Kwai Fu third quarter earnings call conference record: restructuring of overseas organizations, will try to cash in overseas business

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Tencent technology news Beijing time November 23rd, Kwai Kwai released third quarter financial report, earnings report shows that fast hand income was 20 billion 500 million yuan, an increase of 33.4% over the same period. After the release of the earnings report, the founder of Kwai Chung, co-founder of Cheng Xiao, and CFO Zhong Qi Qi attended the conference call conference, followed by an analysis of the earnings and answered questions from analysts.
Question 1: congratulations on Kwai Chi’s very strong performance. We see that the traffic growth trend in the third quarter is very strong. What are the main driving factors? And how to achieve the long-term goal of 400 million daus and continuously strengthen user participation?
Cheng Yixiao: first of all, we are firmly optimistic about the short video track. The domestic long-term dau scale has the opportunity to grow to 1.1 billion. In addition, short video and live broadcasting can be widely enabled or applied to various industries such as people’s livelihood, knowledge sharing, e-commerce and local life, and become a widely used social infrastructure. The total traffic also has the potential to continue to grow. The excellent user growth in the third quarter gave us greater confidence to achieve the medium and long-term goal of 400 million dau.
The growth of users and duration is mainly due to our continuous provision of more content, goods and services. On the content side, for the pan knowledge vertical category with rapid growth recently, we launched a novel pan knowledge debate competition (new knowledge board) and other contents, which are deeply loved by users. For another example, the proportion of viewing volume and duration of sports and short plays has also been well improved. On the commodity side, we are also constantly introducing new commodity categories and brand goods to enrich users’ choices. On the service side, we also actively explore video opportunities for more scenes.
At the same time, according to the different characteristics of public and private domains, we are also continuously improving the distribution efficiency, better matching the content value with users, and improving users’ consumption experience and happiness. Recently, we have gradually recommended more content focusing on creators in the decline of single column. On the one hand, we have strengthened the recommendation of content of interest to users, and on the other hand, we have also promoted the transformation between public and private domain traffic.
Overall, the current growth of traffic is faster than our earliest expectation. In the future, we will give priority to user needs more dynamically and continue to iterate our ecological development strategy.
Question 2: recent regulatory and macroeconomic adjustments have had some general impact on the advertising industry, but the company’s advertising business maintained rapid growth in the third quarter. Would you like to know the main growth drivers and how to think about the future advertising growth plan?
Cheng Yixiao: first of all, it is indeed similar to the situation in the same industry. Due to the impact of some industry supervision and macro environment, we see that some advertisers shrink and adjust their budgets, resulting in the weakening of the overall advertising bidding environment.
However, as far as we are concerned, the growth rate of advertising business is still faster than that of the industry, and we continue to obtain more market share. Let me explain the specific reasons in detail: first, throughout the industry, video advertising in the form of short video and live broadcast has been favored by more advertisers. In addition to our unique social platform and content community positioning, and the characteristic combination of public and private domain traffic, advertisers have a certain budget preference. From the perspective of the platform itself, our traffic also maintained a strong growth in the third quarter, helping the advertising business to maintain rapid development in a challenging environment. With the optimization of our advertising materials and recommendation ability, our advertising loading rate still increased slightly as planned in the third quarter, and opened up new advertising spaces.
Secondly, our advertising system and products are also iterating. For example, we connect xiaodiantong and vermicelli products to form a magnetic Taurus. Customers can launch and allocate budgets in public and private domains at the same time, improve decision-making efficiency, optimize customer ROI, and release more advertising space on the basis of the same traffic.
Third, our sales and service capabilities and quality are also constantly improving, actively expanding industry coverage, optimizing channel management of direct sales and agents, and realizing two-way growth of advertiser pool and arppu. Meanwhile, the brand advertisement side has been playing showcase in many industries. The fast hand is being recognized by the brand advertisers gradually. Recently, there are well-known brands and Kwai Kwai marketing partners in different industries, including both emerging brands, well-known mass brands and high-end luxury brands.
The last point is another feature of the Kwai Fu, which is the endogenetic closed loop trading ecosystem we provide for advertisers. The big volume of electricity supplier GMV enables us to maintain our growth rhythm in challenging external environments.
We also continue to observe carefully the short-term fluctuations in the advertising industry. In the long run, we remain confident in the continued growth of our advertising business. Kwai’s advertising business is still relatively early stage. Compared with our market share, our advertising market share still has much room for improvement. With the improvement of platform ecology and advertising system, we will continue to strengthen the optimization of user experience, the empowerment of advertisers and the improvement of our own liquidity.
Question 3: the sales expenses decreased month on month in the third quarter, and the efficiency has been significantly improved. What operation and management measures has the company taken? How to balance business development and cost rate in the future?
Cheng Yixiao: from the perspective of the company, we are very determined to reduce costs and increase efficiency, and have been put into action since the third quarter. As mentioned earlier, the combination of our growth and product departments at the end of June had a significant effect on the optimization of retention rate. We got through user data and product data, further optimized the accuracy and relevance of recommended content and user experience, and improved the retention rate of dau on the next day, 7th and 30th.
