Introducing a new way to play the shelves - Kuaishou Preferred (Kuaishou 1Q24 conference call minutes)
The following is the summary of the first quarter performance conference call of Kuaishou in 2024. For financial report analysis, please refer to "Kuaishou: Double Flywheels Driving, Profits Cannot Be Hidden".
I. Overview of Financial Indicators
II. Management Report
1. Key Points from Management:
- Financial Data:
On the revenue side, in Q1 2024, total operating revenue increased by 16.6% year-on-year to RMB 29.41 billion, with a gross profit margin of nearly 55%. Online marketing service revenue reached RMB 16.7 billion, a 27.4% increase from the same period in 2023, accounting for 56.6% of total revenue. Other service revenue reached RMB 4.2 billion in the first quarter, a 47.6% increase from RMB 2.8 billion in the same period of 2023. Live streaming business revenue was RMB 8.6 billion, a 8% decrease from RMB 9.3 billion in the same period last year. Adjusted net profit reached RMB 4.39 billion, with an adjusted net profit margin of 14.9%.
On the cost side, COGS in the first quarter decreased by 1.6% year-on-year to RMB 13 billion, accounting for 45.2% of total revenue. This was mainly due to the decrease in bandwidth costs and server hosting costs through optimization of bandwidth resource structure and other technical means. In the first quarter, the group's gross profit reached RMB 16.1 billion, a 37.6% increase year-on-year, with a gross profit margin of 54.8%, up by 8.4% and 1.7% year-on-year and quarter-on-quarter respectively.
Regarding expenses, sales and marketing expenses in the first quarter increased by 7.6% year-on-year to RMB 9.4 billion, accounting for 31.9% of total revenue, down from 34.6% in the same period last year. This increase was mainly due to increased promotion investment in e-commerce and other businesses. R&D expenses decreased by 2.6% year-on-year to RMB 2.8 billion, accounting for 9.7% of total revenue, down from 11.6% in the same period last year. Administrative expenses decreased by 49.7% year-on-year to RMB 0.46 billion, accounting for 1.6% of total revenue, down from 3.6% in the same period last year. The decrease in R&D and administrative expenses was mainly due to reduced employee welfare expenses, including equity-based compensation expenses.
Balance sheet: As of March 31, 2024, the total of cash and cash equivalents, time deposits, life insurance, cash and wealth management products amounted to RMB 63.7 billion. Benefiting from the enhanced cash realization ability and improved operational fund management efficiency, the net cash flow from operating activities in Q1 2024 reached RMB 5.8 billion.
2) User Data
DAU: In Q1 2024, the average daily active users and average monthly active users of the Kuaishou app reached 394 million and 697 million respectively, with year-on-year growth of 5.2% and 6.6% respectively. The average daily usage time of Kuaishou app's daily active users reached 129.5 minutes, with a total user usage time increasing by 8.6% year-on-year3) Online Marketing
The revenue from online marketing services increased by 27.4% year-on-year to 16.65 billion, accounting for 56.6% of total revenue. In Q1, there was a strong push for the application of intelligent marketing solutions in various scenarios, leading to a nearly 90% year-on-year increase in active marketing clients.
4) E-commerce
The GMV of e-commerce business increased by 28.2% year-on-year to 288.1 billion RMB.
On the user side, the monthly active buyers in e-commerce in the first quarter increased by 22% year-on-year to 126 million, mainly benefiting from the continuous enrichment of shopping scenarios such as general shelves, short videos, and the continuous upgrading of marketing tools.
On the supply side, the number of active sellers in the first quarter of 2024 increased by nearly 70% year-on-year, mainly due to the continued activity of newly onboarded sellers. In the first quarter, the GMV of branded products in the short video field increased by over 110% year-on-year, and in the general shelf field by over 80% year-on-year. In terms of industry categories, home furnishings, men's clothing, sports, and jewelry all contributed to significant growth.
In the e-commerce field, the GMV of general shelves saw a significant increase, accounting for approximately 25% of total GMV, with the daily average number of active sellers increasing by over 50% year-on-year, and the daily average buyers increasing by 60% year-on-year. The GMV of short video e-commerce continued to grow rapidly in the first quarter, with a year-on-year growth rate of nearly 100%. The monthly active buyers and daily active buyers of short video e-commerce continued to grow, with an increase in supply richness.
