Sina Technology News reported on the afternoon of November 23 that Kuaishou today released its third-quarter financial report as of September 30, 2021. The financial report shows that Kuaishou’s revenue in the third quarter was 20.5 billion yuan, a year-on-year increase of 33.4%. The adjusted net loss of Kuaishou was 4.8 billion yuan, basically the same as the previous quarter, with an adjusted net loss rate of 23.5%.
After the financial report was released, Kuaishou co-founder, chairman and executive director Su Hua, co-founder, executive director, CEO and chief product officer Cheng Yixiao, CFO Zhong Yiqi and other executives attended the subsequent financial report conference call to interpret the financial report. Key points and answer questions from analysts.
The following is the main content of the Q&A session for the analysts of this conference call:
Credit SuisseAnalyst Kenneth Fong: Good evening to the management. Thank you for accepting my question. Congratulations on the strong performance. I have two questions. First question, we see that the traffic growth trend in the third quarter is very strong. What are the main driving factors? How to achieve Kuaishou’s long-term goal of 400 million DAU (daily active users), and how will Kuaishou continue to strengthen user engagement?
The second question is about advertising. The recent regulatory and macroeconomic downturns also affect the demand of the entire advertising industry. However, we see that Kuaishou’s advertising still maintained rapid growth in the third quarter. What is the driving force behind the growth and what is Kuaishou’s future advertising growth plan?
Cheng Yixiao: Let me answer the question about traffic first. We are firmly optimistic about the short video track, the domestic long-term DAU scale has the opportunity to grow to 1.1 billion, and short video live broadcast can be widely used in people’s livelihood, knowledge sharing, e-commerce, local life and other industries, becoming widely used Social infrastructure and total traffic also have the potential to continue to grow. The outstanding user growth in the third quarter gave us stronger confidence to achieve the mid-to-long-term goal of 400 million DAU.
The increase in users and duration is mainly because we continue to provide more content, products and services. On the content side, in the pan-knowledge category, which has been growing rapidly in recent years, we have launched novel pan-knowledge debate content, which is deeply loved by users; for example, the number and duration of sports and skits have also been greatly improved. On the commodity side, we continue to introduce new commodity categories and branded goods to enrich users’ choices. On the service side, we are also actively exploring more opportunities for scene video. At the same time, in view of the different characteristics of public and private domains, we are also continuing to improve planning efficiency, better match content with users, and enhance users’ consumption experience and happiness. . Recently, we have gradually recommended more content that pays attention to creators in a single column of ups and downs. On the one hand, it has strengthened the recommendation of users’ content of interest, and on the other hand, it has also promoted the conversion of public and private domain traffic.
On the whole, the current growth rate of traffic is faster than our earlier expectations. In the future, we will also give priority to user needs more dynamically and continue to iterate our ecological development strategy.
Questions about advertising. First of all, it is indeed similar to the situation in the industry. Due to the supervision of some industries and the impact of the macro environment, some advertisers have shrunk and adjusted their budgets, which has led to a weakening of the overall advertising bidding environment. But as far as we are concerned, the growth rate of the advertising business is still faster than that of the industry. Kuaishou continues to gain more market share. Let me explain the specific reasons in detail:
First of all, looking at the industry’s video advertising in the form of short videos and live broadcasts, (this type of advertising) has been more favored by advertising organizers, coupled with our unique social platform and content community positioning, and the characteristics of public and private domain traffic. Combination, there will be a certain degree of advertiser budget tilt. From the perspective of the platform itself, Kuaishou’s traffic also maintained strong growth in the third quarter, helping the advertising business to maintain rapid development in a challenging environment. With the optimization of our creative materials and recommendation capabilities, our ad load rate in the third quarter continued to increase slightly as planned, and new ad slots were opened;
Secondly, our advertising system and products are constantly iterating. For example, we have integrated the “Xiaodiantong” and “Fun Tiao (fan headlines)” products to form a “Magnetic Taurus”. Customers can simultaneously launch and allocate budgets on public and private domains, improving decision-making efficiency and optimizing customer ROI (Return on investment) At the same time, it also releases more advertising spaces based on traffic;
Third, our sales and service capabilities and quality are constantly improving. Actively expand industry coverage, optimize the management of direct sales and agency channels, and achieve a two-way increase in the number of advertisers and ARPU (average revenue per user). At the same time, the brand advertising side has become a benchmark in many industries, and Kuaishou is gradually being recognized by the brand advertising team. Recently, well-known brands in different industries have started marketing cooperation with Kuaishou, including emerging brands, well-known mass brands, and high-end luxury brands;
The last point is another feature of Kuaishou, that is, we provide advertisers with an endogenous closed-loop trading ecosystem. Kuaishou’s large amount of e-commerce GMV (total e-commerce platform transactions) allows us to maintain ourselves in a challenging external environment. The pace of growth.
