Kuaishou Technology (OTCPK:KUASF) Q3 2022 Earnings Conference Call November 22, 2022 7:00 AM ET
Company Participants
Cheng Yixiao – Co-Founder, Executive Director and Chief Executive Officer
Jin Bing – Chief Financial Officer
Conference Call Participants
Kenneth Fong – Credit Suisse
Lincoln Kong – Goldman Sachs
Alex Poon – Morgan Stanley
Thomas Chong – Jefferies
Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology’s Third Quarter 2022 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management’s prepared remarks. The English line will be in listen-only mode. And please be noted that we have been recording.
I would now turn the call over to Mr. Matthew Tao, VP of Capital Markets and Investor Relations at Kuaishou Technology.
Unidentified Company Representative
[Interpreted] Thank you, operator. Good evening, and good morning to everyone. Welcome to our third quarter 2022 financial results conference call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Executive Director and CEO; Mr. Jin Bing, Chief Financial Officer.
Before we start we would like to remind everybody that today’s discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today’s announcement and discussion. The company does not undertake any obligation to update any forward-looking information, except as required by law. As for the important information, including the forward-looking statements, please refer to the company’s public information or the announcement of its third quarter 2022 results of the period ending 30th of September of 2022 published earlier today on the company’s IR website.
During today’s call, management will also discuss certain non-IFRS financial measures for company’s purposes only. And for a definition of non-IFRS financial measures and a reconciliation of IFRS to non-IFRS financial results, please refer to our results announcement for the third quarter report ended September the 30th, 2022 issued earlier today.
For today’s call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous interpretation into the prepared remarks session and consecutive interpretation during the Q&A section. Please note that English interpretation is for convenience services only. In the case of any discrepancy, management statements in their original language will prevail.
Finally, all references to currency units in the conference call are in Renminbi unless otherwise stated. Now I’ll give the floor to Yixiao.
Cheng Yixiao
[Interpreted] Hello, everyone. Welcome to Kuaishou’s Third Quarter 2022 Earnings Conference Call. The third quarter of 2022 was full of challenges for our company and our organization. Like everyone else, we faced multiple headwinds, such as macroeconomic slowdown and resurgence of COVID-19 pandemic. Amidst these challenges, we continued to achieve breakthroughs in both business operations and financial performance by making our unremitting efforts to overcome external difficulties.
In the third quarter of 2022, our domestic DAUs increased 13.4% year-over-year to a record high of RMB 363 million. At the same time, operating profits for our domestic businesses in the third quarter remained positive for the second consecutive quarter, increasing by nearly three times compared with the second quarter. Our Group’s adjusted EBITDA also continued to improve in the third quarter of 2022.
Before going into detail about our business progress in the third quarter, I would like to share with everybody the consideration behind our regional organization and personnel adjustments and my thoughts now that I am directly responsible for our e-commerce business.
Over the past few months, we have reviewed our organizational capabilities, structure and personnel with respect to construction of our commercial ecosystem and made corresponding adjustments to continue shifting our efforts and resources to a sustainable and healthy development of our ecosystem of our commerce.
We established a company-wide commercial ecosystem committee. We also named a new Head of Online Marketing appointing the algorithm experts to meet Kuaishou Apps products and operations and upgraded our local services unit into independent business department. We made these adjustments based on our plan for Kuaishou’s future development and transformation.
Specifically, the Commercial Ecosystem Committee will facilitate the coordinated development and integration of our monetization avenues, including e-commerce, online marketing, and live streaming. It will promote collaboration and resource sharing among business units, achieving the goal of healthy and sustainable commercialization through in-depth collaboration.
Our adjustment with respect to the Head of Online Marketing was intended to better respond to a quickly evolving and increasing tough challenges in the online advertising market. Through the Commercial Ecosystem Committee’s coordination, we realized the tremendous potential of integrating our traffic ecosystem and commercialization.
[Indiscernible], our new Head of Online Marketing is deeply involved in the Commercial Ecosystem Committee and is very adaptive at identifying problems and opportunities. He has also profound customer insights and understanding of traffic monetization. We believe he is well equipped to dissect complex problems and create synergy between online marketing and traffic and the company ecosystem.
In addition, [Indiscernible] as a recommendation algorithm expert and head of algorithm team has named understanding of our community-based ecosystem, also, our algorithms have always been one of the key drivers for our DAU growth.
Going forward, as [Indiscernible] takes charge of Kuaishou’s Apps products, operations and algorithms, we can further unlock the technological power of algorithms and product operations and our content ecosystem, thereby discovering more business breakthrough opportunities.
At the same time, we will seek to reinforce our organization’s competency and efficiency by implementing cross-departmental rotation for our mid-level managers. This will help them expand their capabilities and, at the same time, enhance our abilities to cross-business collaboration through sharing practical experience in different businesses.