5) Live Streaming
At the end of the first quarter, the number of signed guild organizations increased by 50% year-on-year, and the number of signed guild anchors increased by 50% year-on-year. In addition, as an example of empowering traditional industries with the live streaming + model, in the first quarter, the fast recruitment business launched the Spring Festival Recruitment Union to meet the post-Spring Festival return-to-work job-seeking and recruitment needs, landing multiple influencer and private enterprise online activities. The daily average resume submission increased by over 180% year-on-year, and the daily average submission users also increased by over 120% year-on-year. Additionally, as of the first quarter of 2024, the Ideal Home business has covered over 100 cities nationwide, with over 50,000 cooperating anchors.
6) Overseas Business
Sponsoring events such as the Brazil Carnival and the largest reality show Big Brother Brasil 24 (BBB), user engagement continues to increase, enhancing Kwai's brand awareness and visibility, thereby laying the foundation for enhancing monetization capabilities. As one of the sponsors of BBB, Kwai specifically created BBB topic tags, and by the end of the program on April 16th, the cumulative video views reached 14 billion.
In the first quarter, the DAU in core development regions steadily increased, with both year-on-year and quarter-on-quarter usage time improvements. In Brazil, DAU increased by 13% year-on-year, with an average daily usage time per DAU exceeding 75 minutes. As a result, the revenue from overseas business in the first quarter reached 990 million RMB, a 193% year-on-year increase. The overall operating loss of overseas business in the first quarter decreased by 64.7% year-on-year, and the operating loss narrowed further quarter-on-quarterIn the first quarter, overseas marketing revenue nearly tripled year-on-year.
7) Outlook: Short videos + live streaming remain one of the best tracks, and will continue to focus on building a healthier, sustainable community content and commercial ecosystem. We will persist in investing in AI technology and empowering more business scenarios to enhance users' content consumption experience and value delivery, providing more possibilities for business ecosystem merchants and marketing clients to increase efficiency, improve company revenue space and profitability, and continuously create value for shareholders.
2. Q&A Analyst Q&A
Q: Regarding the e-commerce business, could you share the latest progress of the e-commerce business and some considerations on the recently launched Kuaishou Preferred Hosting Model?
A: The Kuaishou e-commerce business is still in a high-speed development stage, and the pan-shelf field has become one of the engines driving e-commerce growth, achieving a year-on-year growth of over 50% in the first quarter of 2024. This is thanks to the common drive at both ends of supply and demand.
From the user side, its value lies in better meeting users' deterministic needs, bringing new buyers to the market, and promoting active buyers' consumption frequency. We have fully opened the Tab of the mall to meet the growing demands of users, while launching big brand promotions, low-price special sales, significantly increasing users' willingness to purchase in the mall. In the first quarter, our mall's daily average number of buyers grew by over 70% year-on-year. Behind the rapid growth in data, we see the real consumption demand trends of users in the mall scene. Our users are gradually developing a habit of browsing and buying in the Kuaishou mall, indicating that the mall business has long-term development potential.
From the merchant side, more and more merchants are finding a way to operate on the shelves, helping different merchants and products with different operating capabilities and categories to better obtain business opportunities on the platform. We focus on helping merchants develop remote markets. The number of brand merchants and white-label merchants continues to grow, with the daily average number of active selling merchants in the mall increasing by over 70% year-on-year in the first quarter. At the same time, we continue to improve the supply chain construction, and in the first quarter, we launched the Northwest Consolidated Shipping service, allowing merchants to distribute goods to consumers in the northwest through transfer and consolidation shipping, significantly reducing shipping costs while ensuring logistics efficiency, helping merchants develop remote markets.
In the rapid development of Kuaishou e-commerce this year, we have also noticed some pain points faced by some merchants, especially traditional ones. These include some source merchants in industrial belts who have deep accumulations in the supply chain and hope to expand their business on new platforms like Kuaishou e-commerce, but often face the dilemma of not being able to sell their goods due to lack of marketing promotion and sales channels. To address this issue, we launched Kuaishou Preferred, providing merchants with official sales hosting services, reducing the operating threshold for merchants. Merchants only need to be responsible for shipping goods and customer service, while Kuaishou is responsible for operational promotion and product sales. In this collaborative relationship, the platform and merchants play to their strengths, find their own positions, and jointly promote business development. At the same time, relying on comprehensive sales data of Kuaishou e-commerce, we can more clearly identify product categories with explosive potential on the platform, thereby improving the efficiency of product selection and pricing processesThrough traffic integration and scaled operations, we provide merchants with a deterministic sales channel, which not only reduces the operating costs of merchants on Kuaishou, but also achieves rapid transactions of goods on the platform, solving the problem of merchants' profitability.
