Kuaishou Technology (1024.HK) has announced a robust financial performance for the fourth quarter and full year of 2023, with significant user base expansion and a strong e-commerce presence. The company's total revenue for the year reached RMB 113.47 billion, marking a 20.5% increase from the previous year, and reported a record-setting adjusted net profit of RMB 10.27 billion.
The Q4 results were particularly impressive, with revenue growing by 15.1% year-over-year to RMB 32.56 billion, driven by the success of online marketing services and e-commerce ventures. The earnings call highlighted Kuaishou's strategic focus on enhancing user experience, expanding its e-commerce ecosystem, and leveraging AI technology for future growth.
Key Takeaways
- Kuaishou's MAUs surpassed 700 million, setting a new record.
- E-commerce GMV reached RMB 403.9 billion in Q4, contributing to an annual GMV of over RMB 1.18 trillion.
- The company reported a 20.5% year-over-year increase in total revenue.
- Adjusted net profit for the year turned positive, recording RMB 10.27 billion.
- Overseas business revenue increased nearly 200% year-over-year.
Company Outlook
- Kuaishou anticipates continued high growth trends in its e-commerce business.
- Focus on content synergy, user demand exploration, and conversion efficiency improvement.
- Plans to enrich marketing scenarios and provide merchants with predictable business opportunities.
- Investment in gaming business expected to contribute to future growth.
Bearish Highlights
- The company is refining operations to lower user acquisition and retention costs to improve profitability.
Bullish Highlights
- Online marketing services revenue increased by 20.6% to RMB 18.2 billion.
- E-commerce GMV grew by 29.3% year-over-year.
- Strong growth in live streaming hosting consumption by small and medium-sized merchants.
Misses
- There were no specific misses reported in the earnings call.
Q&A Highlights
- Kuaishou is actively developing AI and large language models, with their 175B scale model surpassing GPT 3.5 in performance.
- The company is exploring deeper integration with the Kuaishou app and other applications such as digital human live streaming and customer service.
In summary, Kuaishou Technology has demonstrated significant growth and profitability in the fourth quarter of 2023, with a focus on expanding its user base, e-commerce ecosystem, and leveraging AI technology for future developments. The company's strategic initiatives and investment in technology are expected to drive continued success in the upcoming year.
Full transcript - None (KUASF) Q4 2023:
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology Fourth Quarter and Full Year 2023 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. This English line will be in listen-only mode. I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology.
Matthew Zhao: Thank you, operator. Good evening and good morning to everyone. Welcome to our fourth quarter and full-year 2023 financial results conference call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Executive Director and CEO, Jin Bing, Chief Financial Officer. Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update any forward-looking information except as required by law. During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results, please refer to our results announcement for the fourth quarter and full year ended December 31, 2023 issued earlier today. For today's call, management will use Chinese as the main language and third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and consecutive interpreting during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. I will now hand the call over to Yixiao.
Cheng Yixiao: Hello, everyone. Welcome to Kuaishou's fourth quarter and full-year 2023 earnings conference call. Despite external market challenges in 2023, we remain true to our long-term vision of creating value for users and partners by building a healthier and more inclusive content and commercial ecosystem. We supported the high-quality content and expanded recommendations for useful and entertaining content, including short videos and live streaming. We continually refine our entertainment and live streaming ecosystem, making it healthier and sustainable by supporting small and medium streamers and Chinese traditional culture streamers. We also used the scoring system for merchandise, store experiences, and KOL's reputation in our traffic distribution, striving for a more satisfying e-commerce ecosystem. We upgraded our traffic distribution mechanism across organic marketing and e-commerce channels by including user experience indicators in our recommendation algorithm to align content quality and commercialization efficiency. Last, we optimized our organizational structure to better integrate content and commercial ecosystem within the team, promoting synergy. As a result, our user base reached a greater height in 2023. In Q4, average MAUs on the Kuaishou app exceeded 700 million, a new record. More e-commerce merchants and marketing clients choose Kuaishou as their go-to platform for long-term operations, with monthly active merchants on Kuaishou up by 50% and marketing clients doubling in 2023. These two businesses also outperformed the market in growth rate, increasing their market share. In overseas markets, we targeted key countries, considerably increasing revenues and decreasing losses. Our innovative business, like local services like Kwai Hire and Ideal Housing focus on building strength for rapid future expansion. Progress in our content and commercial ecosystem also led to robust financial improvement. Our group's total revenue reached RMB 113.5 billion in 2023, representing a 20.5% year-over-year increase. Moreover, we turned losses into gains in both adjusted net profit and profit for the year in 2023. Our full-year adjusted net profit surpassed the RMB 10 billion market to reach RMB 10.3 billion, which demonstrates the company ushered in a new era of sustainable profitability. Next, I