Kuaishou Technology B

Welcome to Questro Technology first quarter 2025 financial results conference call. Please note that English simultaneous interpretation will be provided for management prepared remarks. This English line will be in listen only mode. I'll now turn the call over to Mr. Matthew Zhao, VP of Capital Market and Investor Relations at Questro Technology.

Thank you for waiting. The conference will recommence shortly.

Thank you, everybody. Good evening and good morning to everyone. Welcome to Kuaishou Technology First Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman, and CEO, and Mr. Jinbin, Chief Financial Officer. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as required by law. For all important information about this call, including forward-looking statements, please refer to the company's public information or the first quarter 2025 results announcement called March 31, 2025, 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 a definition of non-IFRS financial measures, a reconciliation of IFRS to non-IFRS financial results and the related risk factors. Please refer to our first quarter 2025 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide some English interpretation in the prepared remarks session and the consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management statements in their original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. I will hand the call over to Yixiao. Hello, everyone. Welcome to Q1 2025 earnings conference call. In Q1, despite a complex and evolving global macro environment, we achieve a solid financial performance through the continued integration of AI technology across our businesses. These intelligent upgrades strengthen both our content and business ecosystem. Across our platform, users and content creators enjoy better experience, and our merchants, online marketing clients' operational efficiency improves. As a result, our average DAUs on the question app reached a record high of $408 million in Q1. Our total revenue grew by 10.9% year-over-year to $32.6 billion RMB. GP margin approached 55%. Adjusting net profit reached $4.6 billion RMB with a 14% adjusting net margin. Our new businesses have continued to deliver promising results, demonstrating strong momentum for a second growth curve. Clinging AI and maintaining its global leadership in advanced technology while accelerating its commercialization, generating over $150 million in revenue in Q1. Our strategic focus on core international markets is also beginning to yield tangible results for our overseas business. After two years of execution, our overseas business delivered its first-ever quarter of operating profit in Q1 with steadily increasing revenue growth. Next, I'd like to elaborate on how to progress our key business segments in Q1. First, AI strategy. CleanAI will continue to advance the quality and effectiveness of our large video generation models while launching more innovative features to meet a diverse range of user needs. In April, we launched the CleanAI 2.0 video generation model, marking a significant upgrade to the large model and its global debut, and setting new global benchmarks in motion quality, semantic responsiveness, and visual aesthetics. This latest version also marked the official debut of our breakthrough concept of interaction, multi-module visual language. Building on this foundation, we introduced a multi-module editing feature that allows users to combine various inputs, such as images, videos, voice, and motion paths, to produce customized views that better reflect their creative intent. Creators can also add, remove, or replace visual elements in generated videos by using image or text prompts, giving them greater creative control throughout the editing process. CleanAI's relentless pursuit of the state-of-the-art large model video generation technology and performance has earned it widespread recognition from subscribers and corporate clients around the world, contributing to rapid revenue growth. In Q1 alone, revenue from Cling AI reached 150 million RMB. Today, Cling AI is being used across a range of industries, from advertising to marketing to animation and foreplay. This growing adoption reinforces our belief that Cling has the potential to become the foundation of infrastructure. We have integrated AI technology across our businesses, embedding AI capabilities for our content and business ecosystems. Large models have deepened our understanding of content and user interest, allowing us to precisely match user demand with content value. In turn, this increased user time spent and activity on our platform. AI technology is also embedded across our online marketing solutions. AIGC marketing material production, marketing placement agent, large marketing recommendation models, and large bidding inference models have all improved and boosted our clients' marketing conversion efficiency. In Q1, average daily advertising spending on AIGC marketing materials remained 30 million. We also introduced a real-time interaction feature for our digital human live streaming rooms, which led to an increase in conversion rates. In the e-commerce scenario, we heightened matching accuracy between users and merchandise based on large model structured understanding of product attributes. Tools like AI intelligence, customer service, trial and smart product presentation fortified e-commerce merchants' marketing capabilities, reducing their operating costs and amplifying operational efficiency. Second, user growth and content ecosystem. In Q1, average DAUs on a question app reached 480 million and MAU, 712 million. up by 3.6% and 2.1% year-over-year, respectively. Average DEUs on equestrial apps set a new record, exceeding 400 million for the third consecutive quarter. The average daily timestamp per DAU on the Quattro app was 133.8 minutes, while the total user timestamp rose by 5.9% year-on-year in Q1. Our refined user growth strategy lowered average user acquisition costs. For example, we increased the users' rate of opening the app by optimizing the push strategy and product form, among other measures. On top of that, with a steady supply of rich, high-quality content, ongoing improvements to our traffic distribution system, and diverse community features, we elevated the content consumption experience with a better user retention rate. Chinese New Year has always been a key period for user growth and brand marketing. For the 2025 Chinese New Year holiday, we created a festive