Kuaishou Q3: Growth further slows down. Can AI and short dramas revitalize the main business?

Written by Lan Jie

Edited by Qiao Qian

On November 20, Kuaishou presented its third-quarter results, and there are still some positive news.

According to the unaudited performance announcement released by Kuaishou as of September 30, 2024, in the third quarter of this year, Kuaishou's revenue reached 31.1 billion yuan, with a year-on-year growth of 11.4%; the adjusted net profit was 3.9 billion yuan, with a year-on-year growth of 24.4%. Both the revenue and net profit growth rates are in line with market expectations.

In addition, at a time when Internet traffic has peaked, the average daily active users of Kuaishou have maintained growth, exceeding the 400 million mark, with a year-on-year growth of 5.4%.

However, the growth is decelerating. In the past four quarters (from the third quarter of 2023 to the second quarter of 2024), Kuaishou's revenue growth rates were 20.8%, 15.1%, 16.6%, and 11.6%, respectively. Correspondingly, the adjusted net profit growth rate of Kuaishou is also slowing down.

According to the financial report, in the third quarter of this year, Kuaishou's sales and marketing expenses reached 10.4 billion yuan, with a year-on-year growth of 15.9%, and the growth rate exceeded the revenue growth rate. The high marketing expenses have ensured the user and market scale of Kuaishou to a certain extent, but also compressed the profit margin. The management of Kuaishou also stated at the performance meeting that it is expected that the subsidy for e-commerce users and the investment in online marketing services will increase in the fourth quarter, and the sales and marketing expenses will have a seasonal growth.

In addition, Kuaishou is further "cost-cutting". In the third quarter, Kuaishou's R & D expenses changed slightly compared with the same period last year, while the administrative expenses decreased by 11.4% year-on-year.

On the day after Kuaishou released its financial report, Kuaishou's stock price plummeted, once falling by more than 12%.

The growth rate of e-commerce continues to slow down, and the strategic direction begins to change

From a business perspective, in the past quarter, due to the expansion of short dramas and the local life market, as well as the continuous optimization of Kuaishou's intelligent delivery capabilities, Kuaishou's online marketing service revenue reached 17.6 billion yuan, with a year-on-year growth of 20%, accounting for 56.6% of the total revenue.

Since Kuaishou's e-commerce business exceeded the trillion GMV mark last year, it still maintains double-digit growth, and has promoted the growth of Kuaishou's other services (including e-commerce, local life and other businesses) by 17.5% to 4.2 billion yuan.

However, the growth rate of Kuaishou's e-commerce is also slowing down - in the third quarter, the GMV of Kuaishou's e-commerce was 334.2 billion yuan, with a year-on-year growth of 15.1%. This growth rate is almost the same as that of the second quarter, and is much lower than the growth rate of over 20% or even 30% in the previous few quarters.

At the same time, the revenue of the live-streaming business, which contributes nearly one-third of Kuaishou's income, is still declining.

After the lackluster ending of this year's "6.18 Shopping Festival", a number of e-commerce platforms such as Taobao, Douyin E-commerce, and Pinduoduo have been disclosed by the media to adjust the priority of their business goals, and no longer put price competitiveness in the first place. At that time, in the second-quarter financial report, Kuaishou was still emphasizing the concept of "low-price and good products", which is related to Kuaishou's sinking market genes and has also promoted the development of Kuaishou's e-commerce business to a certain extent.

However, the extreme low-price strategy is not a long-term solution for merchants, platforms, and consumers. In the third-quarter financial report and performance meeting, Kuaishou rarely mentioned low prices again, and like Douyin, emphasized that it should be based on content e-commerce and adhere to the strategy of "good content + good products". Kuaishou also stated in the financial report that it is necessary to promote the direction of returning to the live-streaming room, breaking through short videos, and steadily building a pan-shelf.