will discuss our key business developments for the quarter. First, user growth and ecosystem construction. In Q4, we optimized user growth strategies via scenarios for user demand insight and explored user interest with a refined algorithm. As a result, average DAUs and MAUs on the Kuaishou app reached 382.5 million and 700.4 million, a 4.5% and 9.4% year-over-year increase, respectively. In Q4, the average daily time spent per DAU on the Kuaishou app was 124.5 minutes. Furthermore, we fostered a vibrant user community by optimizing user-to-user relationships. By the end of 2023, there were 33 billion pairs of mutual followers on the Kuaishou app. We focused on acquiring high-value users with high retention potential to drive growth quality and reduce the acquisition cost per new user year-over-year in Q4 by optimizing efficiency in growth across multiple channels. The subsidy cost per DAU of Kuaishou Express decreased year-over-year in Q4 due to our refined operations strategy. Content consumption is the core value that we offer users at Kuaishou. We have built a sustainable content supply ecosystem that highlights content, showcasing Kuaishou's unique characteristics. For example, Kuaishou has always led as a pioneer in the short play video, launching almost 1,000 short plays by Kuaishou Astral Short Plays, with over 300 blockbusters, each garnering more than 100 million views by the end of 2023. We've also introduced tens of thousands of subscription-based short plays from third parties. We created a superior native user experience with a self-developed sales funnel conversion path, boosting supply and demand through efficient traffic distribution. In Q4, heavy users watching over 10 episodes a day reached 94 million, a 50% year-over-year increase. High-quality short plays also increased the user's willingness to pay, with the daily average paying users on Kuaishou tripling year-over-year in Q4. Another example is in the three rural verticals, including agriculture, rural areas, and rural inhabitants, where we built a warm online community for rural users with fair and inclusive traffic distribution. In Q4, the number of short views posted by active creators with over 10,000 followers in this vertical increased by over 30%, with average views rising over 20% year-over-year. Growth in this vertical showcases more rural creators are gaining exposure on Kuaishou. We also provided diverse monetization channels to support this burgeoning group of creators. As a result, rural content creators with over 10,000 followers who earn income from e-commerce and marketing services rose by over 30% year-over-year in Q4, playing an important role in promoting rural revitalization. For our search business, by refining the search after watching scenario and giving more weight to social relations and useful content in search result rankings, we enhanced search user penetration and search experience. In Q4, Kuaishou search saw a more than 16% increase in average monthly users and average daily searches continue to rise both on year-over-year basis. In terms of commercialization, revenue from search marketing services nearly doubled year-over-year in Q4. Second, online marketing services. In Q4, online marketing services revenue grew by 20.6% year-over-year to RMB 18.2 billion, representing 55.9% of the group's total revenue, a new record. This robust growth resulted from refined industry-specific operations, upgraded smart marketing placement products, and optimized algorithms. Additionally, the allocation of several marketing clients heavily weighted year-end marketing budgets bolstered this growth. In Q4, the number of active marketing clients rose by over 160% year-over-year. In Q4, native marketing services remained the key driver of online marketing revenue growth. We unveiled new features for our omni platform marketing solutions, such as in-placement analysis, post-placement review, and real-time material analysis, empowering merchants to utilize our high-quality traffic and maximize their GMV. In Q4, merchants' consumption on omni platform marketing solutions soared by over 200% quarter-over-quarter. Smart hosting products, including live streaming hosting, merchandise hosting, and search hosting, were widely used, reducing the placement threshold for small and medium-sized merchants and enhancing marketing consumption and performance. Merchants' consumption through live streaming hosting grew by over 150% quarter-over-quarter in Q4. In Q4, the year-over-year revenue growth rate of external performance marketing services continued to increase, especially in industries like media information, education, and training, and gaming. For paid short plays in the media information industry, we consistently optimized our self-developed sales funnel conversion path, creating a higher quality short play ecosystem and enhancing user experience. Meanwhile, we improved our real-time forecasting model through algorithms, boosting users' willingness to pay and encouraged marketing clients to advertise on our platform. In Q4, the marketing consumption of the rapid short play increased by over three-fold year-over-year. To enhance our product capabilities, we introduced UAL, which stands for Universal Auto Ads for Leads, and utilized AIGC to improve product efficiency and marketing materials quality. This provided our clients with the smart marketing capabilities for targeted demographics and improved placement stability. Integrating native marketing content with organic content, we achieved a true marketing as a content approach. In Q4, the consumption of external native marketing materials increased by over 50% quarter-over-quarter, with consistent increase in the share of external marketing consumption from native marketing materials. Regarding brands, our brand marketing revenue grew by over 80% quarter-over-quarter in Q4, boosted by key promotional events, including the Double 11 Sales Promotion and our own marketing program. We introduced marketing solutions integrating brand