online celebration for our 400 million users, offering engaging interactive features and extensive content matrix. Interactive elements effectively sparked the greater social interactions across the platform. During the campaign, the pairs of average daily mutual followers soared by over 40%. and the number of active daily private messages among users with mutual followers grew by 100%. Our extensive Chinese New Year's content lineup, including online festive fairs, Kuaishou Spring Festival Gala, and Liaoning TV Supreme Festival Gala delivered a deeply immersive content to consumption experience. The continent generated over 15 billion live streaming views and over 200 billion short video views, with a focus on Kuaishou's traditional stronghold in northeast China. And through a series of events such as the Kuaishou Winter Olympics, Liu Langgang Grand Stage, and the Northeast Comedy Show, we also entered the penetration of a characteristic native continent and its influence in the dominant region. In sports, we entered a new phase of strategic collaboration with NBA China and continuing to be an official short video platform and video content creation community for NBA China. Together, we're building a diversified content matrix, including short videos of game recaps, NBA themed variety shows, and micro short plays and interactive live stream programs with NBA stars, bringing users more engaging content and interaction. Third, online marketing services. In Q1, revenue from online marketing services grew 8% year-on-year to 18 billion RMB. By integrating AI across our online marketing solutions, we enabled clients from content consumption, e-commerce, local leads, and other sectors to improve their brand marketing efficiency and achieve better conversion outcomes. This, in turn, led to more budgets from marketing clients. We also applied large language models, content understanding, and reasoning capabilities to improve the results of our marketing content recommendations. With combined off-chain thought reasoning based on user behavior, this enhancement further improved the conversion efficiency of marketing materials. In Q1, external marketing services remain a primary growth driver for online marketing services, with particularly strong contributions from the content consumption and the local service sectors. For the content consumption sector, marketing spanning from short plays experience a strong year-on-year growth. We encourage marketing clients to align their campaigns with native and platform content operations, such as short plays, minigames, and novels, which increase the content value and foster users' thickness, while also deepening the platform's understanding of user preference. For the local service sector, we provided solutions and algorithm optimizations that were better aligned with customers' various needs. For example, we offer multiple lead-based solutions, including native private messaging and lead form collection, helping them to reach customers and improve conversion rate. In Q1, marketing spending from local service industry jumped over 50% year-on-year. In terms of intelligent product placement solutions, the penetration rate of UX placement solutions continued to rise, making up more than 60% of total external marketing spending in Q1. Additionally, we actively explore and refine our closed-loop marketing solutions to support e-commerce merchants in building more intelligent omni-domain operations on Kuaishou, heightening their operational effectiveness. In a pen-shelf-based e-commerce segment, we introduce merchants' high-quality content and products through optimized marketing placement to sales funnels. and enhanced algorithm strategies to improve the matching efficiency. These endeavors increase merchants' marketing budgets in terms of intelligent efficiency enhancement. Our Omni platform marketing agent 4.0 delivers greater stability in merchants' Omni domain ad placements, offering a richer variety of control tools and enabling more convenient operations in Q1 e-commerce merchants using the Omni platform marketing agent 4.0. Our smart hosting products contributed 6% of total closed-loop marketing spending. Fourth, e-commerce business. In Q1, the e-commerce GMB grew by 15.4% year-on-year to $332.3 billion RMB, with the number of e-commerce monthly average active paying users reaching 1 to 35 million. We continue to optimize the consumer shopping experience. We empower more merchants and KOLs to expand their operations on quite a bit, capitalizing on the omni-domain synergies between content-based scenarios and pen-shelf-based e-commerce. In Q1, small and medium-sized merchants on Questro grew rapidly, mainly driven by our ongoing efforts to enhance support for the new merchants and application of large models across various scenarios. The number of newly onboard merchants rose by over 30% year-on-year in Q1, benefiting from early-stage traffic support and a series of cost-reduction policies for new merchants. Moreover, we continue to align incentives and subsidy options to merchants' key growth cycles. In particular, we launched five major programs, including fast-track access, targeted promotions, subsidy incentives, and more, to assist the export-restricted companies to tap into the domestic market. At the same time, we advanced the use of AI large models across the merchants' operations. In Q1, we provided live-streaming merchants with a full set of intelligent streaming tools, including AI-generated scripts, description prompters, smart audio commentary, and intelligent product selection. The adoption of these tools has helped more merchants achieve operational breakthroughs. In Q1, we advanced our KOL e-commerce by establishing dedicated merchandise operation centers to support KOLs in distributing high-quality products at a greater scale, further strengthening our control over merchandise selection and supply. We also deployed KOL and operational resources across our platform. to engage and socialize the brands through structured platform endorsed groups. During the Chinese New Year shopping season, we launched a New Year blockbuster initiative to focus on high demand product categories and integrate platform wide selling capabilities by introducing premium products at competitive prices. We also fortified the price advantage of individual items by providing subsidies on top of the affordable prices helping KOLs enrich their product selection in their live streaming rooms, lowering the threshold of