Radar Finance Hongtu Production | Written by Xiao Sa | Edited by Shenhai

After the earnings announcement, Kuaishou still failed to stop its decline.

On August 29, Kuaishou's share price fell to a low of HK$37.55, with a decline of over 25% year-to-date, erasing HK$58.993 billion in market value. From the historical high of the company's share price, it has plummeted by over 90%.

According to the latest disclosure of second-quarter results, Kuaishou achieved total revenue of RMB 31 billion in the quarter, an increase of 11.6% year-on-year, with adjusted net profit increasing by 73.7% year-on-year to RMB 4.7 billion.

Despite significant profit growth and continued expansion, Kuaishou's growth rate has slowed down. According to iFinD data, the company's 11.6% revenue growth in the second quarter was the lowest since the third quarter of 2020.

Breaking it down, compared to the first quarter, Kuaishou's "three-pronged approach" of online marketing services (advertising), live streaming, and other services (including e-commerce) all showed varying degrees of slowdown. In particular, Kuaishou's second-quarter e-commerce GMV (Gross Merchandise Volume) growth slowed to 15% year-on-year.

JPMorgan Chase noted that Kuaishou's weak second-quarter GMV growth was already expected by the market. While the share price had already shown weakness before the earnings announcement, the management did not reassure investors during the earnings call that e-commerce growth would recover in the second half of the year, causing investors to be more cautious.

Although Kuaishou is a pan-entertainment platform, e-commerce is undeniably important to it. Cheng Yixiao, founder, chairman, and CEO of Kuaishou Technology, has stated that e-commerce is one of the company's key growth engines for the future and the centerpiece of its entire business ecosystem. However, with the slowing penetration of live streaming e-commerce and pressure on overall growth, there is uncertainty about whether Kuaishou can continue to tell a compelling e-commerce story.

Kuaishou's growth is slowing down

According to Tianyancha data, Kuaishou's domestic parent company is Beijing Kuaishou Technology Co., Ltd., established in 2015, and has completed 12 rounds of financing.

After Kuaishou disclosed its second-quarter results on August 20, the company's share price plummeted by 9.91% on August 21.

The financial report showed that in the second quarter of 2024, Kuaishou achieved total revenue of RMB 31 billion, an increase of 11.6% year-on-year, with adjusted net profit increasing by 73.7% year-on-year to RMB 4.7 billion. In addition, the company's gross margin and adjusted net profit margin in this quarter reached 55.3% and 15.1%, respectively, both setting new highs.

During the earnings call, management stated that the company had achieved consecutive quarterly increases in absolute adjusted net profit and adjusted net profit margin for six quarters in a row. The adjusted net profit margin for this quarter was 15%, achieving the target of 15% adjusted net profit margin one year ahead of schedule.

At the same time, Kuaishou believes that in the short term, the company's investment in large AI models will not significantly impact the group's profitability.

Despite improved profitability, the fact remains that Kuaishou's revenue growth has slowed down. Not only was the company's second-quarter total revenue growth the lowest in multiple quarters, but all three major business segments also saw varying degrees of decline compared to the first quarter.

Specifically, in terms of individual business segments, Kuaishou's second-quarter revenue from online marketing services increased by 22.1% year-on-year from RMB 14.3 billion in the same period last year to RMB 17.5 billion. In the first quarter, this business segment grew at a rate of 27.45% year-on-year.

Amidst an overall weak consumer sentiment, fortunately, strong advertising spending in sectors such as media, e-commerce platforms, and local services has driven increased external advertising. Kuaishou's intelligent advertising product, UAX, continues to increase its penetration rate across various industries, with total consumption by clients using UAX for advertising accounting for more than 30% of total external advertising consumption.

In terms of internal advertising, merchants' total consumption for marketing and promotion using Site promotion solution or intelligent agency products accounted for 40% of total internal advertising consumption. By leveraging promotional events to attract advertising investments, small and medium-sized merchants' advertising consumption surged by 60% year-on-year in the second quarter of 2024.

