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Edited Transcript of 1024.HK earnings conference call or presentation 23-Aug-22 11:00am GMT

Q2 2022 Kuaishou Technology Earnings Call (Chinese, English) Aug 26, 2022 (Thomson StreetEvents) -- Edited Transcript of Kuaishou Technology earnings conference call or presentation Tuesday, August 23, 2022 at 11:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Yixiao Cheng Kuaishou Technology - Co-Founder, Executive Director & CEO * Bing Jin Kuaishou Technology - CFO * Heather Diwu Kuaishou Technology - Director of IR ================================================================================ Conference Call Participants ================================================================================ * Alex Poon Morgan Stanley, Research Division - Equity Analyst * Thomas Chong Jefferies LLC, Research Division - Equity Analyst * Kenneth Fong Crédit Suisse AG - Research Division ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by. Welcome to Kuaishou Technology Second Quarter and Interim 2022 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. And now I'm going to turn the call over to Ms. Heather Diwu, Director of Investor Relations at Kuaishou Technology. -------------------------------------------------------------------------------- Heather Diwu, Kuaishou Technology - Director of IR [2] -------------------------------------------------------------------------------- [Interpreted] Thank you, operator. Good evening, and good morning to everyone. Welcome to our Second Quarter and Interim 2022 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, co-Founder, Executive Director and CEO; Mr. 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 disclose certain non-IFRS measures and 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 second quarter and interim report ended June 30, 2022, issued earlier today. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and conceptive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in the original language will prevail. I will now hand the call over to Yixiao. -------------------------------------------------------------------------------- Yixiao Cheng, Kuaishou Technology - Co-Founder, Executive Director & CEO [3] -------------------------------------------------------------------------------- [Interpreted] Hello, everyone. Welcome to the Kuaishou Second Quarter 2022 Earnings Conference Call. In the second quarter of 2022, we continue to overcome challenges and achieve significant business breakthroughs. Though the pandemic was sporadic and macroeconomic was volatile, we remained steadfast in our commitment to creating more value for users and society, while also consistently enhancing our operational efficiencies. Our domestic DAUs in the second quarter of 2022 reached 347 million, achieving better-than-average seasonal performance and setting a new record. Meanwhile, our domestic business segment made breakthrough progress, delivering quarterly operating profit 2 quarters ahead of plan, which has clearly shown the health and sustainability of our business model as well as the execution and efficiency potential of our organization and team. We launched the Kuaishou Express in the second half of 2019, and have made considerable investment in the growing users while pay attention to acquisition efficiency. The group's adjusted EBITDA turned positive for the first time in nearly a year. Now I would like to discuss the progress we made with several aspects of our business in the second quarter. First, I talked about the user metrics and also traffic. In the second quarter of 2022, we continued to achieve high quality and efficient user growth. Through optimizing our strategies, algorithm content, operation, et cetera, we delivered a record high DAUs of 347 million at an accelerated growth of 18.5% year-over-year, with lower acquisition and maintenance cost per DAU. Our average MAUs reached 587 million, up by 15.9% year-on-year, and our average DAUs to average MAUs ratio also hit a historical high as 59.2%, reflecting Kuaishou's growing user stickiness and vibrancy of our user community. Furthermore, our average daily time spent per DAU reached 125.2 minutes in the second quarter of 2022, up by 17.1% year-on-year. Our total time spent also grew a rapid pace of 38.7% year-on-year. More specifically, on the user acquisition side, we continued to explore efficient channels and effectively expand listing channels in the targeted manner. At the same time, we actively managed operation according to our traffic strategy, and improved our [users conversion rates with the help of more high-quality content and fun, social functions.](added by company after the call) Very unique in old fashion. And also at the same time, we're improving our efficiency. And also, our channel in strategy also iterated and also, we are improving our economic management manner. At the same time, we actively managed operation according to our traffic strategy and also improve the kind of best operation method. And also at the same time, by having seasonal alteration, we are also focusing on our strategy and also efficiency at the same time with the lower cost, we have also -- which also had a significant improvement in both quantity and quality of user growth. User experience is key for retaining user and increasing [their](added by company after the call) time spent. Through algorithm operation, we have made more accurate and differentiated recommendations of high quality content, particularly mid to long-tail content, thereby enriching user consumption and improving user