Kuaishou Technology B

Ladies and gentlemen, thank you for standing by. Welcome to Kuaishou Technology Third Quarter 2024 Financial Results Conference Call. Please know that English simultaneous interpretation will be provided for management's prepared remarks. This English line will be in listen-only mode. I will now turn the call over to Mr. Matthew Zhao, VP of Capital Market and IR at Kuaishou Technology. Thank you, Operator. Good evening. Welcome to our third quarter 2024 Financial Results Conference call. Joining us today are Mr. Cheng Yi-Hsiao, co-founder, chairman, and CEO, Mr. Jin Beng, 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 third quarter 2024 results announcement ended September 30, 2024, each day earlier today. During today's call, management will also discuss certain non-IFRS financial measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-FRS financial measures, a reconciliation of IFRS to non-FRS financial results and relative risk factors, please refer to our third quarter 2024 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide a simultaneous English interpretation in the prepared remarks session and a consecutive interpreter during the Q&A session. Please note that English interpretation is only for convenience purposes only. In the case of any discrepancy, management's testimony in their original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB out now. And the call over to Yixiao. Hello, everyone. Welcome to Kuaishou's third quarter 2024 earnings conference call. In Q3, despite a challenging macro environment, we grow our user base and deliver solid financials by staying committed to our tech-driven, user-centric business philosophy. We achieved a milestone of over 400 million DAUs and the total revenue grew by 11.4% a year over a year to 31.1 billion RMB. Revenue from our core commercial business including online marketing services and other services are primarily e-commerce increased by nearly 20% a year over a year. adjusted and net profit rose 24.4% a year over year to 3.9 billion RMB, showing our ability to increase profitability. We strengthened our content and commercial ecosystem by deeply integrating and applying large models across content creation, understanding, and recommendation status. In Q3, daily spending with AIGC marketing materials peaked at $30 million. In September, we unveiled our latest video generation model upgrade, CleanAI 1.5, setting new industry benchmarks for video quality with a video resolution of 110 ADP, dynamic performance, matter responsiveness, and feature enhancements such as motion brush. Next, I'll discuss our key business developments in Q3. First, user growth and ecosystem construction. In Q3, Average DAUs on the Kuaishou app reached 408 million and MAUs reached 714 million, increasing 5.4% and 4.3% year-over-year, respectively. This further solidified our leading position as the third-largest app in China. The average daily time spent per DAU on the Kuaishou app was 132.2 minutes, while total user time spent rose 7.8%. 3% a year over year. Average daily live streaming and short video views reached nearly 110 billion. Executing our strategy of high-quality user growth, we enhanced our capabilities in leveraging marketing channels for user acquisition, optimized product features, and integrated user acquisition initiatives with commercial scenarios like e-commerce. As a result, we expanded our user base and drove more frequent user engagement. We enhanced omni-domain traffic allocation efficiency by refining our content distribution mechanism, creating stronger alignment between content and revenue growth. To boost user retention, we optimized features to foster fun community engagement and positive social atmosphere. For example, we enhanced private messaging across multiple scenarios, introduced creative features like the virtual pad HuoZaiZai, and refined the common rankings We also focused on improving the overall experience of our platform's less active user algorithm enhancements, also deepening our user retention by modeling diverse user interests, user-to-user relations, and key drivers for opening up our app. On the product side, upgrades like our redesigned sidebar and enhanced user experiences drove up user satisfaction. In terms of content operations, we built a unique, multifaceted ecosystem by developing specialized content verticals aligned with users' interests, supporting standout creators with our unique features, and expanding our reach with high-profile events. In the sports vertical as rights-holding broadcaster of the Paris Olympics, we created extensive content lineup, including panoramic on-demand event coverage, Exclusive proprietary IP, interactive features, and diverse user-generated content bring users an all-encompassing Olympic experience. Olympics related content on Kuaishou garnered 310.6 billion impressions during event with 640 million users tuning in and generating 15.89 billion interactions. To engage a young user to a live streamed online concert featuring teams in time and Hatsumiku. In Q3, live streaming sessions from the two TNT concerts achieved a combined 950 million views. For our search business, we optimized the search results page to improve accuracy and user experience, significantly increasing user penetration in search. In Q3, average MAUs for the Kuaishou searches exceeded 500 million. Average daily searches climbed by over 20% a year to over 700 million, and daily searches peaked at over a 800 million users search behavior also give us valuable insights into their needs driving rapid growth in our revenue generating business related to searches. Second, online marketing services in Q3 revenue from online marketing services grew to 20% year over year to 17.6 billion RMB achieving over 20% growth for the sixth consecutive quarter. highlighting the segments of sustainable growth momentum. By