Kuaishou Technology B

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology fourth quarter and full year 2024 financial results conference call. Please note that English simultaneous interpretation will be provided for the 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 Investor Relations at Kuaishou Technology. Thank you, operator. Good evening and good morning to everyone. Welcome to our fourth quarter and full year 2024 financial results conference call. Joining us today are Mr. Cheng Yi Xiao, co-founder, chairman, and CEO. Mr. Jin Bing, 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 recorded by law. For all important information about this call, including forward-looking statements, please refer to the company's public information on the fourth quarter and three-year 2024 results announcement ended on December 31, 2024, issued 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 definition of non-FRS financial measures and reconciliation of AFRS to non-FRS financial results and the related risk factors, please refer to our fourth quarter and full year 2024 results announcement. 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 consecutive interpretation during the Q&A session. Please know that English and interpretation is for convenience purposes only. In the case of any discrepancy, management statements in the original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now, I'll turn the call over to Yixiao. Hello, everyone. Welcome to Kuaishou's fourth quarter and full year 2024 earnings conference call. Over the past year, guided by our technology, Improving user-centric business philosophy, we leveraged AI technology to empower content and business ecosystem. This created greater value for both our users and partners and drove our robust financial performance. In Q4, our average DAUs remain above $400 million, and our total revenue grew by 8.7% year-over-year to $35.4 billion RMB. Our adjusted net profit reached a new quarterly high in Q4 of $4.7 billion RMB. For the 2024 full year, our total revenue increased by 11.8% year-over-year to 126.9 billion RMB, and our adjusted net profit increased by 72.5% year-over-year to 17.7 billion RMB, with an adjusted net margin of 14%. These gains reflect our steady improvement in profitability. Today, it has become increasingly evident that with the ongoing advancements and breakthroughs in large models and application capabilities, AI is pushing the boundaries of video content creation, user experience, and the broader business ecosystem. As a leading short video platform and content community in China and globally, Kuaishou stands at the forefront of this critical intersection of AI technology and large video models. While we are driving transformative changes across the industry landscape, we firmly believe that AI is much more than an efficiency improvement tool. It is the core engine that will create greater value for our business ecosystem while continuing to drive the platform's traffic growth. Importantly, our work proactively engages in and advances broader industries to prevent a transition. Next, I'd like to share some of our thoughts on our go-forward AI strategy. As the predominant content consumption for global users, short videos have been deeply embedded in the fabric of users' daily lives in every industry. Users have developed an increasingly strong demand for return and more diverse top-notch content. With the advent of large video models, we can greatly lower the entry barrier to the video creation, particularly the cost barriers. Users can now generate premium videos with a simple prompt or picture. This positions us to unlock the massive creative potential for non-professional creators. We believe Culling is becoming the new infrastructure for video creation in the AI era. Right now, it's a powerful resource for PGC and PGC creators that help them create high-quality videos and images efficiently. Next, Culling AI will evolve into a visual storytelling tool for amateur creators. With cinema-grade video generation capabilities, it empowers people to craft compelling visual stories and become a gen-AI-based director, forming an AIGC-driven community for content consumption and interaction, while creating a large-scale application in commercial scenarios. Moving forward, by empowering through Cling, we hope to transform and upgrade existing business while creating a new track for AI-driven video content production. By doing so, we'll strengthen and elevate our position as a leading platform for short video production and consumption community. We unveiled Kling, a large feature generation model, last June. After its launch, it quickly gained significant traction with video creators and artists globally, attracting more than one million applicants in just one month. Encouraged by users' positive response, the Kling team swiftly improved the model, releasing new iterations approximately every two weeks. At