1
In January this year, when I was traveling in Hong Kong, I met a young man from the mainland who was also visiting the Hong Kong Palace Museum.
As a Kuaishou mini shareholder, I naturally inevitably asked him: What is the reason why you often use Kuaishou?
He said: My family and I opened a small factory in the suburbs of Hangzhou, and almost all of our relatives, colleagues and friends use Kuaishou, and we often use it to chat and play.
While talking, he took out his mobile phone and opened Kuaishou, which had several of his friends video chatting in the live broadcast room, he put on headphones and said to me: I sometimes connect with them online, most of the time just listen to what they are chatting about, WeChat can also be video, can also be a group chat, but not as direct as here, convenient and easy.
"I soak on it for a few hours every day, and when I don't have anything to do before I go to bed, I basically come here to chat with my friends and sometimes go to other streamers to have fun. ”
There are some Kuaishou shareholders who are not heavy users of short videos, and they don't know what Kuaishou's moat is, and they don't know how its average daily consumption time of more than 2 hours per user comes from.
Traveling in Hong Kong, this young man may be able to give us some inspiration: the unique community culture precipitated by Kuaishou has irreplaceable value for its core users.
Community and social are different: social naturally needs to be integrated into the whole population, so it is best for everyone to use the same product; community naturally gathers like and people in groups, each community will form its own spiritual core, closely connecting people in the community, and hundreds of millions of communities scattered on Kuaishou - may be just two-way friends, or it may be a few people, dozens of people's video live broadcast rooms, they form a unique community culture of equality and reciprocity, constituting a hidden moat of Kuaishou.
Kuaishou's veterans walk into the live broadcast room, either treat you as a friend or treat you as family, no matter what, there is a more equal relationship between you, and it solves people's loneliness.
2
The end of material consumption is spiritual consumption. With the great development of social productive forces, material needs are limited, while spiritual and cultural consumption is endless.
When you buy a brand bag or car, you are actually making a choice for spiritual consumption, which solves your social identity problem.
In different eras, people's spiritual lifestyles are completely different, from reading books, to listening to dramas, to watching movies, and now it has transitioned to the era of short videos.
Interestingly, short videos connect both spiritual and material consumption. On the one hand, it satisfies your content consumption needs and partially dispels your loneliness, and on the other hand, it satisfies your needs for shopping, eating, drinking, watching dramas, watching movies, and even buying a house, buying a car, looking for a job, etc.
Everything can be made into short videos, and all walks of life are joining the live broadcast+.
Otherwise, how can you say that Kuaishou's life is good, but it is not enough to live a good life, you still need to work hard, and this financial report released on the 20th can let us see how hard Kuaishou works.
3
According to the financial report, Kuaishou's revenue in the fourth quarter was 32.6 billion, a year-on-year increase of 15.1%, and if the impact of mature live broadcast business is excluded, the total revenue of advertising and other businesses (including e-commerce) increased by 23.3% year-on-year, which is still outstanding.
The quarterly adjusted net profit reached 4.36 billion, with a profit margin of 13.4%, which can be described as amazing. In the past, many people were still worried that Kuaishou would not be able to make profits on a large scale, but in the past three quarters, Kuaishou's profits have been released quarter by quarter and have grown rapidly, completely dispelling investors' concerns.
Because of its profit release, it is not a simple cost reduction and efficiency increase, but mainly because of two points:
As can be seen from the figure above, in the past 9 quarters, Kuaishou's gross profit margin has increased by 11.6 percentage points from 41.5%, reaching a historical peak of 53.1% in the last quarter, and may continue to improve in the future, because the gross profit margin of new businesses based on advertising business and e-commerce is significantly higher than that of live broadcast business, and the growth potential of the first two is still great.
Second, the cost of user acquisition and retention is more scientific and refined. Kuaishou's user growth strategy has changed from extensive marketing and subsidies to endogenous growth driven by content, and Kuaishou APP has moved from pure entertainment content consumption to interesting to useful full coverage, and attempts to penetrate into all walks of life such as short dramas, e-commerce, recruitment, and local life are generally a lower-cost way to attract new users and retain them.
Therefore, we can see that Kuaishou's daily and monthly active users are still growing significantly, with a year-on-year increase of 4.6% in daily activity and a year-on-year increase of 9.4% in monthly activity in the fourth quarter.
