Kuaishou striving for further increase in e-commerce market share
The following is a summary of the 1Q23 earnings call for KUAISHOU-W.HK, with financial report analysis available in "Is Kuaishou still a chicken rib?" .
Management Statement
In 1Q23, we achieved a significant breakthrough in profitability with the first positive net profit at the group level since going public. This milestone was achieved with strong support from first-quarter performance indicators such as user growth, revenue growth, and operational efficiency.
In addition to healthy growth in DAU and MAU, we continue to increase the number of content creators, advertisers, and e-commerce merchants on the platform, while promoting a more integrated commercial and traffic ecosystem.
We have made substantial progress in the full chain, sales chain, and channel conversion of advertising and e-commerce businesses throughout the year, with substantial ROI gains. In addition, with the tailwind effect of the macro economy, revenue growth in the three main business sectors accelerated in 1Q23, outpacing their respective industries. While maintaining business growth, we have played a key role in improving profitability by increasing monetization and operational efficiency, resulting in the first positive net profit at the group level in 1Q23.
User Growth and Ecosystem Development
In 1Q23, we seized the user growth peak season, including the Spring Festival, to achieve a historic high in user scale. The average monthly active users and average monthly active users of the Kuaishou app reached 374 million and 654 million, respectively, an increase of 8.3% and 9.4% YoY. The daily average usage time of the Kuaishou app was 126.8 minutes, while the total number of views of short videos and live content on the platform increased by more than 10% YoY, exceeding the growth of total viewing time.
We focus on the efficiency and quality of user growth, optimizing the automated delivery of high-quality native videos and live materials through refined management and technical means, achieving a decrease in unit customer acquisition cost and maintenance cost compared to the previous period, while optimizing the user structure and gradually increasing the proportion of long-term high-value users, thereby achieving user growth and increased ROI. We use algorithms and reinforcement learning to optimize content supply for different user groups, achieving a positive cycle from content supply to consumption.
Social attributes and community vitality have always been the characteristics of Kuaishou. As of 1Q23, the cumulative number of mutual users of the Kuaishou app reached 29.6 billion, an increase of 57.6% YoY. The Spring Festival has always been an important window for user growth and brand promotion. This year, we combined content and interaction with dual venues to allow users to immerse themselves in Kuaishou during the Chinese New Year. In terms of interaction, we provided users with a variety of social games and interactive gameplay.In terms of content, we launched a series of festive events, including the CCTV Spring Festival Gala, Kuaishou's 1001 Nights, Lao Tie's New Year's Eve Party, Cloud Temple Fair, and the "I Want to See You" New Year's Karaoke Contest. Among them, Kuaishou's 1001 Nights and Lao Tie's New Year's Eve Party, as Kuaishou's self-produced programs, attracted over 270 million viewers and received over 520 million likes on their first broadcast. During the winter vacation, we released 55 Kuaishou Starlight Short Dramas.
Our excellent short drama content and brand recognition have also been recognized by advertisers. In the first quarter, Kuaishou Starlight Short Drama's brand sponsorship revenue increased by over 300% year-on-year. In the field of general knowledge content, Kuaishou Xinzhi Salary is a project that Kuaishou has been continuously developing to promote education. Since its launch, we have cooperated with Tsinghua University, Peking University, and other universities to offer courses covering history, science and technology, economics, and art, attracting nearly tens of millions of users. With the continuous improvement of our search function, Kuaishou's search salary is gradually taking shape. In the first quarter, the average monthly number of users who used Kuaishou search exceeded 420 million, and the peak number of searches per day exceeded 650 million. At the same time, we also saw continuous progress in the commercialization of our search function, with the number of searches doubling year-on-year in the first quarter, and search advertising revenue increasing by over 50%.
In terms of online marketing, in the first quarter of 2023, we further strengthened our commercial data infrastructure, optimized our product capabilities, and refined our industry management, gradually restoring the growth rate of our commercial revenue. In the first quarter, our online marketing service revenue increased by 15.1% year-on-year to reach 13.06 billion, accounting for 51.8% of our total revenue contribution. The number of advertisers continued to grow rapidly year-on-year, driven by the growth of internal circulation advertising due to the increase in e-commerce GMV.
