The following is the minutes of the 2Q22 performance conference call for Kuaishou, financial report interpretation can be reviewed in "First Encounter with Profits: Kuaishou Races on the Road of Monetization Expectations".

Management remarks

Users and Traffic: DAU increased by 18.5% year-on-year, DAU/MAU reached 59.2%, the highest level in history. Algorithm optimization can push quality content more accurately. For popular content, more precise recognition creates short plays that are highly favored by young people.
Advertising: Overall advertisers performed well, and for small and medium-sized customers, simple products are offered to lower the threshold for advertising.

3) Live streaming: Jackie Chan's live broadcast had more than 130 million viewers, including non-Chinese users, and Jay Chou had the largest live broadcast reservation in Internet history. As of June 2022, Kuaishou has more than 2,000 celebrity accounts and overall fans exceeded 1 billion.

4) Financial performance: Domestic businesses achieved profitability two quarters ahead of schedule, with a year-on-year increase of 13.4%. Online marketing increased by 10.5% year-on-year, and live streaming business increased by 19.1%, benefiting from improved matching efficiency of users and content. Gross profit reached CNY 9.8 billion, a year-on-year increase of 16.5%.

Analyst Q&A

Q: The company achieved better-than-expected growth in the second quarter. Can you share with us how Kuaishou's ecosystem has developed, and how you respond to changes in consumer behavior after the pandemic and other challenges?

A: In the second quarter, we continued to build a trust-driven e-commerce ecosystem and accelerate the conversion based on live broadcast rooms. We constantly improve the user protection system, where our "false one compensation nine" protection system has reached a coverage of 50%, strengthening user trust in the platform.

The monthly repurchase rate of e-commerce maintains an industry-leading level, and we are also advancing this number further in the second quarter. We improved the efficiency of public traffic conversion this quarter, improved the accuracy of matching people and goods, and realized an efficient drive mode for public and private domains. The super expected growth of e-commerce business this quarter is inseparable from the entry of high-quality merchants in the supply side. We plan to layout 100 industrial belts this year, and completed 50% in the first half of the year, providing consumers with more abundant and high-quality resources.

In the second quarter, the number of monthly completed sales merchant brands increased by more than 200% year-on-year. Among them, a certain internationally renowned beauty brand achieved a monthly average GPM exceeding 200 million yuan in the first quarter of entry; during the 616 Shopping Festival, brand GMV increased by more than five times year-on-year, and the number of merchants in monthly completed sales and quick merchant brands also doubled month-on-month. In addition to the advantageous categories of clothing and beauty, quick brand has also expanded to categories such as food and beverage, home appliances, digital, home furnishing, and department stores.

Q: How will the company respond to the opportunities and challenges brought about by changes in consumer habits in the post-pandemic era in the future?

A: Affected by the pandemic, many merchants have felt the pressure of offline sales and have started to explore online channels, which will help us bring in new merchants. The service provider platform will also provide help for pain points such as merchant selection. The retention rate of new merchants has also greatly improved. We have been continuously strengthening our support for overall businesses this year, establishing an exclusive traffic pool and providing diversified product marketing methods and one-on-one operation services. At the same time, our service providers will also provide more targeted services for various pain points that businesses encounter in the early stage of operation, helping businesses to quickly start and achieve growth leaps. The month-on-month and year-on-year retention rates of new merchants in the second quarter have both shown significant improvement, and the overall time for achieving sales growth has been shortened by nearly 15% compared to the same period last year.

In the post-epidemic era, users are more sensitive to prices and tend to be more rational in consumption. We provide more exposure to merchants who are capable of providing high cost performance, so that consumers can buy affordably and with confidence. Although non-essential goods are not doing well, cosmetics, home appliances, and other products are showing a recovery trend on the Kwai platform. In terms of food and beverages, the vivid expression of taste by broadcasters has also greatly attracted customers. At the same time, we are optimizing functions such as the search box, the entrance to Kwai's small stores, and "Recommended for you".