We are also cautiously observing short-term fluctuations in the advertising industry. In the long run, we still remain confident in the continued growth of our advertising business. Kuaishou’s advertising business is still at a relatively early stage. Compared with our time-long market share, Kuaishou’s advertising business still has a lot of room for improvement. With the improvement of the platform ecology and advertising system, we will continue to strengthen the optimization of user experience, empower advertisers and improve our own monetization capabilities.
Bank of America Merrill Lynch analyst Eddie Leung: Good evening, management. Just now you talked about the issue of customer acquisition and the improvement of efficiency. We also saw that the monthly user growth of Kuaishou in the third quarter was good, the sales expenses were similar to before, and the results were slightly lower. My question is, what is the trend of Kuaishou’s marketing expenses in the next few quarters? In addition, how does the company balance the growth of expenses and income, especially after Kuaishou has made some internal structural changes, how does the specific thinking change from before?
Cheng Yixiao: First of all, from the company’s internal point of view, we are determined to reduce costs and increase efficiency, and we have already taken action since the third quarter.As mentioned earlier, the rapid increase in the end of JuneChangheThe merger of product departments has a very significant effect on the optimization of retention rate: we have opened up user data and product data, and the accuracy and relevance of recommended content and user experience have been further optimized; the next day and the seventh day of DAU And the 30-day retention rate has been improved. In terms of new growth, we conducted a more systematic and refined evaluation and management of customer acquisition benefits, proactively eliminated some low-efficiency channels, and tried new channels and growth methods. At the end of September, we also merged the operations team into the growth and product teams, and strengthened the combination of content, regional operations, and growth to more efficiently drive user activity and participation, and increase the contribution of native growth methods. Through the optimization of retention rate and customer acquisition channels, the CAC (user acquisition cost) of a single user in the third quarter also improved compared to the previous quarter.
On the maintenance side, we have conducted more refined management of the subsidy strategy. After the adjustment, the targeted incentive effect for different user groups is more significant. The maintenance cost of a single DAU is also decreasing month by month in the third quarter. At the same time, as the development stage of the short video industry changes, the means of growth will also tend to be more natively differentiated supply and operation.
In terms of organizational structure, we completed the adjustment of the organizational structure of the business department at the end of September. Together with the strengthened management in the past few months, after the division of business lines, we can see the revenue and expenditure of each business line more clearly, which will help We are more effective in optimizing efficiency.
We have also adjusted our strategy overseas to carry out more efficient regional delivery, and through the optimization of products, content, and algorithms, we have brought about an increase in user activity.
In the long run, we believe that the revenue side is the growth of DAU, coupled with the double growth of the single DAU realization efficiency, the current single DAU revenue growth of Kuaishou still has a lot of room; from the perspective of gross profit margin, with the high The proportion of gross profit margin advertising and e-commerce revenue has increased year by year, and our long-term gross profit margin also has significant room for growth. From the perspective of domestic business marketing expenditures, we will improve the efficiency of new pull and maintenance and increase retention rate. There is more refined operation management to reduce the maintenance cost of a single DAU. As single DAU revenue rises, the proportion of marketing expenses to total revenue will decrease accordingly. This is also one of our important goals for business planning next year.
Zhong Yiqi: I want to add other costs. We have a clear plan to reduce costs and increase efficiency in terms of bandwidth efficiency and server resource deployment, which will be in line with the industry; on the operating cost side, when our total traffic increased by 22% in the third quarter, operating costs only increased quarter-on-quarter The efficiency is improved by 3.8%; similar server investment is a pre-investment. After the time length and unit time realization efficiency enters a steady state, we expect that operating costs will also have room for a significant drop; in terms of manpower related costs, this year’s personnel reserve It is already relatively sufficient, and there is no plan to increase the number of employees next year.