We proposed the industry-leading full-chain ROI new business concept and completed the testing of some brand users during the 214 and 38 Queen's Day, running the full-chain ROI bidding system and verifying the product's ability to convert the entire chain from brand promotion to effect to sales for advertisers. In terms of internal circulation advertising algorithms, we have completed the full-chain ROI product plan's full-chain connection, introduced commercialization factors into the e-commerce natural traffic sorting formula, and achieved the same directionality of commercialization and e-commerce traffic distribution. In addition, we have launched a special project for small and medium-sized customers, optimizing customer acquisition and marketing capabilities, upgrading the intelligent products of Magnetic Bull on the mobile end, and improving the ability of e-commerce merchants to accept advertising, increasing the penetration rate of small and medium-sized merchants and optimizing the merchant ecosystem structure.
In terms of external circulation effect advertising, we combine our products and algorithms with industry attributes, explore and match high-value audiences, conduct back-end data modeling, and gradually provide advertisers with the ability to target deep conversions. At the same time, we actively pay attention to the ecological health of external circulation advertising, optimize the flow mixing mechanism, ensure the penetration rate of high-value users' external circulation advertising, and establish native material review standards and systems to improve the quality of commercial materials while reducing negative impacts on user experience and ecology. We also coordinate natural and commercial traffic mechanisms to improve advertisers' conversion efficiency and ROI, bringing incremental investment in external circulation.In terms of brand advertising, in the first quarter, we focused on strengthening the construction of brand product capabilities, establishing a rich brand advertising matrix, and product resources not only included self-made IP investment in the opening screen, but also included searching for individual pages of celebrities. We further expanded the brand advertising scene and resources, and developed personalized solutions for brand customers at different stages for our customers in different industries, including system behavior and customer crowd asset establishment, to connect the links between brand effectiveness and sales integration, making more and more brand advertisers recognize the value of the Kuaishou platform.
Along with the important brand marketing nodes in the first quarter, such as the Spring Festival, the Spring Festival, and the Queen's Day, brand advertising revenue increased by more than 20% year-on-year.
In terms of e-commerce business, in the first quarter of 2023, we continued to strengthen the construction of a trusted e-commerce ecosystem, implement a full-domain operation strategy, continuously enrich supply, improve matching accuracy, and use high-quality anchor resources and e-commerce content to further meet users' consumption needs, driving GMV to increase by 28.4% year-on-year to 220 billion yuan. Specifically, on the product side, we continued to build products, evaluated and graded products from richer dimensions, and allowed more high-quality goods to increase exposure and recommendation. At the same time, by guiding merchants to continuously improve the quality and richness of product information, we enhanced our own service capabilities. On the operator side, we upgraded the merchant and celebrity collaboration mechanism, provided more accurate product matching services for celebrities with demand for goods through more refined celebrity grading and operation strategies. At the same time, we used the Sichuan Stream Plan to build a bridge between merchants and reach better flow of goods and traffic, forming a flywheel effect.
In terms of merchant introduction and development, the industry coverage of brand merchants continued to increase in the first quarter, and we reached cooperation with multiple brand owners. At the same time, the demand and consumption power of Kuaishou users for brand products are also continuously increasing. In the first quarter, we deeply analyzed users' consumption behavior of brand products, and through targeted investment, the average monthly number of newly settled brands increased by about 30% year-on-year. Under the attention of Super Brand Day and other activities, the year-on-year growth rate of GMV, including Kuaishou brand, in the first quarter far exceeded the market, and the proportion remained stable at around 30%. We also further assisted brand live streaming, better meeting users' purchasing needs for brand products through creative content such as press conferences and boss special live streaming. In the first quarter, the GMV of self-broadcasting brands increased by about 70% year-on-year. In the future, we hope to help more brand owners expand user resources, achieve GMV leaps and long-term operation.