As a content platform primarily focused on short videos, products with content attributes such as short dramas, novels, and mini-games also provide Kuaishou with opportunities to increase advertising investments. Taking short dramas as an example, in the first half of this year, Kuaishou created an in-app payment and viewing experience for paid short dramas. This model has gradually been replicated for novels, mini-games, and other industries.

Compared to the double-digit growth of the advertising business, Kuaishou's live streaming business has been shrinking. In the first quarter of this year, Kuaishou generated RMB 8.575 billion in live streaming revenue, a decrease of 8% year-on-year. In the second quarter, live streaming revenue decreased by 6.7% year-on-year to RMB 9.3 billion.

At its peak, Kuaishou's annual revenue from live streaming tips exceeded RMB 30 billion, making it a crucial component of its commercialization efforts. However, Kuaishou's relationship with some top streamers has been delicate.

During a live stream on April 20, Kuaishou's top streamer Xinba accused the platform of banning his team's accounts and was subsequently banned himself for his outspoken criticism of Kuaishou as a "garbage platform."

On August 9, the "Taiyuan Internet Police" released a video alleging that popular internet personality "Taiyuan Lao Ge" had defrauded merchants out of RMB 9 million. In the video, merchants claimed that "Taiyuan Lao Ge" had driven RMB 9 million in commissions through four product endorsements but that RMB 19.11 million of the sales were fake transactions.

To date, "Taiyuan Lao Ge" has 69.78 million followers on Kuaishou. Amidst ongoing controversies, Kuaishou, like other platforms, is striving to de-emphasize top influencers. By the second quarter of this year, live streaming accounted for approximately 30% of the company's overall revenue.

According to the financial report, Kuaishou is currently building a healthy and positive live streaming ecosystem by promoting new products, interactions, and gameplay. Leveraging the "short video + live streaming + community" ecosystem, it aims to attract more audiences to CrossFire and King of Glory professional leagues and empower traditional industries through the "live streaming +" model.

GMV growth in e-commerce slows down

As live streaming revenue continues to shrink, other businesses, including e-commerce, have become increasingly important for Kuaishou.

The financial report shows that in the first quarter of this year, Kuaishou's other service revenue increased by 47.6% year-on-year to RMB 4.2 billion from RMB 2.8 billion in the same period in 2023, primarily driven by the growth of the company's e-commerce business, as reflected in the increase in total GMV (Gross Merchandise Volume) of e-commerce products.

However, the year-on-year growth rate of Kuaishou's other business revenue slowed to 21.3% in the second quarter. The segment generated revenue of RMB 4.158 billion in the quarter, even lower than the RMB 4.183 billion in the first quarter, with a slight decrease quarter-on-quarter.

External observers attribute this primarily to the slowdown in e-commerce GMV growth. In the first quarter, Kuaishou's e-commerce GMV grew by 28.2% year-on-year to RMB 288.1 billion, while in the second quarter, e-commerce GMV grew by 15% year-on-year to RMB 305.3 billion, falling short of Bloomberg's expectation of RMB 317.3 billion and marking the first time in Kuaishou's history that quarterly GMV growth fell below 20%.

Kuaishou officially launched its live streaming e-commerce business in the second half of 2018. By 2023, the company's e-commerce business had gained significant momentum, exceeding RMB 1.18 trillion in annual GMV for the first time, with Q4 GMV exceeding RMB 400 billion for the first time, up 29.3% year-on-year.

Furthermore, in the second quarter, the number of monthly active buyers in e-commerce reached 131 million, an increase of 14.1% year-on-year, although this was a slowdown from the 22.4% year-on-year growth rate in the previous quarter.

A research report by BOCOM International Securities stated that the decline in Kuaishou's e-commerce growth was primarily due to the suspension of top streamers and increased competition, but the number of monthly active sellers and monthly active buyers continued to grow.

In response, Cheng Yixiao admitted that after the "618 Grand Promotion" in the second quarter, it was evident that both e-commerce platforms and merchants faced the challenge of slowing short-term domestic consumer demand. In an environment with weakening traffic dividends, the e-commerce business needed to achieve a better balance between content and commercial efficiency.