the end of Q4 last year, we rolled out Kling AI 1.6. This latest version features enhanced responsiveness to text descriptions such as motion, temporal actions, and camera movements. It also significantly improves the visual quality, enhancing style consistency, color accuracy, lighting dynamics, and rendering detail, keeping us in the lead in terms of global technological advantages. Kling AI 1.5 Pro is currently one of the top two larger video models in the world. according to the well-known AI evaluation website, artificialanalysis.ai, ranking alongside Google View 2, far ahead of other domestic video generation large models. In Q4 of 2024, we officially launched the standalone Cling AI app, giving global users multiple ways to access it, including through both the app and the web. With the continuous improvements in Cling AI's functionality, its user base has grown at an accelerated pace, while Cling AI's commercialization has also gained momentum, thanks to access channels such as membership subscriptions for individual users, and API interface solutions for merchants. As of February, since the Cling AI's monetization, we reached an important milestone of more than 100 million RMB in cumulative revenue from Cling AI. We expect that Cling AI will achieve another leap in revenue in 2025. For the next stage, we'll continue optimizing and iterating AI Cling AI's technological capabilities through dedicated research and development efforts and a steadfast investment in resources to ensure Cling large model maintain its industry-leading position. As Cling AI continues to advance, we firmly believe AI technology and its applications are creating value for our partners on the platform, especially for our marketing clients and e-commerce merchants. As such, we will upgrade our AI algorithms and underlying recommendation technologies by closely following and learning to apply the technological progress of DeepSeq and other global foundation models. This will continually amplify the matching efficiency between users, content merchandise, and improve conversion, leading to a higher ROI for our marketing clients. We'll also gradually upgrade our magnet engine into a next-generation AI-powered intelligent commercial engine. Through a large multimodal model, we generated a more creative and user-friendly marketing material content for our marketing clients dramatically reducing their content production costs and freeing up more of their budget to focus on brand promotion and traffic conversion. Meanwhile, AI-generated virtual digital human live streaming solution will lower the marketing entry barrier and help clients reach breakthroughs in sales. In Q4, both average daily spending on AIGC short video marketing materials and virtual digital human live streaming solutions exceeded 30 million RMB, with a daily peak of 60 million RMB. Moreover, we have 45-hour model estimation capabilities by using large models to analyze product systematics and user behavior, as well as integrating model architectures and sequence representations. As such, we have boosted advertising performance of marketing materials, driving more marketing spending. AI recommendation technology also offers us an opportunity to redefine the content-based e-commerce paradigm. With our deep understanding of exceptional content and superior products, We are shifting from a model where people search for products to one where products intuitively understand and find the right people. For consumers, we have validated the sales funnel of our AI try-on tool in the KLR live streaming rule, making personalized AI shopping easier and more interactive. For small and medium-sized streamers and merchants, we launched the Smart Presentation tool, which makes intelligent product augmentations and generates sales pitches, among other smart features, strengthening live streamers and emergent e-commerce marketing capabilities. The era of AI is happening right now. As short of a video platform and content community, we are determined that AI is not a replacement for human creativity, innovation, or creation. We see it as a tool to help more people in these endeavors. AI will allow everyday users to break industry and culture barriers, giving them opportunity to become globally loved artists and entrepreneurs through equal access to creative video generation productivity tools. With our enduring commitment to inclusivity, we have always strived to create a community where everyday people can showcase their talents and share their lives. We recognize this transition requires time and patience. Over the next three-plus years, we plan to increase our capital expenditures on R&D investments, which may impact the speed of our margin expansion. That said, I'm convinced that of the seeds we plant today, we will shape the entire video production and consumption industry over the next decade and firmly establish Kuaishou as the inclusive digital home in the AI