awareness, sales conversion, and operational marketing for clients in the automotive industry, reaching potential users and improving conversion efficiency. Utilizing our unique traffic and distinctive brand portfolios, we established deep marketing collaborations with leading automotive brands such as FAW-Volkswagen Audi and Nio (NYSE:NIO). Moreover, we boosted brand budget allocations by leveraging high quality content. Kuaishou Astral Short Plays became a preferred marketing tool for many brands. In Q4, revenue from marketing sponsorship of Kuaishou Astral Short Plays surged by over six-fold quarter-over-quarter, attracting customers from industries like fast-moving consumer goods, e-commerce, as well as cosmetics and skincare. Third, our e-commerce business. In Q4, our e-commerce GMV maintained a rapid growth rate of 29.3% year-over-year, reaching RMB 403.9 billion. This growth boosted our annual GMV to more than RMB 1.18 trillion and propelled our ongoing marketing share gains. By reinforcing our infrastructure, enhancing supply, consistently nurturing a healthy e-commerce ecosystem, and upgrading user experience, we made strong progress across users, goods and venues. On the user side, in Q4, the average number of MPUs reached a new high, exceeding 130 billion, and the MAU penetration rate increased to 18.6% due to enriched shopping scenarios like shelf-based e-commerce and ongoing product and feature enhancement. Notably, we introduced the e-commerce black card membership for top users alongside Kuaishou shop's money-saving monthly card, increasing engagement and purchase frequency for high-value users. Meanwhile, we refined smart subsidies and strengthened the governance of the e-commerce system. Bolstered by the Double 11 and Double 12 Sales Promotions, we maintained a year-over-year increase in both monthly purchasing frequency and ARPPU. On the supply side, over 1 million merchants joined the Double 11 Sales Promotion, boosting the monthly active merchants by over 50% year-over-year. Numerous merchants and the KOLs benefited from increased platform traffic, attracting new merchants continuously. In December, around 660,000 merchants were onboarded, reaching a new record for 2023. To support merchant growth on Kuaishou app, we introduced initiatives like the Merchants' Training Camp and our Uplift Initiative to assist in the cold start stage. Additionally, we also built service centers and product selection centers in the industry zones of 14 core cities. Leveraging service provider resources, we offered localized operations and training tailored to small and medium-sized merchants. For example, in the apparel industry zone in Suzhou, the service centers led to 40% growth in both active merchants and GMV. For brand merchants, we maintained robust growth in Q4. During the sales promotion period, GMV from brands rose by 155% year-over-year, with nearly 2,500 brands doubling their GMV in Q4. GMV from well-known brands' self-operated live streaming more than doubled year-over-year, primarily driven by brand-intensive industries like consumer electronics, home appliances, men's apparel, and sports. Additionally, we enhanced the brand retrieval with outperforming distribution products through the Stream Initiative and encouraged them to focus on self-operated live streaming. In terms of KOLs, we prioritized the health of our KOL ecosystem, encouraging new KOLs to engage in live streaming through the Spark Initiative, resulting in a nearly 7 percentage point rise in proportion of mid-tier KOLs in overall KOL-related GMV year-over-year. KOLs use short videos for product recommendations, integrated shopping links, and optimized shopping window displays to complement their live streaming efforts. On the distribution side, we boosted KOL sales enthusiasm through precise matching services and promotion events, such as spring new launches, end-of-season clearance sales, and winter closing sales. As a result, the number of active streamers in the sports and outdoors category increased by almost 200,000. In terms of e-commerce scenarios in Q4, we strengthened the infrastructure of our e-commerce ecosystem to meet user demand. Meanwhile, we also made significant strides in the shelf-based and short-video e-commerce realm. In Q4, the growth of shelf-based e-commerce GMV outpaced that of overall platform, accounting for over 20% of total GMV. This growth was driven by increased supply and demand, leading to over 60% year-over-year increase in average daily active merchants and average daily paying users. We provided full access to the shopping tab on our homepage during the promotional season to boost traffic. We enriched the merchandise supply based on the user preferences, expanding standard merchandise categories and brand merchandise. At the same time, we strengthened the users' mindset for the most value for money shopping through marketing initiatives like big brand, big subsidy, unlocking additional shopping leads and leading to over 70% growth year-over-year in average daily buyers in Q4. In addition, we explored the diversity for user shopping needs through algorithms and dynamically adjusted exploration traffic to incrementally reinforce users' shopping mindset at our shopping mall. In the search realm, user search induced e-commerce mindset was continuously strengthened. We increased the accuracy of the users' intention, identification, and merchant display, leading to a sustained increase in conversion efficiency. As a result, GMV expanded more than 60% year-over-year. Short video e-commerce GMV grew rapidly in Q4 and more than doubled year-over-year. This was mainly due to the enriched short video supply and improved content quality. For example, during the pre-sale period of Double 11 Sales Promotion, merchants expanded their exposure through short video, setting new pre-sale GMV records. Through the promotion period, merchants created blockbusters by leveraging short video and live streaming. After the promotion, short videos were used as steady and