Shulou(Shulou.com)11/24 Report--

On the evening of August 23, Kuaishou today released its results for the second quarter and the whole year of 2022. According to the financial report, the company's revenue in the second quarter was 21.7 billion yuan, up 13.4% from a year earlier. The net loss is 3.18 billion yuan, with an estimated loss of 5.14 billion yuan; after adjustment, the net loss is 1.31 billion yuan, and the estimated loss is 2.91 billion yuan.

After the release of the results, Kuaishou co-founder, executive director, CEO Cheng Yixiao, CFO Jin Bing and other senior executives attended the subsequent earnings conference call to interpret the main points of the results and answer analysts' questions.

The following is the transcript of the analyst Q & A session in this conference call: Morgan Stanley analyst Alex Poon: my question is about Kuaishou e-commerce. Although affected by the epidemic, the company's GMV (total merchandise trading volume) in the second quarter still achieved higher-than-expected growth. Can you ask the management to share with us the progress made in the ecological construction of Kuaishou e-commerce? How will the company respond to changes in consumer behavior and habits in the post-epidemic era? What opportunities and challenges will the post-epidemic era bring?

Cheng Yichao: first of all, in the second quarter, we continue to build an e-commerce ecology driven by trust and experience, and speed up the transformation efficiency of taking the live studio as the super sales node. Trust is the cornerstone of Kuaishou live e-commerce, and we continue to improve the protection system of users' rights and interests. The coverage of Kuaishou's "trust purchase" related rights and interests orders has further increased, among which the coverage of "fake one-to-nine" high-odds rights and interests has reached 50% in the second quarter, which is in the leading level in the industry.

We further improve the platform governance, and the "repeat customer trust index" is reflected in the purchase link of goods. At the same time, we have further strengthened users' trust in merchants and the platform. The monthly repurchase rate of e-commerce in Kuaishou remains at the leading level in the industry, with an increase in the second quarter compared with the same period last year and month-on-month.

If the private domain (traffic) is the basic disk for businesses to operate in Kuaishou for a long time, then public domain traffic can help businesses quickly get through the "cold start" stage and raise the ceiling of operation. This quarter, we focus on strengthening the conversion efficiency of public domain traffic, enrich and refine the labels of goods and users, and improve the accuracy of people-goods matching. Public domain e-commerce live GPM (live room selling capacity) has achieved a year-on-year high double-digit percentage point increase, month-on-month also continues to grow. Through quality goods and services, we further strengthen repurchase and the transformation of private domain traffic, in order to form an efficient "public and private domain two-wheel drive" model.

The higher-than-expected growth of e-commerce business in this quarter is also inseparable from the continuous introduction of high-quality resources on the supply side. In the first half of this year, the number of new entrants increased significantly over the same period last year, with an increase of more than 90%. The commodity display of live e-commerce, the advantages of interactive functions and the higher conversion efficiency of Kuaishou are gradually recognized and valued by more and more businesses. Kuaishou is also actively expanding the resources of high-quality industrial belt merchants. We plan to lay out 100 industrial belts this year, which has exceeded 50% in the first half of the year, covering more than a dozen industries.

On the brand supply side, we continue to "develop brands and 'fast brands'" to provide consumers with richer and high-quality commodity resources and further build brand mentality. The number of monthly mobile sales brands increased by more than 200% in the second quarter compared with the same period last year, among which an international well-known beauty brand achieved an average monthly GMV of more than 200 million in the first quarter. During the "616 Shopping Festival", brand GMV increased more than five times compared with the same period last year, and the number of monthly mobile sales of "fast brands" merchants also doubled from the previous month. In addition to the advantages of clothing, beauty products, "fast brand" has also been extended to food and beverage, home appliances, digital, home, department stores and other categories.

In addition, combined with your second part of the question, the epidemic continued repeatedly in the first half of this year, many businesses feel the pressure of offline operations, and the desire to explore online channels will be stronger. At the same time, the epidemic has also accelerated the pace of other traditional online businesses to explore new growth channels, which also helps us to accelerate the introduction of new businesses. Kuaishou continues to strengthen its support to "Lengqi" merchants this year, establishing exclusive traffic terms and providing a variety of product marketing means and one-to-one operational services. At the same time, our service providers will also provide more targeted services around the pain points encountered by merchants in the early business stage, such as selection and operation, to help businesses quickly "cold start" and achieve their growth transition. In the second quarter, the retention rate of new merchants in the next month was significantly higher than that of the same period last year, achieving a jump in sales, and the "cold start" time was nearly 15% shorter than the same period last year.

