Kuaishou: Short-term ad weakness repaired, reducing costs and increasing efficiency continues to push forward (3Q22 conference call)

Below is the summary of the Q3 2022 conference call for Kuaishou-W.HK ($). Review the earnings interpretation with "Can Kuaishou's story be brought to a close with an annual income of trillions of dollars and struggling profits?".

Analyst Q&A

Q1: What is the situation of the advertiser's budget repair? How to consider the future development of the advertising market under macro-uncertainty, and how will the company respond?

A: Advertising recovery is weak in the second half of the year. Third-party organizations disclosed that the online advertising growth rate for the whole year of 2022 is in the middle digit range, so Kuaishou's advertising growth has also slowed year-on-year.

Response measures: By improving commercial product infrastructure capabilities, refined vertical industry management and services, and other measures, better respond to market conditions and achieve breakthroughs.

(1) Keep the internal circulation growing healthily. It is the result of user casting for short video + live-streaming marketing, product strategy upgrades, recommendation algorithm iterations, short video traffic diversion and optimized advertising effects.

(2) Focus on the external circulation, key clients including network services, e-commerce, and gaming. It has been affected by macro environments in Q3, and many clients began to reduce costs and increase efficiency from the beginning of the year.

The company's specific actions:

1. Introduce local clients through local channels.

2. Optimize infrastructure and research and development capabilities. Strengthen the construction of user commercialization labels, perfect algorithms, and improve accuracy.

3. Expand traffic resources and promote the native advertising of external circulation. For example, mixing allows advertising to be re-exposed, clicked and converted estimations to fit customers' browsing context of short videos. Use closed-loop data and experience advantages to improve the effectiveness of the conversion link.

Short-term prospects:

Keep an eye on the recovery pace of the overall online advertising market, but maintain confidence in the market in the long run and believe that the share of online advertising can continue to increase.

Q2: What is the trend of active buyers' order frequency and unit price since Q3? How is the Double Eleven promoted, and has the full year GMV target changed? If you open up Taobao/Jingdong's external links, how should we understand the company's closed-loop e-commerce strategy?

A: Monthly active buyers have exceeded 100 million, and the paid penetration rate is greater than 15%, increasing year-on-year and month-on-month. Driving factors:

(1) Expanding scenes, shopping in short video scenes beyond traditional live broadcast rooms. Strengthen Kuaishou's small stores, "Guess You Like" and other functions to enhance user activity.

(2) More accurate subsidies

(3) Improve the user rating feedback system to reduce buyer churn.

(4) Actively identify injured users and provide targeted responses and supportive experiences.

The monthly frequency of orders in Q3 increased month-on-month, and the unit price increased year-on-year and month-on-month . However, the general environment has led to short-term consumption weakness, and user purchasing power has been affected.

We continue to enrich cross-domain brands, strengthen e-commerce ecological construction, and improve conversions.

About Double Eleven & 116 e-commerce festivals:

(1) The trading volume of short video e-commerce has grown significantly. YoY growth exceeded 500%, the number of buyers increased by more than 40%, and search orders increased by more than 70%. During the 116th period, GMV increased by more than 80% YoY.

During the 116 Super Brand Day, the brand's self-broadcast GMV increased by 238% MoM.

The main reason for initiating Taobao Jingdong's external links is that the Kuaishou e-commerce ecosystem is becoming more mature. Opening external links during the e-commerce promotion period is aimed at further enriching supply. However, short-term opening of external links will contribute limitedly to the overall GMV and will not be a major driving factor for GMV growth.

The flexibility of long-term cooperation depends on further evaluation from the user experience perspective.

Q3: As for the company's evaluation of cost reduction and efficiency improvement in 2022, the outlook for 2023, and the profit guidance of the company group?

A: Domestic business achieved profitability at the operational level (operating profit) two quarters ahead of schedule, and the year-on-year operating loss of overseas business was significantly reduced.

The recent personnel adjustments in the organizational structure are aimed at promoting the integration of e-commerce and advertising systems, improving the efficiency of resource utilization of each business, and optimizing cost inputs.

As for the timetable for profitability, the 2023 budget is currently being formulated, and more details will be disclosed when the annual report is released in March next year.

Q4: The development of new businesses, such as Kuaishou local life and Kuaizhaogong?

A: The local life business department has been upgraded in several aspects:

(1) The business is still in the stage of running the system after the recent organizational structure adjustment.

(2) Continuously optimizing the transaction chain, recommendation algorithm and user transaction experience.

(3) Focus on exploring user needs where Kuaishou has an advantage, and prioritize entering areas where merchant resources are abundant.

(4) Strict control of the investment amount. The main investment is currently in personnel costs, user subsidies, and service provider revenue sharing. It will continue to be dynamically adjusted in the future.

Kuaizhaogong business progress:

(1) Upgraded to Kuaipin business in the third quarter to strengthen the brand influence of merchants.

(2) Expand the number of positions. The overall active position quantity (resumes submitted by users) increased by 30% MoM in the third quarter. The positions were mainly factory workers, catering services, household cleaning, and supermarket retail. The active position quantity of the last three positions except for the factory workers increased by 70% MoM.

(3) The proportion of short video channel establishment increased from 10% in the second quarter to one-third in the third quarter.

(4) It has not yet begun large-scale commercial realization and is still in the stage of connecting data, refining live content, and running business models.

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