However, marketing expenditure is relatively restrained, with marketing expenditure of 10.2 billion in the fourth quarter, a year-on-year increase of 5%, but the proportion of revenue continued to decline to 31.3%, compared with 45% in Q2 2022, a decrease of 13.7 percentage points.
The fourth quarter is the peak season for e-commerce, and the increased marketing spending is actually more going to e-commerce subsidies and marketing, and Kuaishou has found a way to acquire customers and retain users at a lower cost.
Among the reasons for the rapid release of profits, the third is to reduce costs and increase efficiency, with administrative and R&D expenditures accounting for 12.4% in the fourth quarter, compared with 20.4% in Q4 2021 and 13.8 in the previous quarter.
For the full year of 2023, Kuaishou's revenue will reach 113.5 billion, and the annual adjusted net profit will reach 10.3 billion, with a profit margin of 9.1%, which is the first time that Kuaishou has achieved a positive annual net profit margin since its listing.
Kuaishou is a typical asset-light Internet platform, such a company's revenue reaches 100 billion yuan, the potential profit will be very considerable, just squeeze it is a profit, considering that the proportion of e-commerce and advertising business will continue to increase, and the profit margin still has room for improvement, it is conservatively expected that the net profit in 2024 will exceed 15 billion, according to the current market value of 227.3 billion Hong Kong dollars (209.1 billion yuan), the corresponding P/E ratio in 2024 will be less than 14 times, and if the net profit in 2024 will reach 18 billion, the corresponding P/E ratio will only be 11.6 times.
If we look at its operating cash flow, it will reach 20.8 billion in 2023, which is only about 10 times discounted according to cash flow, and his core business advertising + other annual growth rates will maintain more than 20%.
4
Kuaishou has three main businesses, advertising, live broadcasting, e-commerce and other businesses.
In Q4 2023, the scale of advertising business will reach 18.2 billion, a year-on-year increase of 20.6%, exceeding the industry average, indicating that Kuaishou's advertising business is still gaining more market share.
At the same time, the advertising business accounted for 55.9% of revenue, creating a historical record, and the gross profit margin of the business was relatively high, which was a more high-quality growth, and also the reason for the overall profit margin improvement.
The strong growth in the advertising business was driven by three main factors:
First, the internal circulation advertising with e-commerce as the core continued to perform well, which is due to the continuous expansion of e-commerce scale and active merchants, and the scale of active marketing customers increased by 160% year-on-year in the fourth quarter, which may be due to the expansion of e-commerce internal circulation advertising customers.
The second is the promotion of e-commerce "whole site promotion" products and the launch of intelligent hosting products, which can integrate the traffic of different scenarios and help merchants quickly expand their transaction volume; The advertising consumption of both new products in the fourth quarter exceeded 150% quarter-on-quarter.
Third, the Xingmang short drama has made breakthrough progress, which is very popular in the advertiser market, and the advertising investment revenue in the fourth quarter has increased by 6 times from the previous quarter.
The new business mainly comes from the commission income of e-commerce business, which reached 4.31 billion yuan in the fourth quarter, a year-on-year increase of 36.2%, 7 percentage points faster than the GMV growth rate, indicating that the monetization rate of Kuaishou e-commerce is in an improvement cycle.
At the same time, the business also has a higher gross profit margin, and the current proportion of revenue has increased from 9.7% in Q4 21 to 13.2%.
The live broadcast business performed steadily, with a scale of 10.05 billion in the fourth quarter, basically the same as the same period last year.
Considering that the scale of the business has become so large, and the industry is in a headwind period, and friends such as Douyu and Huya are in a state of shrinkage, Kuaishou's live broadcast business is already commendable.
5
When Kuaishou was listed in early 2021, we raised a question:
Will the development of the short video industry eventually dominate the world like search, Weibo, and WeChat, or will it be similar to the separation of 2-3 oligarchs like e-commerce platforms?
At that time, the answer we gave was the latter, but today, this is no longer a problem, and the three-legged trend of Douyin, Kuaishou, and Channels is gradually revealed.
There are many reasons for this decentralization, which may include:
1. The market size of the short video industry is too large, and it can naturally accommodate many giants, just like the e-commerce industry, one company can't finish it, and it can't finish it at all.
The second and third companies have their own unique moats and core user groups, and there is naturally room for differentiated development.