order, placement, conversion, and increasing sales. For small and medium-sized KOLs, we supported their efficient growth through initiatives like our Rising Star initiative. By offering traffic initiatives, cash support, and city-level operation support, we successfully expanded our medium-tiered KOL base. During the Women's Day Promotion Day, GMB from chaos rose by 30%, and the GMB from small to medium-sized chaos surged by over 50% on a year-on-year basis. In terms of diversified scenarios, we continue to enhance our three-in-one business model that combines live streaming, shopping mall, and short video. In Q1, pen-shelf-based e-commerce GMV once again outperformed overall GMV growth, accounting for about 30% of total e-commerce GMV with steady improvements on both the supply and demand side. In Q1, average steady active merchants grew by over 40% year-on-year, driven by our proactive efforts to tap into industrial zones to attract quality merchants. enrich our supply base and broaden our product selection. We also benefited from enhanced traffic support across recommendations, search channels, and stores. During the Women's Day promotion, a pen-shelf-based e-commerce GMV and search-induced e-commerce GMV soared by 51% and 108% year-on-year, respectively. For video e-commerce, GMV also saw strong momentum, increased by over 40% year-on-year, as we made e-commerce content more expressive and engaging by embedding short video into live streaming. A synergy between the short video display advantage and live streaming's high conversion efficiency increased content diversity and drove more efficient user conversion. Furthermore, our large AI model expertise has elevated the overall service capabilities of e-commerce merchants. By utilizing large model agent technology and multi-model capabilities, the resolution rate of our intelligent customer service increased to 80% in Q1. This lowered merchants' costs and shortened the average response time, improving the overall user experience. Our AI capabilities continue to upgrade our e-commerce infrastructure. AI has deepened intelligent applications in product information construction, recommendation algorithm optimization, and content creation tools, strengthening the customer product matching and simplifying content production for merchants. And these advancements injected incremental momentum into our e-commerce system. Next, regarding our live streaming business, In Q1, live streaming revenue returned to a positive growth trajectory, increasing 14.4% year-on-year to 9.8 billion RMB, propelled by a firm focus on diverse top-tier content. We made consistent efforts to build a healthy, stable live streaming ecosystem to amplify the value of live streaming content consumption. We further strengthened our operation in core categories, including multi-host and group live streaming. By the end of Q1, the number of our partner talent agencies had grown by over 25% year-on-year, and talent agency management streamers increased by over 40% year-on-year. We also doubled down on developing premium grand stage content to help streamers and KOLs efficiently retain followers and unlock more monetization potential. At the same time, we introduced targeted support policies and optimized traffic mechanisms, bringing offline entertainment and cultural consumption formats online and fostered organic offline-online interactions. We enhanced users' interest and engagement in high-quality live streaming content. We continue to strengthen our gaming content ecosystem by deeply integrating short video live streaming and community operations with how the game developers break through traditional promotional barriers. We also collaborated with major EE sports events on live streaming copyrights and co-operated IP-based events while operating our own sports team, KSG. These endeavors drove more exploration and innovation aimed at combining gaming and entertainment live streaming content. Beyond content, our live streaming plus strategy continued to empower traditional industries. In QRR daily, number of users submitting resumes on quite higher increased by over one in 10%. Number of matches grew by over 300% year on year. In ideal housing, the daily lead generation surged by one of 50%. Finally, in terms of our overseas business and local services progress, In Q1, our overseas business continued to make steady progress, with revenue rising by 32.7% to 1.32 billion RMB. Online marketing services maintained strong year-on-year momentum. With effective cost and expense control, our overseas business achieved quarterly operational profitability for the first time. We further improved overseas customer acquisition efficiency by focusing targeted promotion on high-value demographics. This contributed to steady DAU growth in Brazil, one of our core international part markets. Following the tremendous success of sponsoring the Brazil reality show BBB last year, we doubled down our strategic partnership to become this year's exclusive official short review partner of BBB 2025. This boosted KWAI's brand visibility in Brazil and delivered richer pen entertainment content and interactive experience to local users, supported by our sustained algorithm and traffic optimization. The average daily time spent per DAU in Brazil continues to grow steadily, both year-on-year and quarter-over-quarter. On the monetization front, we leverage our strong base of extensive local content to help advertisers in building a new content-driven marketing approach that uses multiple product formats to reach their target user groups. At the same time, our e-commerce business in Brazil saw healthy growth in order volume, supported by disciplined ROI management. In Q1, our local services business deepened its presence in lower tier cities. We refined our operations around city clusters, leveraging our user base to offer high value for money local products and services. Through dedicated small city projects, we further expanded our presence in these markets and driving local services GMV to sustain rapid year-on-year growth in Q1. Over 65% of its growth came from lower tier cities. Category-wise, in-store dining services remain the backbone of our local service business with steady growth. The general in-store business has seen balance the development across the on-site retail, leisure, entertainment, and other categories. On the supply side is the number of active merchants and available merchandise grew by 81% and 71.3% year-on-year, respectively, in Q1. We also