experience. In the second quarter, the year-on-year growth of our video views even outpaced the growth of total user time spent. Meanwhile, we developed a new perspective on user retention,iterated our simple user labels into a more comprehensive user health index. This enhancement has made our intensive model more refined and efficient, improving our system iteration frequency from daily basis to minute basis and putting us a generation ahead of our peers in term of efficiency. Our highly effective user retention strategy also serves as a powerful tool for our ongoing control of user-related costs. With optimization in content, algorithm, operations and more, we further increased the proportion of unsubsidized and minimally-subsidized users in our base. In the second quarter, our DAU growth rate and decrease in retention cost per DAU showed a healthy divergence and our first year ROI of new users continued to increase quarter-over-quarter. These accomplishments boosted our confidence and enable us to strive forward to our 400 million DAU user target. In addition to improving efficiency, we also adhered to our growth strategy of creating a differentiated social platform and user mindset with meaningful results. In the second quarter of 2022, pairs of mutual followers on Kuaishou App grew 66% year-over-year, reaching more than 20 billion cumulatively, with average following per MAU continuing to increase more than 300, reflective of strengthening social stickiness and user mindset. On a content side, we continued to strengthen operations in our advantageous vertical, while conducting more corrective screenings and operations for blockbuster contents. Kwai Playlet has always been our benchmark content vertical. In the second quarter of 2022, we further accelerated the growth of our short play content, and achieved meaningful results by adding new categories, including family and documentary, and exploring new duration formats, such as 5-minute episodes. Our strategy is to place greater emphasis on content and less on production, particularly on the scripting stage. This strategy has consistently produced blockbusters. Short plays have also contributed significant to user acquisition and user activeness, especially among young and female users. With keen insights into blockbuster content and also strong operational capability, we recently created several blockbuster entertainment content. Kuaishou insists on a strategy of providing entertainment content with high interactions and premium user experience. We organized and hosted Jackie Chan's first global live streaming event and Jay Chou's highly anticipated new album live streaming event. Jackie Chan's spectacular live streaming event was enjoyed by [his](added by company after the call) fans worldwide, drawing more than 130 million reviews, including Kuaishou's domestic and overseas users. Jay Chou's live streaming had over 110 million viewers, over 450 million interaction, and reservations exceeding 10 million, which is actually a historical high history of the Internet. As of June of 2022, Kuaishou had more than 2,000 celebrity accounts which together had 870 million followers. Another primary focus for Kuaishou has been to improve the monetization efficiency, and we have continually implemented optimization measures across our ecosystem, products, technology and service capability, among other aspects of our business platform. Like most of enterprises in China, we felt the pressures from challenging micro environment and resurgence of the pandemic in the first half of the year. While these factors prevented us from fully unleashing our improved monetization capability in the short term, we still outperformed industry across our business segments and continued to gain market share. In the second quarter of 2022. Earning from online marketing increased by 10.5% year-on-year to RMB11 billion. Against a weak economic environment and advertisers' conservative budgeting, we have been more proactively deepening our relationships with advertisers to increase the number of active consumers and boost overall advertising demand. In the second quarter, the number of our active advertisers increased by more than 90% year-over-year. Meanwhile, advertiser retention rate further improved, reflecting our ad performance and product capabilities. We have also recently implemented several targeted optimization measures. For example, we introduced lite version of our products to medium and small customers, making advertising easier and more convenient. In addition, regarding ad performance, we adopted more refined and frequent monitoring and operations to minimize ROI for advertisers. Through algorithm optimization, we were able to improve targeting intelligence, which allowed us to better help advertisers with budget allocation and bidding strategy management to improve matching and conversion efficiency. In the second quarter, overall advertising CTR (click-through rate) and advertiser transaction rate [both further](corrected by company after the call) improved. Growth of advertising from our native e-commerce business also rebounded during the second quarter, as our e-commerce business started to recover after pandemic resurged. In the second quarter, we focus more on building comprehensive e-commerce marketing service capabilities. While continually improving basic service quality, we further capitalized on our dual engine of short video plus live streaming to attract incremental advertising business through short video e-commerce advertising, while improving matching and conversion rate. We also guided merchants