Third, in an industry with such a broad commercialization space, the supply side naturally has a strong will to put eggs into different baskets, and these businesses and creators will tend to support competitors intentionally or unintentionally.
Fourth, the combination of short video and live broadcast, after penetrating into different industries, a new scene and circle have been formed, the closer this combination is, the deeper the penetration, the more difficult it is to form an exclusive monopoly, such as the combination of e-commerce and live broadcast e-commerce, which cannot be a monopoly industry; the combination of film and television with short dramas, which is already similar to the industrial production of content, and it is even more unlikely that there will be an exclusive monopoly; and the live broadcast + born after the combination with other walks of life, the reason is similar.
In just 5 years, the scale of the short drama industry has expanded from 0 to 37.3 billion, and it is expected to further grow to more than 100 billion in 2027.
In 2023, the total number of Kuaishou Xingmang short dramas will be nearly 1,000, of which more than 300 popular short dramas will be broadcast over 100 million. In addition, Kuaishou has also introduced tens of thousands of third-party paid short dramas, and in the fourth quarter of 2023, the number of users who watch more than 10 episodes of heavy short dramas per day reached 94 million, a year-on-year increase of more than 50%.
As mentioned earlier, advertisers have prioritized Kuaishou Xingmang short dramas, which bring not only economic benefits, but also user attraction and circle expansion effects, some popular short dramas will attract new users to watch like tap water, and some celebrity skits will naturally attract fans to participate.
6
The content ecology is the cornerstone of Kuaishou, and the e-commerce ecology has given wings to its commercialization, which can provide good returns for creators, and a closed loop of content production, consumption, and reproduction has been formed.
In the fourth quarter, Kuaishou's e-commerce GMV reached 403.9 billion, a year-on-year increase of 29.3%, considering the high base of Kuaishou in Q4 last year and the year-on-year growth rate of less than 7% in the industry, Kuaishou's growth rate is really good.
On a year-by-year basis, the scale of Kuaishou e-commerce exceeded one trillion yuan for the first time, reaching 1.18 trillion yuan, and the proportion of China's e-commerce increased from 7.5% in 22 years to 9.1% in 23 years.
Of course, the GMV data released by various platforms may not be completely consistent with the data of the Bureau of Statistics, but compared with the same caliber of Kuaishou in the past, its market share has increased significantly.
In 2023, the core growth momentum of Kuaishou e-commerce mainly includes the following aspects:
First, with the rise of the mall and the core pan-shelf e-commerce, the proportion of this part of the transaction volume in Q3 of 23 is less than 20%, and it has exceeded 20% in the fourth quarter, pan-shelf e-commerce includes Kuaishou's shelves, search, short videos and other scenarios, Kuaishou shelf mall has fully opened the entrance in December, this part of the GMV increased by more than 50% year-on-year in the fourth quarter, the average daily number of dynamic sales merchants increased by more than 130% year-on-year, and the GMV of short video e-commerce scenarios increased by more than 100% , the GMV of e-commerce search scenarios increased by more than 60% year-on-year.
2. Highlight the price power strategy and further improve the efficiency of user acquisition and retention. Enrich the infrastructure construction of the mall, introduce the scoring system of product quality, service attitude and logistics speed, and continuously optimize the algorithm to help users find the ultimate cost-effective goods in the mall field.
3. Introduce more internationally renowned brands and domestic brands, support the growth of fast brands, and help well-known brands to broadcast themselves in live broadcast rooms.
In addition to deepening the cultivation of live broadcast e-commerce, Kuaishou has also expanded its services to the field of local life.
In 2022, Kuaishou began to try the local life business, and after more than a year of exploration, this business has been rolled out in four major first-tier cities and 15 new first-tier cities, among which Qingdao, Shanghai, Chengdu, Shijiazhuang, Harbin and Shenzhen have done more in-depth, and it is said that some cities have achieved single-city profitability.
In 2024, Kuaishou plans to go one step further and replicate its experience and gameplay to more regions, so that 700 million old iron can enjoy high-quality and low-cost services, and tens of millions of offline merchants can obtain new business increments with low cost and high returns in the local life field.
Kuaishou shouted the slogan "All group buys are worth redoing in Kuaishou", apparently preparing to invest more resources and have different strategic goals.