In addition, we also worked with service providers to carry out targeted investment in industrial belts and improve the growth task system for merchants. In the first quarter, we launched the Doujin Plan, proposed exclusive policy flow support, and helped small and medium-sized merchants grow. The average monthly number of new enterprise merchants and new sales enterprise merchants in March this year increased by more than 50% year-on-year. For merchants who have been operating steadily on Kuaishou, we further optimized the subsidy strategy, flow structure, and conversion efficiency through marketing activities such as the New Year's Festival and 38 promotions, helping small and medium-sized merchants achieve GMV leaps.On the user side, we continue to carry out refined buyer classification operations, tap into user awareness through content seeding, and strengthen the conversion of new buyers and potential consumers through the adjustment of camp subsidies, big factory promotions, and traffic structure. In the first quarter, the monthly purchase frequency of new buyers continued to increase month-on-month, and the retention situation improved month by month. For low-activity buyers, the platform strengthens the identification and recall of injured users. For active buyers, this quarter launched a loss warning to provide better services for high-value users with targeted loss strategies. In the first quarter, the number of monthly active buyers, customer unit price, and monthly order frequency all achieved year-on-year growth.
In terms of algorithm,
By modeling user interaction behavior and consumption duration of e-commerce content, we reduce the negative impact of e-commerce content on user duration, bring a better e-commerce content consumption experience, and realize better content seeding and live broadcast conversion shelves. It is a very important field in Kuaishou's overall business strategy. In the first quarter, we tested a new mall entrance on the buyer's homepage of Kuaishou Xiaodian, better accepting the deterministic shopping needs of highly active buyers, aiming to run the mall model, cultivate user awareness, and lay a solid foundation for full-line launch. At the same time, we further optimized the search function, strengthened intent recognition, and improved the relevance of search results. In the first quarter, search GMV achieved double-digit growth year-on-year.
In terms of live broadcast business,
In the first quarter of 2023, the revenue of the live broadcast business increased by 18.8% year-on-year to RMB 9.3 billion, and the average monthly paid users and the monthly average revenue contribution of paid users both achieved growth year-on-year. The average monthly paid users of the live broadcast business increased by 6.4% year-on-year to 60.1 million, and the monthly average revenue contribution of paid users for live broadcasts also achieved double-digit growth year-on-year. This is due to our continuously improving live broadcast content quality and optimizing the efficiency of user and content matching through algorithm iteration.
On the supply side, we focus on the professional development of anchors, continue to promote diversified cooperation with top anchor guilds and anchors, and the number of active anchors in the union increased by more than 140% year-on-year in the first quarter. We tilt traffic to high-quality middle-waist anchors, optimize the live broadcast supply structure, and continue to explore categories such as knowledge-based live broadcasts and virtual human live broadcasts, bringing users far beyond the heart-walking live broadcast content.
Live broadcast + innovative business has also made steady progress. In the first quarter, the daily resume delivery of Kuaishou recruitment business increased by more than 300% year-on-year, and the peak daily resume delivery exceeded 500,000. As of the end of the first quarter, the Ideal Home business has covered more than 70 cities nationwide, and the cumulative real estate transaction volume in the first quarter exceeded RMB 8 billion. In the first quarter, the daily average number of live broadcast room matches for Kuaishou's fast dating business exceeded 100,000 times.
In terms of overseas business,
In the first quarter of 2023, we further deepened our focus on overseas countries, optimized resource allocation, and established a more agile internal collaboration method to further improve operational efficiency. In core markets such as Brazil and Indonesia, DAU and duration continued to increase month-on-month, and overseas revenue growth accelerated. In the first quarter, revenue reached RMB 338 million, an increase of more than 6 times year-on-year. **At the same time, overseas business is oriented towards ROI investment, continuing to implement cost reduction and efficiency enhancement, and the overall overseas business loss in the first quarter narrowed by 45.1% month-on-month.Q&A
Q1: How do you think about the growth space of Kuaishou e-commerce and what are the driving factors? How is the mall prepared?
A1: In the first quarter of this year, the national online retail sales increased by 8.6% year-on-year, and the scale of the e-commerce industry is still growing. As a latecomer, Kuaishou is in a favorable position in the live e-commerce track and is currently in a high-speed development stage. We are confident in continuously gaining market share in the e-commerce market in the future.