to conduct combined promotions and operations in both public and private domains to further unlock the value of our closed-loop e-commerce platform. The average ROI for native advertisers continued to improve in the second quarter. In terms of brand advertising, we have expanded our ad spaces and [are](corrected by company after the call) constantly innovating new promotion solutions. For example, for KOLs, we launched the Wheat Plan, an innovation promotion approach linking platform + KOL + brand. We [selected](corrected by company after the call) 100 high-quality KOLs based on their content quality and commercial value and jointly launched various product combinations for brands to fulfill their KOL marketing needs in different scenarios, empowering brands to grow their businesses. The year-over-year growth of our brand advertising in the second quarter of 2022 outpaced that of the overall online marketing services. Our e-commerce business was also affected by the pandemic during the second quarter. Nevertheless, we outperformed the industry thanks to our differentiated advantages in traffic, efficiency and e-commerce experience. E-commerce GMV increased by 31.5% year-on-year to RMB191.2 billion, with live streaming e-commerce gaining a larger share in the e-commerce market in the second quarter. On the merchant side, more sellers has come to recognize live streaming e-commerce's advantages in traffic, efficiency and customer acquisition, as well as the growing number of successful cases. Hence, more merchants are joining Kuaishou's live streaming e-commerce ecosystem, adopting our promotional strategies, which has helped enrich our merchandise supply. For the first half of 2022, the monthly new merchants' number increased notably against the same period last year, near doubled. In the second quarter, the number of monthly active Kwai Brand merchants climbed more than a fold quarter-over-quarter and the number of monthly active brand merchants grew by more than 200% year-over-year. Building on our abundant traffic and rich merchandise content, we maintained close attention to improving transaction efficiency. To optimize our algorithms, starting from this year, we have focused on improving accuracy of buyer, seller and product matching: regarding users, we have stepped up efforts in exploring their personalized needs to continuously refine user labels and to better understand our users. On the product front, we made significant investment in building a product database and has kept perfecting product descriptions so we can better understand the products. These efforts significantly enhanced the GPM (GMV per Mille) of e-commerce live streaming in the second quarter. For new merchants at the start-up stage, we expanded and invested additional resources on services provided to boost their start-up efficiency and help them speed up growth. In the second quarter of 2022, over 2,000 merchants saw their revenues climb in leaps and bounds through service provider empowerment. Meanwhile, we consistently fortify our truck-based e-commerce ecosystem. In the second quarter, our industry-leading monthly repeat purchase rate continued to increase year-over-year and quarter-over-quarter, as our trust-based economy further reinforced consumers' purchase mindset and stickiness. Compared with shelf-based e-commerce, live streaming e-commerce engages at an earlier stage in consumers' decision-making process. With ongoing updates of content, matching and merchandise supply, we further optimize the "browsing" part of shopping experience, creating a virtuous cycle. In the second quarter, our monthly active e-commerce paying user penetration rate maintained its growth momentum, reaching over 15%. Another highlight of our second quarter performance was our live streaming business. Its revenue grew at an accelerated pace of 19.1% year-over-year to [RMB]8.56 billion(added by company after the call), primarily due to following effective [initiatives](corrected by company after the call). First, the strategic adjustments we made to our content supply since the second half of last year produced excellent results. Though strengthened collaborations with talent agencies to empower the content operations of existing streamers on Kuaishou while also on-boarding more external professional streamers, we have achieved marked improvements in overall content quality as well as operational capabilities of our live streaming business. In the second quarter of 2022, a number of our monthly active streamers exceeded 10 million, among which the number of high quality active streamers with over 100,000 followers saw double-digit growth year-over-year. In the second quarter, we made more explorations in live streaming production and operations to launch novel interactive features and new scenarios based on users' consumption motivations, such as our multi-person live streaming function. Driven by dual improvement in content diversity and quality, our popularity rose further among users, as evidenced by the accelerated year-over-year growth in user time spend on live streaming and significantly optimized revenue efficiency of our live streaming traffic. As for the algorithms, through real-time matching of live-streaming content, we improved our live streaming conversion rates, effective penetration rates, and paying the ratio, establishing a more efficient and smooth live streaming payment funnel. In the second quarter, average MPUs for live streaming rose 21.8% year-over-year to 54 million. Within Kuaishou's live streaming ecosystem, "Kuai Recruitment," a high potential new