Kuaishou Technology B

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. This English line will be in listen-only mode. I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology. Thank you, operator. Good evening and good morning to everyone. Welcome to Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yi Xiao, co-founder, chairman, and CEO, Mr. Jin Bing, our CFO. 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 be different from those discussed. The company does not undertake any obligation to update any forward-looking information except as recorded by law. For important information about this call, including forward-looking statements, please refer to the company's public information or third quarter 2025 results announcement added September 30, 2025, issued earlier today. During today's call, management will also discuss certain non-FRS measures. These are provided for additional information and should not replace FRS-based financial results. For a definition of non-FRS financial measures and reconciliation of RRS to non-FRS financial results and related risk factors, please refer to the third quarter 2025 resource 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 pre-programmed RAC session and a consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management or 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 third quarter 2025 earnings conference call. In Q3, we continue to advance our AI strategy, expanding scenario-based AI applications and innovative use cases across our business. These efforts created a tangible business value across all business scenarios, strengthened the quality efficiency for our organizational infrastructure, and fueled the strong operational financial results. Average DA use on the casual app has surpassed $416 million in Q3, marking the third consecutive quarter of record highs. Total revenue for Q3 rose by 14.2% a year over year to Revenue from our core commercial businesses, online marketing services, and other services, primarily e-commerce, increased by 19.2% year-over-year. Adjusted net profit rose 26.3% year-over-year to 5 billion RMB, with an adjusted net margin of 14% per year. We achieved a year-over-year growth in the group's overall profitability while continuing to invest strategically in AI, a catalyst for unlocking deeper value across our content and business ecosystems. First, our AI strategy and the progress of our large video generation model, Cling AI. We continue to refine the foundation models behind Cling AI, developing new features to meet creators' diverse needs and build a one-stop creative productivity platform that empowers everyone. to tell captivating stories with AI. In Q3, we launched a Cling Lab and upgraded the start and end frames function and introduced digital human solution. Notably, at the end of September, we released the Cling AI 2.5 model, achieving substantial advances in prompt adherence, dynamic effects, style consistency, and visual aesthetics. Just 10 days after launch, the model was simultaneously ranked as the world's number one text-to-video and image-to-video a model by artificialanalysis.ai, independent AI benchmarking platform. While maintaining its leading content generation performance, the new model also integrates continuous engineering innovations that lower video inference cost, reducing creators per video generation expense by almost 30%, and further strengthening Cling AI's cost efficiency advantages. Cling AI's innovations and foundation models and product features have provided creators with higher quality video generation solutions establishing a foundation for broader adoption across professional creative fields such as marketing, e-commerce, film, and television, short plays, animation, and gaming. As Cling AI continues to expand its use cases, it has made breakthroughs in monetization and revenue growth. In Q3, revenue from Cling AI exceeded 300 million RMB. Cling AI is committed to empowering global creators and building a premium ecosystem. In September, we launched the Cling AI NextGen Creative Contest, which received over 4,600 entries from 122 countries and regions worldwide covering diverse fields such as history, science fiction, and animation. Outstanding works were screened at international film festivals including Cannes, Tokyo, and Busan for the integrating AI-powered film and TV works with traditional film and TV industries. In Q3, we achieved strong results from integrating AI into diverse internal and external use cases On business empowerment, large AI models have now been integrated across all of Questro's major business areas, driving incremental value across our ecosystem. We iterated our end-to-end generative recommendation large model, One Rec, and extended it beyond a short video recommendation to additional recommendation areas, such as online marketing services and e-commerce shopping malls. This expansion has generated meaningful incremental benefits. In Q3, large AI models demonstrated notable effects, especially in online marketing services. We pioneered a generative reinforcement learning-based bidding model that integrates sequence modeling with a goal optimization. This innovation transformed advertising from a single-step decision-making to long-term strategic planning, significantly enhancing bidding capabilities and ROI for clients, especially for small and medium-sized ones. Meanwhile, we explored using end-to-end generative recommendation in online marketing services scenarios through OneRack. Tailored to the characteristics of online marketing services, we introduced the client marketing expression and marketing commercial value perception mechanism to achieve bidirectional matching between users' interests