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

On the evening of March 29, Kuaishou today released its results for the fourth quarter and full year of 2022. According to the financial report, the company's fourth-quarter revenue was 28.29 billion yuan, an increase of 15.8% over the same period last year, with a net loss of 1.5 billion yuan and an estimated loss of 1.84 billion yuan. The adjusted net loss was 45.3 million yuan, 98.7% lower than the same period last year. Kuaishou's annual revenue in 2022 was 94.2 billion yuan, an increase of 16.2 percent over the same period last year; the annual net loss was 13.7 billion yuan, with an estimated loss of 13.92 billion yuan; and the adjusted net loss for the whole year was 5.75 billion yuan, with an estimated loss of 6.17 billion yuan.

After the release of the results, Kuaishou CEO Cheng Yi smile, CFO Jin Bing attended the subsequent earnings call to interpret the main points of the results and answer analysts' questions.

The following is the transcript of the question and answer session of the analyst in this conference call:

Credit Suisse analyst Kenneth Fong: let me ask you a question about the company's e-commerce business. We have seen a recovery in consumption around the Spring Festival. How is the company's e-commerce business going? Recently, other e-commerce platforms have started a subsidy war, including marketing activities such as "tens of billions of subsidies". What impact does this have on our e-commerce business? How does the company plan to respond?

Cheng Yichao: after the beginning of this year, the growth trend of the company's e-commerce business is still good. During the Spring Festival, we launched the Spring Festival non-closing activities to encourage broadcasting, and GMV (sales) achieved healthy growth over the same period last year. After the festival, we further undertake the gradual recovery of consumer demand through activities such as the Women's Day Shopping Festival. during the period of great promotion, our industries such as home digital and fresh flower pet grew strongly. Our advantages-- non-standard categories such as clothing and makeup-- have also maintained rapid growth. In terms of brands, the two-wheel drive of ZVOD and DBS, together with content speculation, also led to a year-on-year increase in the overall GMV of branded goods during the Women's Day shopping festival.

For live e-commerce, like shelf e-commerce, it is very difficult to do a complete price comparison. In the studio, unique selections and pricing strategies are often customized to meet the needs of fans and potential buyers of the platform. For Kuaishou, we have the advantage of natural community attributes. In addition to being price-driven, the core purchase behavior is also based on trust in VJs and platforms. Of course, we will also pay attention to the profit margin of merchants, at the same time, guide merchants through the creation of good goods at low prices to strengthen user transformation. In order to better cope with the external competitive environment, in addition to price competition, e-commerce business to practice internal skills, constantly improve quality and efficiency is more important, below I would like to talk about some key points of recent work.

First of all, we continue to carry out the ecological management of the platform, strengthen and trust the basic market of e-commerce. This year, we have built a more institutionalized, procedural and dynamic user recommendation system, and consumer feedback system, real-time monitoring of questions raised by consumers, and timely rectification. At the same time, we integrate the points of shopping experience, recommend more high-quality merchants and commodity resources for users, constantly expand and improve quality at the level of protection of users' rights and interests, enhance the coverage of various consumer rights and interests products, and strengthen users' trust in the platform. At the level of implementation, improve logistics services, upgrade customer system, constantly improve after-sales service mechanism and product functions, and enhance consumers' shopping experience.

Secondly, in the aspect of algorithm matching efficiency, we can deepen the understanding of merchants and commodities by strengthening commodity infrastructure and strengthening commodity power construction. Based on the behavior of users, we recommend products that meet their potential consumer needs to improve the matching accuracy. This quarter, not only the efficiency of public domain traffic conversion continues to improve, but also the advantage of the company's private domain GPM (average total order amount per thousand viewers) has been further strengthened. The overall LVB plus short video GPM of the platform has increased by nearly 30% compared with the previous quarter.

Third, we will also step up our efforts to promote the branding process of e-commerce this year. We have upgraded the brand's global management solution to encourage brands to focus on store management and do a good job of brand live broadcasting, while making use of high-quality talent resources to assist distribution and enhance brand influence. At the same time, short video plus live streaming complement each other, and we will do a good job of recommending the full link of grass pulling. in the future, we will also strengthen search, shopping malls and other pan-shelf scenarios, and do a good job in the mental acceptance of users. In addition, at the beginning of this year, we launched the "Sichuan flow Plan" to encourage businesses with high-quality content creation capabilities and products fully recognized by users to broadcast live on the platform, and to give corresponding policy and traffic support. Hope to help more high-quality merchants and brands take root quickly.

With a more in-depth understanding and understanding of merchants, goods and users, we will think more seriously about and plan the future section of the mall, and do a good job in meeting the deterministic shopping needs of users. At present, for Kuaishou, the mall is still a new traffic scene that has not yet been excavated. We believe that with the gradual precipitation of purchase behavior on Kuaishou platform and the continuous optimization of shopping experience, users' consumption demands will not be limited to broadcast and push. We have seen the trend that users' shopping mentality is gradually strengthened. During the Women's Day rush, the number of search orders increased by 267% compared with the same period last year, and more deterministic purchase demand will further boost our GMV growth in the future. Overall, looking forward to 2023, we are confident that Kuaishou e-commerce business can maintain better than the rapid growth of the industry, and create more value for consumers and businesses.

