Kuaishou: Good Growth Outlook, No Intention to Subsidize and More Focus on Internal Improvement (4Q22 Conference Call Summary)

The following is a summary of the Q4 earnings call for Kuaishou Holdings, with earnings insights detailed in "Kuaishou: Can its iterative approach to cutting losses break through bias"

I. Remarks from Management

In 2022, an extremely challenging macro environment, Kuaishou is resolute in its commitment to developing a more inclusive and diverse user and content ecosystem via a broad range of video scenes and the operational mission of "embracing each and every life." Through these efforts, our platform has attracted a wider user base, as evidenced by a historic high of 366 million average daily active users in Q4 2022. Our total revenue reached RMB 94.18 billion, up 16.2% year-over-year in 2022. We have upgraded our organizational capabilities to lay a foundation for further unlocking the commercial potential of the public-private integrated business ecosystem.

User Growth

In Q4 2022, we upgraded our user growth strategy to increase acquisition efficiency by enriching the community creation ecosystem, strengthening the provision of high-quality content, and optimizing indicators such as algorithmic reinforcement learning collaboration, optimization of time spent, and interaction to improve user retention efficiency.

The DAUs and MAUs of our Kuaishou app reached a historic high of 366 million and 640 million, respectively, in Q4, up 13.3% and 10.7% year-over-year. Daily active users' daily usage time increased 12.6% YoY to 133.9 minutes. Stable growth in user traffic reflects the strong appeal of the Kuaishou short video and live streaming community, as an increasing number of users regard it as a one-stop platform for discovering useful, interesting short videos and live content and obtaining related services.

In terms of user growth, we achieved refined operations through algorithmic optimization and personalized strategies to continuously optimize user retention costs. Meanwhile, we actively explored using high-quality native short videos and live content as materials to attract new users. On the basis of high-quality user growth, Kuaishou's community vitality has also continued to strengthen. As of the end of 2022, Kuaishou app's mutual-user number reached 26.7 billion, up 63.4% year-over-year, and short video daily average interaction volume in Q4 increased more than 50% YoY.

Ecological Construction

In Q4 2022, with the platform's good community creative ecosystem, we continued to enrich the supply of video content in various categories, strengthen our leading position in the short video industry, and as of the end of 2022, the Kuaishou Star-plan has produced over 400 short plays, with over 100 having an accumulated viewing time of over 100 million.

On the basis of ensuring a supply of high-quality short plays, we also actively explored various commercial monetization methods, such as advertising, e-commerce, and content payment, to achieve a sustainable ecosystem of mutual benefit for creators and the platform. In the fourth quarter, the revenue from the Starlight Short Film Brand investment increased more than double compared to the previous year, and the number of short film creators who obtained revenue through e-commerce increased by nearly 35% year-on-year.

In the field of knowledge content, “Kuaishou News” has become a pan-knowledge IP that Kuaishou has heavily invested in, currently covering more than ten fields including education, humanities, art, and science. In the fourth quarter, media organizations provided an increase in the amount of information class videos uploaded compared to the previous year, and users who consumed information brought by major events gradually became loyal users of the platform.

In the field of variety shows, popular content has a positive impact on acquiring new users and forming brand awareness among them. The online Jay Chou concert held in the fourth quarter had more than 11.3 million peak concurrent users and over 1.1 billion likes, becoming a hot topic across the entire Internet.

We continuously optimize our search function. In the fourth quarter, on average, nearly 400 million users used the Kuaishou search function, and the total number of daily searches increased by nearly three times compared to the previous year. The formation of user search awareness not only helps us better understand our users and provide more accurate content solutions but also provides incremental space for the development of businesses such as marketing, service, and e-commerce.

Online Marketing Services-

In 2022, we faced the challenge of a slowing growth rate in the online advertising market due to the macroeconomic downturn. With the consumption recovery after the comprehensive easing of epidemic policies in December 2022, the company has achieved better-than-industry growth rates through our continuously increasing traffic advantage, rich product matrix, and further improvement in organizational efficiency. In the fourth quarter of 2022, online marketing revenue increased by 14% year-on-year to RMB 15.09 billion, with a revenue proportion of 53.4%.

By deeply cultivating and refining industry management and combining industry attributes deeply on the algorithmic and product sides, we provide comprehensive industry solutions for advertisers and increase their conversion efficiency. The number of advertising clients increased rapidly in the fourth quarter.

