Kuaishou Cheng Yixiao: We have more advantages in the sinking market of live broadcast e-commerce

Kuaishou Technology released its fourth-quarter and full-year results in 2021. The financial report shows that Kuaishou’s annual revenue reached 81.08 billion yuan, a year-on-year increase of 37.9%; The loss during the year was 78.077 billion yuan, Narrowed by 33.1% year-on-year; the adjusted net loss was 18.852 billion yuan.

After the financial report was released, Kuaishou co-founder, executive director, and CEO Cheng Yixiao, CFO Jin Bing, and other senior executives attended the subsequent financial report conference call, interpreting the main points of the financial report and answering questions from analysts. The following is the main content of the analyst Q&A session of the conference call:

Credit Suisse analyst Kenneth Fong: My first question is about the user and traffic growth trends in the fourth quarter, both of which hit record highs, what are the growth drivers behind this? In addition, we also saw that the Spring Festival activities held by Kuaishou in the first quarter were very effective. Can you share with us the latest situation of Kuaishou in 2022?

Cheng Yixiao: First of all, from a general perspective, short videos and live broadcasts, as more abundant, interactive, and disseminated content forms, are still iterating on traditional media, and their carrying capacity for content and usage scenarios is constantly expanding. has been further popularized. In addition, the degree of screening of short videos is higher, and the efficiency of the presentation will be higher, and it has become the mainstream consumption form. We believe that China's short video DAU (daily active users) scale has the opportunity to reach 1.1 billion. As a 10-year-old company, Kuaishou continues to achieve exciting results on the growth side. In the second half of 2021, our DAU and total traffic increased by 18.5% and 58.3% year-on-year, respectively, especially in the fourth quarter, our DAU reached a record high of 323 million, which further strengthened our realization of 400 million in the medium and long term. Confidence in DAU goals.

Our main work on the growth side includes two aspects: strengthening the differentiation of competitors and improving the efficiency of our own organization. The short video industry has gradually switched from the initial incremental development stage to the stock development stage, which requires us to create more differentiated value for users and form a more unique user mind. The positioning of the community platform is the primary advantage of Kuaishou different from other software platforms. This is determined by our underlying values ​​and traffic distribution logic, which is very difficult to replicate. As of the end of 2021, the number of user pairs who have followed each other on the Kuaishou platform has exceeded 16.3 billion, an increase of 68.2% compared to the end of last year. From the perspective of the mutual relationship rate, Kuaishou is very leading in the industry. Kuaishou's private domain traffic is also growing, which proves the high quality and strong mentality of Kuaishou's private domain. In terms of content, we continued to serve the more personalized needs of users, and explored more new featured categories that can be carried by short videos and live broadcasts, forming a more differentiated user content mentality. In addition to the Kuaishou short dramas I mentioned just now, groups such as sports and new knowledge have contributed to us positive customer acquisition and long-term returns, and have driven the activity of user content creation. Kuaishou's content screen ratio leads the industry, which fully reflects that users prefer content-based interaction in addition to content consumption, and there is a very strong trust connection between them. On the side of goods and services, Kuaishou is also constantly enriching the choices of users, and has begun to expand the scene of short video live broadcasts to new areas such as local life and recruitment to meet the needs of more users.

Efforts to improve organizational efficiency also contribute to user growth. Since the third quarter of last year, we have continued to optimize customer acquisition efficiency and user retention. The first quarter is the peak season for customer acquisition and traffic growth in the Internet industry. Therefore, this year Kuaishou has carried out the joint operation of the Spring Festival activities and the Winter Olympics activities. Combined with the past experience and efficiency improvement work, the effect of pulling new ones is indeed better than in previous years. The retention rate after the Spring Festival has increased year on year. In the first quarter of this year, the total investment in users' Spring Festival projects has been further optimized compared to last year, and the efficiency has improved significantly. We remain confident in the growth of total traffic this year and are steadily moving towards the mid-to-long-term target of 400 million DAU.

