Kuaishou: Emphasizing Marketing Strategies for Content E-commerce (3Q24 Conference Call Summary)
The following is the summary of the Q3 2024 earnings conference call for $KUAISHOU-W(01024.HK) . For the financial report interpretation, please refer to Kuaishou: How to Navigate the Future as "Old Friends" Bring Goods? .
I. Core Financial Report Information Review:
II. Detailed Content of the Financial Report Conference Call
2.1 Core Information Presented by Executives:
2.1.1 Business Progress
- User Growth and Content Ecosystem
a. User Scale: Daily Active Users (DAUs) reached 408 million, a year-on-year increase of 5.4%; Monthly Active Users (MAUs) reached 714 million, a year-on-year increase of 4.3%; Average daily usage time per user was 132.2 minutes, a year-on-year increase of 7.3%; Daily viewing of short videos and live broadcasts approached 110 billion times.
b. Content Distribution and Ecosystem Optimization: Enhanced content distribution mechanisms to optimize user experience; focused on vertical content areas, such as sports, achieving 310.6 billion exposures through content related to the Paris Olympics, with interaction volume reaching 15.89 billion; for example, in the concert segment, the total viewership of two live broadcasts of the Times Youth League concert reached 950 million.
c. Search Business: After optimizing the search function, monthly active users exceeded 500 million; Daily search volume increased by 20% year-on-year, peaking at over 800 million times, with rapid growth in revenue from search-related businesses.
- Online Marketing Business
a. Revenue Performance: Revenue from online marketing services reached 17.6 billion yuan, a year-on-year increase of 20%, achieving over 20% growth for six consecutive quarters; revenue from closed-loop advertising services grew in the third quarter, with active merchants using marketing placements increasing by over 50% year-on-year.
b. Advertising Tools: Launched the Intelligent Advertising (UAX) solution, accounting for 50% of online marketing spending; spending on short video advertising increased by 300% year-on-year.
c. Iterative Investment in Traffic Conversion Products: Focused on policy support, product iteration, and algorithm optimization to enhance the conversion of short video traffic to live broadcasts, with marketing spending in this area increasing by nearly 20% year-on-year in the third quarter.
d. Brand Partnerships: Collaborated with over 150 brands, including China Mobile and FAW-Volkswagen, leveraging the Olympic opportunity to enhance brand exposure3) E-commerce Business
a. GMV Growth: E-commerce GMV reached 334.2 billion yuan, a year-on-year increase of 15.1%; short video e-commerce GMV increased by 40% year-on-year; "shelf e-commerce" GMV accounted for 27% of total e-commerce GMV, with a year-on-year increase of 45%.
b. Merchant Growth: The number of newly registered merchants increased by 30% year-on-year, and the daily operating income of new merchants increased by over 60% year-on-year, thanks to the continuous promotion of the "Doujin Plan" and "Qihang Plan," which directed traffic to small and medium-sized merchants, focused on industrial belts, and helped merchants with operational characteristics remain active on Kuaishou in the long term; the number of monthly active merchants increased by 40% year-on-year, with a 20% increase in product categories.
c. KOL Operations
- Top KOLs: Launched exclusive marketing tools such as "Shopping Groups" and "Ten Thousand People Groups" to enhance the enthusiasm of influencers, incentivize live streaming, and increase content value. During the "818 Shopping Festival," customers using "Shopping Groups" saw their average order quantity increase by 25%, and the conversion efficiency of the same category of products improved by 55%.
- Development of Small and Medium KOLs: Launched the "New Star Plan," providing cash incentives, traffic support, and exposure resources, and collaborated with regional service providers for localized operations; this plan helped small and medium KOLs achieve a quarterly month-on-month average GMV growth of over 40% and an average daily product sales increase of over 25%.
- During the "818 Shopping Festival," the total GMV of KOLs increased by 24% year-on-year, with small and medium KOL GMV increasing by 27% year-on-year.
d. Growth of Paid Users: The number of monthly active paid users in e-commerce increased by 12.2% year-on-year, reaching 133 million.
- Live Streaming Business
a. Revenue Performance: Live streaming revenue was 9.3 billion yuan, with a further narrowing of the year-on-year decline.
b. Content Diversification: Expanded high-quality content, increasing local cultural and entertainment content; the number of game live streaming creators exceeded 30 million, significantly enhancing the attractiveness of live streaming content.
c. Industry Empowerment: Real estate and recruitment services developed rapidly, with customer matching volume increasing by 200% year-on-year.
- Overseas Business
a. User Growth and Revenue: Daily Active Users (DAUs) in Brazil increased by 9.7% year-on-year, with average daily usage time increasing by 4.2% year-on-year; overseas revenue reached 1.33 billion yuan, a year-on-year increase of 104.1%.
b. Progress in Overseas E-commerce: Brazilian e-commerce made progress in product, content, and transaction efficiency, laying the foundation for accelerated future development.
c. Operational Efficiency: Overseas business operational losses decreased by 75.9% year-on-year, down to 153 million yuan.