continuously improving our data infrastructure, smart placement products, and algorithms, we delivered higher placement ROI for our clients, leading to increased bids. Additionally, our large AI model's systematic understanding of marketing content and merchandise features allow us to match users and merchandise more accurately for merchants, boosting marketing conversion efficiency. In Q3, Revenue growth in our online marketing services was primarily driven by the external marketing services, with spending in social media information, e-commerce platforms, and local services industries outpacing the overall market growth year-over-year. For paid short-place and media information, we offered high-quality content tailored to different age groups of targeted audiences, increasing user payment and conversion rate, and improving placement outcomes for clients through our smart subsidy strategies. We also accelerated our in-apps as a short play model, expanding our user base for free short plays and providing clients with more diverse revenue opportunities, leading to over 300 growth in short play marketing spending year over year. We introduced a differentiated universal auto eggs, UA eggs placement solutions, leveraging end-to-end smart capabilities, including infrastructure, creative generation targeting, and adjustments to enhance the stability of a client's marketing placement and increase budget allocation. As a result, total marketing spending through the UAX accounted for around 50% of the external marketing spending in Q3. Closed-loop marketing services revenue grew in Q3, with monthly active merchants using marketing placements increasing by over 50% year-over-year. Our automated marketing placement services help the small and medium-sized merchants expand GMV and improve retention rates. We focused on policy support, product iterations, and algorithm optimization to enhance the conversion of shorter video traffic to live streaming, increasing marketing spending in this area by nearly 20% year-over-year in Q3. Smart marketing placement is now crucial for merchants sustainable operations on Kuaishou, with Omni platform marketing solutions or smart hosting products accounting for about 50% of closed-loop marketing spending. In brand marketing, we offer integrated solutions to drive brand awareness and sales conversion through marketing science, KOL recommendations, and customizing strategies. In Q3, we partnered with over 150 brands, including China Mobile, FAW, Volkswagen, leveraging the Paris Olympics to support rapid growth with our sports plus strategy and content ecosystem. Among these 60 were new brand clients. Beyond traditional methods like sponsorships and product placement, we also worked with the star magnet KOLs for product recommendations, boosting brand exposure through high quality content.

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Aided by precise user profiles and data analysis, helped brand clients expand their reach and increase sales. Third, our e-commerce business. Our e-commerce business showed resilience in Q3, despite it being a slow season and facing consumer demand challenges. With a solid foundation in content-based e-commerce and a strategic focus on providing exceptional content and superior products, we maintain a strong market presence by emphasizing live streaming e-commerce, Unlocking the potential of shorter video e-commerce and expanding pan-shelf-based e-commerce were maximizing synergies across various scenarios. These efforts boosted e-commerce supply, enriched our ecosystem, and increased user spending, resulting in a 15.1% year-over-year GMV increase to 334.2 billion RMB in Q3. On the supply side, with an industry landscape where supply often outweighs demand, content has become more crucial in driving consumer demand, with more merchants seeking long-term growth on content-based e-commerce platform. Small and medium-sized merchants exceeded expectations, with the new merchants on Kuaishou increasing over 30% year-over-year, and their average revenue per store up by more than 60%. This growth was largely driven by initiatives like the Golden Bounty Initiative, Set Sail Initiative, and Uplift Initiative, which helped early-stage merchants increase traffic and reduce uncertainties. We leveraged our nationwide partner ecosystem to help new merchants develop their business, focusing on key products categories first. Existing merchants, we offer to refine operational methodologies to support their long-term business growth. In Q3, average monthly active merchants grew by over 40% year-over-year. Our merchants' healthy growth enriched our platform's merchandise ecosystem by expanding categories by over 20% year-over-year and offering users a wider selection of high-quality products. To enhance content-based e-commerce, we customized operations for KOLs. For top-tier KOLs, we introduced marketing tools like exclusive mega group buy and mega crowd deals to incentivize live streaming and enhance content value. During the 2018 Shopping Festival, customers using exclusive mega group buy placed 25% more orders per person than others, while other conversion efficiency for the same product category rose 55% after using mega crowd deals. For small and medium-sized KOLs, we launched the Rising Star Initiative, offering cash incentives, traffic support and exposure while collaborating with regional service providers for local operations. These helped them achieve strong growth, increasing their average daily GMV by over 40% quarter over quarter, and the average daily number of merchandise sold by over 25% quarter over quarter. The Blockbusters initiative provided subsidies for selected merchandise, offering users more affordable, high-quality products. As a result, KOL's GMV increased by over 24% year-over-year during the 8-18 shopping festival, with the small and medium-sized KOL's GMV growing