthroughs. Meanwhile, New merchants meeting the GMB thresholds within their first 90 days can receive compounded rebates through our Golden Bounty initiative, ensuring that they maintain confidence in their initial operations and receive substantial traffic support from the platform.
spk07: After the second quarter of 618, we feel that both e-commerce platforms and business are facing challenges in the short-term demand for domestic consumers to slow down. In a large environment where traffic is weak, e-commerce business needs to achieve better balance in terms of content and commercial efficiency. As the main participant of the content e-commerce platform, We believe that live e-commerce platforms are better suited to provide diversified product choices from business policies, data capabilities, sales capabilities, and so on, and provide diverse business choices to attract consumers to explore uncertain e-commerce needs and stimulate purchase behavior.
spk08: Moving on to our e-commerce strategy for the second half of the year, after the 618 shopping festival in Q2, we realized that both domestic e-commerce platforms and merchants are facing challenges with the temporary slowdown in consumer demand in the e-commerce market. As traffic benefits diminish across the board, e-commerce business need to better balance content and commercial efficiency. As a major player in content-driven e-commerce, we believe that live streaming platforms are more effective at helping merchants tailor their operations and offer a wide variety of products through smart policies, data insights, and marketing strategies. This not only attracts consumers by encouraging them to explore new shopping opportunities, but also stimulates purchase decisions.
spk07: Therefore, in the next half of the year, we will steadily and vigorously develop e-commerce, the basic platform of social e-commerce, focus on the core value of live broadcasts and short-term products, and fully play a major role in e-commerce users' new arrivals. At the same time, we will do more user reviews in the goods market, and long-term stable construction of goods and goods scenarios, We will strengthen the long-term health of the audience, fully play the core advantage of the head audience and live broadcasts, and strengthen the training and operation of the central audience at the same time. We will jointly build users' low-cost thoughts in the live broadcast room, promote the size of the live broadcast room, and improve the efficiency of resource transformation in the live broadcast room. We will also improve the explosive power of the content factory in most cases, and increase the large-scale play and operation mechanism of the content factory. including live broadcasts before live broadcasts, live broadcasts after live broadcasts, live broadcasts after live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, live broadcasts, and gradually build on the intentions of the users to take the initiative to use the goods and services scenarios. I believe that through these strategies, we can continue to dig into the needs of 700 million fast-tracking old-timers, and maintain the differentiating advantages and unique values of fast-tracking e-commerce in the industry.
spk08: As we look to the second half of the year, we will cement and vigorously develop our foundational strengths in content e-commerce and social e-commerce, focus on the core value of live streaming and short video, and fully leverage the primary role of content-based scenarios in attracting and activating e-commerce users. In shelf-based scenarios, we aim to enhance user purchasing frequency and steadily develop a broader hand-shelf-based e-commerce environment. We will also fortify the development of a long-term healthy KOL ecosystem, thoroughly harnessing the key advantages of leading KOLs and larger-scale live-streaming events while enhancing the cultivation and operation of mid-tier KOLs. We will work with KOLs to jointly build users' mentality for a great deal in live-streaming promote the scale of large live streaming events and improve live streaming resource conversion efficiency. We will also boost the impact of content during major promotions by focusing on key features and operational strategies. This includes using short videos to drive traffic to live streams before they start and reintroducing blockbuster products through short videos afterward. Our goal is to ensure consumers can find great deals across the platform and in every e-commerce scenario. For shelf-based e-commerce, in addition to increasing GMV, we will focus on strengthening merchandise supply and variety, as well as upgrading search and match efficiency. Through coordinated efforts and operations and algorithms, we will persistently improve the user experience and subsidy efficiency in shelf-based e-commerce that cultivates a proactive user mindset for shelf-based e-commerce. We believe that through these strategies, we can continue to tap into the e-commerce needs of the 700 million MAUs on Kuaishou and maintain the differentiation and unique value of Kuaishou's e-commerce business and industry.
spk07: Thank you. Next question, please, operator. The next question is from Felix Liu from UBS. The next question comes from Felix Liu of UBS. Please ask your question.
spk19: Thank you, Manager, for accepting my question. My question is about the online marketing business of the company. Our online marketing business has made a good growth in the first half of the year. Thank you, Benjamin, for taking my question. My question is on your online marketing business. In the first half, your online marketing business achieved strong growth. For looking into the second half, what are the major growth opportunities for this segment? Thank you.
spk07: Thank you for your question. In the first half of the year, through the economic operation of the industry, we have used our large-scale capabilities to provide smart marketing solutions for online sales customers. At the same time, we have used the transformation of the更新链路 to make the online sales service income of the first half of the year grow by about 25% and continue to increase the market share. In the second half of the year, we will continue to use the optimization and promotion of smart marketing products, and through content management, Thanks for your question.