In terms of specific driving factors,
Firstly, on the supply side, we stimulate demand growth through continuous improvement of commodity infrastructure, short video branding, and continuous enrichment of commodity categories. We screen high-quality and price-competitive products through perfecting commodity infrastructure and accurately push and convert them. Encouraging merchants and influencers can not only achieve efficient planting through short video content but also promote order placement and transaction. Currently, the GMV proportion of short videos is at a low single-digit level, and there is still a large incremental contribution in the future. In terms of branding, in the first quarter, our branded goods GMV growth rate far exceeded the market average. In the future, the platform will encourage merchants to self-broadcast and expand the brand's voice and improve conversion efficiency through more accurate investment subsidies and support policies, while simultaneously utilizing high-quality influencer resources.
At the same time, our product categories are also constantly enriching. The advantageous clothing category maintains a high growth rate, and the growth rate of sports and outdoor products is particularly evident. The GMV proportion of fast-moving consumer goods/home appliances/digital products continues to increase, and the GMV growth rate of high-priced products such as home appliances is faster. Although the GMV proportion of fresh flowers and pets is relatively small, the growth momentum is strong. Sub-categories such as tea have nearly tripled year-on-year, mainly due to the deep excavation, operation, and efficient conversion of high-quality merchants in the industry and potential purchasing users. We have the confidence and ability to help more industry merchants achieve online sales growth.
From the demand side, the continuous improvement of the penetration rate of buyers in the traffic market and the frequency of purchases are the main driving factors. As a high-quality content platform, our traffic market is still growing and reaching new heights. Our efforts are to make e-commerce an important part of high-quality content by continuously improving the quality and matching accuracy of e-commerce content, and to improve the ceiling of traffic.On the premise of having traffic advantages, with the smoother grass planting and weeding links, e-commerce and content consumption are highly synergistic, algorithm matching is more accurate, and intelligent subsidies for large-scale operation activities continue to release potential energy. We are confident that by offering low-priced goods, high-quality content, and thoughtful services, we can continuously improve the efficiency of active buyers, conversion and retention, strengthen the e-commerce consumption salary of more users on the Kuaishou platform, and further increase the frequency of orders.
The vigorous development of both ends cannot be separated from the operation and governance of the platform. In this quarter, we have basically completed the upgrade and iteration of the merchant store experience score and the reputation score system for celebrity sales. By comprehensively evaluating indicators such as product quality, content, service quality, and user experience, we select and support high-quality operators to improve the user shopping experience. In the future, product scores, store experience scores, and celebrity sales reputation scores will also become important management command sticks for the platform to strengthen trust in the e-commerce ecosystem.
Q2: How is the mall launch preparation going?
A2: As the product infrastructure gradually matures, our new mall service trial is also continuing to advance. In the first quarter, we opened the new mall service on the buyer's homepage for testing, and in the second quarter, we will gradually promote it in larger volumes, using a larger GMV volume and potential energy to enrich the supply, and do a good job of admission and efficiency for the city. The new mall helps the platform understand the shopping preferences of active users and strengthens users' shopping mentality. With this competitive position, we will gradually test the first-level entrance of the mall service in the future. In terms of product selection and introduction, we will make good use of the platform's existing product words, strengthen the infrastructure construction of basic products such as frequently hung products, product cards, and detail pages, and also fully utilize the social resources of products to continuously introduce URL high-quality supply.
Currently, Kuaishou's GMV share of the pan-shelf exceeds 10%, and the GMV of "Guess You Like" and search has doubled in the first quarter, and the penetration rate of search among monthly active buyers is as high as 69%, highlighting the increasingly mature shopping salary of Kuaishou's users on the Kuaishou platform.
Q3: How is the progress of commercialization and traffic efficiency improvement? What is the outlook for full-year ROI?
A3: Since entering the second quarter, with the gradual completion of the annual framework agreements signed by various industries in the external cycle, and the approaching of the 618 marketing node, coupled with our refinement and implementation of channel policies for some industries,
From the perspective of industry trends, FMCG and e-commerce are still the main drivers of the recovery in growth rate. In addition, industries such as education and finance have also become important pillars for the gradual recovery of external cycle effect-class advertising with our product link optimization and targeted support for related support policies. We expect that with the abundant flow stimulation in the summer, the investment in media and information industry will gradually increase.