In addition, we observe that in the post-epidemic era, users are more sensitive to prices and consumption tends to be more rational. This is very consistent with Kuaishou's concept of "real people, real goods, real price". We have brought more exposure opportunities for merchants who have the ability to provide high cost-effective experience, encouraging them to continuously optimize their products and services, and at the same time, continue to improve the quality of service in terms of commodity performance and after-sale, so that consumers can buy affordable and rest assured.

Although affected by the epidemic, the performance of non-essential consumption is sluggish, but in Kuaishou, we can see that categories such as beauty makeup and home appliances still show a relatively good recovery trend during the boom period. During the epidemic, the necessary consumer goods, such as food and beverages, were given opportunities for rapid development. Although the penetration of live e-commerce to food and beverage is still at a relatively low level, the anchor's accurate expression of taste and taste, coupled with vivid display and volume-style sales model, also give live e-commerce more room for development.

Trust in e-commerce, superimposed by the rapid growth of traffic advantages and the continuous improvement of matching efficiency and commodity supply, make us believe that the standard also has a lot of room for penetration in Kuaishou. At the same time, we are also strengthening the construction of semi-mall product functions such as the entrance of "Kuaishou store", "search box" and "guess you like", so as to help us find the purchase entrance of goods quickly for users with clear shopping purposes. better undertake the repurchase needs of users, and continue to strengthen users' buying mind in Kuaishou. In the medium to long term, we believe that the GMV of the live e-commerce industry with short video platform as the core will have the opportunity to reach 6 trillion yuan, and Kuaishou will continue to strengthen our dominant position in the industry.

Jeffery analyst Thomas Chong: may I ask the management, how will Kuaishou achieve better business growth while reducing costs and increasing efficiency?

Jin Bing: we achieved a level of domestic business two quarters ahead of schedule, which is really very encouraging. The specific optimization aspect is divided into several parts.

First, at the level of gross profit margin. First of all, while maintaining the steady growth of business revenue, we have also made a breakthrough in the management and control of business sharing costs. With the gradual increase of core business volume, business scale and influence, we have also carried out more effective sharing mechanism innovation and optimization, so that the overall sharing cost has decreased by 2.5 percentage points compared with the previous month. Secondly, adhering to the concept of "asking for efficiency from technology and controlling cost with efficiency", we pursue the ultimate improvement of cost efficiency on the technological side. On the technical side of the server, Kuaishou promotes the fine management of resources, landing technology innovation, and significantly improve the utilization rate of computing and storage resources, in order to obtain the optimal unit resource cost. In the first half of this year, the total domestic time increased by more than 40% compared with the same period last year, but the domestic 1000-minute bandwidth cost decreased significantly compared with the same period last year, and bandwidth and server costs accounted for more than 3% of the revenue ratio. It has made an outstanding contribution to the improvement of the group's gross profit margin. We have carried out advanced technical research and application in audio and video technology, and at the same time, combined with the landing application of several video codec algorithms, image enhancement and audio compression algorithms, the total bandwidth usage has been significantly reduced. Among them, the self-developed codec algorithm KVC is the industry's first large-scale online application of the next generation video algorithm standard. In addition, we have launched cloud-in-one technologies such as PCDN on a large scale, which has greatly increased the proportion of free and low-cost bandwidth.

Second, at the cost level. First, in terms of sales and marketing expenses. Since the third quarter of last year, while ensuring user growth, we have maintained a downward trend in customer acquisition costs per user and maintenance costs per DAU (number of daily active users) through organizational structure adjustment, efficiency optimization, technology iteration and other means, and gradually strengthen refined operation and management. The competitive environment has also eased compared with last year. In the second quarter of this year, while traffic maintained rapid growth and users reached record highs, sales and marketing expenses accounted for 18.5 percentage points of revenue compared with the same period last year.

Finally, at the level of personnel-related costs. Through a series of organizational structure iterations and efficiency work, the ratio of labor-related costs to income has also been significantly optimized, close to the leading level of the industry. Through the joint efforts of all internal parties, the effect of reducing our losses is very obvious. Kuaishou will continue to explore more cash models, improve cash efficiency, and adhere to the route of efficient growth, increase revenue and reduce expenditure, so as to lay a solid foundation for the sustained release of our medium-and long-term value.

Kenneth Fong, an analyst at Credit Suisse: how is the recent progress of "quick hiring" by management? In addition, what is Kuaishou's rhythm and plan for the future of the business?

Cheng Yichao: the population of blue-collar workers has exceeded 450 million, accounting for 50% of the country's working population, and it is the largest recruiter. However, with the fading of the demographic dividend and the emergence of labor shortage, the blue-collar recruitment market has been transformed into a supply or user-driven industry. However, we are concerned that these users have not received good service in the past, and there are many pain points in the blue-collar recruitment industry, such as information asymmetry, rampant false information, uneven quality of performance, and so on. At the same time, employment enterprises are also faced with some problems that need to be solved, such as low recruitment conversion rate, high recruitment cost, poor scale effect and so on.