spk08: In the first half of this year, we provided intelligent marketing solutions to our marketing clients through refined industry operations and large models. We offered deeper sales funnel conversion pathways for our clients, resulting in a year-over-year increase of about 25% in our revenue from online marketing services in the first half of the year and consistently gaining market share. In the second half of the year, we will optimize our intelligent marketing products and algorithms to continue empowering diverse industry clients' sustained operations on Kuaishou through content operations, e-commerce operations, and local service operations. We will also leverage major marketing events such as the W11 to realize further operational breakthroughs.
spk07: In terms of content management, the short stories, novels, and games have their own content properties, while Qyso is naturally adapted to content platforms. It can do content and marketing together, and has more space. For example, in the first half of this year, we have created a cloud network for paid short films. Users can complete paid and viewing short films in the quick hand app. Not only can it improve users' content consumption experience, but it can also improve the revenue and management efficiency of marketing customers. In the second quarter, the revenue of paid short film revenue customers has increased by more than 300%. The revenue of short film ratings has increased by more than 30%. In terms of content operations, industries with content attributes such as short plays, novels, and mini-games naturally align with the question as a content platform.
spk08: This synergy enables the successful integration of content creation into marketing, opening up significant growth opportunities. Short plays, for example, in the first half of the year, we've built a native sales funnel for paid short plays, allowing users to complete payment and watch short plays directly within the Quattro app. This not only enhanced the content consumption experience for users, but also improved ad placements and conversion efficiency for our marketing clients. In Q2 2024, the number of active marketing clients per question's page short plays more than tripled with the number of active short plays with ad placements by over 30%, both on a quarter-over-quarter basis. This kind of operation model and native sales funnel capability have also been replicated in novels, mini games, and other industries. and are expected to bring significant incremental marketing placements in the second half of the year.
spk07: In terms of sales, we still have a lot of room for improvement in the short-term sales of in-circuit stores and in-circuit stores. In terms of in-circuit stores, our short-term sales of in-circuit stores have increased by more than 45%. Next, we will improve from the perspective of industrial capability optimization and flow support, to improve the investment and conversion efficiency of short-term and short-term supply and demand, to provide more space for marketing consumption, and on the capital of external circulation merchants. In the past six months, there has been a significant improvement in the flow rate of merchants who have expanded their capital. In the future, we will optimize the product chain including payment, improve user experience, improve payment conversion, and meet the diversified business needs of merchants.
spk08: Regarding e-commerce, operations still have tremendous room for growth in areas such as short videos driving traffic to live streaming rooms for enclosed loop merchants and click ID as a replacement for external merchants. In terms of enclosed loop marketing services in Q2 2024, our marketing spending on driving traffic to live streaming rooms through short video scored by over 45% year-over-year. Our next step will be continuously to improve the associated advertising performance and conversion efficiency by optimizing production and research capabilities, and fortifying policy support, providing incremental growth for marketing spending. In terms of a click ID as replacement for external merchants, there has been a significant increase in the retention rate of merchants operating through a click ID as replacement in the past six months. In the future, we will improve the user experience and increase the conversion rate of payments by optimizing the product chain, including payment process to meet the diverse business needs of merchants with more policy incentives.
spk07: In terms of local management, in the context of the transformation of the consumer structure, we have observed a huge demand for local life services from QIYI users, and a new increase in demand for local businesses. In the second quarter, the local commercial investment consumption has increased by more than 60%. Among them, the demand for legal consulting services and home decoration services is rising. In the second half of the year, we believe that by using UAX, digital live broadcasts and in-house original messages and other product capabilities will continue to greatly improve the efficiency of local life and business. It will also lead to further growth in commercial investment.
spk08: As for local operations, with the overall transformation of the consumption mix, we have observed a huge demand for local services from our 700 million Quattro users, which has also brought new business upside to our local services merchants. In Q2, the marketing spending of local services merchants rose by more than 60% year-over-year and demand from industries like legal counseling and home decoration was very strong, we plan to leverage our product capabilities of the UAX digital human life streaming and in-app native private messaging to significantly improve the customer acquisition efficiency of local services merchants, leading to further increase in their marketing placements.
spk07: In short, we will continue to work hard in the field of business optimization, smart sales product delivery, and sales optimization.
spk08: In summary, we will continue to zero in on refund industry operations, intelligent marketing product decoration, and algorithm optimization to elevate marketing placement and conversion for our clients. We also remain confident that our online marketing services revenue will outperform the industry's year-over-year growth rate. Thank you all very much.