encourage merchants to adopt the self-operated live streaming, which together with the employees' promotions and KOI distribution. With the support from AIGC-driven content creation tools, this allowed us to scale both the quality and the volume of content more efficiently. helping merchants gain high-quality traffic exposure. Greater product and content supply drove user transaction conversion, with the number of average monthly paying users increasing by 73.1% to YOY in Q1. Regarding monetization, we further optimized our local advertising products, improving the native operation of leads and traffic allocation strategy, which reinforced the effectiveness of merchants' marketing placements. As a result, local service revenue rose twofold year-on-year. In addition, our due engine promotion strategy combined a large-scale campaign with targeted small scale promotions improved both the marketing efficiency and effectiveness of their subsidies, leading to continued loss narrowing for our local service business. To conclude, facing a complex and evolving marketing environment, we will remain committed to our founding mission and user-centric approach. Through AI technology, we're fortifying questions, content, and business ecosystems while pushing the boundaries of monetization. We're confident that by being focused on a long-term technology investment and delivering real user value, we will be able to rise above short-term cycles while improving user experience, empowering industries, and giving merchants and marketing clients more tools to drive quality and efficiency. We will create more value for our shareholders. This concludes my remarks, and now the financial part. Thank you, Yixiao. Hello, everyone. During the first quarter, we advanced our iterative upgrade of our clean AI launch model to further strengthen our core competitiveness. Meanwhile, we enhance the user experience and help online marketing clients and merchants improve operational efficiency and expand their businesses with rich content and continuously optimize the traffic coordination mechanism. These efforts result in healthy and steady growth in both our operating metrics and financial performance, laying a solid foundation to support our full-year goal. In Q1, our total revenue increased by 10.9% year-on-year to 32.6 billion RMB, and adjusted net profit reached 4.6 billion RMB, representing an adjusted net margin of 14%. In particular, our overseas business delivered its first-ever quarter of operating profit in Q1. Let's take a closer look at our Q1 financial performance. Our total revenue grew 10.9% year-on-year to $32.6 billion on Q1. The increase was driven by growth across each of our core businesses, including online marketing services, e-commerce, and live streaming. Online marketing services revenue increased by 8% to 18 billion RMB in Q1 from 16.7 billion in Q1 last year. This increase was driven by the full process application of AI technology in our online marketing solutions, which significantly enhanced our marketing materials conversion efficiency and led to increased consumption from marketing clients. Revenue from other services, including e-commerce, 4.8 billion in Q1, up 15.2% from 4.2 billion RB in the same period last year. This increase was mainly attributable to the growth in e-commerce GMB, which boosted e-commerce commission income. Leveraging our refined Omni domain operations and AI empowerment across various scenarios, we further elevated the number of e-commerce monthly active paying users and monthly active merchants in Q1. We also provided merchants and KOLs with richer marketing tools and more diverse traffic incentives, helping them grow rapidly and expand their businesses. In Q1, our live streaming revenue was 9.8 billion RMB, an increase of 14.4% from 8.6 billion RMB in Q1 last year. Resuming positive year-over-year growth, we're committed to building a long-term and sustainable live streaming ecosystem. By refining our operations and consistently developing diverse content categories, we further increased user engagement with high-quality live streaming content. Cost of revenue increased by 11.5% year-on-year into 1 to 14.8 billion RMB, accounting for 45.4% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth. partially offset by decreases in depreciation of property and equipment and the right of use, assets, and moralization of intangible assets. In Q1, the gross profit grew by 10.4% year-on-year to $17.8 billion. The GP margin was 54.6%, an increase of 0.6% each point sequentially. Moving to expenses, selling and marketing expenses increased by 5.5% year-on-year to $9.9 billion, accounting for 38.4% of total revenue, dropping from 31.9% Q1 last year. The increase in selling and marketing expenses was mainly due to increased spending on business promotions, including online marketing services and e-commerce businesses. while the decline as a percentage of total revenue was attributable to our improved operational efficiency. R&D expense was $3.3 billion, rising by 16% year-on-year, accounting for 10.1% of total revenue. But in 3D, the expense has increased by 79.2% year-on-year to $828 million R&D, accounting for 2.5% of total revenue. The increase in R&D administrative expenses was mainly due to higher employee benefit expenses, including related share-based compensation expenses. Group-level net profit for Q1 was 4 billion RMB. Group-level adjusted net profit rose 4.4% year-on-year to 4.6 billion RMB, with an adjusted net margin of 14%. Our balance sheet remains robust. with cash and cash equivalents, time deposit, restricted cash, and wealth management products totaling 94 billion RMB as of March 31, 2025. We generated positive operating net cash flow of 3.3 billion RMB in Q1. Additionally, we actively delivered on our commitment to shareholder returns. By the end of March of close today, we repurchased an aggregate of approximately 1.42 billion Hong Kong dollars, or 29.19 million shares, which accounted for about 0.68% of our total shares outstanding within the year 2025. Looking ahead, we will remain focused on our user needs, promoting healthy and prosperous development of our content and business ecosystem. In addition, we will firmly execute our AI strategy and explore diverse growth avenues while fortifying our existing business, driving consistent business and development, and creating long-term value for users, partners, and shareholders. This concludes our prepared remarks. Operators, please now open the call for questions.

