By Chen Feng

Edited by Ziye

KuaiShou has once again delivered financial results exceeding market expectations.

In the third quarter, KuaiShou achieved over 400 million daily active users for the first time in a single quarter, with total revenue increasing by 11.4% year-on-year to RMB 31.1 billion. KuaiShou's profitability also continued to improve, with adjusted net profit reaching RMB 3.9 billion in the third quarter, a year-on-year increase of 24.4%.

Among them, core business revenue, including online marketing services and other services (including e-commerce) revenue, increased by nearly 20% year-on-year.

Behind this, while internal marketing service revenue maintained steady growth, external marketing services are accelerating to become the core driver of KuaiShou's commercialization acceleration.

In the third quarter, KuaiShou achieved year-on-year growth in marketing spending across industries such as media and information, platform e-commerce, and local life, with short video marketing spending surging by over 300% year-on-year. In terms of internal circulation, the number of monthly active merchants on KuaiShou increased by over 50% year-on-year.

KuaiShou's online marketing service revenue continues to grow rapidly

Insight found that behind the strong driving force of external circulation, KuaiShou has been continuously laying out around a healthier community ecosystem, content ecosystem, and business ecosystem since the beginning of this year.

On the one hand, KuaiShou continues to promote efficiency optimization, helping merchants within the platform and clients outside the platform improve their advertising efficiency; on the other hand, KuaiShou is continuously strengthening the coupling between its content ecosystem and business ecosystem.

At KuaiShou Technology's 2024 Investment Day event on September 13, when discussing future opportunities for KuaiShou's commercialization, Wang Jianwei, head of KuaiShou's e-commerce and commercialization divisions, pointed out that in the long run, the advertising business is about efficiency optimization and ecosystem coupling.

It is not difficult to see that KuaiShou is building a longer-term and more systematic ability for deep coupling between content and ecosystem, which will further raise its commercialization ceiling.

1. Short videos + Olympics, driving rapid commercialization growth for KuaiShou in the third quarter

Online marketing services are a core component of KuaiShou's revenue structure. In the third quarter of this year, this revenue accounted for 56.6% of total revenue.

In the traditional advertising off-season, two key anchors were particularly crucial for KuaiShou's rapid growth in this revenue segment: short videos and the Olympics.

Let's start with short videos. As one of the first platforms to enter the short video market, KuaiShou has now garnered the largest micro-short video consumer base across the entire network.

The head of KuaiShou's Xingmang short video business previously revealed that as of July this year, KuaiShou's daily active users for short videos reached 300 million, an 11% increase from 2023. Among them, heavy users who watch over 10 episodes of short videos daily reached 146 million, a 55.3% increase from 2023.

The rich short video content ecosystem and ultra-high user stickiness have opened up new commercial growth opportunities for KuaiShou.

On the one hand, around paid short videos, KuaiShou previously created a Native original link based on service accounts, which not only enhances users' immersion in watching short videos but also shortens the advertising link for advertisers.

Because users can watch and pay for videos within KuaiShou, and advertisers do not need to engage in technical development, only needing to complete simple tasks such as uploading episodes and configuring layouts, this not only reduces the disturbance of traditional advertisements to users but also improves the conversion efficiency for advertisers.

On the other hand, in the third quarter of this year, KuaiShou successfully implemented In-Apps Ads (IAA, in-app advertising short video model). In July, it launched a Native*IAA link aimed at advertising monetization, expanding the consumer base for free short video content and broadening advertising scenarios and monetization paths for advertisers.

Simply put, under the IAA model, advertisers can choose to unlock more episodes for C-end users by displaying incentivized advertisements and feed advertisements, and KuaiShou will share the advertising fee with the advertiser in a certain proportion.

Under the above measures, KuaiShou's short video marketing spending in the third quarter increased by up to 300% year-on-year.

During the earnings call, in response to the issue of sustained growth in the short video business, Cheng Yixiao, founder, chairman, and CEO of KuaiShou, said that according to third-party data predictions, the short video market size is expected to exceed RMB 100 billion by 2027. With the gradual enrichment of the short video supply ecosystem, the existing base of over 500 million short video users still has a foundation for further commercialization. KuaiShou not only has a rich short video supply ecosystem but also a user base of over 300 million short video users. It is expected that the marketing spending of both IAP and IAA models will maintain rapid growth.

In addition to short videos, the Paris Olympics, a major sports IP, also had a strong commercial boost effect for KuaiShou in the third quarter of this year.

From the eve of the Paris Olympics to the event period, throughout the entire cycle, based on years of experience in vertical content operation and event operation, KuaiShou integrated multiple business lines around the major IP of the Olympics, including "sports + content," "sports + marketing," "sports + e-commerce," "sports + local life," "sports + short videos," and more.