high quality e-commerce content that was widely disseminated to convert more views into buyers. In terms of the infrastructure of our e-commerce ecosystem, we strengthened our pricing capability in the Q4 by incorporating pricing signals into short video and shelf-based e-commerce scenarios improved. We visibility of highly cost-effective merchandise to further boost our platform's efficiency and our optimized user experience. Meanwhile, we stepped up our efforts to improve product labeling for new items and blockbusters and upgraded the three-score system which heightened the overall traffic allocation efficiency. Next, regarding our live streaming business, in Q4 2023, revenue from our live streaming business remains stable year-over-year, increasing by 3.4% quarter-over-quarter to RMB 10 billion. This was due to our unwavering commitment to fostering our ecosystem's long-term health and our focus on high-quality content as the core driving force behind our live streaming business. On the supply side, we have deepened and broadened our local operations in major regions nationwide, driving an increase in the number of original talent agencies and streamers, while increasing talent agencies' gross revenue. In Q4, the number of regional talent agencies collaborating with us exceeded 1,300. Meanwhile, we continued to develop new content interactive scenarios and product features to meet users' diverse consumption needs. Notably, we are consistently promoting emerging product categories, such as multi-host live streaming and grand stage, while integrating our policies, refining our product features, and expanding users' scenarios. Those combined efforts have been instrumental in driving our steady revenue growth. In Q4, the number of streamers on Kuaishou managed by talent agencies increased by nearly 40%, and the average daily live streaming time of streamers increased by more than 30%, both on a year-over-year basis. We continue to explore and cultivate high-quality live streaming content and streamers, carving out Kuaishou's distinctive characteristics. We strongly supported the key categories of traditional culture, such as opera and folk music. In 2023, the number of traditional culture streamers, including those involved in tangible cultural heritage inheritance, exceeded 190,000. In December 2023, Kuaishou Live collaborated with the Xinhua News Agency to create the new episodes of the National Arts live streaming program. This initiative effectively supported the growth of many traditional culture streamers. Moreover, at the 2023 Annual Grand Ceremony, we widened our range of development tracks to create growth opportunities for streamers and brought in support to encompass a larger pool of mid-tier streamers. This has led to a continued rise in the ratio of streamers with professional talents and skills, showcasing an enhanced long-term value. In addition, as a prime example of our live streaming services empowering traditional industries, our Kwai Hire live streaming platform for blue-collar recruitment increased by over 200% year-over-year in the average daily resume submissions during Q4, with the daily average number of users submitting resumes growing by over 10% year-over-year. Similarly, our Ideal Housing live streaming in real estate agency achieved a cumulative gross transaction value of more than RMB 16 billion in Q4. Finally, in terms of our overseas business progress, in Q4 2023, we continued our focused strategy on overseas some key markets. DAUs and the user time spent in core overseas, such as Brazil and Indonesia, grew steadily year-over-year. While developing our user ecosystem, we continued to promote the production of localized original content, offering diverse content such as workplace, mini games, paid courses, and sports, among others. We sponsored popular shows in Latin America, continuing to enhance our media brand influence. Moreover, we intensified our monetization efforts in Q4. Total revenue of our overseas business reached RMB 847 million, increasing by nearly 200% year-over-year. We continued to improve operating efficiency, resulting in significant reduction in user growth cost by more than 30%. We successfully narrowed our overseas operating losses by 63.2% year-over-year in Q4, and further reduced our operating loss quarter-over-quarter. On overseas online marketing services, we focused on deep industry cultivation at the content level and fostered development of key industries and localized marketing capabilities. We continued to advance the development and enhance our product ecosystem with focus on the bid product, live streaming traffic, and original content, stimulating rapid growth of revenue and consumption for clients across multiple industries, such as e-commerce and gaming. In Q4, marketing revenue of our overseas business surged over 300% year-over-year. Moreover, we expanded the network of top-tier KOLs and cultivated a selective group of KOLs, providing clients with a supportive environment and boosting their creative potential to generate high-quality content, thereby improving marketing efficiency. Looking forward to 2024, we'll continue to make progress across multiple growth engines, including infrastructure, algorithms, content, and in commercial scenarios. As the Asian department goes, at a time, we'll come to ride the wind and cleave the waves, offset my cloud-like sail to cross the sea [indiscernible] race. Facing external challenges, we're doubling down on internal efforts, gathering momentum for when we will unlock more potential and achieve faster development. No matter how the competitive landscape changes, we'll uphold our founding aspiration of enabling everyone to be seen, delivering enhanced content and value services to our users. We strive to celebrate greater economic value for our partners, energizing our unique trust-based content and commercial ecosystem. This concludes my prepared remarks. Next, our CFO, Jin Bing, will discuss the company's financial performance for Q4 and full-year 2023.
