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

Thanks to CTOnews.com netizen Xiao Zhan for the clue delivery! On the evening of May 22, Kuaishou today released its first quarter 2023 results. According to the financial report, the company's revenue in the first quarter was 25.22 billion yuan, an increase of 19.7% over the same period last year, with a net loss of 876 million yuan and an estimated loss of 1.62 billion yuan. After adjustment, the net profit was 42 million yuan, turning a loss into a profit compared with the same period last year.

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: I have a question about e-commerce. In the current competitive situation, how should we think about the future growth space of fast-hand e-commerce, and what factors will drive the growth of this business? In addition, please share the progress of the company's mall service business.

Cheng Yixiao: according to the figures recently released by the National Bureau of Statistics, the national online retail sales grew by about 8.6% in the first quarter of this year compared with the same period last year. The scale of the e-commerce industry is still growing, and Kuaishou is a rising star. It is also in the dominant track position of live e-commerce. At present, it is still in the stage of rapid development. We are confident that we will continue to gain e-commerce market share in the future.

From the specific driving factors, first, on the supply side, we enrich the growth of demand through commodity infrastructure, short video branding and commodity purpose. By improving commodity infrastructure, screening high-quality goods with competitive prices, and accurately pushing and transforming them, we encourage merchants and talented people not only to achieve efficient recommendations through short video content, but also to promote the issuance of orders. At present, the total merchandise trading volume (GMV) of short videos accounts for a low number of units, which can still contribute to a large increment in the future. In terms of branding, the year-on-year growth rate of our brand goods GMV in the first quarter is much higher than that of the market. In the future, the platform will encourage merchants to broadcast live through more accurate investment promotion, subsidies and support policies, and simultaneously use high-quality talent resources to expand brand volume and improve conversion efficiency. At the same time, our commodity categories are also constantly enriching, and the advantageous clothing categories keep growing at a high speed. Among them, the outdoor sports increase is relatively obvious, and the proportion of fast consumption and household digital GMV continues to increase. Among them, the GMV of household appliances products with higher unit price increases faster, and raw flower pet currently belongs to the relatively small category of GMV, but the growth momentum is strong. Subcategories such as tea have a year-on-year increase of nearly three times. It is mainly due to the in-depth mining, operation and efficient transformation of potential buyers of high-quality merchants in the industrial belt. We have the confidence and ability to help businesses in more industries achieve the transition of online sales.

Second, from the demand side, the continuous improvement of the volume, buyer penetration and purchase frequency are the main driving factors, but as a high-quality content platform, our traffic market is still growing and reaching a new high. our direction is to continuously improve the quality and matching accuracy of e-commerce content, so that e-commerce has become an important part of high-quality content and enhance the ceiling of traffic. Under the premise of having the advantage of traffic, the penetration rate of monthly active users of our e-commerce is stable at about 15% in the first quarter, and there is still a lot of room for improvement. As recommended weeding is smoother, e-commerce business and content consumption are highly coordinated, the algorithm matching is more accurate, and the operation activities of intelligent subsidized large factories continue to release potential energy, we are confident that with low-cost good goods, high-quality content, and intimate service, we will continue to improve the conversion and retention efficiency of active buyers, strengthen the e-commerce consumption mentality of more users on the fast-hand platform, and further increase the frequency of issuing orders. The vigorous development of both supply and demand is inseparable from the operation and governance of the platform. This quarter, we have basically completed the upgrading and iteration of the store experience score and the reputation sub-system of delivering goods, comprehensively evaluating commodity quality, content, service quality, user experience and other indicators, screening and supporting high-quality operators, and improving users' shopping experience. Commodity points, store experience points and people with cargo ports will also become an important management baton for the platform to strengthen trust in e-commerce ecology in the future.

With regard to your second question, with the gradual maturity of commodity infrastructure, the trial of our new mall service continues to advance. In the first quarter, we opened and tested the new mall service on the home page of buyers, and in the second quarter, we will gradually expand the promotion, making use of larger GMV volume and potential energy to enrich the supply, make good access for the mall, and improve efficiency. The new mall will help the platform to understand the shopping preferences of active users and strengthen their shopping mentality. With this management position, we will gradually test the first-level entrance of mall services in the future. In the selection and introduction of goods, we will make good use of the existing goods pool of the platform to strengthen the infrastructure construction of common products and commodity card details pages. at the same time, we will also make full use of the social resources of commodities to continuously introduce high-quality supply. At present, Kuaishou's general shelf GMV accounts for more than 10%. Among them, "guess you like" and search GMV have doubled in the first quarter, with the number of monthly active users buying, and the search penetration rate as high as 69%, highlighting the increasingly mature shopping mentality of users on Kuaishou platform. It is expected that the growth rate of universal shelf GMV will accelerate this year, and the proportion will continue to increase.

Goldman Sachs analyst Lincoln Kong: I have a question about commercialization. I would like to ask management to predict our external cycle. When will effect advertising return to positive year-on-year growth? Last quarter, we also mentioned the improvement of commercial traffic efficiency and commercial services, including the return on investment of the whole store. Could you ask management to share some of the latest progress?