business, also made remarkable progress in the second quarter. With advantages in traffic, algorithms, core user profiles and our truck-based ecosystem, Kuaishou [can](corrected by company after the call) strike a balance between costs and efficiency for corporate recruiters, creating economies of scale while providing a highly trusted recruitment and fulfillment experience to users. [Although](corrected by company after the call) it is a relatively new business, "Kwai Recruitment" has quickly gained the recognition and attention of individual and corporate users, with MAUs of Kwai Recruitment reaching 250 million in the second quarter, up 90% relative to the first quarter. Supported by our powerful matching and operational capabilities combined, "Kwai Recruitment" boasts an industry-leading placement conversion rate. Our priority for this year is to cultivate user mindset and grow our scale while improving the service quality. Through short videos and live streaming, we aim to create more social and economic value for both individual users and enterprises. Moving on to our overseas business. In the second quarter, we continued to create the differentiated content, foster user mindsets, and explore more diverse content styles and formats. At the same time, we further increased our investments in algorithms and products to optimize user experience, so as to achieve high-quality and efficient user growth and retention rate. At the end of June of this year, the time spend per DAU in our overseas markets exceeded 60 minutes -- and 60 minutes, indicating a positive breakthrough in user experience in a growing number of regions, as well as the flywheel effect that is gradually gathering momentum. In the second quarter, we also actively explored monetization via advertising and live streaming virtual gifts, brought in more advertisers, and partnered with more live streaming talent agencies to consolidate and also solidify the foundation for our creator ecosystem. As a result, our revenue from overseas operations more than doubled quarter-over-quarter, with narrowing losses. Going forward, we hope to continue exploring an ROI-based overseas growth model. [Recently](added by company after the call), we completed a new run of organizational restructuring aiming at further unlocking the organizations' vitality and potential, and continuously creating efficient and high-value services for society and users. This concludes my prepared remarks. Next, our CFO, Jin Bing, will discuss the company's financial performance. -------------------------------------------------------------------------------- Bing Jin, Kuaishou Technology - CFO [4] -------------------------------------------------------------------------------- [Interpreted] Thank you, Yixiao, and hello, everyone. We will now have a closer look at our financial performance for the second quarter of this year. So first of all, I'm thrilled that Kuaishou made a breakthrough progress in the second quarter. Despite a challenging macro environment, our traffic and revenues continued to grow steadily. Meanwhile, our domestic business became profitable at the operating level, 2 quarters ahead of traffic. We also achieved positive results in the monetization of our overseas business, as demonstrated by rapid revenue growth and significantly narrowed operation loss. Our revenues for the second quarter increased 13.4% year-on-year to RMB21.7 billion. The increase was mainly driven by revenue growth in our online marketing services, e-commerce business and live streaming business. Revenue from online marketing services reached RMB11 billion in the second quarter of 2022, up 10.5% year-over-year. This was primarily attributable to our traffic growth and the continuous improvements in our services, production capabilities and ad performances, which consistently increased the number of advertisers. Meanwhile, as our solid closed-loop ecosystem generates improved conversion rates for e-commerce merchants, their contribution to our closed-loop online marketing services showed stronger resilience and growth. Other services revenue for the second quarter of 2022 increased by 7.1% year-on-year to RMB2.1 billion largely due to the solid growth in e-commerce revenues. Our rich merchandise supply was powered by the growth of well-known brands as well as Kwai Brands, which while our enhanced matching efficiency promoted the increase in our monthly active e-commerce paying users. This, combined with our unique trust-based e-commerce model and empowerment by service providers, enabled our total e-commerce GMV to increase by 31.5% year-over-year to RMB191.2 billion. In the second quarter of 2022, revenue from live streaming grew by 19.1% year-over-year to RMB8.6 billion. This was primary attributable to the improvement in both our live streaming, content quality and platform's live streaming operational capabilities, as well as the continuous improvement in user and content matching efficiency, which propelled the growth of average live streaming MPUs of 21.8% year-year to 54.2 million. Our cost of revenues for the second quarter of 2022 increased by 10.9% year-over-year to RMB11.9 billion, representing 55% of total revenues. The year-on-year increase was mainly due to 2 reasons: First, an increase in revenue sharing costs related taxes, which were in line with our revenue growth. Second, an increase in content cost as part of the other cost of revenues, resulting from our continued efforts to diversify content verticals and enrich content ecosystem. However, during the quarter, we were able to partially offset the impact of these