On September 13, Kuaishou Technology held the 2024 Investor Day event to share the company's development strategy, business progress and strategic direction such as e-commerce and commercialization, overseas, local life, and AI models.

User and content ecosystem: User orientation promotes commercialization and collaborative content development, and uses AI to reshape the ecosystem. 1) Balance content and business ecology to maximize comprehensive benefits: The content distribution mechanism also focuses on user feedback (likes, sharing, length of time, etc.) and commercial value to achieve a win-win situation for user experience, commercial revenue, and content ecology. 2) Positive linkage between public domain and private domain to create benchmark authors and featured content: Public domain accumulates more user interaction to obtain more stable private traffic, more open behavior from private domain promotes creators to gain more exposure in the public domain, positive linkage increases the quality of attention, and forms benchmark creators. 3) AI empowers content creation and understanding: In terms of content creation, Keling has generated a cumulative total of 27 million videos, continuously bringing creativity and new expression to creators; in terms of content understanding, AI Q&A, tag recognition, and segmented summaries bring users a better experience, while also acting on the accuracy of content distribution and recommendations.

E-commerce: Users first, efficient integration of good products and good content. 1) On the content side, multi-genre content forms and marketing gameplay stimulate users' purchasing intentions. In 24Q2, GPM for live streaming increased by 18%, and live streaming GMV grew steadily; short video exposure increased by more than 17% year over year, driving GMV growth close to 50%; and GMV for delivery graphics increased 6 times year over year. Under the shopping group marketing game, the number of orders per capita was increased by 25%, and the efficiency of order conversion for 10,000 groups was increased by 55%. 2) On the product side, rich and more affordable products shorten the user decision link. In 24Q2, the number of product categories increased 30%, the share of low-priced products increased 7%, and product GPM increased 25%. At the same time, the negative review rate decreased 22% year over year and the repurchase rate increased 21% year over year. In 24Q2, the number of new merchants also increased by 25%, and the number of new categories increased by 40%.

Commercialization: Product iteration drives the efficiency of commercial content. 1) Internal circulation: Product capacity is iterated, and the monetization rate continues to increase. The customer penetration rate of 24H1 sitewide promotion increased by 25 pp year on year, and the average daily consumption penetration rate increased by 20 pp; the customer penetration rate of smart hosting increased by 32 pp year on year, with an average daily consumption of 10 million. The number of active 24H1 customers also increased by more than 80%, the monetization rate increased by more than 7% year over year, and 24Q2 internal circulation MAC increased 17% year over year.

2) External circulation: grow against the trend and seize growth dividends under the advantage of content. Taking skits as an example, the number of paid users of Kuaishou skits reached over 40 million, and 24H1 paid skit consumption increased by more than 300% year-on-year due to content advantages.

Live broadcast: Optimizing supply ecology, emphasizing sustainable and healthy growth. The guild structure is healthy, and the number and revenue growth rate of mid-waist guilds is faster, leading to improved stability and health.

Overseas: Continued strategic focus and continued loss reduction. Business in Brazil, the core overseas country, grew steadily, and effective control of overseas business costs continued to reduce losses. In the short term, we rely on more advanced advertising efficiency to pursue break-even, and seek e-commerce and financial business development in the medium to long term.

Local life: Cost-effective orientation, expansion of GMV and user base. The 24Q1 and 24Q2 Kuaishou local GMV growth rates were 22% and 30%, respectively. On the user side, the number of trading users increased 278% year over year in 24Q2; on the supply side, food delivery contributed to the basic market and introduced wine travel OTA products (the average number of daily sales merchants increased 5 times year over year in 24Q2).

We maintain our previous forecast that the adjusted net profit attributable to mother for 24-26 was 17.005/23.602/30.192 billion yuan.

Using PE valuation, the company was given a 24-year 14xPE valuation based on comparable company valuation levels. The company's adjusted net profit in '24 was 17.005 billion yuan, corresponding to a reasonable value of 238.1 billion CNY, equivalent to 264 billionHKD (HKD/RMB exchange rate of 0.902), and a target price of HK$60.89 per share, maintaining a “buy” rating.

Risk warning

Macro consumption recovery fell short of expectations, domestic commercialization efficiency fell short of expectations, and overseas business losses increased