Internal circulation ads were the main driving force for the growth of online marketing revenue in Q4. With the gradual recovery of consumption and the economy, and the promotion of many e-commerce marketing activities in the fourth quarter, the revenue from online marketing services contributed by e-commerce businesses on the platform has grown healthily, with some industries performing particularly well.

We boosted conversion efficiency through a dual strategy of short videos and live broadcasts. The proportion of revenue from short video ads continued to rise while promoting native content projects, leveraging natural traffic pools to help internal circulation advertisers improve overall traffic efficiency and achieve long-term business goals.

As for brand advertising, in the fourth quarter, we leveraged important marketing nodes and self-built investment projects, and iterated on our brand-related product capabilities, increasing the stock of our brand advertising products and optimizing the sales rate. For example, during the Double 11 period, we collaborated with Henan TV to customize the “Chinese Style Festival” gala based on the needs of ad clients. We combined this with Kuaishou’s characteristic content strategies and collaborated with influencers to create quality content and deepen the coexistence of content propagation and commercial value. The brand communication value of the Kuaishou platform gained further recognition from advertisers, driving a year-on-year growth rate in brand advertising revenue of over 20% in Q4. E-commerce Business:

Q4 is the peak season for traditional e-commerce, but the pandemic has brought significant challenges to the supply and fulfillment services of e-commerce. We quickly responded to ensure logistics capacity, supply of e-commerce hosts, and precise algorithm recommendation, minimizing the impact of the pandemic on user experience. In Q4, E-commerce GMV maintained high-speed growth, with a year-on-year growth rate of 30%, achieving the goal of 900 billion GMV for the whole year of 2022.

Specifically,

A. On the supply side, we mainly focus on long-term operations such as merchant operations, branding, and product infrastructure.

We attract merchants to join our platform with clearer and more precise investment policies, with particular attention to the growth of high-quality merchants with active sales.

B. On the algorithm side, we continue to strengthen the long-term modeling of high-value users and merchant relationships, significantly driving GMV growth. At the same time, we improve the accuracy of product-matching to enhance direct live streaming GPM (total amount of orders per thousand direct live streaming viewers) in public-domain traffic, with a year-on-year growth rate of the average monthly active merchants exceeding 50%, and head merchants' electronic sales achieving double-digit growth.

C. In terms of electrical product branding, Q4 performed well. Using public-domain traffic and private-domain trust attributes, we completed the whole chain of product-cultivating and product-removing under dual-wheel drive. Overall brand GMV, including Flash Brand, has increased significantly, contributing nearly 30% of the total GMV.

In 2022, the Flash Brand product return rate is significantly lower than the total GMV, and the repurchase rate is much higher than the total GMV. For brand merchants, we make full use of high-quality influencers, complete content cultivation through short videos, and more refined product and content operations for the user and ecology of Kwai, creating explosive products and consolidating private-domain fans. In Q4, the number of brand GMV breaking through 100 million increased by more than 50% year-on-year. More and more brands recognize the unique e-commerce ecosystem and user value of Kwai and make it their main operational base.

In 2022, the number of brand merchants joining the platform will maintain high-speed growth, with clearance brands having a sales rate of over 90%.

D. On the consumer side, we continuously increase the conversion efficiency of e-commerce users through precise user operation strategies and optimized intelligent subsidy algorithms. The monthly active buyer's rate in Q4 continued to rise, with a high double-digit penetration rate. Monthly purchase frequency increased significantly, and the average order value increased year-on-year and quarter-on-quarter.

The user rating system in Q4 gradually matured. By monitoring the monitoring value of special orders, we worked with merchants to solve user problems promptly.

Our platform has launched more than 20 equity protection services under the standard of "reassuring quality and worry-free after-sales," and the coverage rate of e-commerce trust equity orders in 2022 increased by more than 460% year-on-year.

Live Streaming Business:

In Q4 2022, Kwai's live streaming business revenue increased by 13.7% year-on-year to 10.03 billion yuan, reaching a record high for quarterly live streaming revenue. The average monthly paying users of live streaming business increased year-on-year by 20.4% to 58.4 million. The strong performance of live streaming business mainly benefits from the continuous enrichment of live streaming supplies, the continuous optimization of live streaming ecology, and the continuous iteration of live streaming algorithms. A. Supply-side: We will continue to strengthen industry guilds and top streamers bringing in more excellent streamers to reside.

