Kuaishou executives interpret the 2022 Q2 financial report

Kuaishou released its second quarter and full-year financial report for 2022 today. According to the financial report, the company’s revenue in the second quarter was 21.7 billion yuan, a year-on-year increase of 13.4%. The net loss was 3.18 billion yuan, and the estimated loss was 5.14 billion yuan; the adjusted net loss was 1.31 billion yuan, and the estimated loss was 2.91 billion yuan. After the release of the financial report, Kuaishou co-founder, executive director, and CEO Cheng Yixiao, CFO Jin Bing, and other senior executives attended the subsequent financial report conference call to interpret the main points of the financial report and answer questions from analysts.

The following is a transcript of the analyst Q&A session on the conference call:

Morgan Stanley analyst Alex Poon: My question is about Kuaishou e-commerce. Although affected by the epidemic, the company's GMV (gross merchandise transaction) in the second quarter still achieved unexpected growth. Could you ask the management to share with us the progress made in the ecological construction of Kuaishou e-commerce? How will the company respond to changes in consumer behavior and habits in the post-epidemic era? What opportunities and challenges will the post-epidemic era bring?

Cheng Yixiao: First, in the second quarter, we continued to build a trust-driven, experience-based e-commerce ecosystem, and accelerated the conversion efficiency with live broadcast rooms as super sales nodes. Trust is the cornerstone of Kuaishou live broadcast e-commerce, and we continue to improve the protection system for user rights and interests. The coverage rate of Kuaishou's "trust purchase" related rights and interests orders has been further improved. Among them, the coverage rate of high odds rights and interests such as "fake one loses nine" has reached 50% in the second quarter, leading the industry.

We further improve the platform governance, and the "return customer trust index" is reflected in the purchase link of commodities. At the same time, we have further strengthened users' trust in merchants and platforms. Kuaishou's e-commerce monthly repurchase rate remained at an industry-leading level, with both year-on-year and quarter-on-quarter increases in the second quarter.

If the private domain (traffic) is the basic business of the long-term operation of the merchants in Kuaishou, then the public domain traffic can help the merchants quickly pass the "cold start" stage and improve the business ceiling. This quarter, we focused on enhancing the conversion efficiency of public domain traffic, enriched and refined the labels of products and users, and improved the accuracy of matching between people and goods. The GPM (selling ability of live broadcast rooms) of public domain e-commerce live broadcasts has achieved a year-on-year high double-digit percentage increase, and the month-on-month growth has also continued. Through high-quality goods and services, we further strengthen repurchase and the conversion of private domain traffic to form an efficient "public and private domain two-wheel drive" model.

The unexpected growth of the e-commerce business in this quarter is also inseparable from the continuous introduction of high-quality resources on the supply side. In the first half of this year, the number of new merchants each month increased significantly compared with the same period last year, an increase of over 90%. The product display of live e-commerce, the advantages of interactive functions, and the higher conversion efficiency of Kuaishou are gradually being recognized and valued by more merchants. Kuaishou is also actively expanding the resources of high-quality industrial belt merchants. We plan to deploy 100 industrial belts this year, more than 50% in the first half of the year, covering more than a dozen industries.

On the brand supply side, we continue to "promote brands and 'fast brands'" to provide consumers with more abundant and high-quality commodity resources and further build brand awareness. In the second quarter, the number of monthly sales brand merchants increased by more than 200% year on year. Among them, an internationally renowned beauty brand achieved a monthly average GMV of over 200 million in the first quarter. During the "616 Shopping Festival", brand GMV increased by more than 5 times year on year, and the number of monthly sales "fast brand" merchants also doubled month on month. In addition to the advantageous clothing and beauty categories, "fast brands" have also expanded to categories such as food and beverages, home appliances, digital, home furnishing, and department stores.

In addition, combined with your second part of the question, the epidemic continued repeatedly in the first half of this year, and many merchants felt the pressure of offline operations, and their willingness to explore online channels will be stronger. At the same time, the epidemic has also accelerated the pace of other traditional online merchants to explore new growth channels, which has also helped us accelerate the introduction of new merchants. This year, Kuaishou continued to strengthen its support for "cold start" merchants, established exclusive traffic words, and provided diversified product marketing methods and one-to-one operation services. At the same time, our service providers will also provide more targeted services around the pain points encountered by merchants in the initial stage of operation, such as product selection and operation, to help merchants quickly "cold start" and realize their growth transition. In the second quarter, the next-month retention rate of new merchants maintained a significant increase from the previous month and year-on-year, achieving a jump in sales, and the "cold start" time was shortened by nearly 15% year-on-year.

