In 2011, Cheng Yixiao, a native of Northeast China, launched an original mobile app, "GIF Kuaishou Technology", which is used to make and share motion pictures.

GIF motion pictures are essentially the prototype of short videos. In 2013, Su Hua, who graduated from the School of Software of Tsinghua University, joined Kuaishou Technology, and Kuaishou Technology's short video social platform was officially launched in the same year.

The two young co-founders may not have anticipated at the time that in just a decade, Kuaishou Technology Technology (01024.HK, "Kuaishou Technology" and "Company") had grown into one of the leading content communities and social platforms in China and the world, with a current market capitalization of more than 400 billion yuan.

Kuaishou Technology Technology announced its results for the third quarter of 2021 on Nov. 23, giving investors a chance to get a glimpse of the company's latest true face.

Since the second half of this year, Kuaishou Technology has repeatedly reported the news of business line restructuring, including the establishment of a business department system for the first time and the establishment of four major business departments: e-commerce, commercialization, internationalization and games. According to industry reviews, this is the largest structural adjustment in the 10 years since Kuaishou Technology was founded.

These signals are interpreted by the outside world as Kuaishou Technology is "seeking change", trying to force his own evolution through the adjustment of the organizational structure.

In this context, Kuaishou Technology's three-quarter report is undoubtedly more worthy of investors' attention.

First, online marketing business becomes the core driving force for growth.

In the third quarter of 2021, Kuaishou Technology achieved an income of 20.49 billion yuan, an increase of 33.4 percent over the same period last year, and a cumulative income of 56.65 billion yuan in the first three quarters, an increase of 39.3 percent over the same period last year.

Revenue growth is mainly driven by online marketing services and other services, including e-commerce.

In the quarter, Kuaishou online marketing service revenue was 10.91 billion yuan, up 76.5% from the same period last year; other service revenue was 1.86 billion yuan, up 53.0% from the same period last year; and live broadcast revenue was 7.72 billion yuan, down 3.0% from the same period last year, slightly shrinking.

This has also directly brought about changes in Kuaishou Technology's income structure.

In the third quarter of 2021, online marketing service revenue accounted for 53.2%, up 13.0% from the same period last year; live broadcast revenue accounted for 37.7%, down 14.1% from the same period last year; and other service revenue accounted for 9.1%, up 1.2% from the same period last year.

Compared with the same period last year, online marketing service replaced live broadcast as the core business that Kuaishou Technology contributed more than half of his income.

In fact, the change of core business is the strategic choice of Kuaishou Technology since its listing.

According to the prospectus published before Kuaishou Technology's listing, Kuaishou Technology's income depended on live streaming until 2021, and the contribution of live broadcast income was even as high as 90% in 2017-2018.

In the past, Kuaishou Technology's reliance on live broadcast income worried many investors.

This situation has greatly improved since 2020. In the first quarter of this year, Kuaishou online marketing services contributed more than 50% of total revenue for the first time.

Since then, the share of revenue from online marketing services has increased steadily in each quarter, and the results have been impressive.

Second, it is continuing to release the realization potential.

In Fengyunjun's view, the reason why Kuaishou Technology was able to quickly optimize the income structure and consolidate the income base is due to its positioning as an "inclusive" ecosystem from the very beginning.

On the Kuaishou Technology platform, technology and data are the bottom, content and social networking are the foundation.

Kuaishou Technology encourages all users to record and share their lives through short videos and live broadcasts, while tilting in the traffic allocation mechanism, so that more users can have access to content presentation opportunities.

On this basis, Kuaishou Technology provides users with relevant products and services to meet their natural needs, such as entertainment, online marketing services, e-commerce, online games, online knowledge sharing and so on.

In the past, Kuaishou Technology has successfully evolved the form of live broadcasting in this ecosystem. Kuaishou Technology's prosperous community ecology still has the possibility of giving birth to more forms.

At present, Kuaishou Technology regards online marketing as the core of his future strategy.

It is worth mentioning that throughout the global Internet social giants, such as Facebook Inc (FB.O) and Twitter (TWTR.N), are also dominated by advertising revenue, supported by the platform has a large, active user base, so it is quite attractive to advertisers.

In the third quarter of 2021, the average number of daily active users (DAU) and average monthly active users (MAU) of Kuaishou Technology platform reached 320.4 million and 572.9 million respectively, and the average daily use time of each DAU reached 119 minutes, all of which reached record highs.

Kuaishou Technology's DAU and MAU grew 17.9 per cent and 19.5 per cent respectively in the third quarter of 2021, compared with 11.9 per cent and 6.7 per cent in the previous quarter.

In addition, Kuaishou Technology's average daily traffic in the third quarter (the average number of daily active users multiplied by the average number of daily active users) increased by nearly 60 per cent year-on-year.

As a 10-year-old social platform with a huge traffic base, Kuaishou Technology is still able to maintain the accelerated growth of traffic, which is indeed a bit surprising.

Kuaishou Technology is continuing to unleash its cash potential.

The commercialization department specially set up by the company in the second half of this year, brand advertising is regarded as one of the following strategic priorities, which widely touches brand advertisers in FMCG, automobile, e-commerce, beauty makeup, household appliances, sportswear and other industries.

It has been revealed that the number of brand advertisers on Kuaishou Technology platform achieved a high double-digit year-on-year growth in the third quarter of 2021.

It is still rare that, in the case of the slowdown in the growth rate of the advertising market, Kuaishou Technology still shows high growth potential and "carries" the pressure from the environment.