Jin Bing: Thank you, Yixiao. And hello, everyone. We delivered a robust financial performance for 2023. As our revenues and profits soared to new heights, our total revenues for the year crossed RMB 100 billion mark for the first time, reaching RMB 113.47 billion, a 20.5% increase from last year. We also achieved the milestone profit levels with our first-ever annual IFRS profit and a record-setting adjusted net profit of RMB 10.27 billion, a result of refined operations and effective cost controls. We expanded and retained our user base, which with improved algorithms and integrated monetization channels, enhancing user experience, and unlocking user traffic value. As a result, our DAUs remained robust and MAUs hit a new record in Q4. Next, now I'll have a closer look at our financial performance for Q4 2023. In Q4, our group's revenue grew by 15.1% year-over-year to RMB 32.56 billion, driven by growth across each of our core businesses, including online marketing services and e-commerce business. Online marketing services revenue increased by 20.6% to RMB 18.2 billion for Q4 from RMB 15.1 billion for the same period of 2022 and accounted for 55.9% of total revenues. Growth came from more marketing clients and their increased ad placement, especially in the native ads from e-commerce merchants. These results were driven by our improved product capabilities and refined industry-specific operations, focusing on consumers' needs. We continuously improved recommendation algorithms and devised smarter marketing placement strategies. Native marketing services were the largest contributors, as we upgraded our omni platform marketing solutions and smart hosting products to help merchants use our high-quality traffic to maximize their GMV across platforms. Our other services revenue increased by 36.2% to RMB 4.3 billion for Q4 from RMB 3.2 billion for the same period of 2022, driven by our expanding e-commerce business and GMV. e-commerce GMV grew by 29.3% year-over-year in Q4 due to an increased number of active merchants and active paying users. By enriching shopping scenarios, innovating products, improving e-commerce ecosystem governance, and using smart subsidy strategies, we increased merchant engagement and supported their growth. Concurrently, we have enhanced the shopping experience by users, delivering a more immersive and a fulfilling journey. Our live streaming revenue maintained stable at RMB 10 billion for Q4, in line with the same period of 2022 due to our commitment to ecosystem's long-term health and focus on high-quality content. By deepening regional expansion, introducing new content and interactive features, and supporting traditional culture streamers, we saw growth in the number and engagement of streamers and talent agencies. For Q4, our cost of revenues decreased by 1% year-over-year to RMB 15.3 billion and accounted for 46.9% of total revenues. This decrease was primarily due to tech upgrades, which cut down on both bandwidth expenses and server custody costs year-over-year. Gross profit for Q4 grew by 34.3% year-over-year and 19.6% quarter-over-quarter to RMB 17.3 billion. Gross profit margin reached 53.1% in Q4, expanding by 7.6% and 1.4 percentage point year-over-year and quarter-over-quarter respectively. Moving to expenses, selling and marketing expenses for Q4 increased by 4.7% year-over-year to RMB 10.2 billion, accounting for 31.3% of total revenues, down from 34.4% in the same period of 2022. The increase in selling and marketing expenses was largely due to the heightened expenditure on promoting our product and marketing activities. Research and development expenses were on RMB 3.3 billion for Q4, decreasing by 4.4% year-over-year, accounting for 1% of our total revenues, dropping from 12.2% in the same period of 2022. The decline in R&D expenses was mainly the result of decreased employee benefit expenses, including related share-based compensation expenses. Administrative expenses decreased by 27.3% year-over-year to $800 million for Q4, accounting for 2.3% of total revenues, down from 3.7% in the same period of 2022, primarily due to a decrease in employee benefit expenses, including related share-based acquisition expenses. Group-level net profit for Q4 rose to RMB 3.6 billion, representing a significant improvement compared with a net profit of RMB 2.2 billion in Q3, and a net loss of RMB 1.5 billion in Q4 2022. Group-level adjusted net profit rose to RMB 4.4 billion compared with adjusted net profit of RMB 3.2 billion in Q3 and adjusted net loss of RMB 45 million in Q4 2022, showcasing our substantial profitability improvement. We have a robust development sheet with cash and cash equivalents, time deposits, restricted cash and wealth management products of RMB 61.6 billion as of December 31, 2023. Through our enhanced monetization capabilities and efficient working capital management, we generated positive operating net cash flow of RMB 8.9 billion for Q4 2023. Now, let's have a quick overview about our financial performance for 2023. For the full year of 2023, our group's total revenues reached RMB 113.5 billion, up 20.5% year-over-year. This includes our online marketing services revenue of RMB 60.3 billion, a 23% rise year-over-year. Revenue from live streaming business increased by 10.4% year-over-year to reach RMB 39.1 billion. Revenue from other services, including e-commerce business, totaled RMB 14.11 billion, reflecting an increase of 44.7% year-over-year. Gross profit margin expanded by 5.8 percentage points year-over-year to 50.6% in 2023. Our adjusted net income for the full year of 2023 was RMB 10.3 billion, a turnaround from RMB 5.8 billion in 2022. Our adjusted net margin was 9.1%. Adjusted EBITDA reached RMB 17.1 billion in 2023 and a remarkable increase from RMB 1.8 billion in 2022. And that is my prepared speech.
Operator: [Operator Instructions]. The first question comes from Lincoln Kong from Goldman Sachs (NYSE:GS).