Notably, amidst slowing overall e-commerce growth and the de-emphasis on top streamers by live streaming e-commerce platforms, Kuaishou has shifted towards a broader e-commerce shelf model. Starting in the fourth quarter of 2023, Kuaishou gradually opened up traffic entry points for broader e-commerce scenarios, with the full launch of the Mall tab in December.

According to the financial report, in the second quarter of 2024, Kuaishou's broader e-commerce shelf GMV continued to grow faster than the overall market, accounting for more than 25% of total GMV. During the 618 Grand Promotion, broader e-commerce shelf orders increased by 65% year-on-year, becoming an important growth driver for the e-commerce business.

However, this progress still fell short of institutional expectations. A research report by First Shanghai Securities stated that Kuaishou's second-quarter e-commerce GMV growth rate was lower than market expectations, and the proportion of broader e-commerce shelf GMV did not change significantly quarter-on-quarter, indicating slow progress in the transformation. The slowdown in retail sales growth increased the risk of slower GMV growth.

JPMorgan Chase stated that Kuaishou's share price fell by 10% after announcing its quarterly results, primarily due to the slowdown in GMV growth. The company's weak second-quarter GMV growth was already expected by the market, and although the share price had already shown weakness before the earnings announcement, the management did not reassure investors during the earnings call that e-commerce growth would recover in the second half of the year, causing investors to be more cautious.

The bank noted that the slowdown in e-commerce GMV growth was the company's biggest problem and downgraded its adjusted earnings per share forecast for Kuaishou next year by 7%, cutting its target price from HK$95 to HK$65, with a target P/E ratio of 9 times for 2025, in line with Pinduoduo, while maintaining its "Overweight" rating.

Challenges in user growth

Kuaishou has been operating overseas for many years, but it has not yet reached the stage of harvesting profits.

In terms of monetization, Kuaishou's overseas revenue reached RMB 1.1 billion in the second quarter of 2024, an increase of 141.4% year-on-year. In comparison, overseas revenue was RMB 991 million in the first quarter, up 193.2% year-on-year.

As early as 2016, Kuaishou launched its international short video platform Kwai, which was launched in regions such as Russia and South Korea. In 2017, Kuaishou's international team was fully established and began operating independently. In October 2017, Kwai's downloads in South Korea surpassed 10 million, but it subsequently faced adjustments.

In 2018, Liu Xinhua, the head of international operations, resigned. A year later, Cheng Yixiao personally led the reboot of the international project. In 2022, Kuaishou's international business department underwent a series of organizational restructuring, establishing an international commercialization department.

This year, Kuaishou has continued to expand its user base in key overseas markets. In the second quarter, through refined operations and traditional marketing channels, the company promoted stable growth in average daily active users in core overseas markets such as Brazil and Indonesia.

However, to date, Kuaishou's overseas business has not yet contributed to profits. In the second quarter of 2024, the company's overseas business incurred an operating loss of RMB 277 million, a decrease of 64.5% year-on-year.

In addition, in an era of stock competition, major platforms continue to compete for users.

The financial report showed that due to increased spending on promotional activities, Kuaishou's sales and marketing expenses increased by 16.3% year-on-year to RMB 10 billion in the second quarter of 2024 from RMB 8.6 billion in the same period in 2023.

Where did this RMB 10 billion go? According to management, part of it was used to achieve user growth, while the rest was invested in the promotion of related businesses such as e-commerce commercialization and local services.

From a data perspective, Kuaishou has maintained stability in user traffic. In the second quarter, the platform's average daily active users (DAUs) and average monthly active users (MAUs) were 395 million and 692 million, respectively, representing year-on-year growth of 5.1% and 2.7%.

However, on a quarter-on-quarter basis, average DAUs increased by 1.5 million, while average MAUs decreased by 5 million.

In this regard, First Shanghai Securities stated bluntly that Kuaishou's customer acquisition costs exceeded expectations, but MAU growth was lower than expected, indicating challenges in user growth. Furthermore, the bank noted that although Kuaishou's share repurchases were proceeding steadily, no significant measures to enhance shareholder returns had been announced.