Performance exceeded market expectations: 2024Q2's operating income of 30.9 billion yuan (QOQ +5.3%, YoY +11.6%); gross profit of 17.1 billion yuan (QOQ +6.3%, YoY +23.0%), gross margin increased by 5.1% over the same period last year to 55.3%; adjusted net profit reached 4.68 billion yuan (QOQ +6.6%, YoY +73.7%), with an adjusted net profit margin of 15.1%, exceeding market expectations and reaching a record high. The user traffic side remains steady. The DAU for the 24Q2 Kuaishou app was 0.395 billion (QOQ +0.4%, YoY +5.1%), the MAU was 0.692 billion (QOQ -0.8%, YoY +2.7%), daily active users spent an average of 122 minutes per day (QoQ -5.8%, YoY +4.3%), and total user time increased 9.5% year-on-year.

External circulation advertising increased significantly: 24Q2's online marketing revenue was 17.5 billion yuan (QOQ +5.2%, YoY +22.1%), accounting for 56.5% of total revenue. Among them, internal circulation advertising benefits from continuous optimization of intelligent product strategies and advanced algorithms. Products such as global promotion and smart hosting drive the total consumption of customers, but due to the slowdown in e-commerce GMV growth, its growth rate declined sequentially; the growth rate of external circulation advertising revenue increased significantly, and the growth rate increased year-on-month, mainly in the media lifestyle and local consulting industry, including short dramas. Driven by the increase in sales, the average daily marketing consumption of paid skits increased more than tripled year-on-year in the second quarter, and the proportion of external circulation revenue reached a high number of units.

The pan-shelf scenario drives e-commerce demand release: In 24Q2, revenue from other services, including e-commerce revenue, was 4.16 billion yuan (QOQ -0.6%, YoY +21.3%), and e-commerce GMV was 305.3 billion yuan (QOQ +6.0%, YoY +15.0%). The growth rate was lower than expected due to weak macroeconomic consumption. Among them, pan-shelf GMV accounts for more than 25% of total GMV, and is expected to achieve good growth by opening up full-scale operations. The number of monthly active e-commerce buyers increased 14.1% year over year to 0.131 billion, the monthly active user penetration rate reached 18.9%, and the average number of monthly retail merchants increased by more than 50% year on year. Through continuous efforts on both sides of the supply side, a diversified e-commerce ecosystem was created.

Overseas business continued to reduce losses: In 24Q2, overseas revenue was 1.1 billion yuan (QOQ +11.0%, YoY +141.4%), and the average daily usage time of daily active users in overseas core markets was close to 80 minutes, an increase of 5% over the previous year. Through continuous optimization of product capabilities and active customer expansion, online marketing business revenue achieved a year-on-year increase of more than 200%, and continued to rise month-on-month. With the improvement in the monetization efficiency of overseas business, the 24Q2 operating loss was 0.277 billion yuan, a year-on-year decrease of 64.5%. It is expected that the overall loss will be turned into profit next year, making a certain contribution to profit.

The target price was adjusted at HK$55 and the purchase rating was maintained: The company's second-quarter results exceeded expectations in terms of revenue and profit. This was mainly due to the live streaming reward business and exceeding expectations in terms of cost control. However, the year-on-year growth rate of e-commerce GMV in the second quarter was only 15%, lower than market expectations, and the share of pan-shelf e-commerce GMV did not change much from month to month. The slowdown in social zero growth increased the risk of a slowdown in growth; customer acquisition costs exceeded expectations but MAU user growth was lower than expected, indicating that user growth was facing challenges; although repurchases were progressing steadily, no further significant measures to increase shareholder returns were announced. The revenue and operating profit forecast uses 2024 forecast data to calculate the target price of HK$55, which has room to increase by 37.5% compared to the previous closing price, maintaining the purchase rating.