Key points of investment:
On March 26, the Kuaishou 2024 Magnetic Conference will be held in the mountain city of Chongqing. As an annual marketing event in the industry, with the theme of “Intelligent Management”, this magnetic conference comprehensively explains the new strategic direction of Kuaishou's magnetic engine and new solutions for sustainable business growth in various industries from multiple dimensions such as platform ecology, product innovation, and industry opportunities.
1. Commercialization & e-commerce: According to Kuaishou's 2024 Magnetic Conference, users in new tier cities account for about 60% of Kuaishou's 700 million users. Consumption potential is expected to be unleashed, and Kuaishou's commercial scale is also further increasing. ① In Q4 2023, e-commerce users placed more than 1,000 yuan per month per month. ② The annual GMV of Kuaishou e-commerce exceeded 1.18 trillion yuan in 2023, the GMV for local living increased 25 times year-on-year in Q4 of 2023, and the cumulative real estate transaction volume of Ideal Home real estate business in Q4 2023 exceeded 16 billion yuan. ③ In Q4 2023, the customer penetration rate of Kuaishou's full-link operations increased by 54% in the education industry. According to Kuaishou's financial data, in Q4 2023, the number of users who watched more than 10 episodes of heavy skits every day reached 94 million, an increase of more than 50% over the previous year; the average number of users paying for Kuaishou skits increased more than 3 times over the same period last year.
2. Local life: The explosion of user demand in new tier cities has boosted the prosperity of local living ecology, and Kuaishou has commercialized and launched innovative products exclusive to local businesses - Magnetic Local Promotion. According to Kuaishou's 2024 Magnetic Conference, ① By the end of 2023, Kuaishou's local lifestyle commercialization had more than 30,000 active customers each year. ② With the help of magnetic local promotion, the local restaurant brand Half Sky Demon has a single-day ROI of 16, and the single-day ROI of Jiuduo Meutuo Festival marketing has reached 39.1. Since the launch of the PC version of the local promotion product, the average monthly GMV of merchants using magnetic local marketing has increased by 194%. ③ Live+Direct Message SCVR increased 56% compared to form links, achieving stronger conversion; in terms of experience, the overall ROI of native ads increased 15% compared to non-native ads; in addition, after 7 days of live streaming, private message leads increased by 34%, and the effect is longer lasting.
3. AI: Intelligent efficiency improvement, using AI big models to reconstruct business links. ① Specifically, in terms of intelligent production, the video AIGC product “Pangu” developed by Kuaishou and the digital live streaming AIGC product “Women” have achieved outstanding results. According to Kuaishou's 2024 Magnetic Conference, AIGC short video footage drove a 62% year-on-year reduction in customer acquisition costs, the conversion rate for live digital live broadcasts was close to the level of real customers, and more than 2,200 digital channels were supported to launch simultaneous broadcasts for 24 hours. ② In terms of intelligent understanding, the industry-leading marketing language model developed by Kuaishou can generate materials that truly match Kuaishou's style. Its ability in the marketing field is on par with GPT 4.0. According to Kuaishou's 2024 Magnetic Conference, the accuracy of understanding short video content is as high as 91%.
③ In terms of intelligent marketing, through large-scale model mining and reasoning, Kuaishou has achieved accurate matching between users and advertisers, and deep connections are made based on users' personalized behavior to achieve intelligent, simplified and highly deterministic advertising.
The profit forecast and investment rating take into account the strong growth of the company's advertising and e-commerce business, continuous improvement in single-user monetization efficiency, and steady implementation of cost reduction and efficiency. We raised the company's profit forecast. The company's FY2024-2026 revenue is estimated to be 1277/1456/162.7 billion yuan respectively, adjusted net profit to mother is 168/255/32.1 billion yuan, and the corresponding PE is 12/8/6X, respectively. We conduct SOTP valuations based on the profitability and competitive landscape of different business segments (with corresponding premiums/discounts). The 2024E target market value is $319.7 billion, target prices are $73 and HK$81, maintaining a “buy” rating.
Risks indicate the risk of slowing the growth rate of active users, the risk of stabilizing the production of high-quality content, the risk of changes in Internet information publishing policies, the risk of video content supervision, the risk of rapidly increasing content costs, the risk of rapid increase in channel costs, competition risk, antitrust risk, and valuation adjustment risk.