spk07: Next question, please. The next question comes from the line of Brian Gong from Citi. Please ask your question. Please ask your question. I will translate for myself. Thanks, Benjamin, for taking my question. My question is regarding local service. So we noticed that Kuaishou and Maitre have recently renewed the strategic cooperation by signing a new agreement. How does Kuaishou position the local service business and what are the goals? Also, could you please share the business latest update? Thank you. Thank you for your question. In December 2021, Queshou announced strategic cooperation with Meituan at the Ecological Development Conference. After nearly three years of planning, both sides believed that the cooperation achieved the expected result. In June this year, Meituan's J&V on Queshou's platform increased by 38 times, and the order volume increased by 10 times. Based on the previous cooperation basis, we have recently renewed the new three-year strategic cooperation agreement, The scope and depth of the cooperation will be strengthened. In terms of the scope of the cooperation, the two sides will expand the cooperation to 100,000 stores nationwide. In terms of the depth of the cooperation, the supply provided by Meituan will expand from group purchases to products with gold coins, membership products, bird nests, and so on. In the future, it will also continue to expand to Daozong and Jiuyu and other categories. Thanks for your question. The strategic partnership between Kuaishou and Meituan was first announced at the Ecosystem Development Conference in December 2021.
spk08: After nearly three years of concerted efforts, both parties believe that the corporation has exceeded expectations. In June this year, Meituan merged with GMB on Kuaishou, skyrocketed by more than 38 times, with order volume soaring by more than tenfold, both on a year-over-year basis. Based on this, we have recently renewed the partnership with a new three-year strategic cooperation agreement, further strengthening the scope and depth of our cooperation. First, our corporation scope will extend to cover 10,000 stores in 100 cities nationwide. Second, our corporation will deepen as Maitland broadens its supply to Kuaishou from group buying to more marketing formats, including vouchers, membership merchandise, and flash sales. Going forward, this may further expand to general in-store business and hotel and travel business, among other categories. We believe that by leveraging Matron's supply advantages, we can quickly widen the merchant and product coverage of Kuaishou's local services, providing a richer, more compelling local services experience for Kuaishou's users.
spk07: In combination with the progress of our recent business, I am also talking about the position and goals of the local life business. The market size of the local life business is large, and the industry is spreading. Currently, the localization rate is relatively low, and the ceiling is rising. We hope to find our own unique positioning around the value-added capabilities of users and merchants with the advantage of fast-tracking at the new-line level. User-centered, based on users' preference for relevant local content, we will accurately recommend local products and services that meet personal needs. At the same time, we will optimize platform operation capabilities. Under the joint supply and demand strategy of fast-tracking and merchants, we will establish the core of users' value-added performance for the platform. to meet the needs of local consumers in various scenarios. This is the original purpose of our local business and has never been changed. We can also see that users have gradually built up the will to live a happy local life. In the second quarter, the number of paid users in Japan has continued to grow, reaching 37%.
spk08: With our recent business updates in mind, I would like to discuss the positioning and goals of local services. This market is huge, yet fragmented with low online penetration and plenty of room for growth. We aim to reduce QIASHA's large user base in lower tier markets to find our unique positioning based on our value proposition to users and merchants. For users, we provide precise local goods and services recommendations that meet users' personal needs, tailored to their preferences for relevant and local content. Meanwhile, we strengthen the user's mentality for value for money shopping through refining operation capabilities and the question of merchants' joint subsidy strategy, satisfying users' local consumption needs across various scenarios. This was original aspiration for the local services business and has never changed. We are happy to observe a growing trend among users consuming local services on Kuaishou. In Q2, average daily paying users of local services continued to grow steadily, up 37% compared with Q1.
spk07: Kuaishou has a vast new market base and active communication ecosystem. Under the transition of the consumer structure, to provide lower cost and better conversion rate of marketing and operation solutions. In the second quarter, our supply ecosystem is further enriched. The number of retail stores and Japanese-made retail products has increased by 22% and 33% respectively. Of course, the better conversion rate cannot be separated from the construction of our high-quality content. With the support of the platform's rich staff, under the discipline of policy adoption and distribution of traffic, to guide people to produce high-quality local life content. The GPM recommended by Duan Qinghe live broadcasts increased by 42% and 37% respectively, prompting the platform to pay less and increase quickly.
spk08: For merchants, Kuaisha has a massive user base in the lower tier markets and an active social ecosystem. Leveraging the consumption transformation, we aim to offer merchants cost-effective marketing and operational solutions with higher conversion rates. In Q2, as we further enriched our supply ecosystem, the number of active merchants and the average daily number of active merchandise grew by 22% and 33% from Q1, respectively. Of course, higher conversion rates also depend on the high-quality content. Utilizing our extensive KOL resources supported by our favorable policies and strategic traffic distribution, we guide them to produce high-quality local services content. In Q2, the GPM of short video and live streaming recommendations rose by 42% and 37% from Q1, respectively, propelling rapid growth in platform GMV.
