With a profit of 4.7 billion, Kuaishou’s sense of crisis has not disappeared

2024-08-27

Text丨Guo Mengyi

It’s the time for the semi-annual report of the Internet giants to be released again.A group of companies focusing on the sinking market are also shifting from pursuing high growth to high profits.

After the market closed on August 20, Kuaishou released a performance report showing "double growth in revenue and profit", but it was clear that the growth in revenue was far lower than the growth in profit.

With the truce with Douyin, Kuaishou has found its own rhythm. After adjusting its organizational structure, in addition to the main theme of "reducing costs and increasing efficiency", Kuaishou is also narrowing the distance between content and business.

Data shows that in the second quarter, Kuaishou's total revenue reached 31 billion yuan, with gross profit margin and adjusted net profit margin of 55.3% and 15.1% respectively, both setting new highs.

In the second quarter of 2023, Kuaishou achieved its first profit since its listing, with operating profit exceeding 1.4 billion yuan, a year-on-year increase of 27.9%. And a year later, in the second quarter of this year, Kuaishou's profit can be described as "explosive growth", with operating profit of 3.98 billion yuan, a year-on-year increase of 168.7%.

In terms of main business, online marketing services, live streaming and other services (including e-commerce) are still the "three pillars" of Kuaishou's revenue, accounting for 56.5%, 30.0% and 13.5% of the revenue respectively.

Among them, the most popular Kuaishou e-commerce GMV reached 305.3 billion yuan, a year-on-year increase of 15%. Although the growth is good, it is lower than expected.

As a potential growth point for Kuaishou's e-commerce business, the GMV of the general shelf field has now accounted for more than 25% of Kuaishou's total GMV. During the 618 promotion period, the number of new small and medium-sized merchants on Kuaishou increased by 47% year-on-year, and the GMV of small and medium-sized merchants increased by 31% year-on-year.

Closed-loop e-commerce advertising is the competitive advantage of Kuaishou. Kuaishou’s exclusive high-frequency users are mostly people in low-tier cities and towns, who have weak spending power and are not the primary marketing targets of advertisers.

But for merchants who want to sell goods directly to residents in low-tier cities and towns, Kuaishou is the only content platform that can widely reach their target buyers. Pinduoduo, which has a similar user profile, has made a lot of money from advertising this year, and Kuaishou also wants to realize its potential.

Data shows that this quarter, the total consumption of Kuaishou's full-site promotion solutions or smart hosting products for marketing and promotion reached 40% of the total internal circulation marketing consumption; the consumption of automated marketing solutions for small and medium-sized businesses surged 60% year-on-year in the second quarter of 2024.

From this report card, we can see that the 700 million old friends are increasingly willing to spend money on Kuaishou. After Kuaishou has become profitable, they have the courage to continue to change.

Although the GMV of e-commerce is lower than expected, the ability of e-commerce business to feed back to online marketing services cannot be underestimated.However, how to balance online marketing services and e-commerce business remains a difficult problem for Kuaishou.

With the purchasing power of 700 million loyal customers, e-commerce GMV increased by 15% year-on-year

As a content platform, advertising still accounts for half of Kuaishou's revenue, but the e-commerce business has always been regarded by Kuaishou as "the hope of the whole village."

Data shows that Kuaishou's e-commerce gross merchandise volume (GMV) in the second quarter increased by 15% year-on-year, which is higher than the three major e-commerce platforms but lower than Douyin.

With consumption continuing to be sluggish, the e-commerce industry has reached its development ceiling and it is difficult to achieve rapid growth again, and the same is true on the Kuaishou platform.However, double growth in GMV is no longer common on e-commerce platforms. Only short video platforms Douyin and Kuaishou can still maintain it.

The continued double growth of GMV is due to the continuous increase in user scale and total traffic. In the past few quarters, Kuaishou has maintained a continuous growth in monthly active users.

Data shows that in the second quarter, the number of daily active users of Kuaishou hit a new record high.The average daily active users increased by 5.1% year-on-year to 395 million, and the average monthly active users increased by 2.7% year-on-year to 692 million.

Business Data Pie sorted out the financial reports and found that from 2023 to the present, Kuaishou's daily active users have increased from 374 million to 395 million, an increase of 5.6%.

This quarter, the average monthly number of Kuaishou e-commerce buyers increased by 14.1% year-on-year to 131 million, and the MAU penetration rate reached a new high of 18.9%.