era. While we set our sights on the stars and look forward to the future, we remain grounded in making steady incremental progress. With that overview of our vision, I'd like to briefly review our key business highlights and developments in Q4 and for year 2024. First, user growth and ecosystem construction, Q4. Average DEUs on the Kuaishu app reached 401 million, and AMAs used to reach 736 million, increasing by 4.8% and 5% year-over-year respectively. The average daily time spent per DAU on the Questio app was 125.6 minutes. While total user time spent rose by 5.8% year-over-year, our refined user growth strategy led to consistent improvement in new users' engagement, interaction, and retention rates. We focused on optimizing features and improved the end-to-end viewing experience for users, increasing the resolution and ensuring smooth streaming. We have continuously enhanced the video sharing and communication experience while introducing various innovative features in private messaging, which drove the daily average private messaging penetration rate up by nearly 5 percentage points over year in Q4 among users with mutual followers. We also refined our common ranking strategy, resulting in year-over-year increase of over 40% in user time spent on common features in Q4. Content is cornerstone of our dynamic community. Understanding why users open our app guides our content strategy. In terms of traffic distribution, we ensure that the standout and high-quality content featuring distinctive EquatIO characters reaches the right audience through more recommendations and higher exposure, forcing deeper engagement and stronger connections. For example, content creator dubbing live streaming room emerged as a welcoming space for EquatIO users to share their stories and interact with one another, strengthening the heartfelt bonds between users and content creator. In a pan-knowledge vertical, on one changing opera theoretic truth offline tools and online live streaming sparked a widespread user engagement discussions the troops new year eve performance achieved over 140 million cumulative views across live streaming and short views this fostered a connection between regional users and creators both online and offline and strengthen the core user sickness while promoting china's traditional art and intent for cultural heritage six online marketing services in q4 revenue from online marketing services grew by 13. 3% year-over-year to 20.6 billion RMB. This marked the first time the segment's quarterly revenue exceeded 20 billion RMB. In addition, for 2024, its revenue grew by over 20% year-over-year. Our quarterly revenue growth was mainly driven by a year-over-year ECPM increase in the high single digits. We captured incremental opportunities, such as commercialized workplace in the online marketing services and enhanced our marketing service recommendation models through AI. This improved our ability to predict accurate outcomes and increase the conversion efficiency of marketing materials. Additionally, smart marketing solutions such as the U.S. Placement Solutions and Omni platform marketing solutions significantly enhance our marketing clients' advertising performance. In Q4, external marketing services continue to be the primary driver of our online marketing services. In particular, the content consumption industry, which included short plays, mini games, and novels, experienced faster growth. Notably, Marketing spending from commercialized to short plays to search the more than three-fold year-over-year in Q4. On the product front, we upgraded to the UAS placement of solutions, transitioning from rule-based to model-based decision-making. As a result, UAS-based marketing spending accounted for over 55% of total external marketing spending in Q4. Closed-loop marketing services continue to support merchants in leveraging high-quality traffic on question on boosted operating efficiencies. In Q4, total e-commerce marketing spending by merchants using our Omni platform marketing solutions and a smart hosting product contributed approximately 55% of total closed-loop marketing spending. By focusing on enhancing small and medium-sized merchants' willingness for marketing placement on our platform and improving advertising performance, we drove a year-over-year increase of 30% in these merchants' marketing spend. Third, our e-commerce business. Leveraging our advantages in content-based scenarios and pen-shelf-based e-commerce, our e-commerce GMV grew by 14.4% year-over-year to 462.1 billion RMB in Q4. The more abundant e-commerce offerings and enhanced synergy efficiency of our Omni platform traffic have enabled us to better meet the needs of our e-commerce users in Q4. The number of e-commerce monthly active paying users increased by 10% a year over year to 143 million, with an MAU penetration rate of 19.5%. We also launched targeted programs to acquire new users from South and China and enhance