In the medium and long term, we believe that the GMV of live e-commerce industry centered around short video platforms has the opportunity to reach 6 trillion RMB. Kwai will continue to strengthen our advantageous position in the industry.

Q: How can we achieve better business growth while reducing costs and increasing efficiency?

A: We achieved encouraging results in realizing domestic business reaching plateau two quarters ahead of schedule. The specific optimizations are divided into several parts.

First of all, in terms of gross profit margin, we achieved a breakthrough in the control of business division cost. We carried out more effective innovation and optimization of the division mechanism, and the overall cost of division compared to revenue declined by 2.5 percentage points.
Secondly, we pursued technical cost efficiency improvement, implemented technical innovation, improved the utilization rate of computing and storage resources, and obtained the optimal unit resource cost. In the first half of the year, the total domestic duration increased by more than 40% year-on-year, but the cost per thousand minutes decreased significantly, with the cost of bandwidth or server occupancy ratio dropping more than 3 percentage points compared to revenue. In audio and video technology, we conducted advanced technology research and development and application, significantly reducing the total bandwidth usage.
In terms of costs, since the third quarter of last year, while ensuring user growth, we have kept the single DAU maintenance cost in a downward trend through organizational structure adjustments, efficiency optimization, and technical iterations. In the second quarter of this year, despite maintaining fast traffic growth and high user innovation, the sales and marketing expenses as a proportion of revenue decreased by 18.5 percentage points year-on-year. In terms of personnel-related costs, through a series of organizational structure iterations and performance work, personnel related costs as a proportion of revenue are approaching the industry-leading level.

Through the efforts of all internal parties, the effect of reducing losses is very obvious, and we will continue to explore more monetization models and adhere to an efficient growth path while also controlling costs.

Q: How is the recent progress of Quick Recruitment? How does the company plan to develop this business and monetize it in the future?

A: The scale of the blue-collar population is the largest recruitment group, reaching 450 million, which accounts for 50% of the national labor force. However, changes in population structure and factors such as labor shortages have turned the blue-collar market into a user-driven market, with frequent cases of information asymmetry and contract performance issues. Employment enterprises face problems such as high recruitment costs and low efficiency, and we have a responsibility to propose solutions for the vast blue-collar population and employment enterprises. Our Advantages:

Large user base, the largest blue-collar recruitment platform in China. Job search is a relatively low-frequency behavior, and many people may uninstall job search software after finding a job. However, the rich short video content on Kwai is the key to user retention, and can more effectively retain users compared to other job search software.
Building trust scenarios. In terms of performance, Kwai's live streaming allows users to understand the office environment in a real and real-time way, which other recruitment platforms cannot provide. Kwai also provides a complaint channel for users to urge broadcasters to fulfill their commitments and improve users' job search experience.
In terms of matching, the long-term application of algorithm technology is introduced to achieve accurate matching. According to the feedback from the recruiter, the entry rate facilitated by our platform is very competitive in the industry.

Our QZG (QuickZhaoGong) business has achieved significant growth. In June of this year, the peak rate of resumes submitted on Kwai reached 360,000, second in the industry. More and more companies, intermediaries, and broadcasters actively seek cooperation with Kwai, and even shift their business focus to Kwai.

As of the end of June, the number of partner enterprises exceeded 100,000. At the same time, we see the blue-collar recruitment business and platform core consumption indicators showing the same direction. The blue-collar recruitment business to a certain extent meets users' daily needs, and Kwai's users are more fond of our platform, thus bringing resonance of multiple values.

In terms of monetization, we have also started small-scale advertising business trials, and the initial results look good.

Other deeper business monetization models are also being explored. This year, we will continue to polish our business and content, improve traffic efficiency, and constantly discuss business models. We expect the online penetration rate of blue-collar workers to reach 30% by 2025-2026, and the online blue-collar recruitment market size is expected to reach tens of billions. We hope to take a leading share of the blue-collar recruitment market in the future with capital advantage.

Risk disclosure and statement of this article: Dolphin Analyst Disclaimer and General Disclosure.

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