On the market side, while maintaining the stable operation of live e-commerce, Kuaishou e-commerce has also expanded e-commerce transactions in the pan-shelf market and short video market. Last year, Kuaishou proposed a pan-shelf strategy to focus on the pan-shelf scene. Cheng Yixiao said at this year's Gravity Conference that the core of the pan-shelf is to have regular products that can satisfy consumers 24 hours a day without relying on live broadcast time.

The significance of the general shelf is that it can meet the overflow demand after users form the habit of shopping on the short video platform, and can also serve as a stable basic foundation for short video e-commerce. In this regard, Douyin has helped Kuaishou to pave a successful path.

During this year's 618, Kuaishou's pan-shelf payment order volume increased by 67% year-on-year, the number of pan-shelf payment users increased by 59% year-on-year, the search payment GMV increased by 65% year-on-year, the search payment order volume increased by 57% year-on-year, and the number of search payment users increased by 60% year-on-year.

at present,The GMV of the general shelf area currently accounts for more than 25% of Kuaishou’s total e-commerce GMV.

In summary, we can finally draw a conclusion: users are increasingly willing to spend money on Kuaishou, and their support has also made merchants see the potential of Kuaishou e-commerce. However, in terms of total volume, there is still a large gap between Kuaishou e-commerce and several leading platforms such as Taobao Tmall, Pinduoduo, and Douyin e-commerce.

From last year's data, we can see that Kuaishou's e-commerce GMV in 2023 was 1.18 trillion yuan, up 30.93% from 2022. According to 36Kr, citing people familiar with the matter, Douyin's e-commerce GMV was about 2.7 trillion yuan, up 95.65% from last year.

It can be seen from this that the operating rhythm of Kuaishou E-commerce and several leading e-commerce companies is not in sync. While the industry is in a state of internal circulation as a whole, Kuaishou E-commerce continues to seek new growth on the demand side, supply side, and field side.

On the merchant side, Kuaishou focuses on promoting the cold start and growth of new merchants, especially small and medium-sized merchants, and uses traffic to support new merchants to quickly expand their business scale from the first cold start. This support policy has a particularly obvious effect on the scale of small and medium-sized merchants during the 618 period this year.

Xiao Han (pseudonym), who sells women's clothing on Douyin, has the deepest understanding of this.

"Such a friendly Xiaoer is rare nowadays," Xiao Han said to Business Data. In recent months, the Xiaoers of Kuaishou have been urging him to open a Kuaishou live broadcast room."In the past, if you opened both Kuaishou and Douyin at the same time, your live broadcast room would be blocked. Now, as long as they see a live broadcast room that sells well on Douyin, they will take the initiative to contact us."Moreover, it is best if the main body of the dual live broadcast rooms is the same, so that the waiters can provide traffic support to the merchants.

Kuaishou’s efforts have also achieved great results.Data shows that the number of merchants with monthly sales on Kuaishou e-commerce in the second quarter increased by more than 50% year-on-year, with a significant increase in small and medium-sized merchants.

The financial report shows that during the 618 promotion period, the number of new small and medium-sized merchants on Kuaishou increased by 47% year-on-year, and the GMV of small and medium-sized merchants increased by 31% year-on-year.

Liu Ting (pseudonym), who works in an e-commerce operations company, told Business Data that Kuaishou is indeed easier to operate than Douyin, its traffic grows faster, and the company does not need a dedicated person to operate Kuaishou.

However, Liu Ting also has her own concerns. "Currently, 70 to 80 percent of Kuaishou's traffic is concentrated at the top, and the chance of encountering good traffic is relatively small. Douyin feels that traffic distribution is relatively fair, and the professionalism of influencers and merchants is still relatively high, so now many merchants have begun to transfer from Kuaishou to Douyin."

Cheng Yixiao said in the earnings call, "In the second half of the year, Kuaishou will continue to vigorously develop content e-commerce and social e-commerce, focus on the core value of live broadcast rooms and short videos, give full play to the important role of content in attracting new e-commerce users and promoting their activation, and at the same time steadily build pan-shelf scenarios in the long term, do more user frequency promotion in the shelf market, and establish user mindset."

E-commerce drives internal circulation and advertising business grows

The prosperity of e-commerce has also boosted Kuaishou's advertising base. From the profit growth of over 70%, we can see that Kuaishou's business ecosystem has entered a stage of mutual coordination.