and clients' demands, enhancing personalization and matching efficiency. Large AI model technologies, especially One Rack, drove roughly 4% to 5% growth in domestic online marketing services revenue in Q3. In terms of online marketing material generation, Cling AI's large model has significantly reduced video production costs for clients. Meanwhile, advanced digital human technology has also opened up new operational scenarios in live streaming for both online marketing clients and e-commerce merchants. Consequently, the total spending from online marketing services driven by AIGC marketing materials exceeded 3 billion RMB in Q3. For e-commerce, we launched OneSearch, an end-to-end generative retrieval architecture. It enables more precise product matching and optimizes the user experience, driving nearly 5% growth in shopping mall search order volume. The adoption of OneRack in e-commerce also contributed to high single-digit GMV growth in the shopping mall feed in Q3. For entertainment live streaming, we leveraged CoinAI to introduce the AI Universe gift customization feature which generates highly personalized avatar-based personal gifts, increasing both user engagement and willingness to pay. Second, user growth and content ecosystem. In Q3, average DAUs on the Kuaishou app reached 416 million and MAUs reached 731 million. This is the third consecutive quarter that average DAUs reached a record high. The sustained and steady traffic growth reflects the Crashers community's unique appeal to users. By refining our user growth strategies, offering distinctive and diverse content, optimizing our traffic allocation mechanism, and enhancing community engagement, we continue to reinforce Crashers' identity as a heartwarming, diversified, informative, and engaging online community. In Q3, average daily time spent per DAU on the Crashers app was 134.1 minutes, while total user time spent rose by 3.6% year-over-year. Our refined user growth strategies leverage smart marketing material placement on acquisition efficiency, lowering the acquisition cost per new user year over year. In traffic allocation, by modeling users' long-term user interaction patterns, we improve it about the user satisfaction and retention. We also continue to upgrade users' sharing experience within private messaging and iterated on social interaction features. As a result, the daily average penetration rate of private messages among users with mutual followers increased by more than 3 percentage points year-over-year. We also elevated the user product experience through a series of device-level intelligent optimizations. In content operations, we partnered with the Beijing Radio and Television Station to launch the 2025 Kuaishou Super Summer Gala, where celebrities and everyday users come together and celebrate. The live stream session attracted a peak over 5.4 million concurrent users. To cater to young audiences, we hosted an online concert featuring DNA, which drew 980 million live streaming views. In the Pan-Knowledge category, we created the Liyuan Music Festival Summer Tour Series, showcasing offline tours across diverse traditional art forms, such as Qinjiang and also Xianbei Shushu. By bringing these live performances to audiences, we help to benchmark creators like I want to achieve cumulative creative breakthroughs and gain recognition. Third, online marketing services. In Q3, revenue from our online marketing services reached 20.1 billion RMB, up 14% over year. With the growth rate accelerating quarter over quarter, we continuously iterated and upgraded our online marketing placement and products with AI models. Drawing our unique traffic dynamics, we cater to the needs of more marketing customers through our smart placement capabilities, achieving more precise targeting and higher conversion rates. This drove strong year-over-year growth in both external and closed-loop marketing services and revenue. In Q3, our UX solutions accounted for over 70% of external marketing spending. Ongoing innovations, iterations, particularly with our generative and reinforcement learning-based feeding model and generative A recommendation large model further improved marketing recommendation efficiency and enhanced management of marketing variety and value. The combination of our three key AIGC commercialization tools, AIGC short video, digital human, and digital employee has empowered our customers with an end-to-end AI solution covering marketing material creation, live streaming operations, and user engagement. In Q3, for a closed-loop e-commerce marketing services, we upgraded the product and content optimization capabilities of our Omni domain. platform marketing solutions to mean a steady supply of premium marketing materials. By integrating multi-content reimbursement and ROI bidding recommendation tools, we help e-commerce merchants improve traffic and sales conversions thereby enhancing their willingness to invest in marketing placement. In Q3, total marketing spending from Omni platform marketing solution accounted for over 65% of its closed-loop marketing spending. Additionally, we established a bidding agent based on AI capability to replace mutual menu adjustment decisions, enabling more consistent conversions and allowing greater economies to go. On the traffic side, by enhancing the synergy between e-commerce and commercial value, we released more traffic capacity to merchants with long-term operations, helping more brand e-commerce merchants achieve a scaled expansion and stable conversion improvements. From a scenario perspective, in Q3, closed-loop e-commerce marketing services in pen-shelf-based scenarios also realized a solid growth. We optimized the people-to-goods matching in pen-shelf