Specifically, KuaiShou first provided users on the platform with a rich content consumption and interaction scenario, including a content matrix that includes live broadcasts of all events, diverse and innovative self-produced content, various fun interactive gameplay, and rich UGC content.

On the eve of the Olympics, KuaiShou launched a special mass sports event, "KuaiShou Village Olympics," deeply integrating rural culture and sports competition. Among them, the total online viewership of the Guizhou main competition area of the "KuaiShou Village Olympics" exceeded 500 million, the playback volume of related topics exceeded 5.4 billion, and there were nearly 100 trending topics outside the platform.

At the same time, KuaiShou launched an exclusive Olympics channel, presenting a panoramic view of event live broadcasts, event schedules, medal tables, and exciting event content. KuaiShou also launched derivative IPs such as "Champion Viewing Team," "Touring Paris with Champions," "Good Morning Paris," "Champions Are Coming," and "Paris Dream Team."

Under various measures, during the Paris Olympics, the total exposure of KuaiShou's Olympics-related content reached 310.6 billion. Over 640 million users watched the Olympics through KuaiShou, and KuaiShou users participated in 15.89 billion Olympics-related interactions.

On the other hand, KuaiShou combined these rich content scenarios with commercial scenarios such as e-commerce and marketing, providing consumers with a "watch and buy" content and product consumption experience while also providing merchants and brands inside and outside the platform with richer and more efficient marketing scenarios.

KuaiShou revealed that during the Olympics, over 13,000 brands and merchants participated in KuaiShou's e-commerce and local life Olympics consumption season activities, finding new business growth opportunities.

For example, around the "KuaiShou Village Olympics" scenario, JDB, Tanwan, and Didi, among others, delivered brand value through branded placements during the opening ceremony and events. Online, they engaged in deep interactions with users through live broadcasts and conversion components, achieving integrated brand, effect, and sales results.

At the same time, combining high-traffic gold-medal content, KuaiShou covered multiple major traffic scenarios inside and outside the main Olympics venue, bringing Yili strong exposure through pop-up windows displaying "golden moments." KuaiShou also collaborated with Geely Automobile at the torch venue and interactive game scenarios, innovating sports marketing strategies where cars and customized cartoon images accompanied users throughout their "journey" to Paris, establishing product images and brand awareness.

2. From internal to external marketing, KuaiShou achieves win-win results with merchants through efficiency optimization

How to attract more advertisers this year?

For platforms such as e-commerce, content, and community that cater to the marketing needs of brands and merchants, those who can provide higher advertising efficiency and bring higher conversion rates will win the favor of more advertisers.

To a certain extent, KuaiShou's countertrend growth in online marketing service revenue in the third quarter demonstrates that KuaiShou's ecosystem is becoming more attractive to advertisers, and its value in driving growth for advertisers continues to be released.

Behind this, we noticed that KuaiShou is also actively laying out strategies to optimize the marketing efficiency of advertisers.

During the earnings call, Cheng Yixiao mentioned that KuaiShou has seen significant benefits from refined industry operations, intelligent marketing products, algorithm optimization, and the application of large model technology in marketing recommendation scenarios.

Specifically, amid the upsurge of large models, KuaiShou is accelerating the application of intelligent technologies such as AI large models to commercial scenarios.

Currently, KuaiShou has established a large model matrix centered on the Kuaiyi language large model, recommendation large model, and visual generation large model, covering multiple layers such as content understanding, distribution, and generation, and has deeply integrated these large models into KuaiShou's commercial ecosystem scenarios.

Let's look at a few practical application scenarios.

In June this year, KuaiShou released its self-developed video generation large model, "Keling AI," which has certain advantages in areas such as cinematic high-definition image generation, image-to-video effects, and controllable video generation.

Based on "Keling AI," KuaiShou provides advertisers with "Magnetic Innovation," a one-stop AIGC material generation tool, providing a one-stop video editing product service to improve the production efficiency of advertising materials.

In addition, KuaiShou also launched the virtual avatar live broadcast service platform "Nuwa," which has the capabilities of "matrix operation + 24/7 broadcasting + full-chain service," providing merchants with free line applications, highly realistic and efficient virtual avatar broadcasting, and full-process broadcasting services to help merchants reduce costs and increase efficiency.

KuaiShou's another digital employee product, "Intelligent Bot," also helps merchants improve efficiency and reduce costs. It mainly addresses issues such as insufficient manpower in interactive scenarios like short videos, live broadcasts, and private messages. It can automatically identify user questions and quickly retrieve relevant answers to generate audio, text, or directly display related materials and forms, reducing user wait times for customer service responses and improving conversion rates.