This quarter, Kuaishou's online marketing service revenue reached 17.515 billion yuan, a year-on-year increase of 22.08%. In the long run, whether it is a single quarter or a full year, Kuaishou's online marketing service revenue has always remained stable at a double-digit level, which is rare among all comparable Internet companies.

Among them, closed-loop e-commerce advertising is Kuaishou’s competitive advantage.

The e-commerce business drives advertising growth, which is also known as "internal circulation advertising" - in order to sell more goods during live broadcasts, merchants and anchors will advertise on the platform to attract more people to follow their accounts and watch the live broadcasts.

Questmobile data shows that in the first half of 2023, the high-frequency users shared by the main sites of Kuaishou and Douyin accounted for nearly 20% of the total number of Kuaishou users. Considering that the two short video platforms have the same content format and Douyin's advertising products are more efficient, some advertisers will give priority to Douyin.

The remaining 80%, Kuaishou’s exclusive high-frequency users, are mostly people in low-tier cities and towns. They have weaker spending power and are not the primary marketing targets of advertisers.

How to balance online marketing services and e-commerce business remains a difficult problem for Kuaishou.

From the perspective of the commercialization department, the higher the advertising turnover, the better, but the e-commerce department hopes that advertisers can leverage more sales with less advertising costs, which will help attract more merchants to settle in and increase the overall GMV of the platform.

In the organizational structure adjustment at the beginning of the year, Kuaishou’s “internal circulation small and medium-sized customer center” was moved from the commercialization department to the e-commerce department, hoping to enable greater coordination between departments involved in internal circulation advertising and ease the contradiction between internal circulation advertising and e-commerce business.

But judging from the financial report data, the business balance within Kuaishou is more inclined towards online marketing services.

Another component of online marketing services is external loop advertising, which is brand advertising and performance advertising that advertisers directly place on Kuaishou.

According to the earnings call,Kuaishou's external advertising grew significantly in the second quarter.The growth rate accelerated compared with the first quarter.Especially in industries such as short dramas, e-commerce platforms and local life. Among them, paid short dramas currently account for a high single-digit proportion in the external circulation, with a very fast growth rate, and the average daily marketing consumption has increased by more than 2 times year-on-year.

In addition to e-commerce business, there are many business paths born from content that are growing from top to bottom. These paths are likely to become the driving force for Kuaishou's new round of growth.

Among them, local life is one of the key areas that Kuaishou has focused on. From January to June, the total consumption of local merchants on Kuaishou increased by 172% month-on-month, among which the comprehensive and catering industries achieved high growth of 598% and 156% respectively.

Following the launch of the “Flying Bird Plan” by Kuaishou Local Life last year, in July this year, Kuaishou and Meituan announced a comprehensive upgrade of their strategic cooperation.

Both parties stated that in the next three years, the scope of their cooperation will be expanded to "100 cities and 10,000 stores" across the country. This also means that the two parties will continue to deepen their cooperation across the country, and Kuaishou will further improve its offline commercial fulfillment capabilities.

In the fourth quarter of last year, the proportion of Kuaishou's local life users in third-tier cities and below reached 54.5%, and this group of people has become the main force of Kuaishou's local life.

I am interested in your traffic and users, and you need my merchants and services. Kuaishou + Meituan is a competition and cooperation between local life giants and traffic platforms. If Kuaishou can rise up calmly after leaving Meituan one day, it may be the story of a new upstart in the local life battlefield.

In addition, in terms of intelligent delivery, the penetration rate of Kuaishou's external-loop marketing product Universal Auto X (UAX) in various industries continued to increase in the second quarter, and the total consumption of customers using UAX for marketing delivery accounted for more than 30% of the total external-loop marketing consumption.

Looking back at last year, Kuaishou achieved a net profit of over 10 billion yuan and a total e-commerce GMV of over 1 trillion yuan, achieving overall profitability at the group level for the first time after its listing. The industry also regards it as a new starting point for short videos.

In the second quarter of this year, Kuaishou's adjusted net profit reached 4.7 billion yuan, and its gross profit margin hit a historical high of 55%, and it has embarked on a "positive cycle" of profitability.

Kuaishou’s “New Story”: AI Exploration and Short Dramas

After stabilizing the basic situation, if Kuaishou wants to regain the favor of capital, it must reconstruct its growth logic and tell a new story.

The first to be affected is the short drama business.

Kuaishou is the earliest platform to develop short drama content. Currently, the daily active users of Kuaishou short dramas have exceeded 300 million.