We will now begin the question and answer session. If you'd like to ask questions, please press star 1 and wait for a name to be announced. One moment for the first question. The first question comes from Felix Liu of UBS.

Please go ahead. Thank you, management, for taking my question. Can management provide an update on CleanAI's commercialization What are the main growth drivers and what is the growth strategy for CleanAI going forward? Thank you.

Thank you for your question. Due to global leadership and continuous delivery of technology and product capabilities, from the beginning of this year, CleanAI's commercialization transformation scale has shown an increasing trend. In the first quarter of this year, Clean's income has reached 1.5 billion RMB. From the income structure, P-Duan paid subscription members contributed nearly 70% of their operating income. P-Duan users are based on the transmission attribute of Western users and the payment capability of P-Duan users, such as professional self-media video creators and advertising marketing entrepreneurs, etc. Currently, the number of P-Duan paid subscription members and ARPUs are at a higher rate. Double-wheel drive can lead to P-Duan paid subscription income growth. Thank you for your question.

Built upon the world's leading continuously iterated technologies with advanced product capabilities, CleanAI's commercialization skill has accelerated since the beginning of this year. In Q1, revenue from CleanAI reached 150 million RMB. In terms of its revenue mix, paid prosumer subscriptions currently account for almost 70% of CleanAI's revenue. Prosumers, such as professional independent video creators, and advertising and marketing professionals combine the dissemination of attributes of individual subscribers with the purchasing power of corporate clients. The number of paid prosumer subscribers and their ARPU are increasing rapidly, driving strong growth in prosumer subscription revenue. At the same time, CleanAI provides API services to over 10,000 corporate clients across industries, such as professional content creation platforms, advertising and marketing, film and animation, game production, smart devices, achieving an exceptionally high renewal rate. We believe CleanAI is set to become the new foundational infrastructure for video creation across even more industries going forward.

In April this year, Clean announced the upgrade of the video production technology platform and launched the CleanAI 2.0 master version to global users. CleanAI in 2.0 has significantly improved in terms of dynamic quality, language response, image aesthetics, and so on. It has greatly increased the creative ability of video production models to meet the requirements of more complex scenarios for professional creators. In the near future, we will also launch more cost-effective game versions to provide users with more choices to meet the video production needs of different users and creators.

In April this year, we announced a major upgrade to CleanAI's video generation foundation model and launched CleanAI 2.0 Master Edition for global users. CleanAI 2.0 significantly improves motion quality, semantic responsiveness, and visual aesthetics, greatly expanding the upper limit of a large video generation model's creation capabilities and meeting the more complex needs of professional creators. We will launch more versions with cost-effective advantages in the near future, providing users a wider range of options to meet diverse video creation needs across various scenarios.

Next, we will continue to keep the global technology leading position of Kering's large model through continuous technical capabilities and innovation, while also improving users' experience through product innovation. In addition, we will continue to develop relevant operating activities especially the operation of overseas areas, to achieve user growth. For example, we put forward the Next Game, a new image creation project, to provide financial support to new AI system creators with strong content and technology, and a global宣发资源专业IP服务化体系和稳定的算力保证.目前该计划已经取得突破性成果,全球首部AI单元聚集新世界加载中 Next, we plan to maintain a global leading position of Ukraine's foundational model by continuously iterating its technological capabilities and engineering innovation.

while enhancing user experience through ongoing product innovation. Additionally, we will continue to carry out relevant operational activities, particularly in overseas regions, to grow our user base. For example, our next-gen new image venture capital plan supports emerging AIGC creators with strong content and technical expertise by offering funding, global promotional resources, professional IP incubation systems, and a stable computing power. The plan has already delivered breakthrough results. With the global premiere of the trailer for the first AI short play series, New World is loading. The full short play will be released soon. Meanwhile, we have also increased the feed ads and other forms of marketing placements, but these will be conducted on a limited scale based on strict ROI considerations.

In summary, CleanAI's success has reinforced our confidence in pursuing our focused strategy, including investments in organizational synergy, computing power, algorithm enhancement,

and data accumulation to maintain clean AIS industry advantages and drive rapid monetization growth.

Thank you. The next question comes from Lincoln Kong of Goldman Sachs. Please go ahead.

Thank you, Manager, for taking my question. My question is about AI is empowering companies' existing business, so that includes online marketing service and e-commerce business. And are there any quantitative metrics in this regard that you can share with us? Thank you.

谢谢你的问题。 我们一直记录于AI技术与快手现有业务的深度融合。 本季度,我们也加速了AI技术在快手的多个业务场景的渗透。 Thank you for your question.

we have always been committed to integrating ai through our businesses in q1 we step up the adoption of ai technology in multiple business scenarios on top of leveraging large models for content understanding and recommendation accuracy which increase user timestamp and engagement as we mentioned before we have also applied large model technology to various assets for middle and back offices include code writing and the content review Next, I'd like to elaborate on how AI is empowering Kuaishou's online marketing and e-commerce business scenarios.

AI is empowering Kuaishou's online marketing and e-commerce business scenarios. and combine思维链技术归纳总结形成质量更优的营销素材,能够显著提升营销素材的转化投放率。而数字人直播间女窝在具备AI互动能力之后,也大幅提升了客户的直播间转化率。此外,智能客服派在对话流畅度和拟人性上的优化,提升了用户流资转化的效果。 Low-level, in the traditional sense of advertising, AIGC marketing materials take about 30 million RMB per day to consume. The external cycle of smart investment products UAX is based on the potential of large-model推理 ads. Evaluate the ability of each material to run, and combine price feedback, automatic adjustment, investment strategy. And the internal cycle of full-time promotion of H&T 4.0's initial price and price adjustment ability, realized the integration of commercial flow and e-commerce flow. In online marketing scenarios, AI has significantly empowered various aspects,

including marketing material production, placement agents, and recommendations. In terms of material production, our one-stop video production platform, Magnetic Creator, utilizes a multi-module large model to learn and understand from vast amounts of content. By employing chain of thought technology, it generates higher quality marketing materials, leading to notable increase in conversion rates of marketing placements. Additionally, our digital human live streaming room, Nuva, has greatly improved the client conversion rates after integrating AI interaction capabilities. Our intelligent customer service system, Pi, is converting more leads by sounding more natural and human. In Q1, during the traditional slow season for online marketing services, average daily spending on AIGC marketing materials reached approximately 30 million RMB. For external marketing services, our smart placement product UAX predicts potential audiences for advertisements using large model inference, evaluates the advertising performance of each material, and automatically adjusts the placement strategies based on bidding feedback. For closed-loop marketing services, the Omni platform Marketing Agent 4.0's advanced bidding and price adjustment capabilities help merchants capture more organic traffic by integrating online marketing traffic with e-commerce traffic. Regarding marketing recommendations, by deeply integrating global knowledge with advertising expertise, large models can infer the relationships between users' natural behaviors and advertising actions, enabling end-to-end ad production that enhances the accuracy and conversion efficiency of marketing recommendations.