over 27% year-over-year. Short video e-commerce also grew rapidly, with the GMV rising over 40% year-over-year in Q3. driven by blockbuster products and live streaming highlights. In addition, we improved content quality and conversion efficiency, extending the product lifecycle through short video embedded shopping links that drove traffic to live streaming rooms. By optimizing strategies like integrating e-commerce contents with marketing materials and joint modeling of short video traffic and Simple live streaming rooms will achieve nearly 40% quarter-over-quarter growth in GMV, driven by short videos directing traffic to live streaming rooms in Q3. While stabilizing and growing our content-based e-commerce, our pen-shelf-based e-commerce has increasingly complemented our e-commerce business. In Q3, pen-shelf-based e-commerce GMV accounted for 27% of our total e-commerce GMV. and its growth continued to outperform overall GMV growth, driven by strong supply and demand. Average daily active merchants and paying users in our shopping mall grew by nearly 70% and over 60% year-over-year, respectively. Thanks to our efforts in integrating Blockbuster products and traffic resources, pen-shelf-based e-commerce GMV during the 2018 Shopping Festival rose by 45% year-over-year. Moreover, through engaging Blockbuster product live streams, and strengthening customer mindshare product-driven branding. We have consistently driven more repeated purchases and reinforced customer mindshare in our pen-shelf-based scenarios. The ongoing expansion of our e-commerce supply and ecosystem, coupled with increased synergies across various e-commerce scenarios, has further stimulated user demand. In Q3, the number of e-commerce monthly active paying users grew 12.2% year-over-year to 133 million, beating on the momentum from the Q2 peak season. Our diverse marketing strategies which included targeted approaches for new, growing, and mature users, also supported discourse. Tools such as coupons for live streaming rooms and order incentives have been instrumental in expanding our user base and improving conversion rate and transaction efficiency. Going forward, we remain committed to our user-centric approach, leveraging integrated live streaming and short-of-view content, along with our pen shelf e-commerce strategy will continue to empower merchants and QLs to grow historically. Now, our... live streaming business. In Q3, live streaming revenue was 9.3 billion RMB, with the year-over-year decline narrowing further. As a foundational part of our content ecosystem and a key reason users engage with Kuaishou, we remain focused on fostering a healthy, sustainable live streaming ecosystem. On the supply side, we saw increasing professionalism and institutionalization among streamers, and we find operational capabilities from partner talent agencies. Multi-host live streaming and other emerging product categories also continue to grow. By the end of Q3, our partner talent agencies grew by more than 40% year-over-year, and talent agency managed streamers increased by over 60%. We continue to expand the variety of high-quality content, building on rich entertainment and local cultural content, We focus on niche areas and launch content from various IPs featuring talented streamers, such as the grand stage and the new episodes of national art live streaming programs. By integrating content IP with the local cultural and tourism resources, we help drive the growth of these industries to enhance our gaming live streaming ecosystem. We adopted a comprehensive content marketing strategy, including incubating new games, live streaming game distribution, and cultivating top tier influencers among others. We also develop the gaming content with a unique quite your features into three active gaming live streaming creator exceeded 30 million boosting the appeal of our diverse top notch content to live streaming users. Our live streaming plus services continue to empower traditional industries. For example, we advanced our recruitment real estate services, driving rapid growth in customer reach and transaction scale into three. Average number of resume submissions on QuietHire nearly doubled year-over-year, and the number of matches grew by over 200%. For ideal housing, daily lead generation surged over four-fold compared with the same period last year. Finally, on our overseas business progress, We have set deep roots in Brazil and built strong local market brands by deepening our local content operations. In Q3, we saw steady high-quality user growth overseas, achieving breakthroughs by innovative user acquisition channels and improved user retention. DAUs in Brazil grew by 9.7% year-over-year. In content operations, algorithm improvements help to highlight premium content across verticals like entertainment, news, and everyday life in sports. With quite a strong user base and growing brand influence, we optimize the monetization mechanism for creators. We find a product flow to enhance their earning potential and motivation. Content subsidies also become more efficient, supporting creators' sustainable operations. User activity grows steadily. with the average daily time spent per DAU in Brazil up 4.2% year-over-year and continue to grow quarter-over-quarter. In terms of monetization, we continue to enhance marketing clients' experience with improved traffic mechanism and efficiency while ensuring a healthy ecosystem. We also embedded new traffic scenarios to expand incremental marketing share, leading to year-over-year doubling of online marketing revenue. Total overseas revenues reached 1.33 billion RMB, growing by 104.1% year-over-year. Along with this rapid growth, we kept our overseas operations highly efficient under ROI-driven approach, narrowing our operating loss from overseas business by 75.9% year-over-year to 153 million RMB in Q3. Additionally, after more