It is reported that Kuaishou's average daily marketing expenditure on paid short dramas in the second quarter increased by more than 2 times year-on-year, and the proportion of external circulation marketing revenue increased by a relatively high percentage.

In the first half of this year, Kuaishou created a cloud-based production chain for paid short dramas.

Yunsheng Link Short Drama refers to short videos with plots, or low-cost micro-movies. This form of film and television content is lighter than short video content, but the plot is more coherent.

Currently, users can complete payment and watch short dramas within the Kuaishou App, which not only improves users' content consumption experience, but also improves marketing customers' traffic and business conversion efficiency.

Data shows that in the second quarter, the number of customers who invested in Kuaishou's paid short dramas increased by more than 300% month-on-month, and the number of invested short dramas increased by more than 30% month-on-month. This content management model and product capabilities based on native links have also been gradually replicated in industries such as novels and small games. Cheng Yixiao said that it is expected that paid short dramas will bring Kuaishou considerable marketing investment growth in the second half of the year.

A short drama director who did not want to be named once said that Kuaishou short dramas have diverse ways of making profits. It not only launched a short drama live streaming host "Yizhilu", but also introduced third-party paid short drama mini-programs and promoted the launch of brand-customized short dramas. Overall, the highlight of Kuaishou short dramas is still the platform-led "Star Short Dramas" and "Drama Star Short Dramas", which focus on the content itself.

In addition to the short drama business, Kuaishou's rapid progress in the field of AI is truly surprising.

Recently, AI illustration art enthusiast Déborah posted a five-second video on Twitter, which showed a woman holding a burning rose. The picture quality and dynamic effects were movie-level. Behind this video, the image-to-video process was completed by Keling AI. Not long after, this video attracted the attention of Elon Musk, who replied in the comment section, "AI Entertainment is happening fast."

Although these large-model products cannot make much contribution to Kuaishou in terms of revenue and profit in the short term, they can effectively reduce costs, improve operational efficiency, and also lay out in advance for the arrival of the AI commercialization era.

According to the financial report meeting, in the first half of this year, nearly 20,000 merchants on Kuaishou used big models to achieve intelligent operations, and the average daily consumption of AIGC materials in June this year reached 20 million, demonstrating the huge potential of big models in commercial products.

Cheng Yixiao, co-founder, chairman and CEO of Kuaishou, said that Kuaishou has achieved a milestone breakthrough in the field of AIGC in the second quarter of 2024. In terms of commercialization and monetization of Keling, Cheng Yixiao said that in addition to strengthening the global operation of member payment, Keling will also explore more possibilities for cooperation and monetization with the B-side, and strive to achieve a considerable scale of commercialization and monetization as soon as possible.

In terms of technological progress, Kuaishou mainly focuses on optimizing operations and reducing inference costs around video production technology.

It was disclosed that Kuaishou's AI matrix has been seamlessly embedded in multiple business scenarios, supporting content creation, content understanding and recommendation, and user interaction, providing merchants and marketing customers with efficient tools, thereby greatly enhancing Kuaishou's commercial competitiveness.

In terms of large-scale visual generation models, after the internal beta test of Kuaishou's self-conscious video generation model Keling was launched, it has received wide acclaim from users at home and abroad. Keling uses a 3D spatiotemporal joint attention mechanism, which can better perform complex spatiotemporal movements, generate videos based on real-world physical rules, and show movie-level dynamic effects. It can simulate large-scale physical movements and break the limitations of traditional video production technology.

In the future, in terms of the development strategy of large language models in the field of AI, Kuaishou will focus on the research and development of specialized language models that are hierarchical and suitable for business scenarios, so as to greatly reduce the inference cost of the models.

Conclusion

In recent years, business operations have become increasingly complex and sophisticated.

However, behind this refined operation, the platform is required to have both scenarios to establish consumer demand and technology to improve marketing efficiency, helping merchants to calculate every profit point carefully.

For Kuaishou, merchants can gain more and more incremental revenue and do more long-term and stable business on the platform, and the platform can also explore and expand greater growth space for itself.

In this era of AI surge, AI has become a key weapon for Kuaishou to increase profits and improve the quality and efficiency of its operations. How to further accelerate the innovation and upgrading of AI technology will determine whether Kuaishou can maintain its leading position in future business competition and whether it can continue to move forward rapidly on its journey to profitability.

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With a profit of 4.7 billion, Kuaishou’s sense of crisis has not disappeared

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