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.

This

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。

We will now begin the question and answer session. To ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. Please ask your question in Chinese first and repeat your question again in English. 我们现在进入问答环节。 第一道问题来自于Golman Sachs的Lincoln Kong. Your first question comes from Lincoln Kong of Goldman Sachs. 请提问。

Thank you, Mr. Guan, for your question. Congratulations to the company for achieving a very good three-year performance. I would like to ask about the development of the company's AI. Could you please tell us more about the latest progress of the company in the field of AI big models? Especially, after Kerlin is currently online, is there any business or financial data that can be shared? How should we think about the future direction of commercial transformation? So thank you, Benjamin, for taking my question, and congrats on a solid quarter. Could Benjamin share with us some latest progress of the AI large language model, especially regarding clean AI? Are there any business, operational, or financial data you can share, and what will be the direction of amortization going forward? Thank you.

Thank you for your question. In this quarter, while we continue to optimize the performance of machine-made large models, we will deepen our large model in terms of content understanding, content recommendation, content production, and application in terms of user interaction. In terms of machine-made large models, we are developing fast M-OE models. In the case of a total of hundreds of billions of parameters, the number of indicators in the pre-training stage of the model exceeded the speed of 1750 billion. This model greatly reduces the cost of model training, and it can also better match the business scenario of the fast hand. And our KELIN large model has also undergone multiple replacements in a short time. The KELIN 1.5 model released in September supports the original 1080p video, and can upgrade the lens control, hand position control, movement brush, and mouth-to-mouth ability to maintain the leading position in the industry.

Thank you for your question. In Q3, we further optimized the performance metrics of our foundation large models and deepened their application in content understanding, recommendation, production, and user interaction. We are advancing the QI-E LLM-MOE model, which uses a mixture of experts approach. Despite having only tens of billions of parameters, it surpassed the QIYI model with 175 billion parameters across multiple pre-training metrics. This significantly reduced the cost of training and inference while making the model better suited to QIYI's existing business scenarios. Kling AI has also undergone numerous iterations in a short time. In September, we introduced the Kling AI 1.5 model, which supports native 1080p pixel video, we also developed and upgraded a range of controllable generation capabilities, such as camera lens control, first and last frame control, motion brush, and lip-syncing, solidifying our industry leadership.

Regarding the application of the large model, in terms of the understanding of the content, we continue to promote large model technology in short videos, live broadcasts, comments, three-dimensional and electronic sound, and many other scenarios. It has achieved many progress in terms of user storage, three-dimensional consumption, and e-commerce GNV. In the field of content recommendation, we have upgraded the recommended large model technology, which has brought significant market growth to our big plate. And in terms of content production and interaction, this quarter's AI-based marketing and digital consumption has continued to increase. The daily consumption has exceeded 20 million, and the interactive assistant AI block has also included more scenes of interaction with users' messages and comments in the Olympic Games,

MAU峰值也突破了一千八百万。 Regarding applying large models for content understanding, we consistently expanded their use across various scenarios, including short video, live streaming, comments, advertising, and e-commerce. These efforts drove improved user retention, marketing spending, and e-commerce GMV. In content recommendation, Our upgraded large model technology notably increased overall user time spent on our platform. As for content creation and user interaction, spending with AIGC marketing materials continued to rise, with average daily spending surpassing $20 million in Q3. Interactive Assistant AI, QI, has also been integrated into more scenarios, including Olympic medal prediction, user private messages, comment section interactions, with peak MAUs exceeding 18 million.

Next, I would like to introduce the progress of CleanAI. Since the release in June of this year, CleanAI has had more than 5 million users, and has generated more than 51 million videos and more than 1.5 billion pictures. In September, CleanAI's monthly users exceeded 1.5 million, and CleanAI's user-safety rate has gradually increased. Recently, we have also launched an independent app for user use.

Next, I'd like to provide an update on Cling AI's progress. Since its launch in June, Cling AI has accumulated over 5 million users and generated more than 51 million videos and over 150 million pictures. In September, Cling AI's MAUs surpassed 1.5 million, and organic user retention improved steadily month over month. We also launched a stand-alone app recently to make user access even easier.

At the end of March, CleanAI continued to promote the member payment system to domestic and overseas users, providing users with a new model experience. At the same time, we also officially opened an API service at the end of September, covering video production, image production, and virtual Sichuan. We are confident that next year we will achieve a rapid growth in the size of our income.