Listen to a cake shop brand owner with a Harbin background to share: they will only start to do it in 2023, and they have made more than 50 million achievements online in just over half a year, of which the Kuaishou channel accounts for more than 30%, a successful live broadcast, sometimes not only can harvest tens of thousands of orders, but also a large number of background private messages, consulting the opportunity to be a brand chain agent in their own city, so in the past year, the brand has rapidly expanded from Northeast China to North China, and even the whole country, opening more than 100 chain stores.
In the context of the real economy collectively encountering industry headwinds, such growth and stories are still quite exciting: behind the more than 100 new stores, there are thousands of direct jobs and tens of thousands of upstream and downstream employment support.
I didn't go to the front line to observe before, and I always felt that the competition in the industry was relatively homogeneous.
After learning about it, I think this is very good, just like e-commerce, local life is originally an open market, and more new players can enter the market with new ways to play, which can not only quickly increase the online rate - Meituan's GTV growth rate of in-store hospitality and tourism has exceeded 100% in the past year, which is also a beneficiary, and can enrich Meituan's play.
Meituan, Douyin and Kuaishou will work together to expand the local life market, learn from each other, compete with each other, and raise the business model and penetration rate of China's local life service industry.
In 2023, Kuaishou's recruitment business, Kuapin, will carry out a total of 5.5 million live broadcasts, greatly improving recruitment efficiency and helping more users find jobs, and the GTV of Kuaishou's real estate business Ideal Home will be about 50 billion yuan for the whole year, and the GTV will exceed 16 billion yuan in the fourth quarter.
7
If we say that we are deeply engaged in content, e-commerce, and local life, strictly control the discipline of financial expenditure, and increase revenue and profits, these represent Kuaishou's today, and innovation is related to Kuaishou's future.
At a time when AIGC technology is changing with each passing day, the birth of Sora has given a deep shock to the content industry.
Over the past decade, Kuaishou has been both a practitioner and a beneficiary of technology and business model innovation:
It is the pioneer of China's short video business model, and it has also enjoyed the huge development dividend of the short video industry in the past ten years;
It is the pioneer of short video live broadcasting, and it is also the first player to reap large-scale profits in the live broadcast business;
It is an innovator of live broadcast e-commerce, and now its advertising business has an annual revenue of more than 60 billion, more than half of which is due to the circulation of e-commerce advertising;
It is also a pioneer in subdivided industries such as short dramas and live broadcast recruitment, and it is these explorations that have allowed it to gain a firm foothold in the highly competitive short video industry and achieve steady and far-reaching results.
So today, when AI, the biggest technical variable, comes unexpectedly, Kuaishou should obviously be more involved.
According to the exchange at the performance meeting, when talking about the development of AIGC, the management said that Kuaishou has launched the AI strategy at the beginning of 2023 and formulated strategic goals and plans:
In terms of self-developed large models, Kuaishou focused on R&D and training of 175 billion large language models in the fourth quarter, and the comprehensive performance of the model has greatly exceeded GPT3.5, and it is confident that the comprehensive performance will reach the level of GPT4.0 in the next six months. In terms of multi-mode mode, our Wensheng Diagram large model can be graphed model, and after multiple versions of iteration, the comprehensive performance has exceeded the level of MIDjourney V5. We have been researching and investing in the field of video generation technology, and actively promoted the patent research and development of video generation technology at the end of last year.
AI will determine the future of Kuaishou on several levels:
Fundamentally, Kuaishou's current information recommendation technology is involved in content distribution. AIGC is directly promoted to content production, if the content directly produced by AI can meet human standards, even if it is partially achieved, it is of course a dimensionality reduction blow for ordinary artificial creation, especially in the field of Wensheng video, which is an important issue for all content distribution platforms today.
From the perspective of the large industry cycle, the Internet has improved human well-being, and everyone's consumption in the content field is far more than before, which is the big logic of the growth of the content platform; AI will do this logic again, and it may have a greater impact, optimistically, AI may make more than 80% of the world's people have no worries about food and clothing without almost no work, creative work will be the first choice for more people, and the content industry will benefit from this for a long time.
From the micro level, AI will greatly improve the work efficiency of creators, merchants, and influencers, it is not a technological mutation, it is more likely to be gradual, and merchants, creators, and influencers rely on the progress of AI technology in many fields such as content creation, intelligent marketing, AI customer service, and live broadcast avatars.
Given Kuaishou's track record of innovation over the past decade, we have reason to believe that Kuaishou will choose both the moon and sixpence.