1Q24 Non-IFRS net profit was better than our expectations
Kuaishou announced 1Q24 results: Revenue increased 16.6% year over year to 29.4 billion yuan, basically in line with Bloomberg's agreed expectations ($29 billion) and our expectations ($29 billion); non-IFRS net profit of 4.39 billion yuan, significantly better than Bloomberg's agreed expectations ($3.20 billion) and our expectations ($3.21 billion), mainly due to significant increase in gross profit and other revenue contributions.
Development trends
The community ecology is stable, moderate and positive, with DAU exceeding 370 million people in the first quarter. The 1Q24 Kuaishou app had a MAU of 697 million people, up 6.6% year on year, and a DAU of 394 million people, up 5.2% year on year. The average daily usage time per person was 129.5 minutes, and the total usage time of users increased 8.6% year over year. In the first quarter, the company introduced a full traffic mixing recommendation mechanism, continuously optimized the user growth channel structure, and carried out special projects such as exploring the diversity of user content interests and optimizing ranking strategies for short video reviews, and continuously improving user experience and stickiness.
The year-on-year growth rate of core e-commerce and advertising business was impressive. Driven by e-commerce industry activity nodes during the quarter, e-commerce GMV reached 288.1 billion yuan in 1Q24, an increase of 28.2% over the previous year. Among them, pan-shelf e-commerce GMV accounted for about 25%, and short-video e-commerce GMV increased nearly 100% year over year. Other revenue, including e-commerce, was 4.18 billion yuan, up 47.6% year on year. Among them, we judged that e-commerce revenue grew by about 50% year on year.
The advertising business revenue in the first quarter was 16.7 billion yuan, up 27.4% year on year. The year-on-year growth rate of internal circulation advertising was still higher than that of GMV, and the media information, games, education and other industries in external circulation advertising were strong. The live streaming business revenue for the first quarter was 8.58 billion yuan, down 8.0% year on year mainly due to adjustments in the operation of some products. We believe this impact will continue from a year-on-year perspective or during the year, but the impact on the Group's profit is manageable.
Gross margin continued to increase month-on-month, and profits entered a steady release range. The gross profit margin for the first quarter was 54.8%, up 8.4 ppt/1.7ppt from the same month on month, mainly due to improved revenue structure, increased server bandwidth cost efficiency due to optimized technical methods, and a decrease in the share of fixed costs due to revenue growth. In terms of expenses, sales/R&D rates remained stable in the first quarter, and the month-on-month decline in management expenses was clearly mainly due to a decrease in employee benefit expenses (including share-based compensation expenses). Overall, group-level non-IFRS net interest rate rose to 14.9% in the first quarter compared to the same period last year. Looking at the segment, the profit margin for the domestic portion of the first quarter was 14.0%, the overseas portion revenue was 991 million yuan, and the operating loss was 268 million yuan. The company also announced that the board of directors has adopted a new repurchase plan to repurchase no more than HK$16 billion of shares within 36 months from June 2024. Looking ahead to the second quarter, we expect e-commerce and advertising revenue to maintain strong year-on-year growth of more than 20%.
Profit forecasting and valuation
Considering the continued release of operating leverage, we raised our 2024 non-IFRS net profit of 8% to 18.5 billion yuan, basically maintaining the 2025 profit forecast. The current stock price corresponds to 13/11 times 2024/2025 non-IFRS P/E. Maintaining an outperforming industry rating, the target price was raised by 7% to HK$75, corresponding 16/15 times 2024/2025 non-IFRS P/E. The target price has 29% upside compared to the current stock price.
risks
Competition in the industry intensifies, commercialization growth falls short of expectations, risk of loss of users, higher investment in new business than expected, content and regulatory risks.