On the monetization front, at the end of July, we began gradually rolling out a subscription membership offering for Cling AI's domestic and international users, providing them with the model's more tailored performance capabilities. At the same time, we officially opened our API services at the end of September, covering modules such as video generation, image generation, and virtual try-on. So far, Cling AI's Early commercialization has met our expectations, with monthly cash revenue exceeding 10 million RMB. We will explore more diverse monetization tools and models in the future, and we are confident that CoinAI will see rapid revenue growth next year.

I still believe that the combination of the AI model and the fast hand with the current business scenario can generate great commercial value.

We firmly believe combining AI large models with Kuaishou's existing business scenarios will generate tremendous commercial value. Going forward, we plan to build our team's AI algorithm capabilities to achieve algorithm innovation and scenario application breakthroughs.

Thank you. Next question, please, operator.

下一道问题来自于Jeffries的Thomas Chong. Your next question comes from Thomas Chong of Jeffries. 请提问。 晚上好,谢谢公司接受我的提问。 我们看到在本季度DAU超过4个亿, 然后看到单用户时长也超过130分钟。 我们应该如何看待下来DAU跟时长的趋势和目标?

我们有哪些举措可以继续增大我们的大盘的流量? Thanks management for taking my questions and congratulations on a very solid set of results. In this quarter, Kuaishou has over 400 million in terms of DAU and the time span per DAU exceeding 130 minutes. How should we think about the trend and target for DAU and user time span going forward? What measures does the company have in place to continue increasing the overall traffic? Thank you.

谢谢你的问题啊。 2022年的3月,我们首次提出了DAO迫示意的中期目标。 围绕该目标,我们通过经济化的用户增长策略, 高质量的多元内容供给, 产品以及算法的持续优化迭代等措施, 在各年用户增长和维系费用总额保持相对平稳的情况下, Thank you for the question.

In March 2022, we announced for the first time that our meeting term DAU target was to reach over 400 million. To get there, we refined our user growth strategies, provided high-quality, diverse content, and consistently optimized and iterated our products and algorithms. As a result, we achieved steady growth in our DAU and user time span metrics while maintaining total user growth and relatively stable retention costs each year, ultimately reaching our 400 million plus average DAU milestone.

We believe that by increasing the penetration rate of Internet users through short videos, the difficulty of new users may increase, but we have more efforts to improve users' flow and activity. As for time, we believe that through rich content and algorithmic recommendation efficiency, it can make users feel more productive and more important than simply improving the daily user access time.

Looking ahead to the next phase of our DAU growth plan, we think new user acquisition will be more challenging as short video penetration rates continue to grow. That said, we can still do a lot to improve user retention and activity. Regarding time spent, we are focused on enriching content and enhancing the efficiency of our algorithm recommendations. We believe these efforts give users a greater sense of value, which matters more than merely increasing average daily time spent.

Regarding the specific strategy of traffic growth, I mainly want to share three aspects. First, in the traffic distribution strategy, we will continue to promote the regularization of the roll-out, promote business content and natural content, and achieve comprehensive income optimization. and through the flow of clean blood to support the supply and supply content to promote the health development of the community. Secondly, on the product optimization, we will consolidate the fast hand in the social and private exchange, explore more innovative interactive play methods, improve the community's interactive atmosphere, and through the experience and search function optimization of the comment area, strengthen the user product mindset. Finally, on the content operation, On specific strategies for traffic growth, I'd like to share three points.

first in terms of our traffic allocation strategy we will continue to upgrade our traffic distribution mechanism to align commercial and organic content maximizing overall revenue traffic support for high quality content will also help foster healthy community development second On product optimization, we will strengthen our competitive edge by consolidating Kuaishou's modes in social networking and the private domain while exploring more innovative interactive features to increase the community's interactive atmosphere. At the same time, we will fortify the user's product mindset through better common section experience and search functionality, Lastly, for content operations, based on developing various reasons for users to open the app, we will produce exceptional vertical content that resonates with Kuaishou's users and support standout creators whose content represents Kuaishou's distinctive brand while leveraging influential major events to reach a broader audience.

In short, we are confident we will continue seeing steady traffic growth

In the future, more importantly, we hope to create more product usage scenarios for users, provide higher quality content and services, and become an engaging and useful content platform for more users.