In the e-commerce scene, we use AI large model capabilities from content production, precision matching, and smart customer service, etc. to help improve the efficiency of 3D printing. In terms of content production, based on large model video recognition, deep-seq, and text-based ability, we automatically produce live broadcasts of high-definition video materials to show the sales point of the product, helping the merchant to collect the long-term traffic of live broadcasts. In the first quarter of 2025, AI-automated live clips of Japanese military GNVs have increased by more than 300%. In terms of accurate matching, it combines large-model visual chain, cross-scene demand prediction, and automatic identification of strong related items and status labels, allowing the algorithm to better understand the needs of the users and improve the efficiency of human-village matching. In terms of intelligent customer service, we will use commercial characteristics, user behavior, historical dialogue, products and order information, e-commerce rules, and other information input to the big screen, and form a smart workflow to respond quickly and effectively to solve user inquiries, and realize the ability to overcome the resolution rate of up to 80%. In the future, we are confident that through the AI potential of持域四胖, we will be able to quickly improve the system efficiency, especially for our online marketing and e-commerce business growth to bring new volume. At this time, I will share with you more progress.

In e-commerce scenarios, we leverage large AI models to enhance merchants' operating efficiencies through content production, precise matching, and intelligent customer service. In terms of content production, leveraging large model video recognition and deep-seek semantic text capabilities, we automatically generate short video materials from live streaming highlights, showcasing product setting points and helping merchants capture long-tail graphics. In Q1, the average daily GMB of AI-generated live streaming highlights increased by more than 300% year-over-year. For precise matching, our cross-and-arrow demand predictions utilize large models' chain of thought to automatically identify strongly correlated categories and interest tags, allowing algorithms to better understand users' potential needs and improve user product matching efficiency. For intelligent customer service, We integrate merchant characteristics, user behaviors, historical conversations, product and order details, e-commerce rules, and other information into large models, forming an intelligent workflow that swiftly responds to and efficiently resolves user inquiries, achieving an intelligent customer service resolution rate of up to 80%. Going forward, we are confident that by continuing unlocking AI's potential, we will further improve quality and efficiency, particularly driving incremental growth in our online marketing and e-commerce businesses. I look forward to sharing more updates on our progress with you soon.

Thank you for the question. The next question is from Brian Gong from Huachi. The next question comes from Brian Gong from C2.

Please go ahead, 请提问。好的,谢谢管理层接受我的提问。首先恭喜基督不错的业绩。就是想问一下能否请管理层介绍一下近期线上营销服务这边的趋势如何,然后我们看到有哪些行业,哪些vertical表现得较好一些。另外也想请教一下线上营销业务今年的主要增长策略是怎么样的。 Thank you. I will translate myself. Thanks, management, for taking my question. Could management please share the recent trends in online marketing service and which sectors performed better? And also, what could be the key growth strategy for this segment this year?

Thank you. To answer your question, from the overall consumption of online marketing services in April, the number of customer editorials has improved. We have also returned to double-digit confidence in the second quarter of the online marketing service. In terms of internal circulation, we have been able to promote 4.0 upgrades in the field of investment chain optimization and intelligent investment products in the semi-priced areas. In recent years, the internal circulation has seen a growth in the number of merchants and the number of distributors. In terms of external circulation, while the content consumption industry continues to maintain a high double-digit increase, Thank you for your question. In April, we saw a steady pickup in client placements.

and we're confident that year-over-year growth rate for online marketing services will return to double digits in the second quarter. For our closed-loop marketing services, the number of merchants accelerated year-over-year recently, thanks to improvements in our pen shell-based e-commerce sales funnels and upgrades to our Omni platform marketing agent 4.0. In external marketing services, spending in the content consumption sector continued to grow in the high double digits year-over-year. And in the local services spending, the year-over-year growth rate also increased significantly. We're confident that we can maintain rapid growth this year, mainly by helping more clients in content consumption, e-commerce, and local services operate their businesses more efficiently and sustainably on our platform.

In the content consumption industry, Using short films, novels, and small games as advertising materials, we can not only provide advertising edge value, but also allow content and users to have good interactions, help platforms and customers to understand users better, and achieve advertising content creation and management. In 2024, our consumption in the short film industry achieved more than 300% of the same growth. This year, we expect to still achieve high growth, In a current consulting industry,

Ad materials in a form of short plays, novels, and mini games not only drive monetization, they also align closely with users. This helps both our platform and clients better understand users and achieving the vision of advertising as a form of content and creation as part of operations. In year 2024, marketing spend in the short play industry grew over 300% year on year. And we expect that it can continue to grow rapidly this year Minigames and mobiles are also seeing exciting growth. Q1 marketing spending for minigames rose by more than 30% year-over-year. Beyond smart placement with UAX, this year we will also use large-model technology to dynamically adjust the user payment nodes, which can help expand users' and clients' overall revenue in the content consumption industry.