In addition, we have observed that in the post-epidemic era, users are more sensitive to prices and their consumption tends to be more rational. This is in line with Kuaishou's philosophy of "real people, real goods, and real prices". We have brought more exposure opportunities to merchants capable of providing high experience and cost-effectiveness, and encouraged these merchants to continuously optimize their products and services. Buy with confidence.

Despite the sluggish performance of non-essential consumption due to the impact of the epidemic, in Kuaishou, we saw that categories such as beauty makeup and home appliances still showed a relatively good recovery trend during the promotion period. During the epidemic, categories of essential consumer goods such as food and beverages gained opportunities for rapid development. Although the penetration rate of live broadcast e-commerce to food and beverages is still relatively low, the anchor's precise expression of taste and taste, coupled with vivid display and mass-selling sales model, also give live broadcast e-commerce more room for development.

Trust in e-commerce, superimposed on the advantages of high-speed growth in traffic and the continuous improvement of matching efficiency and commodity supply, let us believe that standard products also have a lot of room for penetration in Kuaishou. At the same time, we are also strengthening the construction of semi-mall product functions such as the entrance of "Kuishou Xiaodian", "search-box", "guess you like it", etc., to help us quickly find the purchase entrance of products for users with clear shopping purposes, to better meet the repurchase needs of users, and continue to strengthen users' purchasing mentality in Kuaishou. In the medium and long term, we believe that the GMV of the live e-commerce industry with short video platforms as the core has the opportunity to reach RMB 6 trillion, and Kuaishou will continue to strengthen our dominant position in the industry.

Jefferies analyst Thomas Chong: I would like to ask the management, how will Kuaishou achieve better business growth while reducing costs and increasing efficiency.

Jin Bing: We achieved domestic business leveling two quarters ahead of schedule, which is really encouraging. The specific optimization aspects are divided into several parts.

First, at the level of gross profit margin. First, while maintaining the steady growth of business revenue, we have also made breakthroughs in the control of business sharing costs. With the gradual increase in core business volume, business scale and influence, we have also carried out more effective innovation and optimization of the sharing mechanism, resulting in a decrease of 2.5 percentage points in the ratio of the overall sharing cost to revenue. Secondly, adhering to the concept of "demanding efficiency from technology and controlling costs with efficiency", we pursue the ultimate cost efficiency improvement on the technology side. On the technical side of the server, Kuaishou promotes the refined management of resources, implements technological innovation, and significantly improves the utilization of computing and storage resources to obtain the optimal unit resource cost. In the first half of this year, our total domestic time increased by more than 40% year-on-year, but the domestic bandwidth cost per thousand minutes decreased significantly year-on-year, and the ratio of bandwidth and server costs to revenue decreased by more than 3 percentage points, which contributed to the improvement of the Group's gross profit margin. contribute. We have carried out advanced technical research and application in audio and video technology and combined with the implementation of multiple video encoding and decoding algorithms, image enhancement, and audio compression algorithms, which significantly reduces the total bandwidth usage. Among them, the self-developed codec algorithm KVC is the industry's first next-generation video algorithm standard with large-scale online application promotion. In addition, we launched PCDN and other integrated device-cloud technologies on a large scale, which greatly increased the proportion of free and low-cost bandwidth usage.

Second, at the cost level. First, in terms of sales and marketing expenses. Since the third quarter of last year, while ensuring user growth, we have maintained a downward trend in the cost of acquiring a customer per user and maintaining a single DAU (daily active user) cost through organizational structure adjustment, efficiency optimization, and technical iteration, and gradually strengthened Refined operation management. The competitive environment has also softened compared to last year. In the second quarter of this year, despite the rapid growth of traffic and record high users, the ratio of sales and marketing expenses to revenue decreased by 18.5 percentage points year on year.

Finally, at the level of personnel-related costs. Through a series of organizational structure iterations and efficiency improvement work, the ratio of labor-related costs to revenue has also been significantly optimized, moving closer to the industry's leading level. Through the joint efforts of all internal parties, the effect of our loss reduction is very obvious. Kuaishou will continue to explore more monetization models, improve monetization efficiency, adhere to the route of efficient growth, open source and reduce expenditure, and lay a solid foundation for our medium- and long-term value release.

Credit Suisse analyst Kenneth Fong: How is the management's "quick recruitment" progressed recently? In addition, what is Kuaishou's future realization rhythm and plan for the business?

Cheng Yixiao: The blue-collar population has exceeded 450 million, accounting for 50% of the national labor force, and is the largest recruiting group. However, with the fading of the demographic dividend and the emergence of labor shortages, the blue-collar recruitment market has transformed into a supply- or user-driven industry. However, we are concerned that these users have not received good service in the past, and there are many pain points in the blue-collar recruitment industry, such as information asymmetry, rampant false information, and uneven quality of contract performance. At the same time, employers are also faced with problems such as low recruitment conversion rate, high recruitment cost, and poor scale effect.