In terms of innovation, we have conducted more systematic and detailed evaluation and management of customer acquisition efficiency, actively eliminated some inefficient channels, and tried some new growth channels and methods. At the end of September, we also incorporated the operation team into the growth and product team to cooperate with growth and products through more content, operation and other original methods, so as to more effectively promote the improvement of user activity and participation and improve the contribution of the original biochemical growth mode. Through the optimization of retention rate and customer acquisition channel, the CAC of single user was also improved compared with the second quarter.

On the maintenance side, we have more refined management of the subsidy strategy. After adjustment, the targeted incentive effect for different user groups is more significant, and the average daily maintenance cost of a single dau is also decreasing month by month in the third quarter. At the same time, with the change of the development stage of the short video industry, the means of growth will tend to more original differentiated supply and operation. Since the third quarter, we have also strengthened the combination of content and community operation and growth, integrated the operation team into the growth and product team, formed a more comprehensive growth combination and improved the overall efficiency.
In terms of organizational structure, we also completed the adjustment of the organizational structure of the division at the end of September. In addition, we have strengthened the management of management and reporting in the past few months. After being assigned to the business line, we can see the revenue and expenditure of each business line more clearly, which will help us to optimize efficiency more effectively.
Overseas, we have also adjusted our strategy, carried out more efficient regional delivery, and improved user activity through the optimization of products, content and algorithms.
In the long run, we believe that the revenue side is driven by the dual growth of dau growth + single dau liquidity efficiency. There is still room for Kwai’s single DAU revenue growth.
From the perspective of gross profit margin, with the increasing proportion of advertising and e-commerce revenue with high gross profit margin year by year, our long-term gross profit margin also has significant growth space.
From the marketing expenditure of domestic business, we will reduce the maintenance cost of a single dau by improving the efficiency and retention rate of innovation and maintenance, as well as more refined operation management. With the increase of single dau revenue, the proportion of marketing expenditure in revenue will decrease accordingly. This is also one of the important objectives of our business plan for next year.
Zhong Yiqi: in terms of other costs, we have a clear cost reduction and efficiency increase plan in terms of bandwidth efficiency and server resource deployment, and will keep pace with the industry.
On the operating cost side, we can see that in the third quarter, when our total flow increased by 22% month on month, the operating cost only increased by 3.8% month on month, and the efficiency was improved. On the other hand, similar server investment belongs to front-end investment. After the time length and realization efficiency per unit time length enter a steady state, we expect that the proportion of operating cost in revenue will also decrease significantly.
Question 4: the live broadcasting business recovered in the third quarter, and MPU and arppu were further improved. What are the plans and expectations for the live broadcasting business in the future?
Cheng Yi Kwai: the value of each business line to the fast ecosystem is different. Live broadcast is the characteristic of Kwai Fu community. It is a supporting scenario for interaction between anchors and users, and a strong content attribute. In this scenario, some users also derive requirements for physical goods and services. The effective satisfaction of these requirements will further strengthen the trust and interaction between the anchor and users, and expand our realization model.
Therefore, the direct contribution of broadcasting to the activity of fast Kwai is very important. We introduced more and diversified anchors in the third quarter, and the supply side maintained high activity. High quality and rich content, as well as the distribution support of public domain traffic, have also attracted more users to watch the live broadcast, and our live dau penetration has increased to 78%. With the growth of MPU at the consumer end, arppu is rising year-on-year.
In the future, we will adhere to the value orientation of the live broadcasting business and keep the live broadcasting ecology active through the optimization of content supply.
Question 5: Recently, everyone is more concerned about supervision. Do you want to know the impact of the personal security law and the data security law on our platform?
Su Hua: we have always attached great importance to the work related to data security and personal information protection. We have been actively promoting various compliance work and continuously optimizing product functions within the framework of laws and regulations and according to the guidance and opinions of relevant departments.
As for the specific quantitative impact, we, like the industry, need to observe. As a comprehensive platform, we believe that our user volume, technical ability and business potential, together with our understanding of users and the community, as well as our business closed-loop ability, give us more opportunities and ability to provide advertisers with relatively more efficient online marketing solutions. Considering the superposition of macroeconomic factors, in the long run, we have the ability to better create value for users and advertisers.
Question 6: in the third quarter, the growth of e-commerce Gmv exceeded expectations, and the brand e-commerce is also growing rapidly. Would you like the management to look forward to the follow-up e-commerce development strategy?
Cheng Yixiao: as a new content bearing form and channel, live e-commerce shows great advantages to consumers and suppliers. Our strategy mainly includes four aspects:
The first is to continue to consolidate the trust business model, and the Kwai live broadcast business provider is built on the trust between users and platforms, between users and anchors, and on this basis, a high rate of repeat purchase is formed. From the perspective of the platform, we will strengthen the quality control rules, strengthen the assessment of performance indicators, launch more user rights and interests protection measures, and implement higher protection and compensation policies for special categories; At the same time, we also add user evaluation to the traffic allocation algorithm mechanism and introduce evaluation indicators such as “commodity cost performance” to continuously optimize users’ trust purchase experience. Our monthly re purchase rate of e-commerce increased to more than 70% in September, and arppu further increased in September.
