In 1Q24, Kuaishou achieved revenue of 29.408 billion yuan, a year-on-year increase of 16.6%, and adjusted net profit of 4.388 billion yuan, an increase of 10347.6% over the previous year. Domestic operating profit was 3.99 billion yuan, and overseas operating loss narrowed to 268 million yuan. In the domestic segment, Kuaishou e-commerce GMV continues to grow rapidly. Internal circulation advertising and e-commerce GMV are changing in the same direction, external circulation advertising is recovering, and the growth rate of live streaming ecosystem management revenue is affected; losses in overseas divisions continue to narrow. The company announced that it will repurchase Hong Kong Class B common shares worth no more than 16 billion yuan within the next 36 months.
Traffic is rising steadily, user stickiness is increasing, and costs are falling. The 1Q24 Kuaishou DAU reached 394 million, up 5.2% year on year; the average daily DAU time was 129.5 minutes, up 8.6% year on year. The company optimizes user growth strategies, enriches the community's creative ecosystem and strengthens the supply of high-quality content. High-quality content such as New Year's events and short dramas enhances user stickiness, and the pattern of the top three short videos is stable; the company reduces bandwidth costs and server hosting costs through technology; and after improving competition and optimizing user operation strategies, user maintenance costs are basically stable. We expect the company's user traffic to continue to grow steadily, and the number of users, average daily time, and user stickiness are still expected to increase slightly throughout the year.
Internal circulation is growing rapidly, and external circulation advertising is recovering. In terms of advertising and marketing business, 1Q24 advertising marketing increased 27% year-on-year, mainly due to:
1) The e-commerce business is driving the continuous rapid growth of internal circulation advertising, and the recovery of external circulation advertising, with a year-on-year increase of 20%, mainly due to short dramas, education, and games; 2) Intelligent marketing solutions improve efficiency across the entire chain. AIGC marketing materials consume more than 10 million yuan per day, and the consumption of external circulation smart marketing products increased more than 4 times month-on-month. In terms of e-commerce business, GMV reached 288.1 billion yuan, up 28.2% year on year, thanks to supply recovery driving e-commerce demand release: 1) supply side, the average monthly retail sales volume increased 70% year on year in 1Q24, new merchants continued to be active and investment policies continued to be optimized; 2) On the demand side, the number of monthly active buyers increased 22% year over year to 126 million, and e-commerce user penetration rate was about 18%; 3) E-commerce market and categories continued to be optimized, with the pan-shelf market accounting for 25% of GMV and double that of GMV for short video e-commerce. In terms of live streaming business, 24Q1 live streaming revenue fell 8% year on year, mainly due to the governance of the live streaming ecosystem. In terms of overseas business, in 24Q1, the company's overseas business revenue was 991 million yuan, an increase of 193.2% over the previous year. The company focuses on producing original localized content and building localized marketing capabilities to help Chinese brands go overseas. Q1 overseas marketing revenue increased nearly 3 times year-on-year, and losses were reduced by 67%.
It is expected that the domestic segment will continue to grow and overseas losses will narrow at an accelerated pace. We expect 2Q24 Kuaishou's gross margin to increase steadily year on month, and 2Q24 sales expenses to increase year over year, mainly due to rapid growth in advertising and e-commerce business, improvement in customer acquisition and retention efficiency, continuous increase in overall user size, and optimization of overseas business.
Maintain a buy rating. Considering the moderate recovery in domestic consumption and the slow restoration of the strict live streaming regulations, we lowered Kuaishou's 2024 and 2025 revenue forecasts to 128.7 billion yuan and 144.5 billion yuan (original forecast 1368 and 162.1 billion yuan). Considering the company's continued cost control and further profit release, we raised adjusted net profit for 2024 and 2025 to 184.265 billion yuan (original forecast of 149,242 billion yuan). Adding to the 2026 profit forecast, we expect 2026E revenue of 162.4 billion yuan and adjusted net profit of 33.7 billion yuan. Maintain a buy rating.
Risk warning: The company's revenue fell short of expectations due to policy adjustments in the short video and live streaming industry; slow macroeconomic recovery caused the recovery of advertising e-commerce revenue to fall short of expectations; increased competition led to sales expenses exceeding expectations, and cost reductions fell short of expectations