However, judging from the current situation, the advancement of this transformation is not easy. In the third quarter of this year, the GMV of Kuaishou's pan-shelf accounted for 27% of the total e-commerce GMV. Before this, this figure was around 25% for two consecutive quarters, with a slow growth.

In addition, at the performance meeting, Cheng Yixiao, CEO of Kuaishou, said when elaborating on Kuaishou's 408 million daily active users that the relevant data consolidates Kuaishou's position as the third-largest application in China (calculated based on the quarterly average daily active users).

Previously, Guohai Securities estimated that the daily active users of Video Account reached 450 million in 2023, which has exceeded the scale of Kuaishou in the third quarter of this year. Kuaishou's emphasis on the ranking to some extent indirectly admits this fact. This also means that, except for Douyin, the Video Account, which started internal testing in 2020, already has a broader audience base than Kuaishou.

Since this year, WeChat E-commerce has frequently adjusted and exerted efforts in terms of organizational structure and functions. Previously, it also upgraded the Video Account Store to WeChat Store, simplified the merchant settlement process, lowered the merchant entry threshold, and at the same time, facilitated the circulation of store and product information in multiple scenarios such as the official account, Video Account, Mini Program, and Search. In other words, the competitive pressure faced by Kuaishou E-commerce is constantly increasing.

Kuaishou's e-commerce business, as a growth engine, is facing severe competition, and the next growth curve has not yet formed a core competitiveness. Therefore, how to achieve the next growth has become the most concerned issue for investors.

Pinning growth hopes on short dramas and AI

At Kuaishou's performance meeting, some investors asked how Kuaishou can ensure the continuous growth of short drama advertising and online marketing business.

In response, Cheng Yixiao said that in the third quarter of this year, Kuaishou accelerated the IAA (relying on advertising for monetization) short drama model of short dramas, rapidly expanding the interest group of short dramas, and driving the high-speed growth of short drama marketing consumption with the dual-wheel drive of the IAA and IAP (direct user payment) models.

Regarding the sustainability of the short drama business, Kuaishou is optimistic about the steady growth of the industry, and believes that with the current short drama ecosystem and over 300 million user base, coupled with the improvement of products and algorithms, it can continuously promote the growth of the short drama business.

In the first half of this year, Kuaishou created a native link for paid short drama marketing, allowing users to complete watching and payment within the Kuaishou APP. Compared with Douyin, Kuaishou once focused more on paid short dramas. However, with more and more brands now willing to do marketing through short dramas, and paid short dramas facing greater policy and public opinion pressure, Kuaishou is also further promoting the development of IAA short dramas.

In addition, Kuaishou also stated in the financial report that in the third quarter, the company accelerated the IAA short drama model, expanded the consumer scale of free short drama content, and together with other short drama development measures of Kuaishou, promoted the concurrent short drama marketing consumption to increase by more than 300% year-on-year.

On October 30, Kuaishou also launched a short drama distribution matchmaking platform. On this platform, copyright holders can release recruitment tasks for short drama series, and distributors can choose more suitable short dramas for distribution.

Previously, some short drama marketing merchants told 36Kr that compared with Kuaishou, Douyin launched a decentralized matchmaking platform at the beginning of last year, which is more conducive to promoting the achievement of IAA short drama cooperation.

Kuaishou's progress in AI this year is also relatively frequent. In addition to improving the in-station delivery efficiency and marketing monetization through AI, Kuaishou is also accelerating the application landing and commercialization process of its AI large model, Keling.

According to the official statement of Kuaishou, since the launch of Keling AI in June this year, it has served more than 5 million users. Recently, Keling AI officially launched an independent App, strengthening the layout of AI creation on the mobile terminal.

In addition, since the end of July, Keling AI has successively launched a membership payment system for users in China and overseas, and officially opened API services at the end of September, covering modules such as video generation, image generation, and virtual try-on. Cheng Yixiao said at the conference call that "currently, the commercialized monthly revenue of Keling AI exceeds 10 million yuan".

This income may not be particularly outstanding, but it is still good news for large models that are still difficult to see profitability.