快手作为流量充沛且在新线城市具有较高渗透率的平台,对于品牌商家拓展具有较强的吸引力。 而我们在如何助力商家做内容电商经营,降低经营成本方面,仍有很多可以努力的空间。 与此同时,去年一年贩货价渐微取得了高势增长。 In the e-commerce industry, our abundant traffic and high penetration in lower-tier cities are very appealing to brand merchants.

While there is still plenty of room to improve how we help merchants build content-driven e-commerce operations and lower their operating costs. Meanwhile, pen-shelf-based e-commerce GMV has grown rapidly in the past year. But marketing spend was held back by weaker data infrastructure and sales funnel constraints. We expect to see an acceleration in marketing spend in pen-shelf-based e-commerce starting in Q2.

In the local life industry, with the transformation of the consumer structure, we have observed a huge demand for local life services by more than 700 million users. This has also brought an increase in the number of new customers in the local life industry. Local business customers can be divided into two categories according to their business needs on the platform. One category is the local life customer that everyone understands in the traditional sense. By directly obtaining GMV transactions, such as group purchases of food and beverage business, the other category of customers is to obtain gold clues on the platform. and transition to business in the future. For example, the legal consulting and home renovation industry. This year, we will continue to optimize the ability of in-house native private messages to improve the interaction efficiency of local businesses, and use AIGC capabilities, including the AIGC capability to overcome AIGC capabilities and AIGC capabilities to overcome AIGC capabilities to reduce business business costs and bring sales and investment growth.

As for the local services industry, amid the consumption mix transformation, we're seeing a rising demand among Kuaishou's over 700 million users. This is opening up new growth opportunities for merchants in this industry. We support two types of local services merchants on our platform. Traditional ones are focused on increasing GMV, like restaurant group buying, and those focused on lead generation and customer conversions. like in the legal and home renovation service industries. We're improving our native private messaging capabilities on our platform this year. By using AIG C2s such as magnetic creator, digital human live streaming, and intelligent customer service, we will assist merchants in lowering their operation costs and scaling up their marketing impact. In summary, we will continue to focus on industry-specific refined operations, intelligent marketing product iterations, and algorithm optimizations to improve clients' marketing conversion.

Thank you. The next question is from Daniel Chen from Morgan Datong. The next question comes from Daniel Chen from JP Morgan. Please ask your question.

谢谢管理层给我机会问问题。 我想问一个电商这块的问题。 今年的618大处已经开始了, 能不能分享一下我们今年的主要策略, 然后跟往年相比有什么亮点? My question is related to e-commerce. This year's 6-18th shopping festival has already begun. Could you share the main strategy for this year? Also, what's the highlight compared to previous years? Also, please share the development strategy for the shopping mall feature. in the next stage.

Thank you. Thank you.

Thank you for the question. Amid ongoing challenges in consumer demand, we have introduced more strategic initiatives for this year's 618 Shopping Festival to help merchants and KOLs fully harness the new opportunities in omnidomain operations. During the 618 Shopping Festival, we will provide $100 billion in traffic resources and $2 billion in subsidies and launch innovative strategies across three dimensions. Users, Products, and Merchants and KOLs.

First of all, the user dimension. We combine the data of the pre-heating period of DaChu with the data of the pre-booking period of the main streamer. By focusing on the event of the second streamer, we can pre-lock some of the users' needs. In the official period of DaChu, we can increase the activity of the users and restore their strength. By adding a large amount of subsidies to the platform, to increase the conversion rate and purchasing power of users, to realize the core of the public domain and the deepening of the private domain, and to promote the increase in the size of users. Secondly, when it comes to products, we will focus on the new products of the whole network. The characteristics of large-scale expropriation products, large-scale new products, and daily retail products are four good products. The matching promotion strategy and support, such as large-scale expropriation products with price competitiveness, It can be combined with the platform supplementation of Super Connection and Alpine Project to make good products not to be sold again. Finally, in the Sanda area, we have designed a targeted division support program for the head, waist, and potential anchors. By broadening the supply chain, the product category will be more abundant and the price will be more competitive. At the same time, we have launched a challenge competition for anchors for major anchors and senior anchors, and we have supported the flow of red envelope fish and so on.

First, on the user front, we're combining pre-sale promotions with reservations for live streaming to lock in early demand through follows and the flash sales. During the official promotion period, we will step up efforts to activate and re-engage users through marketing tools, such as large subsidies and free order promotions to boost the conversion and purchasing power. This will allow us to gain new users in the public domain and deepen engagement in the private domain. Second, on the product side, we're catering strategies for four key product types. New launches, promotion blockbusters, high interest promotion products, and everyday bestsellers. For example, Blockbuster items with strong price appeal will get support from platform subsidies. Special promotions like the Blockbuster Initiative and the KOL matchmaking to help sell through. Finally, for merchants and KOLs, we have developed targeted tiered support plans based on KOL's scale and potential. Top tier, mid-level, and emerging talent. We have also expanded the product variety and improved the pricing to stay competitive. On the traffic side, we have launched a program such as streamer competitions, challenges, and hourly subseq to help large-scale and high-potential streamers break out. And by combining short videos with live streaming and adding shopping links to popular live streaming sessions for blockbusters, we will further stimulate omni-domain transaction opportunities across the platform.