Combining with the recent new product launches of many game manufacturers and some customers' clear demands for summer traffic, game advertising will also enter a period of high consumption in the summer. Based on this,
Regarding the progress of the business cultivation of commercialization mentioned in the previous quarter,
First, in terms of commercialization traffic efficiency, we continue to strengthen the construction of commercialization data foundation, through better coordination of front-end business and product algorithms, exploration of targeted audience interests, internal data integration, and encouragement of advertising customers to actively feedback and deeply convert data. The value of breaking through the circle of people in the game, social, and financial industries is obvious, effectively improving the advertising effect of customers.Secondly, in terms of product capability building, as mentioned earlier, the Dolphin mobile intelligent product has been upgraded, including the integration of delivery links and e-commerce. In March 2023, the penetration rate of small and medium-sized businesses increased by 72% compared to the previous year, optimizing the internal circulation ecosystem. With the improvement of search function and the gradual formation of search mindset, search traffic has maintained rapid growth. Combined with more conversion efficiency of search advertising, we have seen a year-on-year growth rate of over 50% in the first quarter, providing greater incremental space for commercial revenue. In terms of brand advertising products, in addition to traditional forms such as opening screens, we have expanded brand resources such as searching for individual pages of influencers, driving brand advertising growth higher than the market average.
Thirdly, in terms of commercial service upgrades, we are gradually improving the customer service system and response system to solve customer service demands in a timely manner. At the industry level, we are promoting the industrialization of the production and research system, customizing industry-specific solutions for common industry problems and deep conversion goals.
Regarding the overall store ROI, the relevant product has been launched at the end of March. In the first quarter, the main focus was on running the model and optimizing the product, emphasizing the improvement of incremental consumption capabilities. We completed the testing of some brand customers during the 214 and 38 Queen's Day, and obtained stage testing experience and recognition, verifying the conversion space of brand customers' fans on the attention page. Many customers have provided feedback that the overall store ROI promotion method will have lower manpower investment and monitoring costs, and there is a significant improvement in achieving the target ROI and optimizing the promotion effect compared to before. It is expected that the overall store ROI product will enter the stage of large-scale promotion in the second quarter.
Q4: Can you share the progress of new businesses such as localization?
A4: The exploration of local life business has also made progress in the first quarter. By comprehensively evaluating city attributes, user bases, team resources, etc., we have set the MVP of key operating core cities. By using the influence of local influencers, team deep cultivation, and the massive resources of third-party partners, we have established a recommended supply of advantages for influencers and merchants to recommend products, and deeply understand user needs.
For example, in cities where the MVP has been preliminarily launched, Qingdao has performed particularly well. Within 50 days of opening, the daily GMV increased by 14 times, the number of orders increased by 12 times, and the number of ordering users increased by 9 times. As for cooperative merchants, a well-known chain fast fashion brand, which was launched only one month ago, quickly started and climbed. The first month's payment GMV exceeded 35 million, and the transaction volume of orders with search intent accounted for nearly 30%. We believe that the willingness and preference of fast hand users to consume local life content is highly anticipated.
In terms of strategy, with the accelerated recovery of the offline economy, the demand for local life content consumption by users is rapidly increasing. In the second quarter, we will continue to expand the number of core operating cities, improve the supply of high-quality local merchants' products, encourage influencers to create high-quality content, strengthen local users' consumption mindset, match corresponding platform policy support, and create an efficient and accurate short video plus live broadcast dual-wheel distribution system.At present, a mature business model has been formed with important bases in cities such as Qingdao and Harbin, which can be quickly replicated in more cities. In terms of goods, we will also expand our product categories, adding local products such as local wine, travel tickets, and other local goods in addition to food. In addition to expanding the SKA brand, we will help more national chain brands expand their user base and fully utilize the advantages of users in the sinking market of Kuaishou to help brands enrich their user structure. In terms of platform operation, we built an NPS user recommendation system in the first quarter to better understand users and will continue to improve local business consumption scenarios to enhance user experience.
In the first quarter, Kuaipin's business steadily progressed, with a year-on-year increase of more than 300% in the average daily resume delivery volume, and the peak daily resume delivery volume exceeded 500,000. The continuous progress of Kuaipin's business is due to our continuous increase in job supply, improvement of resume quality through data infrastructure, and improvement of job supply and demand matching efficiency through algorithms. At the same time, we are actively exploring the use of AI technology to automatically generate recruitment videos, forming a low-cost batch content production capability to help businesses operate. On the monetization side, our CPQL (cost per qualified lead model) lead pricing model is gradually being tested and has been completed in key industry customers, and it is expected that commercial monetization revenue will gradually increase in the next one to two quarters.