In the post-epidemic era, we have noticed the opportunity of blue-collar recruitment. As the favorite short video and live broadcast platform for blue-collar users, Kuaishou has the responsibility to provide better solutions for the industry, provide more high-quality user experience for blue-collar users, and provide more efficient conversion performance for many recruitment companies.

The efficiency and experience advantages of Kuaishou online blue-collar recruitment are mainly based on three core competencies we have.

The first is the basic ability of the user scale. In the second quarter of this year, the de-weight MAU (monthly active users) of our "fast recruitment" business has exceeded 250 million, making it the largest online blue-collar recruitment platform in China. The impact of the user base on the business transformation model is also important. Compared with daily entertainment consumption, job-hunting is a relatively low-frequency user behavior, with blue-collar users changing jobs three to five times a year. For traditional platforms, users will be unloaded or no longer active after looking for a job, so a large amount of budget will be invested in getting customers, and eventually higher operating and traffic costs will be paid for by recruiting companies. In Kuaishou, our rich short videos and live streaming content are the key for users to obtain and retain. The recruitment service provided on this basis not only shows better operational efficiency, but also provides businesses with lower recruitment costs.

The second is the ability to build trust scenarios. "trust" is extremely critical in blue-collar recruitment scenarios. For example, in the blue-collar job search in the secondary industry, 80% are looking for jobs in different places, and then the impact of the epidemic is superimposed, the understanding of enterprises and positions is very important, (fast recruitment) can save job search costs very well. Kuaishou's live streaming interactive mode allows users to understand the office environment, work content and other key information more clearly, and at the same time build trust in anchors and enterprises. This real and real-time interactive trust job search experience can not be satisfied by the traditional search and information display model. As the anchors have deposited valuable user assets on Kuaishou, the anchors have more motivation to do a good job in performing the contract. Kuaishou also provides users with a complaint channel, and the long-term business awareness and trust model gradually established under the public supervision of mutual trust will go far beyond the traditional game model in terms of experience and transformation. ultimately reduce the release of false information and offline implementation of the deception of users.

Third, the ability to distribute and match. Kuaishou's huge and rich traffic structure is very good at national distribution, for blue-collar recruitment business, it is more conducive to do efficient traffic matching, the formation of economies of scale, very suitable for short-time, large-scale mass recruitment. Our industry-leading MMU technology can deeply understand the content, and combine user feature identification to better do data "cold start", introduce long-term accumulated algorithm technology, carry out accurate matching of supply and demand, increase public domain traffic distribution, improve viewing times and transaction rate, and finally form an efficient, accurate and real service link. According to the feedback from the recruiter, our success rate is very competitive in the industry. For enterprises, (fast recruitment) is one of the most efficient choices.

Generally speaking, in the blue-collar recruitment track, the advanced nature of Kuaishou mode, the real-time interaction of live streaming and the trust gene of Kuaishou make the threshold for blue-collar users to apply for jobs lower and the actual transformation effect of enterprises better.

We have also achieved some key results in our recent business. In June this year, when we launched the online "fast recruitment" for about half a year, Kuaishou's daily resume delivery peak has exceeded 360000, the order of magnitude quickly climbed to the second in the industry. However, our investment in related resources is significantly lower than that of other blue-collar recruitment platforms. With the increase of the volume of business, we have also formed a certain increment in the blue-collar recruitment industry: more and more enterprises, intermediaries and anchors take the initiative to seek cooperation with Kuaishou, and even shift their business focus to Kuaishou. This is beneficial to the formation of flywheel effect and the establishment of user's mind and content moat. By the end of June, the number of our cooperative enterprises has exceeded 100,000.

At the same time, we see the same direction between the blue-collar recruitment business and the platform's core consumption indicators. Industrial content such as blue-collar recruitment meets the life needs of users to a certain extent, and Kuaishou users prefer our platform, which brings the resonance of value in many aspects.

In terms of cash realization, we have also begun to try a small-scale advertising business, and the preliminary results are good. Other deeper business cash-out models are also being explored. This year, we will continue to polish our business and content, enlarge the scale of registration, improve the efficiency of traffic use and run through the business model. We expect blue-collar online penetration to reach 30% from 2025 to 2026, and the online blue-collar recruitment market is expected to reach hundreds of billions of yuan.

We hope to take advantage of Kuaishou's own advantages to help the industry improve its experience, increase the online rate as soon as possible, and take the lead in the hundreds of billions of online blue-collar recruitment market in the future.

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