According to QuestMobile's "2021 China Mobile Limited Internet Autumn report", the growth rate of China's Internet advertising market slowed down significantly in the third quarter. It even declined from the previous quarter, from 159.61 billion yuan in the second quarter to 158.2 billion yuan in the third quarter. The year-on-year growth rate also dropped from 19.6% in the second quarter to 9.5% in the third quarter.

Judging from the performance of other Internet companies, in the third quarter, Baidu, Inc. (09988.HK, BIDU.O) advertising revenue was 21.1 billion yuan, up 4.2% from the same period last year, up 1.1% from the previous year; Tencent (00700.HK) advertising revenue was 22.5 billion yuan, up 5% from the same period last year, slightly lower than the previous month.

Under the level of advertising revenue of 10 billion yuan in a single quarter, Kuaishou Technology's growth is also very outstanding, with an increase of 76.5 percent over the same period last year, and an increase of nearly 10 points from the previous quarter.

Third, the effect of trust e-commerce model appears.

In the third quarter of 2021, Kuaishou Technology's e-commerce GMV reached 175.8 billion yuan, an increase of 86.1% over the same period last year.

Although other services, including e-commerce, contribute less than 10% to revenue, their growth rate cannot be ignored.

Social trust has always been seen by Kuaishou Technology as one of the differentiated features of his platform, which has also nourished Kuaishou Technology's e-commerce business.

In Kuaishou Technology's human soil, many e-commerce anchors care about the brand temperature and pursue the construction of trust relationship. Through the design of flow distribution mechanism and unique single-and double-row product form, Kuaishou Technology has also formed a more inclusive, more efficient, and more trusting business atmosphere.

A typical case is Da Didi in Xi'an.

Big Didi began to carry goods on Kuaishou Technology Live in 2018, focusing on the mid-and high-end plus-size women's wear industry, and committed to providing more plus-size girls with slim clothes. As a baby mother, Big Didi has gained more than 1.7 million fans, 95% of whom are baby mothers. Starting from her own experience, she insists on original design and chooses resilient fabrics to meet the clothing needs of women of different sizes. Based on the emotional connection, she also gained the recognition of her fans.

"for example, some primary anchors in Kuai's hands start broadcasting at 6 o'clock every day and have only more than 20, 000 fans, but their GMV can exceed 1 million. Kuaishou Technology, who is in charge of e-commerce, said with an example.

For businesses, a good foundation of trust also means more deterministic growth. Driven by the trust e-commerce model, the repeat purchase rate of Kuaishou Technology e-commerce further increased to more than 70% in September 2021, and the number of brands and merchants also increased further.

In addition, as the closed-loop business model of Kuaishou Technology e-commerce, Kuaishou Technology's contribution to Kuaishou Technology e-commerce GMV has increased from 71% in the third quarter of 2020 to 90% in the same period in 2021.

Northeast Securities Research News analysis, live e-commerce in 2021 will maintain high growth characteristics. At the same time, the user base of e-commerce live broadcast industry has improved significantly. As of the first half of 2021, the number of e-commerce live broadcast users has reached 384 million, which has become one of the fastest growing areas of users.

The contribution of live e-commerce to the total retail sales of consumer goods has also increased from 3.29% at the end of 2020 to 5.16% in the first half of 2021, and has become the core incremental source of e-commerce double 11 this year.

According to Kuaishou Technology's e-commerce plan, in the future, by improving the infrastructure and service capacity of the platform, more policies and resources will be used to help merchants and brands to achieve faster development in the spring tide of live e-commerce.

Fourth, "release water to raise fish" and continue to increase the size of overseas markets.

In his third-quarter results, Kuaishou Technology reiterated his ambition to go to sea.

In overseas markets, short video and live streaming are still in the early stages of development and user penetration is low.

Douyin, also a leading domestic short video platform, has taken the lead in occupying overseas markets through the launch of overseas versions of TikTok, but in fact the whole industry is still in the early stage of commercialization, and the huge and diversified realization potential contained in this industry has not yet been released.

Therefore, it is not too late for Kuaishou Technology to focus on overseas commercialization at this time.

In June 2021, the MAU of Kuaishou Technology's overseas market has exceeded 180 million.

According to Kuaishou Technology's official information, the focus of Kuaishou Technology's overseas team will be adjusted from user growth to building a positive flywheel of products, content, and algorithms, breaking through the cold start stage, tamping the quality and stickiness of existing users, and accumulating valuable experience for the broader overseas market in the future.

It has been disclosed that in the third quarter of 2021, indicators such as the proportion of MAU and DAU in MAU, user retention rate and user usage time in overseas markets continued to maintain the momentum of growth.

At the same time, Kuaishou Technology is also belated in exploring the cash potential of overseas markets. According to the third-quarter financial report, Kuaishou Technology began to test the waters of the live live virtual gift reward and advertising business.

Conclusion

All in all, Kuaishou Technology's three-quarter report has released a lot of surprising new signals.

First of all, the continuous optimization of the income structure, with online marketing as the core of the revenue base has been consolidated, enough for investors to let go of the past concerns about the company's single income structure.

The second is the rapid development of e-commerce, the development of e-commerce business based on content is the verification of Kuaishou Technology's universality and prosperity ecology, and it also makes people expect Kuaishou Technology ecology to give birth to more business models in the future.

In addition, since the beginning of this year, Kuaishou Technology has continued to lay out overseas markets to further consolidate the quality and stickiness of overseas users. In the overseas short video and live broadcast industry, Kuaishou Technology is building a differentiated development path from Latin America, Southeast Asia and other markets.