factors by optimizing the efficiencies of our bandwidth usage and reducing our bandwidth expenses and serving custody costs. Gross profit for the second quarter of 2022 reached RMB9.8 billion, growing 16.5% year-on-year. Gross profit margin in the second quarter of 2022 was 45% improving from 43.8% in second quarter of 2021, an increase of 3.3 percentage points quarter-over-quarter. Our year-on-year increase in GP margin was primarily a result of further optimization of bandwidth and server efficiency, which drove a decrease in ratio of bandwidth and depreciation to revenue. However, the quarter-over-quarter improvement in gross profit margin was mainly due to optimizing our revenue sharing costs and related taxes. Selling the marketing expenses were RMB8.8 billion for the second quarter of 2022, decreased by 22.2% year-on-year, and 7.7% quarter-over-quarter, representing 40.4% of revenues, a significant decline of 18.5 percentage points from 58.9% in the second quarter of 2021. This decrease resulted from our improved acquisition efficiency, and optimization in content, algorithm and operations, which led to more disciplined and efficient standing to our user acquisition and maintenance while sustaining strong traffic growth. Administrative expenses for the second quarter of 2022 were RMB960 million, increased by 10.6% year-over-year, primarily due to an increase in share-based compensation expenses. Research and development expenses in the second quarter of 2022 were RMB3.3 billion, decreasing by 16.1% year-over-year and 6.8% quarter-on-quarter, primarily due to a decrease in employee benefit expenses, including the related share-based compensation expenses. Our operating loss for the second quarter of 2022 continued its downward trend, narrowing significantly RMB3.1 billion, an improvement from RMB7.2 billion in the second quarter of 2021 and RMB5.6 billion in the first half or in the first quarter of 2022. As a result, our operating margin increased by 23.6 percentage points year-over-year and 12.7 percentage points quarter-over-quarter, improving from negative 37.7% in the second quarter of 2021 to negative 14.1% in the current reporting quarter. Adjusted net loss for the second quarter of 2022 was RMB1.3 billion, narrowing substantially from RMB3.7 billion in the first quarter of 2022 and RMB5.0 billion in the second quarter of 2021. This resulted in an adjusted net profit margin improvement from negative 26.2% in the second quarter of 2021 to negative 6.0% in the second quarter of 2022, representing an increase of 20.2 percentage points year-over-year and 11.7 percentage points quarter-over-quarter. We remain a healthy balance sheet with cash and cash equivalents, time deposits restricted cash and wealth management products of RMB41.26 billion as of June 30 of 2022. Going forward, we will continue to reinforce the monetization capabilities of our various business while embracing change and adapting to evolving macro environment. With a steadfast commitment to sustainable growth and profitable improvement to our group level, we will enhance our operational efficiency and effectively execute our long-term development strategies. This concludes our prepared remarks. We are now open for questions. Operator, please go ahead. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (foreign language) [Interpreted] (Operator Instructions) The first question comes from the line of Alex Poon from Morgan Stanley. -------------------------------------------------------------------------------- Alex Poon, Morgan Stanley, Research Division - Equity Analyst [2] -------------------------------------------------------------------------------- (foreign language) Congrats on a very strong quarter. My question is related to our e-commerce business. Second quarter GMV grew -- growth was much better than expectation. And can management explain it -- describe to us how our e-commerce ecosystem developing so far? And how will we tackle the changes after the COVID for the consumer behavior change? Yixiao Cheng;Kuaishou Technology;Co-Founder, Executive Director & CEO^ (foreign language) [Interpreted] Thank you for the question. In the second quarter, we continued to build our trust based experience-centric e-commerce ecosystem and speeded up improving sales conversion by leveraging live streaming as the main venue. Trust is the cornerstone of our e-commerce system, thus we continued to improve our user rights and interests protection system, the penetration of orders under the Trust Purchase, which is part of the system further increased. In particular, our high compensation policy, 9x refund for each fake item, now covers more than half of orders, which is industry-leading, and we are confident to further improve it. We further enhanced platform governance and presented user feedback at various points in the purchase process in the forms like Repeat Customer Recommendation Index to further strengthen users' confidence in merchants and our platform. We continued to lead the industry in e-commerce monthly repeat purchase rate, which had increased both quarter-over-quarter and year-over-year. If private domains is the foundation for merchants to operate effectively over time on Kuaishou, our public domain traffic can help merchants quickly get through the cold-start stage and raise their operating ceiling. This quarter, we focused on enhancing the conversion rate of public domain traffic by enriching and refining product and user tags, and improving the accuracy of matching merchandise and users. During the period, the GPM of public domain e-commerce live streaming increased