Jefferies analyst Thomas Chong: Good evening, thank you management for accepting my question. I have two questions. The first question is that Kuaishou’s live broadcast business has recovered in the third quarter, and ARPU and other data have further improved. Can the management share the future plans and expectations for the live broadcast business? The second question is about the regulatory issues that everyone is more concerned about recently. I would like to know the impact of the “Personal Information Protection Law” and “Data Security Law” on the Kuaishou platform.
Cheng Yixiao: Let me answer the question about live broadcast first. The contribution of science and technology to the value of Kuaishou ecology is different. Live broadcast is a feature of the Kuaishou community. It is a knowledge scene that builds trust between anchors and users. It also has strong content attributes. In this scenario, some users have also derived needs for physical goods and services. The effective satisfaction of these needs will further strengthen the trust and interaction relationship between the anchor and the users, and expand our monetization methods. Therefore, live broadcast plays an important role in the value contribution of the activeness of the Kuaishou ecosystem. We introduced more diversified anchors in the third quarter, and the supply side maintained a high degree of activity. High-quality and rich content and distribution support for public domain traffic also attracted more users to watch the live broadcast. The penetration rate of Kuaishou Live DAU has increased by 78%. With the growth of consumer MPU, ARPU also increased year-on-year. In the future, we will adhere to the value positioning of the live broadcast business, and keep the live broadcast ecology active through the optimization of content supply.
Su Hua: Let me answer the question about supervision. Kuaishou has always attached great importance to work related to data security and personal information protection, and has been actively advancing various compliance work in an orderly manner within the framework of laws and regulations, and in accordance with the guidance and opinions of relevant departments, and continuously optimizing product functions. As for the specific quantitative impact, we still need to observe the same as the industry.
As a comprehensive platform, Kuaishou believes that our user volume, technical capabilities, and business potential, coupled with our understanding of users, communities, and business closed-loop capabilities, all give us more opportunities and capabilities to provide advertisers with relatively better Efficient online marketing solutions. Despite the superimposed influence of macroeconomic factors, in the long run, we have the ability to create better value for users and advertisers.
Huaxing Capital Analyst Yiwen Zhang: Good evening, management, thank you for accepting my question. I have two questions. The first is about the e-commerce business of Kuaishou. Our e-commerce GMV growth in the third quarter exceeded expectations, and fast-handed brand e-commerce is also growing rapidly. We hope that the management will look forward to the follow-up Kuaishou e-commerce development strategy. The second question is that in the previous statement, the management also mentioned that Kuaishou has made some organizational structure upgrades for its overseas business. Can you talk about the current situation of Kuaishou’s overseas business? Will there be any adjustments to its future development strategy?
Cheng Yixiao: Let me answer the question about e-commerce first. As a new content carrying form and channel, live e-commerce has shown great advantages for both consumers and the supply side. Our content strategy is mainly reflected in four aspects:
The first is to continue to consolidate the model of trust in e-commerce. Kuaishou’s live broadcast e-commerce is built on the trust between users and platforms, users and anchors, and on this basis, a high repurchase rate has been formed. From the perspective of the platform, we will strengthen quality control rules, strengthen performance evaluation indicators, and introduce more guarantee measures for user rights, such as the promotion of user rights such as false one pays nine and seven-day return without reason. For special categories, we have also implemented higher guarantees and compensation policies such as “True Treasure Central Warehouse” and official verification warranty for second-hand mobile phones. At the same time, we have also added user reviews to the algorithm of the traffic distribution system, such as introducing evaluation indicators such as product cost-effectiveness, and continuously optimizing the user’s trust purchase experience. Our e-commerce monthly repurchase rate has also increased to more than 70% in September, and the monthly ARPU has also been further improved;
The second is in terms of traffic and matching, through our understanding of users, we can match users with more suitable products, and improve conversion efficiency for hosts and merchants. We hope that through the high conversion of private domain traffic and the distribution support of public domain traffic, we can fully revitalize platform traffic and continue to increase the penetration rate and payment rate of e-commerce users;
The third is to continue to build infrastructure, including introducing more commodity supplies, expanding to the source of the supply chain, expanding the number of categories and SKUs, and strengthening cooperation with service providers. In the third quarter, we vigorously developed partnerships with various service providers such as brands, bases, and strategies. Hundreds of service providers settled in Kuaishou. They provided anchor training and recruitment, traffic operation support, supply chain support, and logistics for merchants and anchors. Support such as after-sales service and after-sales service has better helped businesses grow and improved operational efficiency. Service provider-bound merchants’ GMV accounted for the market share continued to increase. E-commerce is a long-chain business. Looking forward to a longer cycle, we need to invest time and resources to do a good job in infrastructure construction. Such investment and development pace are similar to other more mature e-commerce platforms;