scenarios, and we used large models to better meet a user's needs and improve efficiency. These efforts increased marketing placement and penetration and drove stronger merchant participation. In Q3, for the lifestyle service sector, where clients mainly operated on a lead-based model, we upgraded our private messaging products and optimized vertical-oriented products. These improvements helped clients reach users more efficiently and achieve higher user conversion rates across various conversion goals. In lifestyle services, particularly among our small and medium-sized customers, we improved private messenger response rates with AI-powered customer service. In Q3, we combined our local services with a lead-based marketing business to form our lifestyle service segment, iterating teams, product lines, and traffic distribution. This unification strengthens our ability to support merchants pursuing sustainable operations and help build a more diversified collaborative ecosystem with local merchants. These three The content consumption sector led by Shorter Plays was another key revenue driver for our external marketing services in Q3. We continued to enhance content supply and product innovation across Shorter Plays minigames and novels while capturing incremental growth opportunities from the rapid rise of comic-style Shorter Plays, further expanding external marketing services revenue. Comic-style short plays combine features of comics, short plays, and audio dramas, typically featuring vertical screen episodes to one to three minutes long. This new genre has recently gained an investor attraction among the broader market. Cling AI has significantly lowered the barrier to creating comic-style short plays while elevating overall content quality. In addition, through a mix of marketing placement, revenue sharing, IA, and IAP models, we created multiple monetization pathways for high-quality short play content, expanding reach on both the supply and demand side. Fourth, our e-commerce business. In Q3, our e-commerce GMV grew 15.2% a year to 385 billion RMB. Through a mix of merchant incentive programs, Omni Domain traffic support, and intelligent tool empowerment, we helped merchants build Omni Domain operations ecosystems, continuously elevating user experience and driving high quality supply and demand growth to support emerging sustainable growth we encourage them to adopt an efficient conversion path that integrates public and private domains using public domains to acquire customers in private domains to strengthen retention in q3 the mix of our e-commerce monthly average paying users to show healthy trends active e-commerce users repeat purchase frequency increase every year and user stickiness continue to improve In Q3, in e-commerce supply, building on our platform's traffic and content-based e-commerce advantages, we continue to attract new merchants organically and onboard merchants through diverse channels. We introduced a range of incentives to lower onboarding costs and entry barriers for new merchants. In addition, we continue to launch initiatives to empower new merchants to navigate early growth stages and ramp up operations more efficiently. Driven by a growing number of small and medium-sized merchants, together with our targeted support for high-quality existing merchants, our average monthly active merchant base continues to grow. We also broaden the range of products. The number of Level 3 product categories per store among our average monthly active merchants is increasing by nearly 30% year-over-year. To empower merchants of KOLs, in Q3, we launched a series of initiatives to unlock greater value creation within their private domains, supporting their ability to build a dual growth engine of exceptional content and superior products. We launched the pop-up follower rewards product to accelerate follower growth and empower merchants of KOLs from traffic generation to follower conversion, ultimately to sales. With a stronger control over merchandise selection and supply, we expanded our product portfolio for high-quality platform offerings. We focused on the premium brands through our KOL blockbuster initiative, leveraging the traffic pool of hit product to spotlight dedicated live streaming sessions for treasury brands, supported by improved KOL product matching, KOL targeted vertical outreach, and platform incentives. We expanded the KOL engagement, enhanced brand performance, and empowered KOLs to address product selection and assortment expansion challenges. In Q3, the average daily number of active merchandise items increased by over 30% every year, We provided a guaranteed resources such as traffic support and a product supply to onboard a small and medium sized KOLs and establish long-term growth mechanisms. These efforts to strengthen the KOL content ecosystem in Q3 driving a 14.8% a year over year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers. In Q3, in terms of operating across diverse scenarios. PenShelf for the e-commerce GMV continued to outpace overall GMV growth, contributing over 32% of the total e-commerce GMV. We continue to enhance our infrastructure and supply ecosystem, driving a 13% year-over-year increase in average daily active merchants for PenShelf-based e-commerce. We built on the diverse engagement features, strategy tools from Q2, including Super Links, the official channel platform recommending products. These tools help the merchants quickly boost product exposure and sales conversion. The marketing hosted tool we introduced for merchants in content-based scenarios effectively lowered their operational barriers and drove steady quarter-over-quarter growth in merchant adoption. In Q3, we've maximized the