Cheng Yichao: since entering the second quarter, with the completion of the annual frame agreements of various industries in the external circulation industry and the approach of the 618 marketing node, superimposed on the detailed landing of our channel policies for some industries, we have noticed the consumption of advertisements with the effect of external circulation, showing a more obvious trend of recovery month by month compared with the same period last year. From the perspective of industry trends, games, media consulting and e-commerce retail are still the main drivers of growth recovery. in addition, finance, education and other industries, along with the optimization of our product links and key customers, cooperate with relevant support policies. it has become an important pillar for the gradual recovery of year-on-year growth in advertising with the effect of external circulation. We expect that under the stimulation of abundant summer traffic, the input of the media and information industry will gradually increase. Combined with the recent launch of new products by game manufacturers and the clear demands of some customers for summer traffic, game advertising will also enter the peak period of consumption in the summer. Based on this, we are more confident that the advertising effect of external circulation will resume positive growth in the second half of the year.

With regard to the progress in practicing internal skills in commercial business that we mentioned last quarter, first, in terms of commercial traffic efficiency, we continue to strengthen the basic capacity building of commercial data, through better coordination of front-end business and product algorithms, targeted crowd interest exploration, internal data access, and encourage advertisers to actively return deep data conversion, which is of obvious value in the gaming, social and financial industries. It does improve the delivery effect of advertisers. Second, in terms of product capacity building, the upgrade of intelligent products on the mobile end of Magnetic Taurus was also mentioned in the speech just now, including the launch link and the opening of e-commerce. In March 2023, small and medium-sized businesses on the mobile end of Magnetic Taurus increased by 72% compared with the same period last year, increasing the penetration of small and medium-sized businesses and optimizing the ecological structure of internal circulation. In terms of search traffic expansion, with the improvement of search functions and the gradual formation of search mentality, search traffic has maintained rapid growth. Combined with more conversion efficiency of search advertising, we can see that the growth rate of search advertising in the first quarter is more than 50% compared with the same period last year. It provides more room for commercial revenue growth. Brand advertising products, in addition to the traditional open screen form of talent personal page search and other brand resources to expand, driving the growth rate of brand advertising is higher than the market. Third, in terms of commercial service upgrading, we should gradually improve the customer service system and response system at the customer level, solve customer service demands in a timely manner, and promote the professionalization of the industry research system at the industry level. customize industry solutions for industry common problems and deep transformation goals.

With regard to the return on investment of the whole store, at the end of March, the related products have been put online, the first quarter is mainly run-through model and product tuning, pay attention to the improvement of consumption increment ability, through 214 and 38 Queen Festival to complete the testing of some brand customers, we get phased testing experience and awareness to verify the fan conversion space of brand customers in the concerned page. According to many customer feedback, the promotion of return on investment in the whole store will be lower in terms of manpower investment and operating costs, and there is a significant improvement in the achievement of the target return on investment and the optimization of the effect of investment. It is expected that the return on investment products of the whole store will enter the stage of large-scale promotion in the second quarter.

Jeffery analyst Thomas Chong: my question is about the company's new business. Could you ask management to comment on the current progress in local services and online recruitment?

Cheng Yichao: the exploration of local life business has also made progress in the first quarter. Through a comprehensive evaluation of city attributes, user base, team resources, etc., we set up core cities for key operations, build MVP, make use of the influence of local talent, team cultivation and massive resources of third-party partners, and build a talent + business ecology. At the same time, it is recommended that the commodity engine screen high-quality supply and gain an in-depth understanding of user demand. For example, among the cities that have initially passed MVP, Qingdao is particularly outstanding. Within 50 days after opening the city, the average daily GMV has increased by 14 times, the number of orders has increased by 12 times, and the number of users placing orders has increased by 9 times. For partner merchants, such as a well-known fast food chain that has been online for only one month, it has rapidly uplifted and climbed the hill, paying more than 35 million GMV in the first month, of which nearly 30 per cent are orders with search intentions. We believe that Kuaishou users' willingness and preference for local life content is worth looking forward to.

In terms of strategy, with the accelerated recovery of the offline economy, users' demand for local life content is growing rapidly. In the second quarter, we will continue to expand the number of core operating cities, enhance the supply of high-quality local merchants, encourage the content created by talented people, strengthen the consumer mentality of local users, and match the corresponding platform policy support. to create an efficient and accurate short video + live broadcast double-round distribution system. At present, a mature business model with Qingdao, Harbin and other cities as important strongholds has been formed, which has been quickly replicated to more cities. In terms of goods, we will also expand the category to include local goods such as restaurants, wine tours, tickets and so on. In addition to local merchants, further expand the SKA brand, help more national chain brands expand their user base, make full use of their user advantages in the Kuaishou sinking market, and help brands enrich their user structure. In terms of platform operation, we built a NPS user recommendation system in the first quarter to better understand users, and will continue to improve local business, consumption scenarios and user experience.