The last is to expand and strengthen the brand, introduce more brands to settle in, launch more support plans for brand merchants, and increase the proportion of live broadcast of stores. Kuaishou’s e-commerce and advertising business provides a closed-loop platform and support foundation for brands that integrate quality and efficiency. We have seen that the number of branded merchants and the proportion of GMV continue to increase, which has also driven the continuous increase in active buyers and customer unit prices. Specifically, we set up the SKA team to better serve brand customers, provide them with one-to-one business services, introduce platform operating rules and brand marketing rhythm in more detail, and output the operating methodology of successful brand cases for them, Can businesses grow. The SKA team will also help merchants connect with the source goods yard and integrate marketing resources across the platform, including many resources such as business review, problem diagnosis, commercial product linkage, and marketing activity linkage. We also focus on the advantages and characteristics of Kuaishou, and empower brand merchants in many aspects, including but not limited to the establishment of personal brands, the spread of public domain traffic and commercialization of operational support and bonuses, and the precise matching and fine-grained distribution of talents. Chemical guidance, private domain precipitation, business repurchase, etc.
Then I will answer questions about overseas. We are firmly optimistic about the potential of overseas short video tracks and the outstanding core competitiveness of Kuaishou itself for a long time. In the first half of this year, our overseas user growth achieved remarkable results. In the second half of this year, our overseas strategy was further optimized and adjusted:
The team side is consistent with the group direction. We have adjusted the organizational structure of overseas teams, integrated the original product operation teams that support various regions, and optimized overseas internal collaboration and resource utilization efficiency. On the market side, we focus more on the development of key regions and improve the efficiency of the single market. For some low-return markets, we have also significantly reduced our investment. The focus of the team has also been adjusted from user growth to building a positive flywheel for products, content, and algorithms, breaking through the cold start phase, achieving user quality and stickiness, and accumulating valuable experience for future expansion in broader overseas markets. After the adjustment, we see that the core indicators of overseas average MAU (monthly active users), DAU/MAU, user retention rate and duration have further improved in the third quarter. At the same time, we also started to try some monetization business overseas. In the future, we will steadily advance the implementation of long-term overseas strategies.
CICC analyst Yanyan Xiao: Thank you to the management and congratulations on the strong performance. My question is about content ecology. This year we have observed that the Kuaishou platform continues to launch a series of high-quality and characteristic content, such as skits, sports and knowledge content. I would like to ask how Kuaishou will plan and invest in the entire content side in the future?
Cheng Yixiao: We always operate the content community with true, diverse, beautiful, and beneficial values to help users discover a content world that can expand their life experience and interests. Our investment on the content side is also focused on user needs, and provide more diverse content in response to changes in these needs, and continue to make users feel interesting and valuable. Pan-knowledge is a good example. We have observed that user needs are escaping from pure entertainment consumption and extending to valuable service content. After the relevant content was launched, it was also very popular from the consumer feedback on the user side.
We also realize that the operation of content is equally important, which can better help content release value, increase user engagement, and help user growth. For example, we have introduced a lot of sports content since the end of last year, and we attach great importance to the development of the second creation rights of these content and the development of related user interaction activities. With the development of systematic content operations, the penetration and consumption of sports content and creative activity have increased significantly, which in turn feeds back the supply side of our content.
On the whole, Kuaishou content is still based on UGC (User Original Content). As a platform, we will continue to optimize the creative experience, empower creators, and provide creators with social and economic value, and provide creators with traffic and monetization support in the initial stage. At the same time, for some new content verticals, we will also disassemble the entire supply-side situation, and some involve copyright investment, and we will also selectively invest after evaluating the comprehensive return. In a longer period, the depth, breadth, quality and differentiation of content will also help us bring more endogenous user growth and increased participation. We will continue to value and invest in content. (over)
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