by high double-digit percentage points year-over-year and continued to grow quarter-over-quarter. By offering high-quality merchandise and services to strengthen repeat purchase and private domain traffic conversion, we have created a highly efficient dual-engine model with public and private domain. Our e-commerce business would not have achieved better-than-expected growth this quarter without our continued expansion in high-quality resources on the supply side. During the first half of 2022, the number of monthly new merchants increased significantly by more than 90% year-over-year. More and more merchants gradually recognize the value of live streaming e-commerce's lively product displays and efficient interactions, as well as its higher conversion rate. We are also actively expanding our reach to high-quality merchants in industry zones. Our plan is to deploy services in 100 industrial zones by the end of this year. And at the end of first half, we were over halfway there, with more than 10 industries covered. On the brand supply side, we continued to promote more brands, particularly Kwai Brands to provide consumers with more abundant and high-quality merchandise, while further enhancing user awareness of brands [on](corrected by company after the call) our platform. In the second quarter, the number of monthly active brand merchants more than doubled year-over-year. Among them, an internationally renowned beauty and cosmetics brand achieved average monthly GMV of RMB200 million in its first quarter of on our platform. And during the 616 shopping festival, our total brand GMV increased more than 5 folds year-over-year. In terms of Kwai Brands, the number of monthly active Kwai Brand merchants doubled quarter-over-quarter. In addition to our presence in apparel and cosmetic categories where live stream e-commerce holds an advantage, Kwai Brands are also featured in categories such as food and beverages, home appliances, home furnishings and other products. And as for the second part of your question, given the pandemic resurgence in many places in the first half of this year, with their offline operations under pressure, many merchants were more willing to explore online sales channels. At the same time, the pandemic also fueled the desire of traditional online merchants to find new growth channels, giving us the leverage to speed up signing up new merchants. This year, we continued to strengthen our support for start-up merchants, establishing an exclusive traffic pool and providing them with diverse products, marketing tools, and one-on-one operation services. Furthermore, our service providers are providing more targeted services to address new merchants' various score points in relation to product selection and operation at the early stage, helping them jump starting and achieve GMV growth. In the second quarter, the next month retention rate of new merchants increased significantly year-over-year and quarter-over-quarter, and the time between cold start to sales liftoff of new merchants shortened by nearly 15% year-over-year. In addition, we could see users being more price sensitive and are more rational in the post-pandemic era, which resonates well with our "honest people, quality good and reasonable prices" philosophy. We bring more exposure to merchants capable of providing a high value-experience ratio, and this in turn encourages merchants to keep refining their products and services. At the same time, we continue to improve the quality of product fulfillment and after-sales services, so consumers can buy affordable and trustworthy products. Although affected by the pandemic and the unnecessariness consumption overall was depressed, during the 616 promotion, we noticed beauty and cosmetics, also the home appliance and other categories on Kuaishou managing relatively healthy recovery. Furthermore, consumers staples such as food and beverages saw rapid development during the pandemic. Although in the food and beverage vertical, the penetration rate of live streaming e-commerce is still rapidly low, we believe there is a great upside potential, with the streamers providing precise expression and vivid displays of food taste and flavor, as well as the bulk sales model. As a trust-based e-commerce platform with fast expanding traffic advantage, increasing matching efficiency and product supplies, we believe standard products also have much room for penetration [on](corrected by company after the call) our platform. We are stepping up to develop shopping mall-like functions, including Kwai Shop's, entry point, search box, and the "Guess what you like" feature, which can help users who have a clear shopping target to find where exactly to get what they need, better cater to users' repeat purchase demand and keep reinforcing their purchasing mindsets on Kuaishou. We believe, in the medium-to-long term, the total GMV of the live streaming e-commerce industry centered on short video platforms can reach RMB6 trillion, and we will continue to strengthen our leadership in this industry. -------------------------------------------------------------------------------- Operator [3] -------------------------------------------------------------------------------- (foreign language) [Interpreted] Next question comes from the line of Thomas Chong of Jefferies. -------------------------------------------------------------------------------- Thomas Chong, Jefferies LLC, Research Division - Equity Analyst [4] -------------------------------------------------------------------------------- (foreign language) May I ask management what should we