JPMorgan analyst Alex Yao: I am glad to see that Kuaishou maintained rapid growth in its e-commerce business this quarter, despite the somewhat worrying macro environment. My first question is how does the management view the long-term ceiling of the live broadcast e-commerce industry? Second, compared with other platforms, what are the competitive advantages of Kuaishou e-commerce? Last question, we have recently seen the advancement of some regulatory requirements, such as the review of anchor tax issues, etc. I would like to ask the management, have these new regulatory requirements had any negative impact on Kuaishou's e-commerce business?

Cheng Yixiao: We always believe that live e-commerce, as a new content carrying method and sales channel, has shown great advantages to both consumers and the supply side.

First of all, live e-commerce is a more efficient form of content carrying. Compared with traditional shelf e-commerce, which is mainly based on pictures and texts, live e-commerce is obviously more intuitive and vividly superimposed between users and anchors. There is a high-density real-time interaction between them, which can provide consumers in the live broadcast room with richer decision-making information, thereby bringing a better shopping experience and higher conversion efficiency. Secondly, live broadcast e-commerce is a sales channel that can better meet consumers' shopping needs of "going around". With the continuous improvement of Chinese people's living standards and the highly diversified product choices, more and more consumers are in the mental state of "having a clear shopping budget and willingness, but the shopping goals are not clear". At this time, consumers usually choose to "go shopping", and then purchase goals can be discovered and clarified in the process. The interesting content consumption experience of live broadcast e-commerce can better meet the shopping needs of users for "going around", and the lively atmosphere in the live broadcast room can further stimulate users' purchase intention and promote conversion. In the long run, we believe that the GMV (gross merchandise transaction) scale of the live-streaming e-commerce industry has the opportunity to reach RMB 6 trillion.

Your second question is about the competitive advantage of Kuaishou e-commerce. Kuaishou's years of persistence in product traffic and long-term values ​​have enabled us to have high-quality private domain traffic and a user group with strong trust and high interaction. The prototype of the "private domain trust e-commerce model" also came into being on Kuaishou, which is a feature and precious precipitation that cannot be copied. The support for private domains also gives our merchants and anchors more motivation to develop long-term user relationships and operations, thereby further optimizing the consumer experience, and our monthly repurchase rate is also leading the industry. Secondly, compared with other platforms, Kuaishou has more advantages in sinking market users. We have also noticed that the income growth rate of this part of the population is higher than the overall, and there will also be a demand for consumption upgrades. The essence of consumption upgrade is to increase the willingness to pay for the differentiated attributes of products, and the core of brand products is to express differentiation. Therefore, consumption upgrades usually manifest themselves as buying more branded goods. We found that, in addition to well-known brands in the traditional sense, some emerging "kuaishou brands" with Kuaishou as their main business position are more likely to stand out. These brands usually come from the source of the industry chain. Compared with well-known brands, the supply of these "fast brands" is more cost-effective, which is more in line with the consumption level and consumption psychology of users in the sinking market; at the same time, these "fast brands" "Have excellent content capabilities, it can more efficiently use the carrier of live broadcast to attract users to continue watching and converting; finally, these "fast brands" also have a strong willingness to commercialize, continue to expose, build brand image, and accumulate brand equity. Some "fast brands" have begun to take shape, with annual sales reaching hundreds of millions or even billions. Why can these emerging brands be carried on Kuaishou? On the one hand, Kuaishou, as a content platform with traffic advantages, has given these brands a content position to build brand stories and brand images; on the other hand, Kuaishou has core advantages in private domain traffic, and users can continue to revisit and re-visit on Kuaishou. purchase. Kuaishou's monthly repurchase rate leads the industry, which can effectively precipitate users' brand mentality, thereby realizing the long-term healthy operation of the brand. These competitive "kuaishou brands" are Kuaishou's specialty offerings, which can not only meet the needs of Kuaishou's existing users but also effectively help us acquire new buyers.