Lincoln Kong: [Foreign Language] Congrats on a very strong 2023 result. Can management share the latest progress [indiscernible] and the future growth potential for the e-commerce shopping mall business?
Cheng Yixiao: [Foreign Language] I'd like to highlight that our e-commerce business is still experiencing rapid growth. We expect both our content-based e-commerce and shelf-based e-commerce segments to continue showing high growth trends. On the content-based e-commerce side, our goal is to enhance content synergy further and explore user demand to increase conversion efficiency. In terms of our shopping mall, we aim to provide merchants with more predictable business opportunities to meet users' day-to-day shopping needs. Additionally, we plan to enrich marketing scenarios to drive repeat purchases. In Q4, we made remarkable progress in our shopping mall, with GMV up more than 50% year-over-year. There is still room for the growth. [Foreign Language] Both supply and demand drove the rapid growth in GMV. During Q4, our shopping mall's average daily active merchant count surged by over 130% year-over-year. We effectively leveraged high-quality content to synergize with our shelf-based e-commerce scenarios, such as the shopping mall, assisting merchants in creating a blockbuster product. Notably, our innovative feature, group buy for 10,000 buyers, seamlessly integrated content with the shelf-based e-commerce, resulting in a surge in sales through product hosting on our platform. Additionally, we rolled out a limited-time, commission-free policy for new merchants to incentivize their participation in our shopping mall. Furthermore, we focused on developing and refining the unique offerings of the shopping mall, introducing a wider range of SKUs suitable for diverse shopping scenarios, including brand name and standard merchandise across various categories and price points to cater to our users' diverse needs. Moreover, we continuously improved the shopping mall's infrastructure by enhancing ongoing algorithms to help users discover products that offer the best development for the money. [Foreign Language] In terms of demand and traffic, we gradually expanded traffic access in Q4 and granted full access to the shopping mall tab in December. We implemented tiered user operations to optimize the use of our diverse traffic resources. For example, we offered tailored subsidies to new users, launched a dedicated shopping mall version for them, and enhanced the shopping mall's interface and merchandise selection to be more user-friendly for this segment. Attractive deals in the big brand, big subsidy section also gained traction. These converted to many new e-commerce paying users, with the daily average of paying users in the shopping mall increasing by more than 70% year-over-year in Q4. [Foreign Language] Furthermore, we have continued enhancing our shopping mall's marketing scenarios by leveraging various promotion events to support omni domain operations for merchants, reinforcing the idea of value for money to users and encouraging repeat purchases. The Double 11 Sales Promotion for shopping mall, deemed building big brand subsidies, not only led to significant user growth, but also increased the shopping mall's GMV. For the Chinese New Year promotion, we introduced the special sale at low prices section to attract merchants selling daily essentials and providing users with a wide range of attractive deals. This initiative enabled merchants to take advantage of shelf-based promotions and realized the surge in the sales of highly cost-effective goods. During the recent Women's Day promotion, we leveraged our marketing capabilities to enhance visibility and exposure for merchants, offering traffic subsidies and exclusive discounts to boost users' shopping mood. This approach has been well-received by merchants, leading to increased blockbuster sales and benefiting the shopping mall's daily operations through content-driven synergy. Our e-commerce marketing scenarios have a limited impact on our bottom line because of our cost-effective approach to driving greater marketing conversions. This approach worked well with minimal spend due to our refined operational strategies and active engagement with merchants. [Foreign Language] Overall, through enriching our supply and developing our ecosystem, we anticipate that the shopping mall will continue to outperform our platform in the future, steadily increasing its share of the GMV.
Operator: The next question comes from Thomas Chong from Jefferies.
Thomas Chong: [Foreign Language] My question is about our online marketing services. As the company mentioned that native marketing service was the key driver for online marketing service revenue in Q4. Can management elaborate about the strategies for optimizing merchant's placement performance, i.e. the ROI?