Thank you. Next question, please, operator.

Your next question comes from Felix Liu of UBS.

Thank you, Manager Ceng, for answering my question. And congratulations to our company's third-year class. My question is about online marketing. I noticed that in the recent short term, the growth of our online marketing business has increased significantly. I would like to ask Manager Ceng how he thinks about the continuity of the growth of short-term advertising and whether our company can make more sharing of the future growth strategy for online marketing business. Thank you, Benjamin, for taking my question and congratulations on the strong third quarter results. My question is on your online marketing business. We noticed that short play has recently contributed greatly to your online marketing services growth. How should we think about the sustainability from this new ad vertical? And can Benjamin share your latest growth strategies for online marketing going forward? Thank you.

Thank you for your question. As you said, with the rapid development of the short-term industry, the growth of the short-term industry's marketing budget has also become an important driving force for our fast-growing online marketing business to grow. In the third quarter, the short-term marketing consumption of the fast-growing industry has increased by more than 300% in the same ratio. In the external cycle, the proportion of consumption of the market has also reached a double figure. In recent days, the daily consumption value has also exceeded 40 million yuan. This is mainly due to the continuous optimization of the hardware chain to improve user experience, and the increase in payment size through automated supplementation. In addition, in this quarter, we accelerate the expansion of short-term interest in the AI mode to quickly expand the short-term interest in the AI mode, and increase the sales consumption of short-term sales in both IP and AI modes.

Thank you for the question. As you said, associated marketing budgets expanded with the thriving short play industry. This has also become an important driver for the overall growth of Kuaishou's online marketing business. In Q3, short place marketing spending on Kuaishou grew by over 300% year-over-year, accounting for a double-digit share of overall external marketing spending. Peak daily marketing spending also recently surpassed 40 million. This is mainly due to the optimized user experience thanks to our refined native sales funnel and increased paying users from smart subsidies. In addition, we accelerated the use of the IAA model in Q3 and rapidly expanded the demographic interested in short plays, fueling a high-speed growth in short plays marketing spending through IAP and IAA models. 关于短距业务的持续性,我们对其在中期实现稳健增长保持乐观。

We pay attention to the third-party data forecast. In 2027, the short-term market size is expected to break through 100 billion yuan. With the gradual abundance of short-term supply and demand, there are still more than 500 million short-term people who have advanced commercialization. And the short-term population penetration rate has also improved. And for fast-tracking, we not only have a rich short-term supply and demand, but also have more than 300 million short-term users.

As for the sustainability of the short play business, we are optimistic about its prospects for steady growth in the medium term. According to third-party data forecasts, the short play market could exceed 100 billion RMB by 2027. As the short-play supply ecosystem continues to expand, there is potential for further commercialization among the over 50, 500 million existing short-play users with room to increase the short-play penetration rate. For Kuaishou, we already have a rich short-play supply ecosystem and a short-play user base of more than 300 million. With these advantages plus the support of our continuous enhancements to products and algorithms, We expect to crush your short-place marketing spending through both the IAP and IA models to sustain rapid growth.

Next, I will briefly share with you the main growth strategy of our online sales business. In terms of internal circulation, we will focus on improving content, goods, and users' match and match. Through a solid model estimate, we will improve the transfer of content and e-commerce materials. and guide merchants from short-term products to live broadcasts to do long-term sales. In terms of external circulation, we will focus on the power of short-term, fast-food, small game, and novels, and other in-house original content advertisements, to give users an immediate experience, to improve users' connection to the platform and the marketing clients' investment ROI. In terms of brand, we will rely on marketing science to accurately understand users,

Next, I'd like to briefly talk about the main growth strategies for our online marketing business. In terms of closed-loop marketing services, we are working to better match content and merchandise with users. With the meticulous refinements to our model predictions, we can enhance the conversion of content-based e-commerce materials and guide merchants to engage in sustained operations from short video to live streaming. As for external marketing services, our focus is on native content advertising, including short plays, quasi-mini games, and online literature. Our goal is to give users a compelling experience, enhance users' stickiness, and maximize ROI for marketing clients' ad placements. On the brand side, we will leverage our deep understanding of users grounded in marketing science to help marketing clients identify and reach their target audiences. We will also offer clients brand marketing solutions that integrate brand awareness and sales conversion through KOL recommendations and customized strategies to attract clients.

