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

On the evening of November 22, Kuaishou today released its results for the third quarter of 2022. According to the financial report, the company's revenue in the third quarter was 23.13 billion yuan, an increase of 12.9 percent over the same period last year, with an estimated loss of 22.56 billion yuan, while a net loss of 2.71 billion yuan and an estimated loss of 3.73 billion yuan. After adjustment, the net loss is 671.9 million yuan and the estimated loss is 1.74 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: Kenneth Fong, an analyst at Credit Suisse: my question is about commercialization. I would like to ask the management, how is the recent recovery of advertisers in the budget and so on? How should we view the trend of the advertising market in the next 6-12 months? How does Kuaishou plan to deal with macro uncertainty?

Cheng Yichao: after entering the second half of the year, the recovery of the overall advertising market is relatively weak. According to third-party estimates, the growth rate of the online advertising market for the whole of 2022 will be around the median, which is also reflected in the slowdown in the growth rate of our online marketing service revenue this quarter compared with the same period last year. But as I mentioned in my previous speech, we will better respond to the market environment and achieve breakthroughs by improving commercial product accumulation capacity, refined vertical industry management and services.

In terms of internal circulation, thanks to the advantages of platform flow and closed-loop ecological transformation efficiency, internal circulation advertising revenue has maintained a healthy growth. In addition to continuously promoting the release of internal loop users of "short video + live broadcast with goods", we have also upgraded the product strategy to optimize the release effect through recommended algorithm iteration, short video drainage, mixed casting and other strategies; in terms of external circulation, the key industries of our external circulation advertisers, such as online services, e-commerce and games, were all affected by the macro environment in the third quarter. Many customers in these industries have continued to reduce costs and increase efficiency since the beginning of the year, so there was a greater impact on the budget in the third quarter. At the same time, we are also recovering some industries with a relatively fast pace, such as fast consumer, food, beverage and transportation. However, in the context of the slowdown in the growth of the industry as a whole, we believe that only by constantly practicing internal skills and strengthening the underlying commercial capabilities can we seize more sales opportunities and market share in the foreseeable future when the market picks up and consumption recovers. Specific practices include:

First, continuously promote customer growth projects and introduce local customers through local support strategies and channels; second, continuously optimize the capacity of industry, research and infrastructure, strengthen the construction of users' commercial label system, improve the production model, and improve the accuracy of advertising push, so as to improve the conversion efficiency. Third, continue to expand traffic resources and promote the originality of external circulation advertising, such as traffic boost and access to more traffic through native advertising, drive double growth of exposure and unit price, optimize traffic strategy and improve conversion efficiency, improve advertising exposure and conversion effect. For example, "mixed typesetting" users browse the contextual content of the work, re-expose advertisements, click and convert estimates to calibrate, so as to improve the accuracy and delivery efficiency of the conversion model, and improve the transformed effect through closed-loop data and experience advantages.

In short, we continue to wait and see the pace of recovery of the overall online advertising market, but also maintain long-term confidence in the market. No matter how the short-term market fluctuates, by honing the team and strengthening the basic capabilities, we firmly believe that Kuaishou's share of the online advertising market will continue to increase in the long run.

Goldman Sachs analyst Lincoln Kong: my question is about Kuaishou e-commerce. Could you ask the management to share with us the trend in the frequency of orders placed by active buyers and the price per customer since the third quarter? Now that we have entered the fourth quarter, can you tell us something about Kuaishou's "Singles Day holiday"? Has the target of GMV (gross merchandise trading) changed for the whole year? We also see that Kuaishou has opened the outer chain of Taobao and JD.com. What kind of impact will this have on Kuaishou's overall closed-loop e-commerce ecology?

Cheng Yichao: first of all, consumer data on e-commerce in the third quarter. In the third quarter, the number of monthly active users of Kuaishou broke through the 100 million mark, with a payment penetration rate of more than 15%, which continued to increase compared with the previous quarter. The driving factors behind this include: first, we have focused on the infiltration of multi-tier scenes, expanding short video scenes outside the traditional scenes (live rooms), while strengthening infrastructure construction such as "Kuaishou shop" and "guess you like" to improve user activity; second, we have achieved a more accurate and refined subsidy strategy. Third, we continue to strengthen the anti-loss strategy of active buyers, improve the user scoring and feedback system, optimize the user experience, and actively identify "injured" users and carry out targeted recall and experience care.

In the third quarter, the monthly order frequency of Kuaishou maintained an upward trend compared with the previous quarter, and the customer unit price remained the same as that of the previous month. Although the epidemic and the economic environment have led to weak consumption in the short term, and the purchasing power of users has been further affected, however, with the efforts of the platform to continuously enrich supply, cultivate "fast brands", strengthen the ecological construction of e-commerce, further optimize matching and transformation efficiency, and continue to transform high-quality buyers, users' shopping mentality is also gradually strengthening.