Goldman Sachs analyst Lincoln Kong: I have a question about commercialization. I'd like to know how Kuaishou has signed the annual framework agreement for advertisers. How is the mood recovery of advertisers? In the context of the overall macro recovery this year, how to look forward to the recovery of our advertising revenue this year?

Cheng Yichao: with regard to the signing of the advertising year frame, the current framework cooperation in 2023 is in the process of being signed one after another. On the whole, advertisers are cautiously optimistic about the first half of 2023. Considering the pace of economic recovery and the lag of the advertising market relative to economic recovery, we believe that the overall online advertising market will rebound significantly in the second half of 23. Our demand for internal circular advertising maintains a momentum of rapid growth, driving our overall online marketing revenue to outperform the advertising market; the key customers of external circular advertising are mainly online business, and we expect to gradually see positive growth in external circular advertising this year. In terms of industry segments, with the reopening of offline activities and the gradual recovery of spending power, budgets have rebounded further for consumer necessities such as food and beverages, personal care and maternal and child products, as well as related industries supported by tourism, entertainment, and economic policies, such as real estate, home furnishings, transportation, etc. Our major e-commerce retail platform customers have relatively clear growth expectations, the development and application of App for making friends, tools and short plays will be further recovered, and the willingness of game and online media and information advertisers is expected to continue to increase.

Similar to the e-commerce business, for the online marketing business, the focus in 2023 is to practice internal skills and constantly improve the ROI (return on investment) that advertisers put on the platform. Specifically, first of all, pay attention to the promotion of commercial traffic, we put the content flow value and business flow value, in the crowd side to do a more accurate match. For example, we note that there is still a large difference between the game industry on the platform, the interest group in the financial industry, and the current advertising exposure group, which partly affects the delivery effect. We will explore how to better sniff and understand users' preferences and commercial value through content, optimize traffic distribution, and then improve the transformation of advertisers and the ROI of post-link marketing.

The second is the capacity building and service upgrading of commercialized products. In terms of data infrastructure, by improving the cognitive ability and allocation ability of our models and algorithms, we finally achieve the circle-breaking ability of the commercial model, as well as matching efficiency and delivery link smoothness. At the same time, these data will also be deposited in Magneto's DMP (data management platform), thus greatly improving the labeling ability and orientation ability. In terms of traffic expansion, we plan to launch search advertising products, thanks to the nearly doubling of search traffic in the fourth quarter compared with the same period last year, combined with the precise conversion efficiency of search advertising, the gradual formation of good content on the platform and the closed loop between search businesses, bringing new growth space for commercialization. We will also actively explore the new model of magnetic Wanhe, with the help of huge advertising creator home page traffic, as well as high private domain stickiness and value, to achieve a win-win situation among users, talent and advertisers.

Third, launch the new management concept of the whole store ROI. With the continuous change of market conditions, we feel that advertisers pay more attention to long-term growth and more deterministic returns, which also requires us to adjust timely to meet customers' changes from shallow to deep goals, so we launched a new business concept of ROI at the Kuaishou commercialization magnetic conference held not long ago. With the overall business growth of customers as the goal, relying on the content, fans and crowd assets deposited by customers on Kuaishou, the high potential population is selected from the brand-oriented target population through algorithm and 5R crowd model. the combination of Kuaishou global traffic allows customers to examine the overall business efficiency of Kuaishou from the perspective of global traffic, so as to achieve the full-link transformation from brand promotion to effect, and then to sales. Ensure that customers achieve the ROI goal of overall operation in Kuaishou.

In short, through the efforts in the above direction, we are confident that we can seize the opportunity of economic recovery in 2023 to accelerate the development of commercial business, provide better services and ROI for advertisers, and increase market share in China's online marketing market.

Jeffery analyst Thomas Chong: I have a question about the company's DAU (daily active users). The growth momentum of DAU in the fourth quarter is good, and we also have a medium-term target of 400 million DAU. What is the growth trend of user growth and related maintenance fees this year?

Jin Bing: as we mentioned in the previous speech, throughout 2022, we continue to improve the customer acquisition efficiency of all major growth channels, refine the algorithmic model of user growth and maintenance, and improve the ROI retained by users through high-quality content supply and iterative traffic distribution strategies. As a result, DAU still achieved strong growth of 15.4% year-on-year in 2022 despite a sharp decline in growth and maintenance costs compared with the same period last year. At the same time, as the penetration rate of short videos to the Internet population is getting higher and higher, we also feel that the difficulty of user growth in the future will gradually increase, and accordingly, the marginal improvement curve of unit customer acquisition cost will gradually smooth, but we will still achieve the goal of high-quality user growth under the premise of strict control of user growth and maintenance investment based on ROI constraints.