Cheng Yixiao: [Foreign Language] Our internal closed-loop marketing services revenue has maintained strong growth momentum during past quarters. We have introduced differentiated native products tailored to different types of merchants at various stages. These products are backed up by high-quality traffic support that lets merchants rapidly expand their GMV and grow their businesses more effectively on Kuaishou. It's seen that more and more merchants are choosing Kuaishou as their platform for long-term operations. In Q4 2023, the number of merchants utilizing ad placements increased by 50% compared with Q1 2023. Next, I will outline our omni platform marketing solution and smart marketing placement products. [Foreign Language] Our omni platform marketing platform aims to optimize the effectiveness of the marketing placement, ensuring their GMV growth through an ROI-oriented approach. By leveraging high-quality content on the platform, our goal is to increase GMV generated from live streaming or merchandise sales, meeting the operational needs of merchants. This innovative approach seamlessly integrates marketing and organic traffic, breaking traditional boundaries to unlock the platform's full traffic potential. The solution comprises two key components, omni platform live streaming promotion and omni platform product promotion. In Q4, we enhanced product capabilities and placement performance by onboarding new merchants, improving marketing material capabilities, fine tuning traffic strategies, and strengthening the overall experience. As a result, merchant placement consumption surged. At its peak, during the Double 11 Sales Promotion, ad placement from the merchants exceeded RMB 15 million. The total GMV for merchants utilizing our omni platform live streaming placement increased by approximately 20%. Additionally, in Q4, we laid the groundwork for our omni platform product promotion and successfully launched for merchants during the Double 12 Sales Promotion. This initiative enabled merchants to achieve promising outcomes in blockbuster creation, serving as a valuable asset for short video merchants seeking to expand their business. [Foreign Language] In developing our smart marketing placement products, we have focused on creating capabilities tailored for small and medium-sized merchants who lack effective placement strategies, focusing on people, goods, and venues. Specifically, we assisted merchants encountering challenges such as low repeat purchases rates or needing to target new customer segments by upgrading our products and refining new customer value analysis. By integrating e-commerce subsidies, our goal is not only to improve marketing spending, but also boost repeat purchases, broaden the customer base and overcome GMV growth constraints. In live streaming and shelf-based e-commerce scenarios, we offer our capabilities for live streaming hosting and merchandise hosting. Merchants simply need to specify their marketing budget, timeframe, and expect a conversion target for the live streaming or merchandising. Our system automatically generates marketing placement units, selects appropriate marketing materials, and targets demographics using algorithms, and adjusts in real time based on conversion performance. In Q4, by implementing multiple optimization strategies, we successfully enhanced the exposure and GMV scale of the merchants. Consequently, merchants experience a significant lead in consumption through live streaming hosting with the growth rate exceeding 160% compared with Q3. [Foreign Language] Going forward, we will continue enhancing our smart products for native e-commerce merchants. Our goal is to cater to a broader range of scenarios and merchants, regardless of size, by offering products tailored to their needs. This will enable them to effectively leverage high-quality traffic on Kuaishou, creating a flywheel effect that boosts both their GMV scale and marketing consumption.
Operator: The next question comes from Felix Liu from UBS.
Felix Liu: [Foreign Language] Congratulations on the strong fourth quarter results. Could management share more color on the latest development in your new initiative businesses, such as local service, et cetera?
Cheng Yixiao: [Foreign Language] Our local services business, which offers high-quality content, not only contributes to GMV, but also provides user value by meeting users' demand, thereby enhancing user retention on our platform. This makes it one of our most valued new ventures. In 2023, the true inaugural year of our local services business, we achieved breakthroughs on various fronts, transitioning from 0 to 1. Throughout the year, we witnessed rapid growth in GMV, continually enriched offerings, and gradually maturing business infrastructure, and our local services have gained the mind share of more and more users. In Q4, average daily paying users of the local services surged by over 40% compared with Q3. [Foreign Language] Specifically, in Q4, we made significant progress on the supply side. The number of average daily active merchants up over 40% quarter-over-quarter. We further deepened our focus on core cities, and strengthened partnerships with more high quality merchants by leveraging our differentiated traffic advantage. This approach led to the development of several blockbuster cases. One example is Sapporo [ph], where Union Food, a renowned brand in Harbin, it experienced a three-fold surge in overall online sales during the Double 11 group purchase promotion, surpassing its regular offline store sales. The success earned it recognition from CCTV as a model of short video driven sales breakthroughs. On the content front, we fortified support for KOLs by launching the Flying Bird Initiative, which aims to recruit and train new KOLs to create high quality local service content. Concurrently, through a focus on both short video and live streaming, we introduced the group purchase live streaming initiative. This initiative provided the KOLs with popular product and traffic support, enabling them to attract a substantial following. In December 2023, the number of high quality content creators skyrocketed tenfold compared with March 2023. This surge led to a quarter-over-quarter growth of over 100% in the number of daily average active streamers hosting live sessions in Q4. [Foreign Language] On the platform front, we continue to promote our smart subsidy strategy in Q4. Leveraging our core competitive advantage in providing the best value for money, we optimized the traffic distribution system. This boosted matching efficiency and improved the end user experience. We deepened our collaboration with the supply side to further develop a more transparent and GPM-oriented traffic allocation mechanism. This initiative aimed to enhance exposure to high quality merchandise and content. Moreover, in January this year, we formed a collaboration with our online travel services partner. Our goal is to enrich our platform by expanding the range of premium attraction tickets and travel routes, thereby enhancing the variety within our hotel and travel categories. Our focus is on seizing the growing trends in domestic tourism for 2024. To accomplish this, we plan to utilize engaging video content and detailed explanations, transforming Kuaishou into a new marketing frontier for the hotel and travel market. [Foreign Language] Additionally, I would like to briefly touch on our incubator gaming business, driven by our commitment to innovation. Kuaishou has spent the past few years on our own games development, accumulating a solid pool of talent, operating experience and capabilities. We are confident in China's gaming market and the current progress of Kuaishou's game development. Looking forward, we will continue to invest in our gaming business, holding on to our long-term outlook and ensuring our investments are manageable from a P&L perspective. We hope to share some meaningful developments in our gaming business with everyone by the end of this year.