B. Algorithm-side: Through reward-interest generalization modeling, we will improve user reward behavior conversion in the public domain, resulting in over 150% YoY growth in live streaming revenue in Q4.

C. We will deepen the expansion of live streaming ecosystem scenes and related infrastructure construction to better meet the needs of users and businesses. In Q4 of 2022, Fast Hires increased its daily resume delivery by over 100% compared to Q1, while Ideal Home's accumulated transaction volume exceeded 10 billion yuan in just half a year.

Overseas Business: In Q4 of 2022, we focused on the development strategy of core countries' markets, optimized resource allocation, and improved operational efficiency, Further narrowing the amount of overseas losses. We supply rich and effective content to create user consumption mindsets across various strong content categories such as news and short dramas. Meanwhile, we continually optimize our products and algorithm-side, and user engagement continued to rise, increasing single user daily usage time in overseas markets to over 65 minutes in Q4.

We are gradually perfecting our commercial ecosystem and deepening our monetization capabilities, rapidly increasing the revenue scale of our overseas business. In terms of commercialization, we continually create successful advertising cases and expand the scale of advertisers while refining operational clients.

On the live streaming side, we have enriched content supply by bringing in more guilds and streamers, gradually increasing the live streaming penetration rate. Meanwhile, through refined operations and rich gameplay activities, the live streaming revenue continues to grow.

In addition, we are actively exploring overseas e-commerce businesses.

Q&A with Analysts

Q1: What is the development trend of e-commerce business with the recovery of consumer spending? What impact do subsidy activities launched by other e-commerce platforms have on Kuaishou, and what countermeasures do you have?

A1: The trend of e-commerce business is good after the start of 2023. During the Spring Festival period, the platform launched the "Spring Festival uninterrupted" activity, encouraging streamers to start live streaming and achieving healthy growth in GMV compared to the same period last year. After the Spring Festival, we have further received progressively recovering consumer demands through e-commerce activities such as International Women's Day Shopping Festival. The industries of home appliances, digital products, and fresh flowers, as well as non-standard ones such as clothing and beauty, have maintained strong growth.

In terms of branded goods, the dual-driven synergy of self-broadcasting and reach-broadcasting has driven the overall GMV of products during the International Women's Day Shopping Festival to grow by over 100% YoY.

It is tough to do direct price comparison in live streaming e-commerce. Hosts in the livestream room often customize unique SKUs and pricing strategies that cater to fans and potential buyers' needs, respectively. For Kuaishou, we have a natural advantage in community attributes, where users' purchasing behavior is not only driven by prices but also by trust in the platform and streamers.

While paying attention to merchants' profit margins, we guide them to enhance user conversion by creating low-priced high-quality goods. To better respond to external competitive environments, I believe that cultivating internal quality, improving efficiency, and enhancing quality are more crucial than simply engaging in price wars. Extended discussion, recent e-commerce work focuses on:

1) Continuously carrying out platform ecosystem governance to enhance consumers' shopping experience. This year, we have established a more perfect user recommendation system and consumer feedback system, monitored consumers' problems in real time, and rectified them in a timely manner;

We integrated shopping experience scores to recommend higher quality merchants and sources of goods to users.

In terms of consumer rights protection, we are constantly expanding the coverage and improving the quality of various consumer rights protection products with low coverage rates, and enhancing users' trust in the platform.

In terms of performance, we have improved logistics services, upgraded customer systems, continuously improved after-sales service mechanisms and product functions, and strengthened the foundation of trust for e-commerce.

1. In terms of algorithm matching efficiency, the company deepens its understanding of merchants and products by strengthening product infrastructure. Based on user behavior, we recommend products that meet their potential consumption needs to improve matching accuracy. This quarter, not only has the conversion efficiency of public domain traffic continued to increase, but the advantage of private domain GPM has also been further strengthened, with a nearly 30% increase in the overall short video GPM of the platform.

2. We are stepping up efforts to promote the branding of e-commerce. We have upgraded the solution for the overall management of brands, encouraging self-broadcasting and cooperation with influencers.

Short videos and live broadcasts complement each other and do a good job of the whole chain of seeding and weeding. In the future, we will also strengthen the search mall and other areas to do a good job of user mental reception.