For the fast market business, it is currently developing into an important part of the fast e-commerce business. Next, we will introduce a strategy for marketing for different types of businesses in the market operation. On the one hand, for businesses with limited operating resources or new customers entering the fast market, our marketing support provides smart, AI, material optimization, free flow support, marketing activities, reporting and reporting protection systems, and other diversified services. As of today, data is one of the most important factors that affect product cards and click conversion rates. We can use AI to help merchants optimize data in multiple dimensions, such as titles, pictures, and videos, to ensure the efficiency of product distribution in the goods and services field. On the other hand, for merchants with a lot of operating resources or merchants who have a certain amount of money in their hands, we can use the official marketing channels such as Our shopping mall has become an important growth driver of a quite short e-commerce business.

To build on this, we will launch tailored operational strategies for different types of merchants. For merchants with limited operational resources or who have been newly on board, we will provide diverse marketing hosting services, such as AI-powered material optimization, free traffic support for products, marketing activity registration, and blockbuster production mechanisms. For example, since product visuals and descriptions directly impact click-through and conversion rates, Our AI helps merchants improve material quality, such as titles, images, and videos, ensuring the efficiency of information distribution for shelf-based shopping scenarios. For more experienced or operationally resourced merchants on Kuaishou, we will provide exclusive traffic channels, marketing tags, and extra exposure in the shopping mall through official marketing channels, such as Big Brand, Big Subsidy, and a special sale. One major initiative this year is our superlinks, which create links to goods, stack additional subsidies, and accumulate user assets through the platform. As a result, conversion rates for superlinked products are nearly five times higher than regular ones.

In short, fast-tracking e-commerce will continue to play a key role in overcoming the advantages, enriching the segmentation of products, 我们非常有信心助力更多商家在Dev2期间实现爆发,实现业务规模与经营质量的稳健提升。

In conclusion, Kuaishou e-commerce will continue to leverage its omni-domain operational advantages, enrich category-specific product supply, meet users' diversified consumption needs across different scenarios, and fully utilize AI capabilities to empower merchants in their end-to-end operations. We aim to reduce merchants' operating costs through features such as AIGC content production, accurate placement, and intelligent customer service. We're very confident we can have more merchants achieve explosive growth through our major promotions, improving their business scale and operational quality.

Thank you, operator.

Next question, please. The next question comes from Xueqing Zhang of CICC. Please ask your question. Please go ahead.

Thank you, management, for taking my question. Could management share more about the investment plan on AI this year and its impact on the full-year profitability? Thank you.

谢谢你的问题。 关于AI的投入,首先是可灵。 正如刚才校总所讲, KOLIN AI has achieved a growth of more than 7% in the first quarter. After the release of the 2.0 version in April, it has received widespread praise from creators around the world, especially for being able to solve the more complex creation needs of professional creators. At the same time, KOLIN AI has provided creators with multiple version choices to satisfy users' different creation needs and video production in the scene. KOLIN's world-leading technology and product capabilities ensure that we are able to Thank you for your question.

Regarding our investments in AI, let me start with CleanAI, as just mentioned by Yixiao. CleanAI achieved a better than expected revenue scale in Q1. Since CleanAI 2.0 launched in April, it received widespread acclaim from creators both domestically and internationally. especially for its ability to address the more complex creative needs of professional creators. Meanwhile, we have multiple CleanAI versions for creators to address their different creative needs and video production scenarios. CleanAI's world-leading technology and product capabilities ensure we can continuously accelerate our commercialization, and we're confident that we can maintain this industry-leading revenue growth rate.

As for the impact of AI on the company's profitability, we will increase the cost of AI-related expenses. For example, the cost of relevant R&D personnel is expected to increase to a certain extent, mainly due to the attraction, retention, and team building of AI technology talents. Because AI has already achieved edge profit growth at the推理 level, with the expansion of business scale, even if we invest more in推理 and algorithm, the impact on group profits will be relatively small. At the same time, we are also very confident that by using technology, we can achieve a further decrease in profit-saving costs. With the expansion of the revenue scale of the business, the fixed cost of training costs and labor costs will be reduced, and the overall loss and loss rate of Ke Ling AI will be reduced. From the perspective of the whole year, the impact of AI strategy, including Ke Ling, on the overall profit-saving rate of the group will be in the range of 1-2%.

Regarding AI's impact on our profitability, we anticipate expenditure in AI-related areas will increase, particularly in R&D and personnel costs. We expect a year-over-year rise in these expenses, primarily allocated to attracting and retaining top AI talent, as well as team capacity building. Clean AI has already generated a positive marginal profit at the inference level. Even if we scale up and invest more in inference computing power, the impact on our bottom line will be relatively small. We're also very confident that through technological iteration, we can bring inference cost down even further. As our revenue grows and fixed costs like training and labor are spread out more, CleanAI's overall losses and loss margin will continue to narrow. For the full year of 2025, our AI investment, including CleanAI, the impact on the group's overall profit margin will be among 1% to 2%. In the medium to long term, we believe AI can become one of the second growth curves of the company, contributing to both our top line and bottom line, creating more value for shareholders.

Thank you. That's the end of the Q&A session. Back to you, Operator.

That's the end of today's Q&A session. Now, Matthew, please make your closing remarks.

Thank you once again for joining us today.

If you have further questions, please contact our capital market and investor relations team anytime. Thank you.