Operator: The next question comes from Alex Poon of Morgan Stanley (NYSE:MS).
Alex Poon: [Foreign Language] As the company has achieved very strong revenue growth and profits in 2023, can management share more color about the business outlook in 2024?
Cheng Yixiao: [Foreign Language] With the dedicated teamwork across our company, we made great strides in cutting costs and boosting efficiency in 2023, leading to a continuous improvement in our profitability. In Q1 2023, we recorded our first-ever group level quarterly adjusted net profit since our IPO. This was followed by our inaugural positive quarterly IFRS net profit in Q2 and our profitability kept fast improving in the second half of the year. We successfully turned annual losses into profits in both adjusted net profit and IFRS profit in 2023. Our annual adjusted net profit exceeded RMB 10.27 billion for the year. Marking our entry into an area of comprehensive profitability, this leap forward resulted from the sustained growth of our ecosystem, enhanced monetization capabilities across our business line, and our relentless efforts to enhance operational efficiency. [Foreign Language] As we look to 2024, we expect ongoing strong growth momentum from our e-commerce and online marketing services alongside consistent improvements to our operational efficiency. We also expect our gross margin to increase further this year as we continue to optimize our revenue mix, boosting contributions from our higher margin e-commerce and marketing services, effective management and optimization of our revenue sharing cost strategies and better server and bandwidth efficiency through technological innovations will also drive our margins. [Foreign Language] For sales and marketing expenses, we expect to keep our 2024 user growth and maintenance costs largely in line with 2023 levels, without meaningful year-over-year ramp-up. We plan to hold this line while growing our DAUs year-over-year, including expectations for our average DAUs to reach 400 million in the second half of the year. We will accomplish this by leveraging technology and operational efficiencies to optimize our growth strategies and refine our operations. This approach will facilitate lower acquisition costs per user and retention costs per DAU, thereby boosting the ROI for user growth. As our e-commerce and local services, including our e-commerce shopping mall services, continue to expand, we will increase our total span on promotions compared to last year. However, as a percent of total revenue, sales and marketing expenses ratio will continue to decrease. [Foreign Language] In conclusion, we are confident that with our ongoing efforts to enhance quality and efficiency, our group's overall profitability will continue to improve. For the full year of 2024, we expect to grow our group-level adjusted net profit by exceeding the current [indiscernible]?
Operator: The last question comes from Lei Zhang from Bank of America (NYSE:BAC) Securities.
Lei Zhang: [Foreign Language] Congrats on solid profit. Could management share your latest updates on your AI and the large language model? Especially, do you have any plans and developments in the video generated following the launch of Sora?
Cheng Yixiao: [Foreign Language] Early in 2023, we kicked off our AI strategy with a clear target and roadmap. Throughout the year, we steadily pushed forward with the development and training of our other large language models, speeding up their actual practical use in real world scenarios. Our progress is on track with our original plan, and we are pleased with the outcomes we've achieved so far. [Foreign Language] Our self-developed large language models, following our 13B and 66B models, we focus on developing and training 175B scale model in Q4, achieving promising test results. This model significantly surpasses GPT 3.5 in overall performance, especially in understanding detail and readability. And it's approaching GPT 4.0 levels in certain metrics. We're confident that we can elevate our large language model within the next six months to match GPT 4's performance. In the multi-model realm of our [indiscernible] text-to-image large language model has outperformed Midjourney version 5 after several iterations, showcasing superior overall performance. Regarding your query about our text-to-video large language model, we've been actively engaged in video generation technology, pushing forward a specialized R&D in this area since the end of last year. The faster-than-expected launch of Sora not only demonstrates the feasibility of technological breakthroughs, but also opens up the immense opportunities for the short-video ecosystem. Looking ahead, we plan to make generative models as tools for creators, further lowering the barriers to content creation and enhancing the quality and efficiency of short-video production. [Foreign Language] For large language model applications, in Q4, we focus on applying LLMs in digital human live streaming. For example, we used these models to automatically create live streaming scripts, facilitating digital human broadcasts and real-time responses to viewers' comments in live chats. We also enhanced the various interactive scenarios, including instant messaging with our smart customer service system, improving our customer service across business, like Kwai Hire and Ideal Housing. Furthermore, we are constantly exploring how to integrate large language models more deeply with our Kuaishou app, rapidly iterating the details of our user experience for applications like AI Kwai and AI image for comments, as well as AI search dialogue. Our goal is to make these models more useful, engaging, and heartwarming, all of which serve to improve user experience. As an AI-driven company, we are committed to continuing our investment in AI large language models and their applications, and we look forward to sharing more updates with you.
Matthew Zhao: Thank you once again for joining us today. If you have any further questions, please contact our capital markets and IR team at any time. Thank you.
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