Regarding Kuaishou Mall, we have launched more marketing strategies in the upcoming 618 promotion to meet the shopping needs of users and the demand for merchants to explode orders. In the future, we hope to achieve a deep organic integration of shelf scenes and content scenes, becoming a driving force for sustainable growth of e-commerce business. This will help more merchants to operate globally more efficiently, activating more business opportunities.
Q: Looking ahead to the future growth drivers of online marketing revenue, what are they?
A: In the first quarter, our online marketing service revenue reached 16.65 billion yuan, a year-on-year increase of 27.4%. Both our internal and external cycles have achieved gratifying growth. We have provided customers with better marketing solutions, leading to an increase in eCPM. This is because we have provided customers with deeper target conversion through measures such as joint modeling, and through intelligent solutions brought by large models, we have provided customers with the ability to improve efficiency throughout the entire chain.
Looking ahead, we believe that the growth of online marketing revenue will mainly depend on the improvement of eCPM and ad load, especially in terms of eCPM, where we still have a lot of room for improvement. We will continue to support customers in deep target conversion, which will bring better customer bidding. Intelligent marketing solutions based on large model capabilities have achieved significant results in intelligent creative production, intelligent marketing delivery, and intelligent interactive reception. In the future, we expect large models to help us achieve greater breakthroughs in user value understanding and marketing content distribution.
In terms of ad load improvement, we will achieve the synergy between marketing content and natural content in terms of traffic through the construction of native marketing materials, realizing the true integration of marketing content and natural content, thereby increasing the upper limit of ad loading. In the first quarter, the consumption of external cycle native marketing materials increased by 30% compared to the previous quarter, and the penetration rate of external cycle consumption continues to increase.
In addition, we have also identified some potential industry opportunities. In the automotive industry, many automotive brand manufacturers have seen the huge consumption potential of the new online market. Our automotive industry marketing solutions have also attracted more OEMs and aftermarket customers' advertising budgets. In the education industry, we have found that the core user group on the platform has higher growth potential in vocational education and interest courses compared to the same period last year. We are working hard to serve this group well and explore more market opportunities. In the media and information industry, we established a self-built chain for short videos at the end of last year, and the closed-loop operation has led to a monthly increase in marketing consumption of paid short dramas. This year, we plan to replicate this model in industries such as mini-games and novels, which will not only bring better user experience and market growth, but also accumulate more back-end data, thereby achieving more accurate recommendationsIn short, we will continue to focus on industry refinement operations, intelligent marketing solution iterations, and algorithm optimization to bring better marketing conversion to customers. We are also confident in exceeding industry growth in online marketing service revenue this year.
Q: Regarding the local life business, could you introduce the recent progress of the local life business and the strategy for 2024?
A: After a year and a half of development, we have gained a deeper understanding of users' demand and preferences for local life content, and successfully validated the business model of Kuaishou Local Life in some core cities. For future strategies, we have a clearer approach. Against the backdrop of consumption becoming the driving force of economic growth and the potential release of consumption power of users in new markets, we hope that Kuaishou Local Life can bring greater incremental opportunities for merchants in 2024. Recent progress is as follows:
Firstly, on the supply side, we continue to optimize the supply of merchants and products by industry, focusing on breakthroughs in core categories. In the first quarter of 2024, the daily average number of active merchants and products increased by 29% and 38% respectively compared to the previous quarter, and we continue to promote the healthy development of multiple categories. Leveraging the winter vacation and Spring Festival periods, we collaborated with travel agencies and OTAs to enrich the supply of travel products, and with the advantage of Kuaishou's user base and content, we successfully created benchmark cases such as Tangshan Nanhu Tourist Area.
In terms of content, we continue to increase cooperation with high-quality influencers, helping them shorten their growth cycle through multiple platform policies, empowering creators to increase income, and contributing to a high-quality content ecosystem. In the first quarter, the number of distribution influencers increased by 32% year-on-year, and the daily average number of effective live streamers increased by 62% compared to the previous quarter.
On the demand side, we continue to strengthen users' habits and mindset in local life scenarios through improving basic function development and enriching marketing strategies, while enhancing subsidy efficiency and insisting on establishing a mindset of ultimate cost-effectiveness. Additionally, we continue to solidify the fulfillment capabilities of influencers and merchants, optimize governance systems, and improve platform governance efficiency to enhance user experience. In the first quarter, the daily average number of paying users increased nearly 9 times year-on-year.