synergies between short videos and live streaming. We helped merchants integrate traffic from content-based scenarios through a seamless loop from product recommendations via short videos to rapid conversion in live streaming rooms and back to user engagement via short videos. This strategy steadily expanded the merchant's customer base, supported by more short videos with embedded shopping links and our customized funnels, short video e-commerce chain will maintain healthy growth. In Q3, in terms of integrating AI into our e-commerce business, we focus on empowering merchants across our e-commerce business chain with three core areas. AIG's content and production, merchant efficiency improvement, and product matching efficiency optimization are AIG's capabilities for generating and optimizing materials continue to deliver strong results, helping merchants improve conversion efficiency across both image and video formats in diverse scenarios. Penetration of the smart live streaming highlights and AI live stream scenarios also steadily increased. Concurrently, our AI product management assistant is providing comprehensive Omni scenario support. It helps merchants reduce costs, increase efficiency, and strengthen their operational capabilities while also generating high-quality data. On the matching front, our extensible recommendations powered by our e-commerce knowledge graph predict the user's potential long-term interest. This boosts conversion rates and also strengthens the user trust and effectiveness with our recommendations. We believe these AI capabilities will automatically power growth by view of data infrastructure, Precise matching and emerging efficiency empowerment driving the healthy and sustainable development of our e-commerce ecosystem. Next, regarding our live streaming business, Q3 live streaming revenue grew by 2.5% a year to 9.6 billion RMB. Growth was driven by high quality content, expanding live streaming scenarios, and AI-powered product innovations for live streaming supply. The healthy development of our talent agency ecosystem provided robust support. By NFQ3, our partner talent agencies increased by more than 17% and talent agency managed streamers grew by over 20% of both year-over-year. We focused on categories such as group live streamings by supporting premium benchmark groups, guiding content optimization to achieve high-quality development and steady revenue growth. Innovative NGC applications also injected momentum into our business growth, leveraging AI cleaning AI capabilities. In late September, we rolled out the AI Universe gift series with a customizable special effects platform-wide, effectively diversifying options for personalized interactions in live streaming rooms. On launch day alone, users pay to create and send over 100,000 personalized virtual gifts. In Q3, for entertainment live streaming operations, we launched a Super Grand Stage 2.0, organized as five regional contests nationwide to further integrate online live streaming and offline scenarios. Targeting the summer season and demand from young users, we hosted the Summer Gaming Music Festival in Chengdu and offline that event that blended gaming music and interactive experiences, depending on our partnerships with game developers. The event attracted 672 million live stream views and over 550 thousand participants on site. Moreover, our live streaming plus strategy continue to empower traditional industries further validating its commercial value. In Q3, average daily number of users submitting resumes and client hire increased by over 20% year-over-year. In ideal housing, monthly number of paying clients increased by over 90% year-over-year. Finally, our overseas business. In Q3, we continue to strengthen our foothold in overseas markets, focusing on high-quality growth. On the traffic front, we optimized Customer acquisition efficiency to precisely reach high-value demographics. By prioritizing operations for core category creators, we foster stronger connections between our high-quality characteristic content and a core user base. Brazil, our core international market, maintains stable SEUs while reducing user acquisition costs year-over-year, delivering consistent year-over-year growth in average daily time spent per DEU. For online marketing services, we bolstered business resilience to diversify our marketing client base across industries. Through an updated product capabilities and placement strategies, we improved overall conversion efficiency across our marketing funnel, unlocking more money-sufficient potential for diverse user groups, and earning sustained client recommendation. Concurrently, our e-commerce business in Brazil improved both specificity and operating sufficiency. While maintaining disciplined ROI management, we achieved a healthy year-over-year growth in GMV transaction scale and order volume in Q3. Looking ahead to Q4 and into 2026, we will continue investing in our AI strategy, exploring efficient gates that empower users, video creators, marketing clients, and e-commerce merchants through clean AI and other large AI model technology. At the same time, Guided by our development philosophy and AI strategy, we will comprehensively transform and upgrade our organization structure, talent and deployment, product design and features. We will persistently uphold and accentuate Kuaishou's technology innovation ethos, maintaining and deepening our long-term competitive advantages in the era of AI. That concludes my preparatory remarks. Next, our CFO, Bing, will review the company's financial update for Q3 2021. Thank you, Yixiao, and hello, everyone. In Q3, we continue to strengthen our core advantages, leveraging our large AI model capabilities. We