Finally, we have a lot of room for improvement in the economic operation of the industry, smart marketing products, and algorithmic optimization. At the same time, we have gradually seen large-scale applications We also have a lot of confidence in the market share of online marketing services.

Lastly, we still have a lot of room for improvement in refined industry operations, smart marketing products, and algorithm optimization. Meanwhile, we are seeing the increasing benefits of applying large models to marketing recommendation scenarios, driving better ROI for clients. As such, we're confident that we can continue to gain market share and grow our online marketing services revenue.

Thank you. Next question, please, operator.

The next question is from Brian Gong from Citi. Your next question comes from Brian Gong of Citi.

Please ask your question. Thank you, Manager Teng, for accepting my question. First of all, congratulations on your very good performance. My question is that I would like to ask about the situation of the e-commerce business. Can you please share with us the overall performance of the e-commerce business and what is our main strategy? Thank you. Thank you, Management, for taking my questions and congratulations on the decent results. My question is regarding e-commerce. Could Management share the overall performance during the Double 11 sales promotion and the company's new strategies? Thank you.

Thank you for your question. In this challenging environment, we are quite satisfied with Double 11's performance this year. Thanks to the full-scale outbreak of the content market and the price of goods, we, the e-commerce Double 11 shopping festival, are growing at a strong level. We have provided more than 20 billion in traffic subsidies, 20 billion in user red envelopes, and 10 billion in product subsidies, so that more businesses can achieve better and faster growth on the fast track. Thanks for your question.

We are pretty satisfied with our performance during this year's Double 11 sales promotion, especially given the ongoing consumer-demanded challenges. By capitalizing on the momentum of our economy-based scenarios and pan-shop during the event, setting a new record high. We provided over 20 billion video views in traffic subsidies, 2 billion RMB in user subsidies, and 1 billion RMB in merchandise subsidies, empowering more merchants to realize better and faster growth on Kuaishou. During the event, the number of merchants and KOL sign-ups for our Double Eleven sales exceeded 3 million for the first time, and we acquired more than 70 million new e-commerce users during the event.

During this year's Double 11, our large-scale supplementary and operating mechanism focused on returning to the content factory, returning to the live broadcast room. In addition, the number of live broadcasts by tens of thousands of streamers has significantly improved. The number of live broadcasts that JNV has sold more than one million times has exceeded 2,500. The number of short-term products in the car has increased by 10 times. At the same time, we pay more attention to the marketing and gameplay construction in the content field. Specifically, for the head, business and staff, we mainly focus on fans' appeal and crowdfunding. The main focus is to introduce fans' group play, to improve the interaction and yearning of fans and hosts. For the central and business staff, we provide play such as skydiving red envelopes, which helps to break through the crowd during the big show. In addition, we provide more traffic and resource supplementation to the goods and services vendors. We use mission motivation and business strategy to protect good products and gain better profits.

During the 2011 sales promotion, our promotion of subsidies and operational mechanisms focused on content-based scenarios and live streaming rooms. This drove a notable increase in the live streaming penetration rate among streamers with over 10,000 followers. It also propelled the number of live streaming rooms, with GMV exceeding 1 million to more than 2,500, and led to a 10-fold year-over-year increase in the release of short videos with embedded shopping links. We also placed more emphasis on marketing features in content-based scenarios. Specifically for top-tier merchants in the KLS, we prioritized follower engagement and product recommendations, introducing mega group buys to boost followers' interactions with streamers and build loyalty. For small and medium-sized merchants and KOLs, we provided surprise subsidies and other features to facilitate sales breakthroughs in large-scale promotional events. Additionally, we offered more traffic and resource subsidies for shelf-based merchants, ensuring quality products received better returns through task incentives and merchant engagement strategies.

From the product side, we opened up the entire platform's supplementary budget to ensure that the products in the content market have the same price advantage. At the same time, we made a clear distinction between the main push goods from the platform perspective, including the new products released on the whole network, the new products selected by users during the large-scale period, the new supply and demand products on the whole network, and the super-high-end products of various brands. We have more than 2,200 online hot sales brands and more than 2,500 hot sales products.

