Earnings for the first quarter exceeded expectations. Kuaishou's total revenue for the first quarter of 2024 was RMB 29.4 billion (same below), up 17% year on year, in line with expectations. Cost optimization was better than expected, with gross margin rising 8/2 percentage points to 55% month-on-month, and operating expenses narrowing 7/1 percentage point from month to month. Adjusted net profit of 4.4 billion yuan was basically the same as the peak season in the fourth quarter. Compared with 42 million yuan in the same period last year, it greatly exceeded market expectations by 37%. Overseas monetization increased 17% month-on-month, driving operating losses to narrow 51% month-on-month to 270 million yuan.
Highlights of the first quarter: 1) Total user time +9% year-on-year. 2) E-commerce GMV increased 28% year over year, in line with our expectations, and continues to be driven by supply (average monthly sales volume +70%) and demand side (MPU of 126 million, penetrating MAU 18%) growth. The GMV share of pan-shelf shelves was further increased to ~ 25%. 3) Online marketing revenue increased 27%, benefiting from the application of intelligent marketing solutions and the iteration of sitewide promotion/smart hosting products. Internal circulation advertising revenue grew faster than GMV. External circulation effect advertising revenue continued to grow rapidly, mainly benefiting from increased marketing in the media information (average daily marketing consumption of paid skits increased 400% year over year) /game (applet game marketing model went through) /education (+100% year over year). 4) Live streaming revenue was affected by business adjustments -8% year-on-year. Support for mid-level anchors was increased at the operational level, and gameplay such as live streaming of multi-person scenes was increased. Guild anchors increased 50% year over year, improving operational efficiency.
Outlook: We expect e-commerce GMV to increase 25% year-on-year in the second quarter, still driven by scenarios such as pan-shelf, short video e-commerce, supply-side expansion, and demand-side purchasing user growth. We expect e-commerce revenue to increase 23% year over year, and the increase in pan-shelf standard product sales will slightly affect the commission rate. We expect that the iteration of advertising products such as full-site promotion will continue to drive internal circulation advertising, and online marketing revenue will increase 23% year-on-year in the second quarter.
Valuation: Considering that the trend of cost optimization was faster than expected, partially offset by increases in e-commerce and local living allowances, we raised our 2024 adjusted net profit forecast by 12% to $181 billion (+76%). Based on a price-earnings ratio of 15 times in 2024 and a profit of $19.5 billion from the Mainland business, the target price was maintained at HK$75. Market expansion such as pan-shelves continues to increase the penetration and frequency of purchases by e-commerce users. Intelligent marketing products drive an increase in the monetization rate of e-commerce advertising, the trend of improving the revenue structure remains unchanged, and there is still room for optimization of marketing expenses (32% in the first quarter). If optimization accelerates, it is still expected to drive an increase in profit expectations and maintain purchases.