Kuaishou Technology B

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.

Thank you. I would like to remind everyone, if you need any questions,

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.