than a year of exploring e-commerce business models in Brazil, we made initial progress in terms of products, content services, and transaction efficiency, laying a solid foundation for accelerated growth in our Brazil e-commerce business. In summary, despite external challenges, we're confident that short video remains one of the best industries for growth, given our current user revenue and profit growth, as well as its long-term potential. With a focus on tech innovation and putting users first, We're expanding our business boundaries through ongoing technological advancements. At the same time, we're building a vibrant content and commercial system for our users and partners, powered by better products and high-quality content. That concludes my preparative remarks. Next, our CFO, Mr. Jinping, will discuss the company's financial performance for Q3. Thank you, Yixiao. In Q3 2024, our average DAE use surpassed 400 million, a significant milestone in our user ecosystem. Driven by our commitment to long-term value, we maintained user-centered, ROI-focused strategies that foster high-quality growth through AI empowerment. As Yixiao has mentioned, AI at Kuaishou has evolved beyond a tool for innovation, serving as a powerful engine driving productivity. It is deeply embedded across our content and the commercial ecosystems, helping us to stay strong in user traffic, enhance operating efficiency, and strengthen diversified revenue streams. In line with this, we also supported sustained and steadfast investment in AI. In Q3, our total revenue reached 31.1 billion RMB, with revenue from our core business growing nearly 20% year-over-year. Our gross margin was 54.3%, and adjusted net profit reached 3.9 billion RMB. These results underscore our core business's fundamental strength and resilience supported by our ongoing investment in this technology that will drive our sustainable growth. Now, Let's have a closer look at our Q3 financial performance. In Q3, our revenue grew 11.4% year-over-year to 31.1 billion RMB, mainly driven by growth in online marketing services and e-commerce business. In Q3, online marketing services revenue increased by 20% to 17.6 billion RMB from 14.7 billion in Q3 last year, representing 6.6% of our total revenues. This growth was driven by our continuous advancements in data infrastructure, smart placement product, and algorithm optimization, which boosted ROI and stability in ad placement for our clients. Revenue from other services, including e-commerce, reached 4.2 billion RMB in Q3, up 17.5% from 3.5 billion RMB in the same period last year. This increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income. We achieved notable year-over-year growth in the number of monthly active merchants as we leveraged our strengths in content-based e-commerce and strengthened synergies across all many domain operations while enhancing our KLR ecosystem and merchant operations. Optimizing the content-based e-commerce experience and expanding merchandise variety stimulated the user activity and willingness to buy driving continuous growth in the number of monthly active paying users. Our live streaming revenue was 9.3 billion RMB, declining 3.9% from 9.7 billion in Q3 last year. We continued to build a healthy, sustainable live streaming ecosystem by promoting the professionalism and institutionalism of streamers, refining talent agency management, and diversifying content offerings which attracted more users to our platform. In Q3, our cost of revenues went up by 5.4% to 14.2 billion RMB and accounted for 45.7% of total revenues, mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, as well as bandwidth expenses and survey custody costs. In Q3, gross profit grew by 17% year-over-year to 16.9 billion RMB. Gross margin was $50 4.3%, an increase of 2.6 percentage points year-over-year. Moving to expenses, selling and marketing expenses increased by 15.9% year-over-year to 10.4 billion RMB, accounting for 33.3% of total revenues. Growth was mainly due to increased spending on business promotions, including short plays in online marketing services and e-commerce business. R&D expenses were $3.1 billion, increasing 4.5% year-over-year. R&D accounted for 10% of total revenues, dropping from 10.6% in Q3 last year. Administrative expenses decreased by 11.4% year-over-year to $800 million R&D, accounting for 2.6% of total revenues, down from 3.2% in the same period last year. The reduction in R&D and administrative expenses was mainly due to lower employee benefit expenses, including related share-based compensation expenses. Group-level net profit for Q3 rose by 50% year-over-year to around 3.3 billion RMB. Group-level adjusted net profit rose 24.4% year-over-year to around 3.95 billion RMB, with an adjusted net margin of 12.7%. a 1.3 percentage point improvement in the year-over-year. Our balance sheet remains robust, with cash and cash equivalents, time deposits, restricted cash, and wealth management products totaling 86.7 billion RMB as of September 30th. Through our enhanced monetization capabilities and efficient working capital management, we generated a positive operating net cash flow of 7.7 billion RMB in Q3. Additionally, we actively implemented our shareholder return strategy during the nine months ended September 30, 2024. We repurchased approximately HK$3.98 billion worth of shares in aggregate, or around 91.11 million shares, accounting for about 2.1% of our total shares outstanding at the beginning of this year. Looking ahead, we'll continue to prioritize user needs, deepen technology, business synergies, and actively explore diverse growth revenues. This initiative will strengthen our competitive edge in ever-changing market and create long-term value for our users, partners, and shareholders. This concludes our preparatory remarks. Operator, please now open the call for questions. 请先用中文提出您的问题,再将您的问题翻译成英文。