think of operational efficiencies and ROI uphold on investment, how should we think about our top line growth, and achieve effective results? Bing Jin;Kuaishou Technology;CFO^ (foreign language) [Interpreted] Thank you for the question. It is indeed very exciting that our domestic business growth [broke](added by company after the call) even 2 quarters ahead of schedule. We made efforts on several fronts. First, our gross margin. To begin with, while maintaining steady revenue growth, we made breakthroughs in our revenue-sharing cost management. As our core business grew in scale and influence, we innovatively designed and optimized a more effective revenue sharing mechanism, lowering the revenue sharing costs and related taxes as a percentage of revenue by 2.5 percentage points quarter-over-quarter. Secondly, upholding the principle of using technology to heighten efficiency and with efficiency keeping costs under control, we focused on tech upgrades to achieve the ultimate in cost effectiveness. In terms of server technology, we advanced dedicate management of resources and implemented technological innovations, which improved computing and storage resources utilization rates, helping us to minimize unit resource costs. In the first half of the year, while the total domestic time spent grew by over 40% year-over-year, our bandwidth costs per 1,000 minutes in China fell significantly year-over-year. So the ratio of bandwidth and server costs to revenue dropped by over 3 percentage points, and that contributed markedly to our overall gross margin improvement. As for audio and video technologies, we carried out advanced technology research and developed applications, which combined with multiple video codec algorithms, image enhancement and audio compression algorithms, reduced considerably our total bandwidth usage. Our self-developed codec algorithm KVC is the industry's first next-generation video algorithm standard widely promoted and used online. And the large-scale launch of PCDN and other device cloud interaction technologies have substantially increased the promotion for free and low-cost bandwidth usage. Regarding expenses, in terms of selling and marketing expenses. Since the third quarter of last year, while ensuring user growth, we have been able to keep lowering the acquisition and retention costs per DAU through organizational restructuring, efficiency enhancements and technology iterations. We also strengthened refined management of our operations, plus competition eased compared with last year. In the second quarter, with rapid traffic growth maintained and user number reaching a new high, selling and marketing expenses as a percentage of revenue declined by 18.5 percentage points year-over-year. Lastly, we significantly optimized our personnel-related costs to revenue ratio through a series of organizational restructuring and efficiency enhancement initiatives, moving closer to the industry-leading level. At the concerted efforts of all in the company, we notably narrowed our losses. We will continue to explore more monetization models and improve the monetization efficiency, while following an efficient growth path to increase revenue while reducing costs, which will give us a solid foundation to unlock value in the medium-to-long term. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- (foreign language) The next question comes from the line of Kenneth Fong of Credit Suisse. -------------------------------------------------------------------------------- Kenneth Fong, Crédit Suisse AG - Research Division [6] -------------------------------------------------------------------------------- (foreign language) Congrats on the strong quarter. I have a question about Kwai recruitment. Can you update us on the latest progress growth strategy as well as the plans for monetization? Yixiao Cheng;Kuaishou Technology;Co-Founder, Executive Director & CEO^ (foreign language) [Interpreted] Thanks for the question. First, China's blue-collar population exceeds 450 million, accounting for half of the country's working population, and are the most in-demand workers in the country. With the population bonus diminishing and labor shortages arise, the blue-collar recruitment market has become supply or user-driven. However, we have noticed that in the past, these users have not been adequately served, and the blue-collar recruitment market has many pain points, such as inadequate access to information, false information, inconsistent contract fulfillment quality, et cetera. And for employers, they also face challenges that require urgent attention, such as low recruitment conversion rate, high recruitment costs and poor economies of scale. In the post-pandemic era, we have spotted opportunities in blue-collar recruitment. Also, as the most favored short video and live streaming platform of blue-collar users, we see it as our responsibility to step up and deliver better solutions to industries, given superior user experience to blue-collar workers and higher conversion efficiency to enterprises. Kuaishou's advantages in online blue-collar recruitment efficiency and experience are primary built on our 3 core competencies. The first one is the scale of our user base. In the second quarter of this year, the unique MAUs of Kwai Recruitment reached 250 million, making it the online blue-collar recruitment platform with the largest user base here in China. Equally important is the impact of our user base on the business conversion model. Compared with daily recruitment for entertainment consumption, job hunting is a low-frequency user behavior. As