Second, in terms of traffic and matching, through our understanding of users, we can provide users with more matching products and improve the conversion efficiency for anchors and businesses. We hope that through the high transformation of private traffic and the distribution support of public traffic, we can fully revitalize the platform traffic and continue to increase the penetration and payment rate of e-commerce users.
The third is to continue infrastructure construction, including introducing more commodity supply, expanding to the source of the supply chain, expanding the number of categories and SKUs, and strengthening cooperation with service providers. In the three quarter, we vigorously developed brand, base, strategic multi service partners, and hundreds of service providers entered the Kwai Chung. They provide businesses and anchors with anchor training and recruitment, traffic operation support, supply chain support, logistics and after-sales service, so as to better help businesses grow and improve operation efficiency. The proportion of service provider bound merchant payment Gmv in the market continued to increase.
E-commerce is a long chain business. Looking forward to a longer cycle, we need to invest time and resources in infrastructure construction. Such investment and development rhythm are similar to other more mature e-commerce platforms.

Finally, introduce more brands, launch support plans for more brand businesses, and improve the proportion of store self broadcasting. The Kwai’s electricity supplier and advertising business provide a brand with a closed loop platform for product quality and support. We see that the number of brand merchants and the proportion of Gmv continue to increase, which also drives the continuous increase of active buyers and customer unit price. Specifically, we set up a ska team to better serve brand customers, provide them with “one-to-one” business services, introduce the platform operation rules and brand marketing rhythm in more detail, output the operation methodology of successful brand cases for them, and enable businesses to grow; The ska team will also help businesses connect the integrated marketing resources of the whole platform of “people, goods and field”, including many resources such as business resumption, problem diagnosis, commercial product linkage, marketing activity linkage and so on. We also aim at the advantages and characteristics of the fast hand, giving brand businesses various support, including not limited to the establishment of brand based self broadcasting, the operation and promotion of the flow and commercialization of the brand, the precise matching of the master distribution, the meticulous guidance of private domain precipitation, the re purchase of Kwai Chai, and the development of the brand special products, so as to better meet the needs of different channels.
Question 7: after the organizational structure adjustment, will there be any adjustment to the recent situation of overseas business and future development strategy?
Cheng Yi laughs: we have long been firmly committed to the potential of short track overseas and the core competitiveness of our Kwai Fu. In the first half of this year, we achieved remarkable results in the growth of overseas users. In the second half of the year, our overseas strategy was further optimized and adjusted.
First, on the team side, consistent with the group’s direction, we adjusted the organizational structure of overseas teams, integrated the original product, operation and middle office teams supporting various regions, and optimized overseas internal coordination and resource utilization efficiency.
On the market side, we focus more on the development of key regions to improve the efficiency of the single market. For some markets with low return rate, we have also significantly reduced the investment.
The key work 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 stage, realizing the quality and stickiness of users, and accumulating valuable experience for the expansion of broader overseas markets in the future. After adjustment, we can see that the average overseas Mau and Dau in the third quarter were further improved than Mau, and core indicators such as user retention rate and duration were further improved. At the same time, we also began to try some cash business overseas. In the future, we will also rhythmically promote the implementation of long-term overseas strategies.
Question 8: this year, we observed that the platform continued to launch high-quality featured content, such as short plays, sports and knowledge. Would you like to ask us about our planning and investment in the content side in the future?
Cheng Yixiao: we always operate the content community with real, diverse, beautiful and beneficial values to help users find a content world that can expand their life experience and interests. Our investment in the content side also focuses on user needs, and provides more diversified content according to the changes of these needs, so as to continuously make users feel interesting and valuable.
Pan knowledge is a good example. We observe that user demand is jumping out of pure entertainment consumption and extending to valuable service content. After the launch of relevant content, it is also very popular from the consumer feedback of the client.
We also realize that the operation of content is equally important, which can better help the content release value, improve user participation and help users grow. For example, we have introduced a lot of sports content since the end of last year. We pay great attention to the second innovation rights of these contents and the development of relevant user interaction activities. With the development of systematic content operation, the penetration, consumption and creative activity of sports content have increased significantly, which has fed back to our content supply side.
Overall, the content of the Kwai is still mainly UGC. As a platform, we will continue to optimize creative experience, empower creators, provide social and economic value for creators, and provide flow and realization support for creators at the initial stage. At the same time, for some emerging content categories, we will also disassemble the overall supply side. Some involve PGC copyright investment, and we will selectively invest after evaluating the comprehensive return.
In a longer cycle, the depth, breadth, quality and differentiation of content will also help us bring more endogenous user growth and participation improvement. We will continue to pay attention to and invest in content.