Core views
Kuaishou announced Q4 results. Overall revenue was in line with expectations, and profit side was released at an accelerated pace.
Q4 Kuaishou achieved revenue of 32.6 billion yuan (yoy +15%), which is basically in line with Bloomberg's expectations.
Q4's IFRS net profit was $3.61 billion (+69% vs. consensus $2.14 billion), which was significantly better than expected. NPM was 11.1%; non-IFRS net profit was 4.36 billion (+37% vs consensus $3.19 billion), and NPM was 13.4%. The profit side exceeded expectations mainly because 1) gross margin increased to 53%; 2) other revenue and profit and loss totaled 580 million; 3) management expenses narrowed beyond expectations. Users and traffic are still stable, with DAU of 383 million, yoy +5%, MAU of 70 million, yoy +9%, and the average daily time for a single user is stable at 125 minutes. Looking forward to the future, we are optimistic that Kuaishou e-commerce will bring continuous commercial monetization space and the ability to release profits brought about by operating leverage.
Brief review
By business, Kuaishou Q4 e-commerce GMV achieved 403.9 billion yuan (yoy +29%), driving other businesses to achieve revenue of 4.3 billion yuan, yoy +36% (-1.06% vs consensus); advertising revenue was 18.2 billion yuan, yoy +21% (+0.06% vs consensus); live streaming revenue was 10 billion yuan, which is basically the same as 4Q22 (+0.03% vs consensus). Other businesses were slightly lower than expected (mainly due to the decline in games). Both advertising and live streaming Basically in line with expectations.
Pan-shelves are progressing rapidly, and Double Eleven has brought about an increase. Kuaishou e-commerce GMV achieved 29% growth, and the 4Q e-commerce user penetration rate increased to 18.6%. The main driving factors were: 1) supply and demand two-wheel drive in the context of the Double Eleven promotion; 2) Pan-shelf oversized market growth, with GMV accounting for more than 20% in the shelf scenario, improving conversion efficiency through a deep understanding of users' shopping preferences; 3) Short video e-commerce GMV grew rapidly, with a year-on-year growth rate of over 100%.
Ad revenue is in line with expectations. Internal circulation is still the main driving force, and external circulation is still growing at an accelerated pace from month to month. On the demand side, industries represented by skits, media, and FMCG accelerated in 4Q; in terms of products, the company launched fully automated lead marketing products, using AIGC to improve the production efficiency and quality of marketing materials, and provide customers with intelligent targeted marketing capabilities.
User growth and continuous algorithm optimization are expected to reach 400 million DAU in the second half of this year. Q4 Kuaishou DAU is 383 million, yoy +5%, MAU is 70 million, yoy +9%. User growth is mainly due to: 1) algorithm strategy and operation optimization, reducing customer acquisition costs and maintenance costs for a single user; 2) introducing a large number of popular skits, with 94 million users, yoy +50%; 3) improving the “search after watching” scenario construction to improve user search penetration rate and search experience. In Q4, an average of users using Kuaishou search YOY +16%.
Profit forecast: We expect the company's revenue for 2024-2025 to be $1276/146 billion, and non-IFRS net profit of $167/24.6 billion, respectively, giving 24 times P/E, and a target price of HK$82 for 2024, maintaining a “buy” rating.
Risk analysis
Internet traffic dividends peaked, offline recovery after the pandemic, the short video traffic dividend period ended, and there was a risk that user size and length growth would peak or decline; content industry regulatory policies continued to be tightened, and content production and content output would be limited; live streaming supervision policies continued to be strengthened; advertising business growth fell short of expectations due to the macroeconomic downturn; short video creation involved content copyright risks; the Federal Reserve's interest rate hike process exceeded expectations and continued to suppress the overall performance of Chinese securities; uncertainty about the development of Sino-US relations; the risk of RMB exchange rate depreciation exceeding expectations; China Stock Exchange Rate Delisting Risks; Other Impacts Outbound risk factors for the overall performance of the Internet.