The fast-hiring business also improved steadily in the first quarter, with the average daily resume delivery growing by more than 300% compared with the same period last year, while the daily resume delivery peak also exceeded 500000. The continuous progress of the express recruitment business benefits from our increasing job supply, improving the quality of resumes through data infrastructure, and improving the efficiency of job supply and demand matching through algorithms. At the same time, we are also actively exploring the automatic generation of recruitment videos through artificial intelligence technology to form a low-cost, batch content production capacity to help businesses operate. In terms of realization, our CPQL enterprise sub-quality clue pricing model is also gradually running, and customers in key industries have completed tests, and it is expected that commercial realization revenue will gradually increase in the next 1-2 quarters.

Morgan Stanley analyst Alex Poon: my question is about profit margin trends. Can you ask management to share some trends in gross profit margin and cost reduction in the future?

Jin Bing: looking back over the past five quarters, with the joint efforts of all departments of the company, we have achieved remarkable results in reducing costs and increasing efficiency. The group's gross profit margin rose from 41.7% in the first quarter of last year to 46.4% in the first quarter of this year, and the proportion of marketing and sales expenses decreased from 45% in the first quarter of last year to 34.6% in the first quarter of this year. The proportion of R & D expenditure decreased from 16.7% in the first quarter of last year to 11.6% in the first quarter of this year, thus enabling the group to turn domestic distributed operating profits two quarters ahead of schedule in the second quarter of last year. It has gradually reduced losses in its overseas business and achieved the first adjusted net profit since the listing of the Group in this quarter.

Specifically, last year, we went through several major campaigns to reduce costs and increase efficiency. First, in terms of increasing investment, under the premise of continuous growth of traffic, we continue to anchor the cost improvement of DAU (number of active users per day) by improving the fine delivery and subsidy model, refine the channel to achieve differentiation, constantly reduce the cost of maintaining a single DAU, optimize the delivery structure of new return users, and significantly improve the rate of return on the use of increased investment. Second, in terms of server bandwidth investment, we continue to improve the efficiency of server and bandwidth use per unit of time through technical means, and in the medium term, through projects such as the construction of R & D efficiency index system and self-operating data center, the ratio of server bandwidth cost to revenue continues to decrease. Third, in terms of manpower-related investment, we effectively achieve the continuous optimization of various indicators by establishing the baseline of human cost control, while paying more attention to the improvement of human efficiency and source efficiency, and continue to invest firmly in the sectors with higher returns.

Looking ahead, the drivers of continued improvement in gross margin include the following. First, changes in revenue structure, the proportion of high-margin advertising and e-commerce business continues to increase; second, the long-term optimization of the sharing mechanism of each business brings effective control of sharing costs; third, through technological innovation, continue to improve the efficiency of the use of servers and bandwidth. On the basis of the improvement of gross profit margin, we will still pay attention to the continuous optimization of operating leverage, such as sales expenses to further optimize the customer acquisition cost per user and the maintenance cost of a single DAU through the governance of customer acquisition channels, efficiency optimization, technology iteration and other means on the premise of achieving the user growth target and growing relatively steadily. Through the work of organizing iteration and improving efficiency, the manpower cost is constantly close to the industry benchmarking level. In short, the essential purpose of reducing cost and increasing efficiency is to improve quality and efficiency, which is not only a financial measure, but also a long-term strategic mechanism of the company, and a change in operational thinking integrated into the operation of the company. the company will include relevant considerations in the formulation and implementation of every strategic decision in the future.

China International Capital Corporation analyst Zhang Xueqing: I would like to ask the management to share the company's progress in artificial intelligence and what kind of large model-related products may appear in the field of short videos.

Cheng Yichao: Kuaishou has set up a research and development team for large models, and relying on the technical accumulation of past AIGC (artificial Intelligence generated content) algorithms and large model language models, it has promoted the development and training of large models as planned, and all progress is relatively smooth. At present, the model is still in the training stage, and we believe that this change in artificial intelligence technology is a long-term opportunity. To do a good job in the underlying large model, the effect of the international most advanced model is more important, so we do not have a clear external release plan for the time being.

In addition, I would also like to share with you our thoughts on the application scenarios of artificial intelligence that are most likely to be the first to land in the field of short video, which is also the direction that Kuaishou is working hard to promote. First of all, in the aspect of search, the ChatGPT-like model can expand the search boundary, from the current short video search to the whole network search. at the same time, it can also bring better search summary and Q & A by means of content generation, and enhance the search experience of users. Secondly, AIGC assists in generating graphic and textual videos, which enables users to lower the threshold for starting a business and improve the quality and diversity of their works. Specifically, AIGC can be used to assist in the production of story scripts in scenarios, copy and pictures of goods in e-commerce scenarios, and artificial intelligence module special effects, and so on. Finally, in terms of recommendation promotion, artificial intelligence can also help us to improve our understanding of short videos and live content, so as to make a better match on the recommendation algorithm side and improve the return on investment of content recommendation. We believe that the short video platform can fully benefit from the wave of artificial intelligence technology, and Kuaishou will continue to promote the development and training of large-scale language models while allocating manpower and resources reasonably and effectively. and actively explore opportunities for the integration of large models and various business scenarios. (end)

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