Event: On August 20, 2024, Kuaishou Technology announced results for the second quarter of 2024. 24Q2 achieved total revenue of 31 billion yuan, +11.6% year over year (vs. consistent forecast yoy +9.6%); adjusted net profit of 4.68 billion yuan (vs. agreed forecast of 4.34 billion yuan), both revenue and profit exceeded market expectations.
Adjusted net profit exceeded expectations, and gross margin brought significant elasticity: 24Q2 Company: 1) Online marketing revenue was 17.5 billion yuan, +22.1% year-on-year, accounting for 56.5% of revenue. 2) Live streaming reward revenue was 9.3 billion yuan, -6.7% year-on-year, accounting for 30% of revenue. 3) Revenue from other services (mainly e-commerce) was 4.2 billion yuan, +21.3% year-on-year, accounting for 13.5% of revenue. 4) Gross profit margin of 55.3%, +5.2 pcts year over year, taking into account copyright amortization for the Paris Olympics, mainly included in subsequent quarters; sales expense ratio 32.4%, +1.3 pcts year over year, considering competition in e-commerce and local lifestyle markets, continued investment in subsidy promotion recently; management fee ratio 2.6%, -0.8 pcts year over year, R&D cost rate 9.0%, -2.6 pcts year over year, cost reduction and efficiency continued. 5) 24Q2 domestic operating profit was 4.5 billion yuan, +48% year-on-year; overseas operating loss was 0.28 billion yuan, which narrowed year-on-year.
DAU growth was better than expected, and content innovation drove high-quality development: 1) The average DAU and MAU for 24Q2 were 0.395 billion and 0.692 billion (yoy +5.1%/+2.7%), respectively. 2) While the number of users continues to expand, emphasis is placed on growth efficiency and quality. 24Q2 Kuaishou uses an average of 122 minutes per DAU per day (yoy +4.1%), and refined operation enhances user ROI. 3) Continuous iterative improvement of platform content technology. China's first AIGC original fantasy short drama “Miracle on the Mountain and Sea” received over 50 million views within two weeks of launch; Kuaishou's monthly active users reached nearly 0.5 billion, and the number of searches in a single day increased by more than 20% over the same period last year.
Commercialization: The external circulation of advertising drives the growth of online marketing, and the growth rate of e-commerce is slowing down: 1) Online marketing: The year-on-year increase in Kuaishou 24Q2 external circulation marketing services further expanded, and the investment revenue of Kuaishou Starlight skits increased more than 20 times over the same period last year. As the market penetration rate of general-purpose fully automated launch products increases, external circulation services are expected to continue to drive growth. 2) E-commerce: E-commerce revenue is growing steadily, and GMV growth falls short of expectations. The 24Q2 Kuaishou e-commerce GMV reached 305.3 billion yuan, +15% over the same period. Pan-shelf e-commerce GMV 24Q2 oversized market grew, accounting for more than 25% of the total GMV; under the influence of slow macroeconomic recovery and increased competition on e-commerce platforms, the 24Q3 Kuaishou e-commerce GMV may have maintained a growth rate close to 24Q2. 3) Live streaming rewards: Revenue declined, and “live streaming +” enabled new growth points. The average number of daily resume deliveries for Quick Hire is YOY+ over 130%, and the average number of leads per day YOY+ is 9 times that of Ideal Home. Iterative operating model and supply-side optimization, the number of signed guild anchors yoy +60%.
Profit forecast, valuation and rating: 24Q2 The profit side exceeded expectations. Under platform governance, organizational structure, and investment strategy optimization, the adjusted net profit margin is expected to continue to improve in subsequent quarters. We raised the company's 2024-26 adjusted net profit forecast to 172.8/ 23.61/30.23 billion yuan (+7.3%/+1.7% compared to the previous forecast). Considering the market's weak confidence in macroeconomic consumption recovery and changes in e-commerce industry competition, we rewarded the company's 2024 valuation multiplier live stream/ The online marketing business was 0.6/2.5xPS, and the e-commerce business was 0.12x PSG, and the target price was lowered to HK$60.3, maintaining the “buy” rating.
Risk warning: User growth falls short of expected risk, macroeconomic recovery falls short of expected risk, advertising revenue growth falls short of expected risk, e-commerce monetization progress falls short of expected risk, content regulation policy risk