On the platform matching side, we adjust the traffic structure through internal company collaboration and other means to optimize the allocation efficiency of local content in recommended traffic from the perspectives of user experience and transaction value. The GPM of Kuaishou Local Life's live streaming and short videos continued to grow month-on-month, driving high-speed growth in GMV in the first quarter.
Regarding the strategic focus of the local life business in 2024: Firstly, industrialization. We hope to combine different industry characteristics for refined operations, steadily expand market share in the food category, and implement a differentiated category growth strategy for the comprehensive travel industry. Secondly, product strategy. Through cooperation with service providers and strengthening our own operational capabilities, we aim to enhance price advantages on the basis of improving subsidy efficiency, advocating for good products at low prices to provide users with high cost-effective goods.
In terms of local service content, we emphasize the quality and quantity of content. High-quality content is our biggest differentiator from shelf businesses and is key to the success of the local life business. Only by providing high-quality content can we attract more users to consume local life-related content, thereby guiding merchants and influencers to provide users with high-quality products and services, ultimately realizing the platform's user and commercial valueQ: The company has just announced a new plan to repurchase up to HKD 16 billion within the next three years. What are the main considerations in setting this amount? What is the expected execution pace?
A: We have always been committed to creating more value for shareholders. After achieving positive adjusted net profit at the group level in the first quarter of last year, we immediately announced a HKD 4 billion repurchase plan, which was well received by the market. In addition, in conjunction with the new rules of the Hong Kong Stock Exchange, we started implementing an automatic share repurchase plan since December 18 last year, which is part of the HKD 4 billion repurchase plan, allowing the company to repurchase shares during the restricted period stipulated by the Hong Kong Stock Exchange. As of the close on May 22, the company has repurchased approximately HKD 4 billion, repurchased about 60.71 million shares, accounting for approximately 1.7% of the total share capital. This demonstrates our confidence in the company's value and our determination to reward shareholders.
As the original HKD 4 billion repurchase plan is set to expire at this year's June shareholders' meeting, we have applied to the board for a new repurchase plan of up to HKD 16 billion within the next three years. When formulating this plan, we comprehensively considered the company's cash flow situation, profits for the next three years, market expectations, and cash reserves. In the current market environment, this new repurchase plan also demonstrates our confidence in the company's value and our determination to reward shareholders. As for the actual execution of the new plan, we will make comprehensive considerations based on the capital market environment, and the company will reasonably arrange the pace and intensity of share repurchases to continuously enhance shareholder returns.
Q: What progress has the company made in AI large model development?
A: In the first quarter of 2024, we steadily improved the performance of our self-developed large models and accelerated their application in various business scenarios. In terms of model performance improvement, based on data optimization and model architecture optimization in the pre-training phase, we have achieved a comprehensive performance level close to GPT-4.0 with our 175 billion parameter large model after the latest updates and iterations through feedback, reinforcement learning, and other technologies. Additionally, we have recently launched the first multi-modal large language model. Next, I would like to focus on introducing the application of our large models in business scenarios.
This quarter, we have defined a strategy for upgrading understanding, enhancing interaction, and exploring generation in large model applications. We have made significant progress in areas such as global content understanding, AI user profiles, digital humans in commercial scenarios, and AIGC.
Firstly, in terms of global content understanding with large models, our multi-modal large models can help us better understand short videos, live streaming content, comment sections, user behavior, and interests, enabling us to better recommend natural content, marketing content, and e-commerce content. This not only increases user engagement but also enhances marketing effectiveness and e-commerce GMV.
Secondly, in AI interaction, we have significantly improved the accuracy of AI assistants' responses and launched multi-turn dialogue and multimedia functions. In the first quarter, the user penetration rate of AI assistants has significantly increased, with a peak daily usage of over 1.5 million users, further enhancing community interactionIn the business scenario of digital humans and AI applications, our large-scale model capabilities cover multiple scenarios such as transformational live streaming and intelligent customer service. Our AI short video product can provide customers with short video script production, material mining, and automatic streaming capabilities. AI digital human live streaming can provide customers with 24-hour virtual human live streaming services, while intelligent customer service can automatically identify issues and solve various consultation problems more smoothly and naturally through multi-round conversations. The application of large-scale models in the above scenarios significantly reduces customer acquisition costs and brings incremental customer marketing investment to us. In the first quarter, the peak daily consumption of AIGC live streaming and short video materials exceeded 10 million. The deep integration of large-scale models with short video and live streaming business scenarios has also strengthened our determination to invest in large-scale model research and development, and we will continue to bring more progress in the future.
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