2.1.2 Financial Performance
- Overall Performance
a. Total Revenue: 31.01 billion yuan, a year-on-year increase of 11.4%, with core business revenue increasing by nearly 20% year-on-year, demonstrating the robustness and resilience of core business.
b. Gross Profit: Gross profit was 16.9 billion yuan, a year-on-year increase of 17%, with a gross profit margin of 54.3%, an increase of 2.6 percentage points year-on-year.
c. Net Profit: The group's net profit increased by 50% year-on-year, reaching 3.3 billion yuan; adjusted net profit increased by 24.4% year-on-year, reaching 3.95 billion yuan, with an adjusted net profit margin of 12.7%, an increase of 1.3 percentage points year-on-year2) Revenue breakdown by business line
a. Online marketing services: Revenue of 17.6 billion RMB, a year-on-year increase of 20%, accounting for 56.6% of total revenue.
b. E-commerce business: Revenue of 4.2 billion RMB, a year-on-year increase of 17.5%.
c. Live streaming business: Revenue of 9.3 billion RMB, a year-on-year decrease of 3.9%.
- Expense side
a. Costs: Total costs of 14.2 billion RMB, a year-on-year increase of 5.4%, accounting for 45.7% of total revenue.
b. Sales and marketing expenses: Reached 10.4 billion RMB, a year-on-year increase of 15.9%, accounting for 33.3% of total revenue.
c. R&D expenses: 3.1 billion RMB, a year-on-year increase of 4.5%, accounting for 10% of total revenue, a year-on-year decrease of 0.6 percentage points.
d. Administrative expenses: 800 million RMB, a year-on-year decrease of 11.4%, accounting for 2.6% of total revenue, a year-on-year decrease of 0.6 percentage points.
- Share repurchase
As of September 30, 2024, approximately 3.98 billion HKD worth of shares have been repurchased, totaling 91.11 million shares, accounting for about 2.1% of the total circulating shares at the beginning of the year.
2.2 Q&A Analyst Q&A
Q: Can management provide an update on the latest developments in AI large language models, particularly regarding KeLing AI? Additionally, can you share any operational or financial data related to its performance and outline future commercialization strategies?
A: In the third quarter, we further optimized the performance indicators of the foundational large model and deepened its applications in content understanding, recommendation, generation, and user interaction. We advanced the development of the QA LLMOE model, which employs an expert mixture approach. Despite having only hundreds of billions of parameters, it surpasses the QA model with 175 billion parameters on multiple pre-training metrics. This significantly reduces training and inference costs while making the model more suitable for Kuaishou's existing business scenarios.
In terms of content understanding and recommendation, the application of the large model has expanded to multiple scenarios including short videos, live streaming, comments, advertising, and e-commerce, effectively enhancing user retention, marketing expenditure, and e-commerce GMV, while significantly increasing the overall usage time of platform users. In content creation and user interaction, the daily investment in AIGC marketing materials exceeded 20 million RMB in the third quarter, showing a continuous growth trend. The intelligent interactive assistant spaceship has been widely used in scenarios such as Olympic medal predictions, user private messages, and comment section interactions, with peak monthly active users exceeding 18 million.
Since its launch in June, KeLing has surpassed 5 million cumulative users, generating over 51 million videos and 150 million images. The monthly active users in September exceeded 1.5 million, with user natural retention rates steadily improving month by month. The recently launched standalone application further enhances user access convenience. In terms of commercialization, subscription membership services have been gradually rolled out for domestic and international users since the end of July, providing more precise performance features; API services for video generation, image generation, and virtual try-on were opened at the end of SeptemberThe early commercialization performance meets expectations, with monthly revenue exceeding 10 million yuan. In the future, we will explore more diverse monetization tools and models, and expect rapid revenue growth from AI next year.
Looking ahead, the company will continue to promote the deep integration of large models with Kuaishou's existing business scenarios, releasing significant commercial value while enhancing the team's AI algorithm capabilities to drive breakthroughs in algorithm innovation and scenario applications.
Q: This quarter, Kuaishou's daily active users (DAU) exceeded 400 million, with an average daily usage time of over 130 minutes. How do you view the trends and goals for DAU and user duration in the future? What measures will the company take to further enhance overall traffic?
A: In March 2022, we first proposed a mid-term goal of exceeding 400 million daily active users (DAU). By optimizing user growth strategies, providing high-quality and diverse content, and continuously improving products and algorithms, we achieved steady growth in DAU and user duration while maintaining a stable total user base and relatively stable customer acquisition costs, ultimately reaching the milestone of 400 million DAU.
