24Q3 performance highlights: Revenue and profit are in line with expectations

The company announced 24Q3 results. 2024Q3 achieved operating income of 31.1 billion yuan, an increase of 11.4% year on year; adjusted net profit was 3.9 billion yuan, up 24.4% year on year, and gross profit was 16.9 billion yuan, up 17% year on year.

Sales and marketing expenses increased 15.9% year over year to 10.4 billion yuan, accounting for 33.3% of total revenue. The increase was mainly due to increased spending on promotional activities. R&D expenses increased 4.5% year over year to 3.1 billion yuan, accounting for 10% of total revenue. The increase was mainly due to an increase in employee benefit expenses. Administrative expenses fell 11.4% year over year. We believe that the company's core business revenue is growing steadily, and we recommend continuing to monitor changes in the company's profit margin.

Traffic side: User traffic reached a record high. The average DAU and MAU of the 2024Q3 Kuaishou application were 0.408 billion/0.714 billion, respectively, up 5.4%/4.3% year on year, and DAU reached a record high; the average daily usage time of each DAU was 132.2 minutes, up 7.3% year over year. Looking forward to the future, we believe that the company's acquisition and retention costs or continuous optimization will further improve user acquisition ROI.

Online marketing business: External circulation advertising is growing strongly, with online marketing service revenue reaching 17.6 billion yuan, up 20% year on year. The growth is mainly driven by external circulation advertising; from an external circulation perspective, marketing consumption in industries such as media information, platform e-commerce and local lifestyle has increased significantly, and the proportion of UAX consumption in the external circulation cycle has further increased to about 50%; looking forward to Q4, the number of active marketing and distribution merchants within the 24Q3 internal circulation month will increase by more than 50% year on year; looking ahead to Q4, our company expects the number of active marketing and distribution merchants to increase by more than 50% year on year. Maintaining a strong growth trend, internal circulation advertising is still expected to keep pace with GMV's growth rate.

Other service revenue (including e-commerce): GMV is affected by seasonal factors. Pan-shelf GMV is expected to increase steadily in 2024Q3. The company's other service revenue increased 17.5% year over year to 4.2 billion yuan, and Kuaishou e-commerce GMV increased 15.1% year over year to reach RMB 334.2 billion. On the supply side, the average number of 2024Q3 Kuaishou e-commerce merchants increased by more than 40% year on year, with the number of new merchants entering Kuaishou increasing by more than 30% year over year, mainly due to the company's continuous promotion of new merchant strategies such as the “Doujin Plan”, “Sailing Plan” and “Travel Assistance Plan”; on the demand side, the number of monthly active buyers of 2024Q3 Kuaishou e-commerce increased 12.2% year over year to 0.133 billion, which is an increase over the month. This is due to the company's diversified marketing gameplay around the growth stage of new users; QQ4, we think that as the company continues to promote new merchant strategies The shopping mall scenario is gradually progressing, and the share of pan-shelf GMV continues to grow in oversized markets (2024Q3 GMV accounts for more than 27%), and the GMV growth rate is expected to reach 18% year-on-year for the whole year.

Live streaming rewards business: The number of signed up associations and anchors has been growing steadily. New products are progressing well. The revenue from the 2024Q3 live streaming business was RMB 9.3 billion, down 3.9% year on year, and the revenue decline narrowed further from month to month. By the end of the third quarter, the number of associations signed up to the platform had increased 40% year over year, and the number of signed anchors increased 60% year over year; under the “live streaming +” ecosystem, the average daily resume delivery volume of the “quick hire” business had nearly doubled year over year, and the scale of two-way matching increased by more than 20% year on year; looking forward to the future, we think the company can meet user needs in different scenarios and further optimize the live streaming ecosystem through rich product forms (quick hire, ideal home, etc.).

Overseas business: ROI drives growth, and pursues commercialization in core regions. In 2024Q3, the year-on-year increase was 104.1% to 1.33 billion yuan, and operating loss decreased by 75.9% year-on-year to 0.153 billion yuan.

Among them, the overseas business achieved breakthroughs in user growth, customer acquisition channel innovation, and user process optimization, including a 9.7% year-on-year increase in daily active users (DAU) in Brazil, and a 4.2% year-on-year increase in the average daily usage time of DAU in a single day. We believe that based on the company's overseas ROI-driven growth model, the company will invest key resources in key countries where users are concentrated, the ecology is more mature, and commercial monetization can be initiated.

Investment advice: Considering that the growth rate of circular advertising outside the company exceeded expectations, we expect the company's revenue for 2024-2025 to be 127.1/140.7 billion yuan respectively; we expect the company's adjusted net profit for 2024-2025 to be 17.6/21.6 billion yuan, respectively, maintaining a “buy” rating.

Risk warning: The growth in the number and length of Kuaishou users fell short of expectations; the review of live streaming content became stricter; the increase in the number and repurchase rate of e-commerce paying users fell short of expectations; overseas business expansion and commercialization fell short of expectations.