further empowered our content and business ecosystems. With our rich content supply and optimized Omni domain operations ecosystem, we continuously enhance the experience for users and creators while helping merchants and KOLs improve their operational capabilities and support sustainable growth. During the quarter, we achieved solid operational and financial results with our total revenue increasing 14.2% year-over-year to 35.6 billion RMB. This included a 19.2% year-over-year increase in revenue from our core commercial business, which includes our online marketing services and other services, primarily commerce. With our steady revenue growth and improved operating efficiency, we improved our overall profitability. Operating profit increased 69.9% a year to 5.3 billion RMB. Adjusted net profit grew 26.3% a year to 5 billion RMB with a healthy adjusted net margin of 14%. Now let's take a closer look. Our total revenue grew 14.2% year-over-year to 35.6 billion RMB in Q3. The increase was mainly driven by growth across each of our business, including online marketing services, live streaming, e-commerce, and client AI. In Q3, online marketing services revenue increased 14% to 20.1 billion RMB from 17.6 billion in the same period of last year. The growth was primarily attributable to the use of AI technology to continuously upgrade online marketing product solutions that improve the conversion efficiency, which drove higher client spending from our marketing clients. Revenue from other services, including e-commerce and clean AI businesses, reached $5.9 billion in Q3, up 41.3% from $4.2 billion R&D in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income, as well as the expansion of our Cling AI business. We have continuously refined Cling AI's foundation models, developed more innovative features. Its application coverage has expanded, driving further breakthroughs in commercialization. In Q3, our live streaming revenue was $9.6 billion, RMB up 2.5% from $9.3 billion in the same period last year. We consistently cultivated high-quality content, expanded live streaming scenarios, and leveraged AI-empowered product innovations to build a diverse and healthy live streaming ecosystem. These steps drove greater user engagement with high-quality live streaming content. Cost of revenues increased 13.4% year-over-year in Q3 to 16.1 billion RMB, accounting for 45.3% 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 right of use of assets and amortization of intangible assets. Q3, our gross profit grew 14.9% year-over-year to 19.4 billion RMB. Gross profit margin was 54.7% up 0.4 percentage points year-over-year. Moving to expenses, selling and marketing expenses were 10.4 billion RMB, roughly flat year-over-year, and accounted for 29.3% of total revenue, down from 33.3 in Q3 last year, reflecting our refined efforts and improved operating efficiency. R&D expenses were 3.7 billion RMB, up 17.7% year-over-year, accounting for 10.3% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses, and increased investments in AI. Administrative expenses decreased 13.6% year-over-year to $688 million, or 1.9% of total revenue, mainly due to poorer employee benefit expenses, including share-based compensation expenses. level operating profit for Q3 increased 69.9% a year over year to 5.3 billion RMB. Net profit for Q3 was 4.5 billion RMB. Adjusted net profit rose 26.3% a year to 5 billion with an adjusted net margin of 14%. Our balance sheet is quite robust with Cash and cash equivalents, time deposits restricted to cash and wealth management products totaling 106.6 billion RMB as of September 30, 2025. We generated positive operating net cash flow of 7.7 billion in Q3. Additionally, we actively deliver on our commitment to shareholder returns based on marketing conditions. As of September 30th, we had to repurchase an aggregate of promisably 2.17 billion Hong Kong dollars, or around 42.25 million shares, which accounted for about 0.98% of our total shares outstanding for 2020. In addition, we declared a special dividend of 2 billion Hong Kong dollars in Q3, reflecting our confidence in Kuaishu's long-term growth prospects and a solid financial position. Looking ahead, we'll continue to prioritize the user needs and execute our strategy to empower all of our business areas while exploring more diversified growth avenues. These initiatives will reinforce our competitive edge and average changing market and enable us to create a long-term value for our users, partners, and shareholders. That concludes our prepared remarks. Now, let's move into the Q&A session.

Thank you. If you have any 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. The first question comes from Felix Liu of UBS. Please go ahead. 请提问。

Thank you for accepting my question, and congratulations on our very strong performance in the third quarter. My question is about CleanAI. The market is very concerned about the competition pattern of the video-generated AI industry. What is the competition strategy of CleanAI and the direction of the next generation? How will we look at the development direction of video-generated AI after SORA2? And what are the opportunities for the follow-up 2C? Thank you, management, for taking my question, and congratulations on the very strong third quarter results. My question is on CleanAI. The market is very focused on the competitive landscape of video gen AI. Can management share more color with competition strategy from here, and where do you plan to develop and drive evolution in Clean from here? After the launch of SOAR 2, how do we see the development of the overall video gen AI industry, and do you anticipate more opportunities on the 2C side of video gen AI? Thank you.