Looking to the next stage, as the penetration rate of short videos increases, acquiring new users will become more challenging. However, we still have ample room to drive growth by improving user retention and activity. Regarding user duration, our focus is on enriching content and enhancing algorithm recommendation efficiency to create more value for users, rather than simply extending usage time.
In terms of traffic growth strategies, there are three points: First, in traffic allocation, we will continue to optimize the traffic distribution mechanism to better coordinate commercial content with organic content, maximizing the overall traffic revenue of high-quality content and promoting the development of a healthy community. Second, in product optimization, we will strengthen Kuaishou's advantages in social networking and private traffic, while exploring more innovative interactive features to enhance community interaction, and further improve user-centric product thinking by optimizing the comment section experience and search functionality. Finally, in content operation, we will create high-quality vertical content around various user needs for opening the app, supporting quality creators that represent the Kuaishou brand, while leveraging major events to expand user coverage.
Overall, we are confident in continuing to achieve stable traffic growth in the future, creating more usage scenarios for users, and providing higher quality content and services, thereby becoming a content platform favored by more users.
Q: Regarding your company's online marketing business. We have noticed that short video advertising has recently made a significant contribution to the growth of online marketing services. Is the growth of this advertising format sustainable? Additionally, can you share your company's latest growth strategies for online marketing business?
A: In the third quarter, with the prosperity of the short video industry, related marketing budgets have significantly increased, becoming an important driving force for the overall growth of Kuaishou's online marketing business. The spending on short video advertising on the Kuaishou platform increased by over 300% year-on-year, accounting for a double-digit percentage of external circulation advertising, with peak daily marketing spending exceeding 40 million yuan. This is mainly due to the increase in paying users under our optimized native sales funnel and smart subsidy strategies. In addition, in the third quarter, we accelerated the application of the IAA (In-App Advertising) model, rapidly expanding the user base interested in short videos, driving rapid growth in short video advertising spending through IAP (In-App Purchase) and IAA modelsRegarding the sustainability of the short video business, we hold an optimistic view on its medium-term growth prospects. According to third-party forecasts, the short video market size is expected to exceed 100 billion yuan by 2027. With the continuous expansion of the short video ecosystem, the commercialization potential of the existing more than 500 million short video users has not yet been fully realized. Kuaishou's short video user base has exceeded 300 million, and with a rich content supply ecosystem and continuously optimized products and algorithm support, we expect short video marketing expenditures through IAP and IAA models to maintain rapid growth.
Regarding the main growth strategies for online marketing business, in terms of closed-loop marketing, we are committed to better matching content, products, and users, improving the conversion rate of content e-commerce materials through refined model predictions, and guiding merchants to sustain operations from short videos to live broadcasts. In external marketing, we focus on native content advertising, including short videos, Kuaishou mini-games, and online literature, aiming to provide users with engaging experiences while enhancing user stickiness and maximizing advertisers' ROI. In brand marketing, based on a deep understanding of users, we help clients accurately target their audience through marketing science and provide integrated brand awareness and sales conversion solutions, attracting clients through KOL recommendations and customized strategies.
In addition, we still have significant room for improvement in refined industry operations, intelligent marketing products, and algorithm optimization. At the same time, the application of large models in marketing recommendation scenarios is bringing increasingly significant results, providing clients with higher ROI. Therefore, we are confident in continuing to expand our market share.
Q: Overall performance of the e-commerce business during the Double 11 promotion event, and the company's strategic layout in this event
A: During this year's Double 11 promotion event, we are satisfied with the overall performance of the e-commerce business, especially against the backdrop of current weak consumer demand. By fully leveraging the synergy between content e-commerce and shelf e-commerce scenarios, we achieved strong year-on-year growth in e-commerce GMV and set new highs. During this event, we provided over 20 billion video traffic subsidies, 2 billion user subsidies, and 1 billion product subsidies, helping more merchants achieve rapid growth.
During the promotion period, our subsidy and operation mechanisms focused on content e-commerce scenarios and live broadcast rooms, significantly increasing the penetration rate of live broadcast rooms with more than 10,000 followers, with the number of live broadcast rooms exceeding 1 million GMV surpassing 2,500. In addition, the number of short videos with shopping links published increased tenfold year-on-year. We place special emphasis on the construction of marketing gameplay in content e-commerce scenarios:
(1) For leading merchants and KOLs, we launched the "Fan Shopping Group" activity to enhance interaction and stickiness between fans and anchors.
(2) For small and medium-sized merchants and KOLs, we provide gameplay such as "Sudden Red Envelopes" to help them achieve sales breakthroughs during large-scale promotional events.