Finally, on recent regulatory issues. Indeed, this also places higher demands on our governance work. Live e-commerce is an emerging industry. As a leading platform in the industry, Kuaishou will maintain healthy communication with regulatory authorities to ensure the orderly, healthy, and sustainable development of the industry. We have been committed to building e-commerce infrastructure and strengthening platform governance to improve users' consumption experience on the platform and their trust in the Kuaishou platform. We launched the "Small Store Trust Card" protection mechanism, which provides a variety of user rights including "refund without return". We have implemented strict punishment and crackdown measures for anchors and merchants who operate and sell fake and shoddy goods, false propaganda, and fraudulent behaviors in the live broadcast room. In the future, we hope to grow with the industry, change the consumption experience of more users and the sales experience of merchants, and contribute to the development of the digital economy.

Morgan Stanley analyst Alex Poon: Ask the management, in the fourth quarter, we saw a significant improvement in Kuaishou in terms of cost reduction and efficiency enhancement. How does the company plan to narrow its losses this year and achieve domestic business balance?

Jin Bing: We are very confident that the adjusted net profit of the domestic business will turn positive this year. Kuaishou's path is also very clear.

First of all, we believe that the company's gross profit margin level will continue to increase this year: first, with the development of advertising and e-commerce businesses, the proportion of such high-margin businesses in revenue will further increase, thereby increasing the company's overall gross profit margin growth; Second, under different business lines, we are also carrying out more cost control work, hoping to better control costs such as revenue sharing; third, as part of cost reduction and efficiency enhancement, we are also promoting bandwidth, servers, depreciation Amortization, and other operating costs and labor costs release more operating leverage and improve asset utilization efficiency. In the fourth quarter of 2021, Kuaishou's total traffic increased by 57.6% year-on-year, but traffic-related operating costs only increased by 10.8% year-on-year, and the proportion of revenue decreased by 3.1 percentage points; fourth, although under other costs, we will Slightly increase the investment in content costs, we believe that content can help pull new people, pull back, and improve participation, and has high user value and commercial value. For content investment, we will also carefully evaluate ROI (return on investment). In 2021, our gross profit margin reached 42%, an increase of 1.5 percentage points from 2020, and will continue to increase this year.

Secondly, in terms of cost control, we hope to continue to release the effect this year. In terms of sales and marketing expenses, starting from the third quarter of last year, while ensuring user growth and optimizing retention rates, through organizational structure adjustment, efficiency optimization, and other means, the cost of customer acquisition per user and the cost of maintaining a single DAU have been kept down. the trend of. This year, we will continue to strengthen refined operational management. In addition, the competitive environment of external channels has also eased compared to last year. Therefore, we hope that the absolute value of this year's sales and marketing expenditures will not be higher than last year, resulting in a significant decrease in the revenue ratio. In terms of personnel-related expenses, the company's current talent pool is relatively sufficient. We are also continuously optimizing the management of personnel efficiency and element efficiency. We hope that the proportion of R&D and administrative expenses to revenue can also be further optimized.

Jefferies analyst Thomas Chong: Kuaishou's advertising business continued to maintain very strong growth in the fourth quarter. However, we see that there is still a lot of uncertainty in the macro-environment. How will management affect Kuaishou's advertising goals for the past year? How big is the impact? In addition, how will Kuaishou continue to improve its advertising strategy?

Cheng Yixiao: The challenges of the macro-environment do exist and will continue to affect the entire advertising industry, and Kuaishou is no exception. Despite this, Kuaishou's marketing service revenue still reached 42.7 billion yuan, and we still achieved rapid growth of 95% over the industry. There are several reasons behind this:

First, it can be seen that advertisers still have budget tilts for video platforms with large volumes and continuous growth in traffic. In the fourth quarter of 2021, the total traffic of Kuaishou achieved rapid growth of nearly 58% year on year.