their activity while harnessing key promotional events, refining coupons, and specific strategies. During the 2011 sales promotion, we gained over 7 million net new users for the fortifying users loyalty for repeated purchases going forward we'll continue to uphold our user-centric strategy and partner with merchants and accounts to optimize the consumer shopping experience on the merchant side in q4 merchants continue to thrive in quite short e-commerce ecosystem the number of average monthly active merchants increasing by over 25 percent a year-over-year gmv small from small and medium-sized merchants largely grew year-over-year in q4 mainly driven by our three core policies, namely improving policies for new merchant recruitment, optimizing policies for existing merchants, and leveraging diversified scenarios. To encourage new merchants to use Kuaishou, we launched the Golden Bounty Initiative and Set Sail Initiative and provided code star traffic through targeted scenarios. These programs helped early-stage merchants increase traffic, reduce operating costs, and align incentives to their key growth cycles and transition points. We worked with ecosystem partners to accelerate new merchants' growth providing small and medium-sized merchants with refined methodologies for economy-based e-commerce and establishing growth paths for merchants in many domains and areas, including KOL, live streaming and distribution, and shopping malls. In our KOL business, we strengthen the platform's merchandise management capabilities through our Blockbuster initiative and broaden the KOL's product offerings during sales promotions. Meanwhile, we further energized our quantum-based scenarios through diverse activities and marketing tools, including KOL competition to motivate streamers. During the 111 sales promotion, more than 39 million users joined group buy for KOL followers and over 2,500 live streaming rooms achieving GMV exceeding 1 million army. In terms of diversified scenarios in Q4, short video e-commerce GMV grew by over 50% year-over-year, As important components to our content-based scenarios, both short video e-commerce and interaction between short videos and live streaming has been incremental in helping merchants in Kowalski expand their business. Additionally, PennShelter-based e-commerce, GMV, contributed 30% of our total e-commerce GMV in Q4. Its growth consistently outperformed overall GMV growth, mainly driven by strong supply and demand. In Q4, average daily Active merchants grew by over 50% and average daily paying users in our shopping mall grew by nearly 40% year-over-year. As our pen-shelfed e-commerce increasingly complement our current basis narrows, we have enhanced merchants' Omni domain operation efficiency by strengthening the platform's control over blockbuster products. Next, regarding our live streaming business. Q4 revenue from our live streaming business was $9.8 billion RMB with a year-over-year decline continued to narrow compared to the previous quarter. We are determined about building a healthy and sustainable live streaming ecosystem for the long term and achieving diversified growth propelled by high-quality content. By the end of Q4, the number of our partner talent agencies grew by over 30%. The number of talent agency-managed streamers increased by over 60%, both on a year-over-year basis. On the supply side, leading categories continue to create value, such as multi-host live streaming, group live streaming, and grand stage. In addition, by expanding user engagement on grand stage in rural towns, we accelerated our ability to discover and support local, small, and medium-sized streamers. In terms of gaming live streaming in Q4, we explored comprehensive collaborations with key games, including Game for Peace, Crossfire, in areas such as streamer growth, content crowd creation, and event promotion while deepening our expertise in fighting games and other niche verticals. In addition, as our live streaming plus services empowered traditional industries in Q4, the average daily number of users submitting resumes on QuietHire increased by over 100% year-over-year, number of matches grew by over 270% a year over year. For ideal housing, daily lead generation surged by over 260% compared over the same period last year. Finally, our overseas business and local services progress. Regarding our overseas business in Q4, we're deeply rooted in Brazil, where we'll continue investing in local content operations and brand marketing. We achieved breakthroughs in innovative user acquisition channels, increasing DA used by 9.3% of year-over-year in Brazil. Benefiting from optimized traffic distribution mechanism and cooperation with the top tier local IP resources, we have gradually built a rich, diversified content ecosystem with a steadily growing user activity. The average daily time spent per year-over-year and quarter-over-quarter exceeding 75 minutes Thanks to these