According to the third-quarter financial report, KuaiShou's daily average consumption of AIGC marketing materials reached RMB 20 million. In September, Wang Jianwei also stated that currently, Magnetic Innovation generates over 100,000 short video materials daily on average.

It is worth noting that on the KuaiShou platform, AI large models are not only used in the above-mentioned intelligent production and intelligent customer service scenarios. KuaiShou is accelerating the use of AI large models and other intelligent technologies to reshape the entire business operation chain, focusing on the production, understanding, distribution, and acceptance of advertising materials.

For example, focusing on the "placement" aspect, which is crucial for breaking the traffic dilemma in online marketing, KuaiShou is also helping brands and merchants continuously optimize advertising efficiency through innovations and upgrades to marketing products and tools.

For external cycle advertisers, i.e., advertisers outside the platform, KuaiShou's Magnetic Engine UAX fully automatic placement product integrates multi-dimensional functions such as intelligent infrastructure, intelligent creativity, intelligent regulation, and intelligent optimization, enabling full-chain optimization and efficiency improvement, bringing more efficient advertising results.

Combining the financial report, in the third quarter of this year, the penetration rate of UAX in various industries continued to steadily increase, and the proportion of total customer consumption using UAX in total external cycle marketing consumption further increased to approximately 50%.

In July this year, based on its fully automatic placement capabilities, KuaiShou's Magnetic Engine launched a new product, "Periodic Stable Investment," targeting small and medium-sized merchants/advertisers with limited budgets. During the placement period, after customers/agents complete basic creation and editing, "Periodic Stable Investment" can manage placements automatically, reducing manual intervention, thereby further unleashing the system's placement optimization capabilities and achieving more stable costs and more sustainable placement volumes.

For internal cycle advertisers, i.e., merchants within the KuaiShou platform, KuaiShou's Magnetic Ox also simplifies the operation of advertising placements through intelligent escrow tools such as full-station promotion, live broadcast escrow, and full-product intelligent placement, assisting merchants in business operations with one-stop, butler-style escrow and providing full-station scenario-based solutions and video material solutions to accelerate business incubation.

In the third quarter of this year, the total consumption of these products used by merchants for marketing and promotion accounted for approximately 50% of the total internal cycle marketing consumption.

3. Content + business, ecosystem coupling raises KuaiShou's commercialization ceiling

In the third quarter, in addition to maintaining good growth momentum in commercialization, KuaiShou also maintained good growth momentum in multiple core indicators related to user traffic.

KuaiShou's average daily active users reached 408 million, an increase of 5.4% year-on-year; average monthly active users reached 714 million, an increase of 4.3% year-on-year, both reaching record highs. In addition, KuaiShou's total user engagement time also increased by 7.3% year-on-year.

KuaiShou's strong user stickiness in its community ecosystem is built on a rich content ecosystem foundation.

As mentioned earlier, since the third quarter, KuaiShou's operations around sports vertical content and the further expansion and improvement of the short video content ecosystem have further expanded KuaiShou's content pool.

To a certain extent, KuaiShou's business ecosystem is also built on the foundation of its content ecosystem. KuaiShou's user and content ecosystem, vast traffic, and business ecosystem are actually integrated.

At the Investment Day event in September, Cheng Yixiao pointed out that KuaiShou provides more possibilities for deep connections between people, content, and business by continuously enriching platform scenarios.

"This year, KuaiShou has made it clearer that it must be user-oriented. Under this orientation, we will optimize our content, products, and traffic system to achieve healthy and high-quality growth through good content, good products, and a reasonable traffic mechanism," he said.

We also noticed that to better balance the content ecosystem and business ecosystem, KuaiShou has been continuously optimizing its traffic mechanism since the beginning of this year.

For example, in the first quarter of this year, KuaiShou introduced a mixed traffic mechanism, comprehensively evaluating content based on user experience value and commercial value, guiding merchants and creators within the community to consider the consumption value of content more when producing commercial materials, thereby improving user experience and creating a healthier content ecosystem.

Combining the above points, KuaiShou's high-quality growth is built on a healthy community ecosystem, a healthy content ecosystem, and a healthy business ecosystem, which means achieving a better integration of the content ecosystem and business ecosystem, forming a growth flywheel where the content ecosystem drives commercial growth, and commercialization feeds back into the content ecosystem's construction.

From KuaiShou's third-quarter financial report, it is not difficult to see that based on the deep coupling of a continuously enriched and optimized content ecosystem and business ecosystem, KuaiShou has found new growth curves from internal to external cycles, and its commercialization ceiling is gradually being raised.