Second, Kuaishou provides a combination of comprehensive advertising products and closed-loop transaction links that are rare in the market. We have five kinds of comprehensive advertising products including inner and outer circulation plus brand, alliance, and Juxing, which can meet the overall demands of customers in the marketing link. At the same time, the closed-loop mall of Kuaishou e-commerce helps advertisers to complete transaction conversions more efficiently and optimize experience and effects. The growth rate of internal loop advertising is faster than that of the broader market and has reached triple digits.

Third, although Kuaishou's advertising business started relatively late, it also means that we have more growth, grasp, and space. In terms of the coverage of advertisers, with the improvement of Kuaishou's brand power, business strength, and service capabilities, the number of Kuaishou advertisers will increase by more than 60% in 2021, and there is still room for further improvement. At the same time, due to our continuous investment and iteration of algorithms and products, the advertising system and products have been further optimized, and the average monthly consumption of advertisers has achieved double-digit growth. Although our external loop effect advertising is affected by the macroeconomy and the regulatory policies of the relevant advertiser's industry, from a trend point of view, compared with other competitors in the industry, Kuaishou has shown stronger resilience.

Fourth, the optimization of advertising quality and algorithms, as well as product innovation, have also won us room for improvement in the advertising loading rate and conversion rate. Kuaishou's advertising content is more native, and we also have industry-leading algorithm capabilities and continuous iterative product capabilities, which have laid a very solid foundation for us to provide a better advertising experience. In 2021, Kuaishou's ad load rate will increase slightly as planned, and there is still room for growth.

Finally, our brand business, alliance business, and Juxing business are all in the early stage, and Kuaishou has greater growth potential than mature companies. These drivers will continue to drive business growth this year and increase our advertising market share. At the same time, we also maintain a cautious attitude towards the recovery of the general environment and will focus more on the power of our own business.

UBS analyst Felix Liu: My question is about Kuaishou's new business direction. We have noticed that the company has recently launched a platform focusing on blue-collar recruitment, Kuaizhaogong, and has also established strategic cooperation with Meituan on "Local Life". May I ask what the management thinks about these new businesses in Kuaishou? Such as medium and long-term development space and further implementation strategies.

Cheng Yixiao: We believe that short videos and live broadcasts, as infrastructure, have the ability and potential to carry and change many industries, and can promote the development of the digital economy and improve business efficiency. In recent years, with the development of society and the economy, we have observed that the supply and demand relationship in many industries is changing, resulting in part of the demand that cannot be fully satisfied with the traditional model. Blue-collar recruiting is one of them. Problems such as information asymmetry, talent structure mismatch, and labor shortage have long existed between blue-collar people and enterprises, which hinder employment efficiency and economic development. Relevant data shows that among the current labor force in my country, the size of the blue-collar population exceeds 400 million, which is more than twice the size of the white-collar population, and it is also the basis for the employment of all people. But looking at China's online recruitment market, the blue-collar market penetration rate is only a dozen points, while the white-collar penetration rate has reached more than 50%. It can be seen that the incremental space and growth rate of blue-collar people in the online recruitment market are the most potential.

Kuaishou has also been exploring the ecology of live broadcast, and blue-collar recruitment is one of the very suitable starting points for Kuaishou. There are a large number of blue-collar users in Kuaishou, and strong trust relationships and high-frequency real interactions have been established between users and between users and the platform. Through short videos and live broadcasts, candidates can understand the employment environment and related information in a more intuitive way in the shortest time, improve decision-making efficiency, and make the job search experience more reliable. At the same time, companies can also use Kuaishou’s traffic and algorithm technology to find suitable job candidates more efficiently. As blue-collar workers change jobs more frequently, and companies are more sensitive to recruitment costs and rates of return, larger and more efficient real-time online products are also urgently needed by companies. We hope to gradually improve video-based recruitment companies and create better employment conversion rates for the blue-collar recruitment market. In the future, we also look forward to further utilizing our own capabilities and advantages to promote the further integration of the digital economy and the real economy and achieve long-term healthy development.

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