1Q's revenue was in line with expectations. AI-enabled advertising in 24, merchants gave back and accelerated Kuaishou's 1Q revenue in line with VA's agreed expectations (same below), adjusted net profit exceeded expectations by 37.5%, and announced a 3-year repurchase plan of HK$16 billion. We expect Kuaishou's monetization rate to remain stable over the next 24 years: the company plans to give back to more merchants this year, increase subsidies during the 618 period, and expand the fresh food and household categories. In the medium to long term, ad loading rates are expected to increase. At the same time, AI combined with new advertising products (hosting and sitewide promotion) has improved merchant ROI and advertising efficiency. Looking ahead to 24-26, improvements in gross margin and sales expense ratios will accelerate. We raised our adjusted net profit forecast to 194/253/30.7 billion, compared to the previous value of 184/227.26.7 billion. Based on the SOTP valuation, we raised our target price from HK$85.06 to HK$85.12, maintaining our buy rating.
E-commerce revenue exceeds expectations, and profit side continues to be released
Kuaishou's revenue for the first quarter increased 16.6% year over year to 29.4 billion, which is basically in line with VA's agreed expectations. By business, live streaming, advertising, e-commerce, and other revenues changed by -8.0%, 27.4%, and 47.6%, respectively, compared with VA expectations of -0.3%, 1.0%, and 5.1%, respectively. On the profit side, gross margin improved by 8.4 pct to 54.8% year on year, and adjusted net profit reached 4.4 billion yuan, compared with a consistent forecast of 3.2 billion yuan. The adjusted net profit margin was 14.9%, compared to the forecast of 10.9%. The company announced a three-year HK$16 billion repurchase plan.
Shelf e-commerce is growing rapidly, and 618 merchants are giving back to new heights
1Q e-commerce and other revenue +47.6% yoy. Kuaishou's 24-year plan gives back to merchants and will increase e-commerce and local living allowances during the 618 period. At the same time, the company improved supply construction and launched northwest shipping services to improve timeliness and freight rates. For small and medium-sized merchants, the company gave more incentives to invest and supported merchants to move to the platform in various ways. The number of active sellers increased by about 70% year-on-year in the 1st quarter, and the number of active buyers increased 22.4% year-on-year during the same period. Looking at the GMV side, e-commerce increased by 28.2% year on year, with a pan-shelf growth rate of over 50%, and the corresponding share continued to rise to 25%.
AI empowers advertising efficiency and improves ROI by advertising new products
Kuaishou 1Q's advertising revenue increased 27.4% year over year. After the launch of smart hosting and sitewide promotion, it was better to improve merchant ROI, contributing 30% of internal recurring advertising consumption in the first quarter. The average amount of AI investment in the first quarter reached 10 million yuan per day, helping to increase advertising gross margin. Internal and external circular advertising promotes eCPM and ad load improvements. Thanks to the UAX automated streaming system, external circulation advertising increased 30% month-on-month, with media information, games, and education growing particularly significantly. Under full-link optimization and incentive policies, the average daily paid consumption of skits increased by more than 4 times over the same period last year, and IAA model applet games increased advertising consumption.
Risk warning: Ad load rates, live e-commerce, and shelf e-commerce growth rates are lower than expected.