(3) In shelf e-commerce, we provide more traffic and resource subsidies for quality products, ensuring that quality products achieve better returns through task incentives and merchant operation strategiesIn terms of product strategy, we integrate platform subsidy budgets to ensure that products in the content e-commerce scenario are competitively priced. We categorize the products we focus on promoting into new products, seasonal products, core hot-selling products, and best-selling products from various brands, covering non-standard items such as tea, alcohol, health products, and jewelry, as well as standard items like consumer electronics and home appliances. During the Double 11 period, our "brand subsidy" program covered over 2,200 self-operated brands and more than 2,500 high-demand categories.
With the national "old-for-new" policy for home appliances accelerating in the second half of the year, we seized this opportunity to promote the home appliance trade-in subsidies to more cities while optimizing the coupon acquisition and conversion paths. In this promotion, consumers redeemed over 1.6 million national e-commerce subsidy coupons, driving significant growth in sales of consumer electronics and home goods.
The excellent performance of this promotion demonstrates the effectiveness of our focus on live e-commerce, exploring the potential of short video e-commerce, and steadily expanding our shelf e-commerce strategy. Looking ahead, despite intensified market competition and continued sluggish consumer demand, we are confident in our growth prospects. By integrating content e-commerce resources and providing high-quality content and premium products, we will further expand the e-commerce ecosystem to achieve multi-scenario growth for merchants and KOLs. Coupled with national subsidies and supportive policies, we are confident in driving consumption upgrades among the 700 million monthly active users on our platform.
Q: Regarding the local life business. How does management assess the progress of this business? Additionally, does the company have expectations for the long-term growth of this business?
A: Since we began exploring the local service business in 2022, we have gradually validated user demand for local services and launched industry and region-oriented operations in mid-2023 to expand GMV and user scale. This year, we are committed to enhancing the monetization capability and operational efficiency of the business, aiming to achieve breakeven at the city level and have made steady progress in this process.
As a high-frequency business area, local life not only increases the frequency and reasons for users to open the app by providing high-quality local content and cost-effective products and services but also promotes the dissemination of high-quality content and products by continuously optimizing the KOL rating mechanism. At the same time, we have optimized the traffic distribution mechanism to direct more traffic to high-quality content, thereby enhancing the user experience. Given the emphasis users place on cost-effective services, we built a price comparison model this year, enriching the application scenarios of the comparison engine, which has driven continuous growth in the number of paying users. In the third quarter of 2024, the number of daily active paying users increased by 28% quarter-on-quarter, while GMV maintained a high growth rate of 26%.
In terms of monetization, we drive advertising spending from local operators through multiple industry categories and incentive measures. At the same time, for lead-driven merchants, we continuously increase their incremental budget allocation by launching new advertising products. In the third quarter, local life revenue grew by over 2.5 times year-on-year and achieved a quarter-on-quarter growth of 36%. Thanks to our optimization in subsidies and operational efficiency, the gap between revenue and costs is gradually narrowingFrom the perspective of the overall value of the platform, local services are a business area worth long-term investment. We have also observed a trend of continuous improvement in ROI. In the medium to long term, we will continue to meet user needs while empowering merchants' development based on our user base, focusing on platform value and the incremental revenue value brought by this business, and continuously maintaining a good user ecosystem.
Q: Regarding operating expenses, the company's sales and marketing expenses increased both year-on-year and quarter-on-quarter in the third quarter. What are the main reasons for this? Looking ahead to the first quarter of next year, what trend can we expect in operating expenses?
A: In the third quarter, the main reason for the year-on-year increase in sales and marketing expenses is our increased investment in online marketing services and e-commerce business. The overall cost of user growth and retention remains stable. In terms of online marketing services, the investment is mainly focused on user subsidies for paid short dramas, which are guided by ROI principles. By leveraging a 1x subsidy to drive several times the revenue, we expanded the user base for paid short dramas and also promoted a multiple increase in customer marketing budgets. We expect that as users gradually develop the consumption habit of paid short dramas, and with the optimization support of the smart subsidy program, ROI will further improve.
In the e-commerce business, the investment is also mainly focused on user subsidies. Although subsidies have increased, their proportion of GMV remains below the industry average, while subsidy efficiency continues to improve.
Looking ahead to the fourth quarter, due to the arrival of the e-commerce promotion peak season, we expect an increase in user subsidy investment in e-commerce, and there will also be a slight quarter-on-quarter increase in investment in online marketing services. Similar to previous years, due to seasonal factors, sales and marketing expenses in the fourth quarter will increase quarter-on-quarter.
In terms of R&D expenses, due to increased investment in personnel related to large model R&D, overall R&D expenses are expected to increase quarter-on-quarter. However, as we continue to improve quality and efficiency, the proportion of sales and marketing expenses and R&D expenses to revenue will decrease quarter-on-quarter. In the future, we expect overall profitability to further improve, creating more value for shareholders.
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