Secondly, about Kuaishou's "Singles Day". During the "116 E-commerce Festival", we continued to tap the potential of e-commerce in short videos. E-commerce short video orders increased significantly, with an increase of more than 500% over the same period last year, more than 40% of buyers and more than 70% of search orders. In addition, this year, we have been through policies, traffic and other support to accelerate the growth of "fast brand" merchants and enhance the service capacity of "fast brand" merchants. During the "116e-commerce festival", "fast brand" performed well, with GMV growing by more than 80% compared with the same period last year. For brand merchants, through strong regional precipitation ability, strong brand management, and a solid foundation, this year's "116 Super Brand Day" activities, a number of brands through creative play, short video recommendation, GMV challenge and other marketing methods deeply reached users, brand live GMV increased by 238% month-on-month during the whole cycle of the event.

Kuaishou's e-commerce ecology is becoming more and more mature. Open Taobao and JD.com outside the chain in the "E-commerce Promotion Festival". We hope to further enrich the supply and meet the diversified consumer needs of users. In the short term, the contribution of open external chains to the overall GMV market is very limited, and it will not become a major driver of GMV growth; in the long run, we will further evaluate from the perspective of user experience to maintain the flexibility of future cooperation.

Morgan Stanley analyst Alex Poon: my question is about finance. Can the management evaluate the situation of reducing cost and increasing efficiency this year? Will we continue to reduce costs and increase efficiency next year? What are the considerations behind this? Can the management provide us with a guide to the company's profit schedule?

Jin Bing: looking back on the past three quarters of this year, our measures to reduce costs and increase efficiency still show very positive results. The domestic business made a profit at the operating level two quarters ahead of schedule, and the profit volume of the domestic business continued to rise month-on-month, mainly due to the optimization of our cost structure and the improvement of operational efficiency. At the same time, Kuaishou's overseas business income has grown steadily, and the operating loss has also narrowed significantly compared with the same period last year.

Earlier, Cheng Yixiao also introduced our recent adjustments in organizational structure and personnel. I believe that under the leadership of the Business Ecology Committee, we will further promote the ecological construction and system integration of realized businesses such as e-commerce, commercialization, live broadcasting, and so on. to further improve the efficiency of the use of resources among businesses, so that our costs and expenses can better match the needs of different business development.

With regard to the profit schedule of the group as a whole, we are currently working on a full-year budget for 2023. We will share more details with you when we release our fourth-quarter and full-year results in March next year.

Jeffery analyst Thomas Chong: my question is about the development of Kuaishou's new business. Can the management share more about the latest progress of Kuaishou localization, "fast recruitment" and other business?

Cheng Yixiao: after Kuaishou "Local Life" has been upgraded to an independent business department, the current work is mainly in the following aspects: first, the organizational structure adjustment has been completed recently, and the business is still in the runner system stage; second, improve operational efficiency by continuously optimizing transaction links, promoting algorithms and C-end user trading experience. Third, focus on developing areas where Kuaishou has advantages, users' needs can be further met and businesses are rich in resources, and build MVP cities; fourth, strictly control the level of investment, the current "local life" business is mainly invested in personnel costs, subsidies to clients in the initial stage of business development, and layering mechanisms for service providers. In the future, we plan to dynamically adjust the scale of investment in the "local life" business according to the progress of the business.

The "fast hiring" business has been upgraded to "fast hiring" business in the third quarter, which aims to enhance the brand influence of users and merchants. In the third quarter, we expanded job richness, improved resume quality and job matching, and the number of active posts (that is, jobs with resumes submitted by users) increased by more than 30% compared with the second quarter. In addition to the usual factory workers, the number of active jobs, including catering service, housekeeping and supermarket retail, increased by more than 70% in the third quarter compared with the previous quarter. Short video waiting has also made progress in the third quarter, with resumes from short video channels accounting for about 10 per cent in the second quarter to about 1/3 in the third quarter. In terms of commercialization, we are currently in the stage of building data infrastructure, polishing live content and running through the business model. We have not yet started to carry out large-scale commercial realization, and we will share the progress with you when the business model becomes more mature in the future.

In short, short videos and live streaming are still in a high-dimensional position in the content and social products of the Internet industry, with a very strong penetration, which can produce more diverse coordination relationships and extensible usage scenarios. In addition to localization and "fast hiring", we will continue to explore product forms such as "idealist" and "fast dating" to provide users with richer short videos and live streaming content to meet their service needs in more scenarios.

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