spk07: Overall, our goal is to make steady, solid progress in our local services business while improving subsidy efficiency and managing costs effectively.
spk08: Thereby, better meeting users' needs, empowering merchants, and ultimately creating both user and commercial value for the platform.
spk03: Thank you, operator.
spk07: Last question, please. The next question comes from Xueqing Zhang of CICC. Please ask your question.
spk18: Good evening, everyone. Thank you for listening to my question. Good evening, management, and thanks for taking my question. My question regards on your profitability outlook. We noticed that the company's adjusted net profit was 4.7 billion this quarter, and the adjusted net margin was 15.1%. Give me a story of what's the company's potential for profitability in the mid to long term, and how will recent AI investment impact this? Thank you.
spk07: Thank you for your question. Since the first quarter of 2023, the company has achieved a net profit of net profit of net profit after six consecutive quarters. This reflects our continuous improvement in business efficiency and profitability. In this quarter, we achieved a net profit of 4.7 billion yuan, a net profit rate of 15.1%, and a net profit rate of 15% in the previous year.
spk08: Thanks for your question. Since we've achieved a positive adjusted net profit in Q1 2023, we have seen six consecutive quarters of a growth in both adjusted net profit and adjusted net margins. This reflects our ongoing improvements in operating efficiency and profitability. In Q2, our adjusted net profit amounted to 4.7 billion RMB with adjusted net margin of 15.1%. This represents that we've reached our goal of a 15% adjusted net margin one year ahead of schedule.
spk07: and e-commerce business, effectively control and optimize the cost of division, and continuously improve the efficiency of the user interface by means of technological innovation methods. The above measures have led to more than 55% of this quarter's net profit, creating a new high in the single quarter. At the same time, in terms of sales cost strategy, we have implemented a high-quality growth strategy. In terms of user growth and maintenance costs, we achieved a steady growth in user traffic overall. But in the short term, we will increase the investment in related business promotion in e-commerce, commercialization, local life, etc. to further strengthen the user mindset and lay a better foundation for driving income and e-commerce GDP growth. In terms of R&D, we will also invest in AI, but the impact is relatively small. In the mid-term, we believe that with the improvement of the income structure and the further improvement of operating efficiency, including the gradual reduction and profit of overseas business, local life, and other new businesses, we are confident that we will achieve the mid-term goal of 20% of the adjusted operating rate.
spk08: These strong financial results can be attributed to three key factors. Firstly, we continue to optimize revenue mix by increasing the proportion of higher margin services like online marketing services and e-commerce. Secondly, we effectively controlled and improved revenue sharing costs. And finally, we heightened the utilization efficiency of servers and bandwidth through technological innovations. These efforts further boosted our gross margin to a quarterly record high of over 55%. In Q2, in terms of our selling and marketing expense to revenue ratio, our high quality growth strategy has enabled us to achieve steady user growth while maintaining largely stable costs for user acquisition and maintenance. Although in the short term, we will be increasing promotional spending, we aim to deepen users' mind share in e-commerce, advertising, and local services, and drive the growth of the revenue and e-commerce GMV. Additionally, we will continue to invest incrementally in AI, while limiting the impact on our R&D expense-to-revenue ratio to a minimum. Our revenue mix and operational efficiency continue to improve. We are confident in achieving our mid-term target of 20% adjusted net margin, driven by gradual loss reductions or profits from our overseas businesses, local services, and other new initiatives.
spk07: In addition, regarding the overall impact of AI investment on efficiency, In the short term, our investment in the AI model will not have a significant impact on the company's profitability. In the long term, AI can also improve the value of AI-related investment in company business development through the current business and innovative business scenarios.
spk08: Regarding our United Investments, while they may not have a significant impact on our profitability in the short term, their long-term value creation is substantial. These investments will empower our existing business and foster innovation, creating new business opportunities and driving sustainable growth.
spk07: The AI strategy also gives us more opportunities to expand our income growth and growth growth, and gives us more confidence to make continuous improvements and improvements in long-term profitability.
spk08: In conclusion, our commitment to enhancing quality and efficiency is deeply embedded in our long-term strategy, guiding every decision we make and implement. Our AI strategy plays a pivotal role in this endeavor. opening up new avenues for driving revenue growth and improving quality and efficiency, giving us greater confidence in achieving sustainable long-term profitability.
spk07: Thank you. That's the end of the Q&A session. Back to you all later. Thank you, operator. 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.
spk08: Thank you.
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