blue-collar workers change jobs 3 to 5 times a year for conventional recruitment platform, users will only uninstall the app or the app would become idle after a job is found. Consequently, a larger budget has to be used on user acquisition, and eventually, recruiters pay the bill for higher operation and traffic costs. However, at Kuaishou, our rich short video and live streaming content play a crucial role in driving user acquisition and retention. Building on this advantage, we provide recruitment services, [effecting improvement in](corrected by company after the call) operating efficiency, while also lowering recruitment costs for enterprises. And the second factor is our ability to build trust. Trust is absolutely critical in blue-collar recruitment. Taking the secondary as an example, 80% of the blue-collar job seekers are job hunting across provinces. Considering the impact of the pandemic, it is very important for these job seekers to have a better understanding of potential employers and positions so that they can save relevant expenses. The interactive model of Kuaishou live streaming allows users to obtain crucial information such as work environment and job content, while establishing trust with live streamers and employers. Such trust-based real-time interactive job-hunting experience cannot be satisfied by traditional search experience or job listing. In addition, since our streamers have accumulated valuable user assets on Kuaishou, they are motivated to honor their service agreements for offline stages of the recruitment process. Kuaishou also provides users with a complaint channel. Our long-term operation mindset and trust-based model gradually cultivated through the mutual trust and public supervision, provide recruitment experiences and conversion rate far exceeding the traditional darkening model, and ultimately reduce the dispatch of false information and fraud against users during contract fulfillment offline. The third advantage is our distribution and matching capability. With vast and diverse traffic, Kuaishou excels in nationwide traffic distribution. Our efficient traffic matching and economies of scale make us well suited for large scale and rapid blue collar equipment. Our industrial leading MMU technology is capable of deeply understanding multimedia content, which combined with user characteristics recognition enables better recruiting cold start of data. In addition, we introduced algorithm technology to precisely match supply and demand while also boosting public domain traffic allocation, thereby improve both number of views and successful conversion rates, and ultimately build a highly efficient, accurate and authentic service chain. From recruiters' feedback, our placement conversion rate is very competitive in the industry, and we are one of the most effective options for enterprises. In summary, the advantages of our advanced business model, the real-time interactive nature of live streaming, and the trust factor deeply embedded in our DNA has lowered the job-hunting threshold for blue-collar workers and increase the recruitment conversion rate for enterprises. We recently made some key milestones in the recruitment business and also have some obligations. In June of 2022, the half year since Kwai Recruitment was launched, the peak number of daily resume submitted reached a high of over 360,000, assuming rather quickly the second place in the industry in scale. However, the resources we have invested in products and research related to the businesses is considerably less than those of other blue-collar recruitment platforms. Furthermore, as the business grows, so does our brand recognition and voice in the blue-collar recruitment industry. Increasing numbers of enterprises, agencies and lives streamers are actively seeking cooperation with Kuaishou and even relocating their focus of business onto Kuaishou, conducive to producing a flywheel effect as well as building a moat for defending user mindset and relevant content. At the end of June, we had more than 100,000 corporate partners. Meanwhile, we have noticed that our blue-collar recruitment business and our platform's core consumption indicators are trending in the same direction. This shows that our industrial content such as blue-collar recruitment has a good extent satisfied users' livelihood needs, and in turn encouraged them to make Kuaishou their preferred platform. And as such, we have reaped cross-business synergies. On monetization, we've initiated small-scale trials of advertisement and achieved promising initial results. We are also exploring more in-depth monetization models. This year, we will continue to refine our operations and content, expand the scale of job applications, improve traffic utilization efficiency and test our business models. We expect the online penetration rate of blue-collar recruitment to reach 30% in 2025 or 2026, and the market size to reach around [RMB]100 billion.(added by company after the call) We hope to capitalize on our advantages to enhance the recruitment experience for the entire industry, while improving online conversion rate and capturing a leading share of 100 billion worth online blue-collar recruitment markets. -------------------------------------------------------------------------------- Heather Diwu, Kuaishou Technology - Director of IR [7] -------------------------------------------------------------------------------- (foreign language) Thank you once again for joining us today. If you have any further questions, please contact our Capital Markets and Investor Relations team at any time. Thank you.