improvements, our total overseas revenue maintained rapid growth of 52.9% a year over the year in Q4. Notably, online marketing revenue increased by 83.5% a year over the year. As a result of our effective control over costs and expenses, the operating loss from our overseas business narrowed by 57.2% a year per year. In addition, we have initially validated our e-commerce business model in Brazil, achieving consistent growth in order of volume with improved subsidy and operation efficiencies. These early success have unlocked the potential for healthy, sustainable development in the Brazilian market. Now, our local services. GMV for local service is more than double the year-over-year in Q4. We focus on city clusters with strong user bases and consistently focus on our user needs by further optimizing price consumption capability and comparison capabilities and snower applications. These efforts enhanced our compelling value for money consumption experience, driving a 52.4% year-over-year increase in average monthly paying users in Q4. We also worked on improving product quality and optimizing the user experience. which steadily increased the conversion efficiency. Monetization also improved, with revenue from local services growing by 2.6 times year-over-year in Q4. As we further optimized the infrastructure of our commercialization products, we also strengthened our partnerships with more high-quality local operations and leader-based merchants by leveraging our differentiated traffic resources, empowering merchants to achieve incremental growth. At the same time, in pursuing higher ROI for our healthy and sustainable growth in local services, we amplified our subsidy and operational efficiencies and continue narrowing our operating loss year-over-year in Q4. Looking back over the past year, despite the numerous challenges, we achieved a systemic growth alongside our ecosystem partners by relying on the strengths of our robust and thriving content ecosystem, ever-improving structure, and expanding commercial scenarios. At this new era of AI technology and folks, we remain committed to advancing our AI strategy and remain dedicated to our technology-driven, user-centric business philosophy, staying deeply attuned to users' needs, continually expanding our content offerings and fostering our AI content and business ecosystem built upon a trust-based community to create a long-term value for our partners and shareholders. My prepared remarks end here. Now I'll hand the call over to Mr. Jinbing to introduce the company's financial update for the full year 2024 and Q4 last year. Thank you, Yixiao, and hello, everyone. Looking back to the past year, we achieved new breakthroughs in our operating metrics and steady improvements in our financial performance despite uncertainties in the external environment. We maintained a strong momentum by leveraging our robust content and healthy and sustainable business ecosystem and consistently enhancing the synergy efficiency of our Omni platform traffic. In the second half of 2024, Our average DA use surpassed 100 million, marking a significant milestone in our user ecosystem. As an AI-driven tech company, we proactively explored and deepened the application of large AI models in various business hours, further elevating our content and business system while driving greater operating efficiency. For 2024, our total revenue reached 126.9 billion RMB, increasing 11.8% year-over-year. Our adjusted net profit jumped by 72.5% a year over year to 17.7 billion RMB with an adjusted net margin of 14%, reflecting rapid improvement in profitability. Now, let's take a closer look at our Q4 financial performance. In Q4, our total revenue grew by 8.7% a year over year to 35.4 billion RMB, mainly driven by growth in our online marketing services and e-commerce business. In Q4, online marketing services revenue increased by 13.3% to 20.6 billion RMB from 18.2 billion RMB in Q4 last year and accounted for 58.3% of total revenue. The quarterly revenue surpassed 20 billion RMB for the first time. contributing to our full-year online marketing services revenue growth of over 20% year-over-year. This growth was mainly driven by our continuous enhancements to algorithms and models, as well as our smart placement products. Both upgraded our content and user understanding using a technology for the improving recommendations and a conversion efficiency, which promoted more marketing spending. Revenue from other services, including e-commerce, reached 4.9 billion RMB in Q4, up 14.1% from 4.3 billion RMB in the same period last year. This increase was mainly driven by the growth in e-commerce GMV, which boosted e-commerce commission income. We further advanced our Omni domain operations to expand merchants and chaos business by leveraging our rich content ecosystem and continuously improving the synergy efficiency for our Omni domain traffic. Meanwhile, We further provided abundant product