In addition, at the beginning of this year, we launched the Chuanliu Plan, which encourages high-quality content creation ability and merchants whose products are fully recognized by users to self-broadcast on the platform and provide corresponding policies and traffic support, hoping to help more high-quality merchants and brands take root on Kuaishou.

1. For Kuaishou, the mall is still a new traffic scene that has not yet been tapped. We believe that as purchasing behavior gradually settles on the Kuaishou platform and the shopping experience continues to improve, users' consumption demands will not be limited to live broadcast pushes. We have already seen the trend of users' strengthened shopping mentalities. During the March 8th Shopping Festival promotion period, the submission of search layer orders increased by 267% compared with the same period last year, and more deterministic purchasing needs will further boost GMV growth.

Overall, looking ahead to 2023, we are confident that Kuaishou's e-commerce business can maintain rapid growth in the industry and create more value for consumers and merchants.

Q2: Regarding commercialization, how has the situation been with the signing of annual framework agreements with advertising clients? How are advertising clients feeling right now? In the context of this year's economic recovery, how can we guide advertising revenue?

A2: The signing of 2023 framework cooperation agreements is being completed one after another. Overall, advertising clients have a cautiously optimistic attitude towards the first half of 2023, considering the pace of economic recovery and the relative lag of the advertising market. It is believed that the overall online advertising market will rebound more significantly in the second half of 2023.

In terms of advertising types, the demand for internal circulation advertising has maintained a rapid growth trend, driving the overall online marketing revenue; for external circulation advertising, its key clients are mainly online businesses, and it is expected that there will be a steady increase in external circulation advertising growth this year. From the perspective of segmented industries, with the reopening of offline activities and the gradual recovery of consumer purchasing power, industries related to essential products such as food and beverages, personal care, and mother and baby products, as well as policy-supported industries (such as real estate, transportation, and home furnishings), have seen a further rebound in budgets.

Key e-commerce and retail platforms have clear growth expectations for their major customers; development and application of social tools, as well as short story budget, are expected to further recover; gaming and online media, as well as information advertisement, are also expected to continue to increase their advertising willingness.

Similarly to e-commerce, for online marketing business, the focus for 2023 is also on improving internal management and continuously enhancing the ROI of advertising clients on the platform.

Firstly, attention should be given to the improvement of commercialized traffic, making more precise matches between the audience's preference for content and commercial value. For example, we have noticed that there is still a significant difference between the interest groups of the gaming industry and the financial industry on the platform and the current exposed audience, which has affected the advertising effect. We will explore how we can better detect and understand users' preferences and commercial value through content, optimize traffic distribution, and then improve the conversion of advertising clients and the ROI of the downstream link.

Secondly, the construction of commercialized product capabilities and service upgrades. In terms of data infrastructure, enhancing the cognitive ability and distribution ability of our models and algorithms will ultimately achieve the ability to break the circle of commercialized models and the efficiency of matching and delivery. At the same time, this data will also be deposited in Magnet Infinity's DMP data management platform, greatly improving the ability of labels and targeting. In terms of traffic expansion, we plan to launch search advertising products, benefiting from the nearly doubled search traffic growth in the fourth quarter, combined with the accurate conversion efficiency of search advertising, gradually forming a closed loop between good content and commercialization on the platform, bring new incremental space for business. We will also actively explore new models of Magnet Infinity, and achieve a win-win situation for users, KOLs, and advertising customers through the huge flow of advertising creators' homepages and high private domain viscosity and value.

Thirdly, the new management concept of the full-store ROI. With the continuous changes in the market situation, we have felt that advertising clients are more concerned about long-term growth and more certain returns, which also requires us to make timely adjustments and meet changes in customers' goals from shallow to deep. Therefore, we recently launched the new management concept of the full-store ROI at a commercial Magnet conference. With the goal of overall business growth, relying on the content, fans, and audience assets that customers have accumulated on Kuaishou, we select high-potential individuals from the target groups of brand orientation through algorithms and crowd models, and carry out the combined distribution of Kuaishou's equity traffic, allowing clients to view the overall operating efficiency on Kuaishou from the perspective of whole-domain traffic, achieving the full-chain transformation from brand promotion, to effect, and then to sales, and ensuring the achievement of the client's overall operating ROI target on Kuaishou.