Q5: Regarding profit margins, how do you anticipate the trend of gross profit margin and cost reduction and efficiency improvement in the future?
A5: Looking back at the past five quarters, with the joint efforts of various departments of the company, our cost reduction and efficiency improvement measures have been very effective. The group's gross profit margin has increased from 41.7% in Q1 last year to 46.4% in Q1 this year, and the proportion of marketing and sales expenses to revenue has decreased from 45% in Q1 last year to 34.6% in Q1 this year. The ratio of R&D expenses to revenue has decreased from 16.7% in Q1 last year to 11.6% in Q1 this year, enabling the group to achieve domestic distribution operating profit turning positive two quarters ahead of schedule last year, gradually reducing losses in overseas business, and achieving positive net profit after adjustment for the first time since the group went public this quarter.
Specifically, last year we implemented several major campaigns to land cost reduction and efficiency improvement measures.
- In terms of increased investment, under the premise of continuous growth in traffic, we refined the channel for differentiated access through perfecting fine-grained delivery and subsidy models, continuously reducing the cost of maintaining a single DAU, optimizing the structure of new return flow user investment, and significantly improving ROI with increased investment.
- In terms of server bandwidth investment, we continued to reduce the proportion of server bandwidth costs to revenue.
- In terms of human-related investment, we effectively achieved the continuous optimization of various project indicators by establishing a human cost control baseline, while paying more attention to improving human efficiency and continuing to invest in higher ROI sectors.
Looking ahead, the driving factors for the continuous improvement of gross profit margin include the following:
- Changes in revenue structure, with a continuous increase in the proportion of high-gross-margin advertising and e-commerce businesses.
- Optimization of the long-term revenue-sharing mechanism of each business brings effective control of revenue-sharing costs.
- Continuously improve the efficiency of server and bandwidth usage through technological innovation. On the basis of improving gross profit margin, we will still focus on the continuous optimization of operating leverage, such as sales expenses. Under the premise of ensuring timely and relatively stable completion of user growth goals, we will further optimize the cost of acquiring a single user and the maintenance cost of a single DAU, as well as labor costs, through the optimization of new user acquisition channels, technological iteration, and other means. Through iterative organization and efficiency improvement, the proportion of revenue will continue to approach the industry benchmark level.
The essence of cost reduction and efficiency enhancement is to improve quality and efficiency, which is not only a simple financial measure, but also a long-term strategic mechanism of the company and a change in the operation thinking that is integrated into the company's genes. In the process of formulating and implementing every strategic decision in the future, the company will include relevant considerations.
Q6: How is the company progressing in AI, and what kind of large model-related products may appear in the short video field?
A6: Kuaishou has already formed a research and development team for large models, and relying on the past AIGC algorithm and large model language model technology accumulation, we are pushing forward the development and training of large models according to plan. The progress is relatively smooth, and the current model is still in the training stage. We believe that this AI technology revolution is a long-term opportunity, and it is more important to do a solid job in the underlying large model and benchmark the most advanced international model effects. Therefore, we do not have a clear external release plan for the time being.
Firstly, ChatGPT-like models can expand the search boundary from the current in-site short video search to the whole network search, and can also bring better search summaries and Q&A through content generation, improving the user's search experience.
Secondly, empower users to reduce the threshold of creation and improve the quality and diversity of works. Specifically, AIGC can be used for story scripts in auxiliary production scenarios, commodity copywriting and pictures in e-commerce scenarios, story copywriting in growth scenarios, advertising copywriting and AI model special effects in commercial scenarios, and so on.
Finally, AI can also help us improve our understanding of short video and live content, so as to make better matches on the recommendation algorithm side and improve the ROI of content recommendation.
We believe that short video platforms can fully benefit from the AI technology wave, and Kuaishou will continue to promote the development and training of large models while reasonably and effectively allocating manpower and resource investment, and actively explore the integration opportunities of large models with various business scenarios.