offering with more diverse marketing activities to constantly elevate a user shopping experience, fortifying our e-commerce user loyalty for repeat purchase. All these measures lead to increases in the number of e-commerce monthly active paying users and monthly active merchants. Q4, our live streaming revenue was 9.8 billion RMB, a decrease of 2% from 10 billion RMB in Q4 last year. With the year-over-year decline continue to narrow sequentially, we continue to foster a healthy and sustainable live streaming ecosystem by consistently developing diverse leading categories in live streaming, deepening our expertise in niche verticals, accelerating the ability to discover and support local small and medium-sized streamers. We effectively increase the number of streamers and talent agencies and their engagement levels. Cost of revenues went up by 6.5% of year-over-year in Q4 to 16.3 billion RMB and accounted for 46% of total revenue. This increase was mainly due to increased revenue sharing costs and a related tax in line with our revenue growth, depreciation of property and equipment, and right-of-use assets and amortization of intangible assets. In Q4, gross profit grew by 10.6% year-over-year to 19.1 billion RMB. Gross profit margin was 54%, an increase of 8.9 percentage points year-over-year. Moving to expenses, selling and the marketing expenses increased by 11% to 11.3 billion RMB, accounting for 32% of total revenue. The increase was mainly due to increased spending on online marketing services and e-commerce business promotions. R&D expenses were 3.5 billion RMB, rising by 4.7% year-over-year, accounting for 9.8% of total revenue, dropping from 10.1% in Q4 last year. Administrative expenses increased by 15.2% year-over-year to 866 million RMB. As a percent of total revenue, administrative expenses were flat with the same period of last year. The increase in R&D and administrative expenses was mainly due to higher employee benefit expenses, including related share-based compensation expenses Group level net profit for Q4 rose by 10% year-over-year to $4 billion RMB. Group level just net profit rose 7.8% year-over-year to $4.7 billion, reaching a new quarterly high with an adjusted net margin of 13.3% year-over-year. Our balance sheet remains robust with cash and cash equivalents, time deposits, restricted cash, and wealth management products totaling 92.8 billion RMB as of December 31st, 2024. Through enhanced monetization capabilities and efficient working capital management, we generated positive operating cash flow of 8.6 billion RMB in Q4. Additionally, we actively implemented our shareholder return program throughout 2024. Within year 2024, we had repurchased an aggregate of a promisely 5.6 for 6 billion Hong Kong dollars in shares, or around 123 million shares, which accounted for about 2.8% of our total shares outstanding at the beginning of 2024. Next, I'll provide a quick overview of our financial performance for 2024. For the full year 2024, our group's total revenue reached 126.9 billion RMB, up 11.8% year-over-year. This includes online marketing services revenue of 72.4%, billion RMB, which rose 20.1% a year-over-year. Revenue from our live streaming business decreased by 5.1% a year-over-year to 37.1 billion RMB, which is better than we expected at the start of the year. Revenue from other services, including our e-commerce business, totaled 17.4 billion RMB, an increase of 23.4% a year-over-year. Gross profit margin expanded by 4 percentage points year-over-year to 54.6% in 2024. Our just net profit for the year was $17.7 billion, increasing by a remarkable 72.5% year-over-year with an adjusted margin of 14%. Looking at how we'll continue to adhere to our technology-driven, user-centric business philosophy under this approach, we prioritize the user needs and actively promote the development of thriving content and business system. At the same time, we'll continue to invest in decisively by reinforcing the critical role of AI technology to maintain our competitive edge in the ever-changing market. These efforts will unearth future growth potentials and drive the long-term sustainable development for our business and financial performance. This concludes our prepared remarks. Operator, now please open the call for questions.

As a reminder, to ask questions, please press star 1 and wait for a name to be announced. The first question is from Felix Liu from UBS. The first question comes from the line of Felix Liu from UBS. Please go ahead.

谢谢管理层接受我的提问。 我的问题是关于AI。 公司的视频大模型可灵AI最近获得了各界的广泛关注, 也包括了三月初两会的新闻发布会。 Thank you, management, for taking my question. My question is on your AI progress. We noticed that the company's large video model claim has attracted widespread attention. It was even mentioned at the press conference of the MPC and CPPCC in earlier March. Commandment, please share the reason for Cling's success and your plans to maintain the model's leading edge. Thank you.