Q3: How do you view the mid-term DAU target? How do you view the trend of user growth and maintenance costs this year? A3: As mentioned earlier, throughout 2022, we continuously improved the customer acquisition efficiency, refined user growth and maintenance algorithms for all major growth channels, and improved user retention ROI through high-quality content supply and iterative traffic distribution strategies. This enabled us to achieve a strong YoY growth of 15.4% in DAU while significantly reducing growth and maintenance costs in 2022.

At the same time, as the penetration rate of short videos into internet users continues to increase, we also deeply feel the increasing difficulty in future user growth, which will gradually lead to a flattening marginal improvement curve for unit customer acquisition cost. However, we will still prioritize ROI and achieve high-quality user growth goals under strict control of user growth and maintenance investment.

Specifically, we will continue to improve customer acquisition efficiency and user retention through refined growth operation methods and content strategy algorithms.

As for user subsidies, we will promote personalized and functional subsidy strategies, and hope to guide and encourage more users to consume on the platform through high-quality content products and services.

We will also increase the effort to supply high-quality native content to attract more users to the platform through advanced audio and video understanding and algorithm technologies, combined with manual screening and cross-department collaboration, to create a richer pool of high-quality content.

Finally, we will also carry out growth initiatives for specific groups of people, especially those with relatively low penetration rates in the past, while maintaining our advantage in mainstream population in the core second and third-tier cities and towns. We expect steady user growth in 2023. In the medium term, we are also confident in achieving the goal of breaking the 400 million average DAU threshold in the second half of 2024.

Q4: How about the progress of the local business and Kuaishou Jobs (Kuaishou Pin)?

A4:

Currently, the overall online rate of local life business is relatively low, and there is room for further improvement in the online and commercialization rates of in-store businesses.

Currently, the main work of the local life business is as follows:

(1) Internally, we have completed team building and gradually improved our mature strategy and tactics. We have chosen core cities as MVPs to verify our advantages in traffic, content supply, and consumption habits of local users, as well as commodity supply resources.

(2) We rely mainly on service provider and third-party platform cooperation for the supply side, while providing a small number of direct sales BD to service providers to provide samples and gradually enrich supply. We utilize massive influencer resources and in-store catering businesses to cultivate user understanding and gradually penetrate other categories.

(3) We conduct a detailed evaluation of consumer needs and product functions for each consumer scenario.

In short, based on the gradually mature strategic approach, we will maintain operational flexibility to cope with the increasingly competitive market environment. We believe that as a comprehensive service platform with unique advantages in traffic, content, and community atmosphere, Kuaishou has the ability to build bridges to better connect merchant resources and user needs. Fast recruitment business: Fast recruitment business has made rapid progress in various business indicators since it was officially launched more than a year ago. The daily resume delivery volume in 4Q22 doubled compared to the first quarter, and the peak of resume delivery during the Spring Festival this year exceeded 500,000. In addition, we have made steady progress in enriching job supply, consolidating data infrastructure and exploring business models. In terms of enriching job supply, the platform currently covers 22 primary categories and more than 200 secondary categories. In addition to the familiar factory workers, the number of active service positions under categories such as catering, housekeeping and supermarket retail has also continued to increase, and the increasingly rich job category supply can further meet the diversified job needs of the platform's massive users.

In terms of data infrastructure, the main work is focused on the display of resume quality, and data infrastructure improvement is completed through the construction of full-link process indicators. In terms of business model exploration, fast recruitment's future monetization model is CPQL/lead pricing model. We believe that after a period of exploration, Fast recruitment's business model will gradually mature and explore more leading and effective development paths than traditional blue-collar recruitment channels.

Q5: How does the company evaluate the impact of ChatGPT on the short video industry? What is the company's layout in the relevant fields?

A5: With our AI team as a support, Kwai has accumulated many years of technology and application experience in generative AI, especially in large-scale language model, multimodal pre-training, and intelligent large model creation tools.

In terms of large language models, we launched a series of special projects at the end of last year, covering LLM model training, automatic copywriting, dialogue system development, cross-modal content generation, and other fields. In addition to text, we also have active layouts in content generation in various modalities such as voice, image, video, and 3D graphics, and Kwai's multimodal content understanding and generation technology is becoming increasingly mature.

Looking forward to the future, generative AI has very rich points of integration and huge potential value with Kwai's business scenarios. We will reasonably allocate manpower and resources, invest in related technology innovation breakthroughs and organic integration of business in the long term.

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