In the post-pandemic era, we have noticed an opportunity for blue-collar recruitment. As the favorite short video and live broadcast platform for blue-collar users, Kuaishou has the responsibility to stand up and provide better solutions for the industry, provide a better user experience for the majority of blue-collar users, and provide more efficient conversion performance for many recruiting companies.

The efficiency and experience advantages of Kuaishou's online blue-collar recruitment are mainly based on three core competencies that we possess.

The first is the basic ability of user scale. In the second quarter of this year, the deduplication of MAU (monthly active users) of our "Quick Recruitment" business has exceeded 250 million, making it the largest online blue-collar recruitment platform in China. The impact of the user base on the business conversion model is equally important. Compared with daily entertainment consumption, job hunting is a relatively low-frequency user behavior, and blue-collar users have to change jobs three to five times a year. For traditional platforms, users will be uninstalled or no longer active after finding a job. Therefore, a large amount of budget will be invested in acquiring customers. In the end, higher operating and traffic costs will be paid by recruiting companies. At Kuaishou, our rich short videos and live broadcast content are the key to user acquisition and retention. The recruitment services provided on this basis demonstrate better operational efficiency and lower recruitment costs for merchants.

The second is the ability to build trust scenarios. "Trust" is extremely critical in the context of blue-collar recruiting. For example, in the blue-collar job search in the secondary industry, 80% of them are job hunting in different places. In addition to the impact of the epidemic, it is very important to understand the company and the position, and (quick recruitment) can save job search costs. Kuaishou’s live broadcast interactive mode allows users to more clearly understand key information such as the office environment and work content, and at the same time builds trust in anchors and companies. This real and real-time interactive trust job search experience cannot be satisfied by traditional search and information display modes. . Entering the offline contract performance link, since the anchor has accumulated valuable user assets on Kuaishou, the anchor has more motivation to perform the contract well. Kuaishou also provides users with a complaint channel. This long-term business awareness and trust model gradually established under mutual trust and public supervision will far exceed the traditional game model in terms of experience and transformation effect, and ultimately reduce the release of false information and offline Fulfillment deceives users.

The third is distribution and matching capabilities. Kuaishou's huge and rich traffic structure is very good at national distribution. For blue-collar recruitment businesses, it is more conducive to efficient traffic matching and scale effect, which is very suitable for short-term, large-scale batch recruitment. Our industry-leading MMU technology can deeply understand the content, combine user feature identification to better "cold start" data, introduce long-term accumulated algorithm technology, accurately match supply and demand, increase public domain traffic distribution, and increase the number of views and transaction rates. , and finally form an efficient, accurate, and real service link. Based on feedback from recruiters, our onboarding success rate is very competitive in the industry. For enterprises, (Quick Recruitment) is one of the most efficient options.

In general, in the blue-collar recruitment track, the advanced nature of the Kuaishou model, the real-time interactivity of live broadcasts, and the trust genes of Kuaishou make blue-collar users a lower threshold for job hunting, and the actual transformation effect of enterprises is better.

We have also achieved some key results in our recent business. In June of this year, when we launched “Quick Recruitment” for about half a year, Kuaishou’s daily resume delivery peak number exceeded 360,000, and the magnitude has rapidly climbed to second in the industry. But our investment in related resources is significantly lower than other blue-collar recruitment platforms. With the increase in business volume, we have also formed a certain increment in the blue-collar recruitment industry: more and more enterprises, intermediaries, and anchors actively seek cooperation with Kuaishou, and even shift their business focus to Kuaishou. This is conducive to the formation of the flywheel effect and the establishment of user mentality and content moat. As of the end of June, the number of our cooperative enterprises has exceeded 100,000.

At the same time, we see the same direction between the blue-collar recruitment business and the platform's core consumption indicators. Industrial content such as blue-collar recruitment meets the living needs of users to a certain extent, and Kuaishou users also prefer our platform, which brings a resonance of various values.

In terms of monetization, we have also started small-scale advertising business attempts, and the initial results are good. Other deeper business monetization models are also being explored. This year, we will continue to polish our business and content, expand the scale of registration, improve the efficiency of traffic usage, and run the business model. We predict that by 2025 to 2026, the blue-collar online penetration rate will reach 30%, and the online blue-collar recruitment market is expected to reach RMB 100 billion by then.

We hope to use Kuaishou's own advantages to help the industry improve the experience, increase the online rate as soon as possible, and gain a leading share in the 100 billion markets of online blue-collar recruitment in the future.

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