On the merchandise side, we integrated a subsidy budget across the platform to ensure the products in our content-based scenarios had equivalent price advantages. Meanwhile, we categorized the platform's key promotional products, including newly launched products during the season, preferred products during the promotional period, and core blockbuster products online, as well as top-performing products from various brands. Notably, we excelled in non-standard products such as tea, liquor, health-related merchandise, and jewelry and germstones, as well as standard products like consumer electronics and household items. During this year's sales promotion, our e-commerce Big Brand, Big Subsidy initiative covered more than 2,200 self-selling brands and over 2,500 high-demand product categories.

In the second half of this year, the country has made greater efforts to implement policies on the home electronics industry. We believe that Quaishou will have a greater advantage on the platform that fits the diversity and multi-layer needs of new consumers and multi-level needs. During the double C1 period this year, under the national subsidies, consumers' needs for home electronics are fully stimulated.

With the national trading and trade up policy for the home appliances industry getting more attraction in the second half of the year, we believe platforms like question will have a greater advantage as we cater to diverse customers and their multi level demands. During this year's promotion national subsidies help to simulate a consumer demand for upgrading old home appliances for new ones. We quickly seized this policy and promoted home appliances trade-in and trade-up subsidies on Kuaishou in more cities in China. We also optimized the sales funnels for acquiring coupons and order placement conversion. Kuaishou users redeemed over 1.46 million national subsidy e-commerce coupons during the promotion, driving substantial growth in sales across consumer electronics and household categories.

We'll see you next time. Bye-bye.

Our robust performance during the 2011 sales promotion demonstrated the merits of our development strategy, which calls for refocusing on live streaming e-commerce, tapping into the potential of short video e-commerce, and steadily expanding our pen-shelf-based e-commerce. Looking ahead, we remain confident despite the challenges of ongoing weak consumer demand and increasing market competition. By leveraging our resources in content-driven e-commerce and focusing on delivering exceptional content and superior products, we believe we can continue to expand our e-commerce supply and ecosystem. This will also help merchants and KOLs realize Omni domain growth. These strategy units support of national subsidies and other policies will help us drive consumption upgrades across our platforms, 700 million MAUs on our platform.

Thank you. Next question, please, operator.

The next question is from Zhang Lei of Bank of America. Your next question comes from Lei Zhang of Bank of America. Please ask your question.

Hi, good evening, Manager Teng. Thank you for accepting my question. Thank management for taking my question. My question is mainly regarding local services. Since we do have a steady-fast investment here, so how does management evaluate the process of this business, and do we have any need to long-term goals here? Thank you.

To the end of 2023, we will start to do industry and regional operations, enlarge the GNV and user size, and then try to improve the conversion efficiency this year, and even to the future, expect to split the city profit and loss, every step is steady and stable.

Thank you for your question. We began exploring the local services business in 2022 and have gradually validated our users' local services needs. By mid-2023, we had started industry-specific and regional operations to grow GMV and expand our user base. This year, we strove to increase monetization efficiency. Going forward, we aim to achieve break-even at the individual city level, and we have made solid, steady progress each step of the way.

Our users are more concerned about the cost-effectiveness 所以我们今年针对更优质的核心商品, 建设比价能力丰富以价引擎的应用场景, 支付用户规模数持续增长, 第三季度日活跃买家数环比持续增长28%, CNV也环比保持了26%的高速增长。

Local services represent high-frequency business scenario where we increase the reasons and frequency for users to open our app by offering high-quality local content and high value-for-money products and services. We continue iterated our KOL rating measure to promote high-quality content products while optimizing our traffic distribution mechanism to direct traffic to superior content and enhance user experience. Given our users' emphasis on value-for-money services, this year we built a price comparison model for a higher-quality core product, enriching our comparison engine's application scenarios and leading to an ongoing increase in the number of paying users. In Q3, the number of daily active paying users rose by 28%, and GMV maintained a high growth rate of 26%, both on a quarter-over-quarter basis.

On the other hand, for local business owners, we use industry-economic multi-layered exploration and multi-stakehold methods to make more advertising investments. For clue-making business owners, we also continue to improve the business's increase in budget through new advertising products. In the third quarter, local business income increased by more than 2.5 times, and the share increased by 36%. 在持续提升补贴效率和运营效率等措施下,收入和成本费用的减掉差在逐步的缩小。 所以综合从平台价值考虑,我们觉得本地业务是个值得长期投入的业务,且我们看到了ROI在持续改善的趋势。

On the monetization front, we boosted local operation-based merchant advertising spending by exploring multiple industry-specific categories and various incentives. For lead-based merchants, we persistently increased their incremental budget allocations through new advertising products. In Q3, revenue from local services increased more than 2.5 times year-over-year and grew 36% a quarter over quarter. The gap between revenue and expenses is gradually narrowing due to our efforts to improve our subsidy and operational efficiencies. So considering the overall value of the platform, we believe local services is a business that needs long-term investment. We also see a consistent trend of ROI improvement. 中长期我们会坚定地围绕

To meet the needs of our users, we cannot increase the number of customers. In order to maintain the ecosystem of our users, we must consider the value of our platform and the value of our company's income.