In terms of the specific strategy of user growth, it mainly includes the following aspects. First of all, we will continue to improve customer efficiency and user retention through refined growth operations and content strategy algorithms. in terms of user subsidies, we will promote personalized and functional subsidy strategies. and hope to guide and encourage more users to spend on the platform through the supply of high-quality content products and services. Second, we will increase the acquisition of high-quality native content to customers. Specifically, based on advanced audio and video understanding and algorithm technology, combined with manual screening, through cross-departmental cooperation, we will create a richer pool of high-quality content. Through better native short video content, we will attract more users to join the platform. Finally, we will also target specific groups, especially those with relatively low Kuaishou penetration in the past, to carry out special growth actions, while maintaining our dominant position in the use of the core second and third line and the mainstream population in villages and towns. As a result, we expect the number of users to grow steadily in 2023, and in the medium term, we are confident that we will achieve the goal of exceeding 400 million quarterly DAU in the second half of 2024.

Xueqing Zhang, analyst at CICC Securities: could you ask the management to introduce the latest development of the company's local business and fast hiring business in detail?

Cheng Yichao: local life is a business sector that everyone has been paying close attention to. I would also like to share the thinking of the company. At present, the overall online rate of local life business is relatively low, while at the same time, the demand for businesses to obtain traffic is increasing, and it is necessary to strengthen the mental guidance of consumers through online channels and content, as well as the online rate and monetization rate of store business. there is room for further improvement. Short videos can show goods and services more vividly and provide businesses with higher conversion efficiency, so we can also see that short video platforms are increasingly becoming an important choice for local businesses to expand their growth. As the third largest national APP, Kuaishou has a better user base in second-and third-tier cities with relatively low penetration of local life. Recently, the average daily consumption of content related to local life on the platform has exceeded 100 million. By prizing mobile people to create high-quality content, cooperate with accurate recommendation algorithms, and create a new model for goods to find people, we are confident to build up the local life consumption mind of Kuaishou users.

At present, the work of local life business is mainly in the following aspects. First of all, complete the internal team building and gradually improve the mature strategy. We comprehensively evaluate the advantages in traffic, content supply and other aspects, combined with the consumption habits of local users, as well as commodity supply resources, select the core city as the MVP (minimize feasible products) pass verification. On the supply side, we mainly focus on cooperation between service providers and third-party platforms, while providing service providers with a model through a small amount of direct BD (business development), continuously enriching supply, making use of our massive talent resources, as well as restaurant business, to cultivate the minds of users, and gradually infiltrate into other categories. At the same time, for each consumption scene, evaluate the needs of consumers in detail and enrich the functions of the products. In short, we will maintain operational flexibility on the basis of the gradual maturity of strategic play, in order to cope with the increasingly fierce competitive environment in the market, and believe that Kuaishou is a comprehensive service platform with unique advantages in traffic, content and community atmosphere. we have the ability to build bridges to better connect business resources and user needs.

With regard to the express hiring business, since our express hiring business was officially launched for more than a year, various business indicators have made rapid progress. The average daily delivery of resumes doubled in the fourth quarter of 2022 compared with the first quarter, and during the Spring Festival this year, resume delivery peaked at 500000. In addition, we have made steady progress in enriching the supply of jobs, ramming data infrastructure and exploring business models. In terms of rich job supply, at present, the posts on the platform cover 22 first-level categories and more than 200 second-level categories. In addition to the general factory workers that we routinely understand, the number of active jobs in the service industry, including catering, domestic cleaning and supermarket retail, has also continued to increase, and the supply of job categories has become increasingly rich. can further meet the diversified job-hunting needs of a large number of users of the platform. In terms of data infrastructure, the main work is carried out around the quality of resumes, through the whole link process indicators to improve the data infrastructure. In the aspect of business model exploration, the future cash model of quick hire business is CPQL, effective lead pricing model. We believe that after a period of exploration, the business model of quick hiring will gradually become mature, and explore a more leading and effective development path compared with the traditional blue-collar recruitment channels.

Bank of America Merrill Lynch analyst Lei Zhang: I have a question about artificial intelligence technology. What does the company think of the impact of ChatGPT on the short video industry? does Kuaishou already have this layout?

Cheng Yichao: relying on our artificial intelligence team, Kuaishou has accumulated many years of technology and application in generative artificial intelligence, especially in large-scale language model (LLM), multi-modal pre-training model, intelligent creation tools and so on. In terms of LLM, we launched a series of special projects at the end of last year, covering the fields of LLM model training, copy automatic creation, dialogue system development, cross-modal generation and so on. In addition to text, we also have active layout in various modal content generation aspects, such as voice, image, video, 3D graphics and so on. Kuaishou's multimodal content understanding and generation technology is becoming more and more mature. Looking to the future, the business scenarios of generative artificial intelligence and Kuaishou have very rich combination points and great value potential. we will allocate manpower and resources reasonably and invest in the innovation and breakthrough of related technologies and the organic integration of business for a long time.

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