In the medium to long term, we are committed to meeting users' needs while leveraging our user base to empower merchants to grow. We will focus on platform value and the incremental revenue value that the business brings to the company while maintaining a good user ecosystem.

Thank you. The last question, please.

Next question is from Zhang Xueqing from CICC. Your next question comes from Xueqing Zhang of CICC. Please ask the question.

Thank you, Manager Chen, for accepting my question. I would like to ask you a question about OPEX. We have noticed that the sales cost of the third quarter of the company is growing at the same rate. I would like to know the main reason. If we look at the fourth quarter, what will happen to our OPEX trend? Thank you. Thanks, management, for taking my question. My question regards on OPEX. The company's selling and marketing expense in Q3 increased both year-on-year and Q-on-Q. What are the main reasons? Looking ahead to the first quarter, what's the trend of OPEX? Thank you.

谢谢你的问题。 今年三季度销售和营销开支相比去年同期有所提升, 主要是因为我们增加了线上营销服务和电商业务的投入, 而用户增长和维系的费用水平整体是保持稳定的。 线上营销服务的投入主要与付费短距的用户补贴有关, 我们以ROI为补贴投入的前提, while increasing the size of the short-term payment users, and raising the customer sales and investment budget several times that of the user's supplementary amount. We expect that with the formation of the short-term new system of user payment and the optimization of the intelligent supplement plan, ROI will also increase. E-commerce investment is mainly related to user supplementation. Of course, we still maintain relatively cautious investment. Therefore, although our e-commerce supplementary amount is definitely increasing, the proportion of the supplementary amount accounting for GNV Thank you for your question.

In Q3, selling and marketing expenses rose year over year as we increased our investment in online marketing services and the e-commerce business. The overall cost for user growth and retention remained stable. Our investments in online marketing services mainly related to user subsidies for paid short plays, with ROI as the guiding principle for subsidy We not only expanded the paid short plays user scale, but also drove marketing budget allocations from clients that were several times higher than the subsidies we provided. We expected that our ROI will further improve as users develop a mindset for paying short plays, supported by our optimized smart subsidy plans. The investment in e-commerce is also primarily related to user subsidies. We maintain a cautious approach So even with the increase in our e-commerce subsidies, their proportion to GMV remains relatively low compared to industry standards. And our subsidy efficiency has continued to improve.

In the fourth quarter, sales and marketing opening up will welcome the arrival of e-commerce. It is expected that the absolute amount of e-commerce users will be significantly increased. At the same time, our investment in online marketing services will also significantly increase. Therefore, sales and marketing expenses in the fourth quarter will be the same as in the past year, and it is expected to increase seasonally. In terms of development expenses, we will bring about the cost of relevant R&D personnel in terms of AI large model investment. Development expenses will also be improved, but sales and marketing expenses and development expenses account for a decrease in the proportion of revenue compared to the military. We believe that as we continue to make progress in the future, the overall profitability of the group can be further improved to create value for shareholders.

Regarding selling and marketing expenses, as we enter Q4 and prepare for the major e-commerce promotion season, we expect an increase in user subsidies in e-commerce and slight increase in our investment in online marketing services based on quarter-by-quarter basis. So as in previous years, selling and marketing expenses are expected to grow quarter to quarter in Q4 due to seasonality. In terms of R&D expenses, our increased investment in AI large models will lead to higher costs for related R&D personnel. resulting in quarter-over-quarter growth in overall R&D expenses. However, both selling and marketing expenses and R&D expenses as a share of revenue will decline quarter-over-quarter. As we fortify our quality and efficiency improvements in the future, we expect our overall profitability to further improve as well, creating value for shareholders.

At the end of the Q&A session, please get back to me or Peter. Thank you.

Thank you. 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.

Thank you.