As for the e-commerce business, you may be curious as to why I am heading it directly. E-commerce is one of the key growth engines for the future development and the center of our commercial ecosystem. I am in charge of it directly not because anything is wrong with the business and the CEO is coming to rescue.
And on the contrary, we recognize and appreciate the unrelenting efforts that our e-commerce team has made, as well as their own standing achievements. It is precisely because our e-commerce business has quickly grown to its current size and scale that we need to think about its development direction and model from a long-term perspective.
We also need to make the right choices that will truly elevate our user experience and promote merchants’ healthy development. When it comes to making choices and trade-offs, I am in a position of strengthening in terms of courage and confidence than others in our organization.
As a result, in addition to my responsibility as CEO to oversee strategy, business decision-making and organizational management, I will spend most of my time and efforts on the e-commerce for a considerable period of time. I have to work with the teams that our e-commerce business can play a greater role in Kuaishou’s commercial ecosystem by better servicing our users and empowering merchants, brands, and KOLs.
We believe that although the e-commerce industry has entered a mid- to late-stage of intense competition compared with the traditional shelf-based e-commerce, content-driven live-streaming and short video e-commerce still holds immense potential that can be tapped into through innovation.
First, we need to build a merchandize system among the three key elements of e-commerce buyers, merchandize and platform, we need to continue to enhance our outstanding and control of the merchandise elements. We will build out a merchandize system to strengthen our knowledge in this regard and that cost-effective valuation of merchandize to our traffic allocation logic.
At the same time, we will improve our merchandize distribution library to guide and help KOLs to choose the right high-quality products. As a result, we will postpone the official launch of our shopping mall service until we further develop our merchandize understanding and control and cultivate our users’ mindset and the time spent on merchants or brands.
Second, we will establish our listed public domain traffic allocation logic. Right now, we allocate traffic relatively independently and evenly for advertising and e-commerce. But we need to consider these two holistically when deciding on traffic allocation.
For example, merchants can leverage advertising traffic to make recommendations to potential buyers. Consequently, we will align the advertising traffic allocation mechanism with the e-commerce needs and direct traffic with the same angle, gradually forming a positive cycle from the public domain to private domain.
In the meantime, we will strengthen e-commerce own traffic allocation mechanism through top-down planning. We will pay attention to the competition mechanism and business health indicators and continuously improve our merchandize mix and revenue structure.
Third, we will continue to optimize user experience and LTVs through algorithms. In the past, our e-commerce algorithms mainly focused on user interest exploration and the matching between buyers, sellers and merchandize before orders were placed.
Going forward, we will place more emphasis on algorithm’s continued contribution along the entire e-commerce value chain, such as enhancing mid to long-term conversion by modeling the relationship between long-term high-value users and merchants.
In addition, we will incorporate key experience indicators such as the product return and nature of user feedback and complaint rates into our recommendation algorithm to constantly enhance user experience and the overall e-commerce ecosystem. In the future, we’ll make persistent efforts in these areas and I will share my strategic thinking on the e-commerce business with you from time to time.
Next, I will discuss our key business developments in the third quarter. First, user growth and ecosystem constructions. In the third quarter of 2022, we achieved high-quality user growth. We seized opportunities during the peak user growth season including summer vacation to implement our effective user acquisition and retention strategy and achieve healthy ROI.
In the third quarter of 2022, average day use of Kuaishou App increased by 13.4% year-over-year to reach a new high of RMB 363 million, and average MAUs grew by 9.3% year-over-year to record setting RMB 626 million. The DAUs to MAUs ratio remained relatively high at 58.1%. Average daily time spent per DAU increased by 8.6% year-over-year to 129.3 minutes, demonstrating robust user stickiness and vibrant community activity on our platform.
In addition, continuing the momentum from last quarter, our total video views grew at a faster pace, compared with total user time spent in the third quarter. Notably, our daily peak video views passed the milestone of 100 billion.
Thanks to our refined management and improved efficiency of our user acquisition system, we reached our expected user growth target while continuing to strictly control our investment scale and user growth.
Specifically, we expanded our efficient customer acquisition channels through algorithm strategy optimization and retained users at a constantly low cost per DAU by refining our recurring-based operations to target different user groups.
In addition, as we reinforce our differentiated social platform and user mindset as our mutual followers on Kuaishou App grew substantially by 63.1% year-over-year in the third quarter to reach a cumulative 23.5 billion.
Our original short video content ecosystem is the foundation of our platform. As of September 30, 2022, we had more than two million creators who had more than 10,000 followers each and our creators had accumulated a total of nearly 300 billion fans. The number of works released by our creators and a total number of generated interactions have both increased considerably.
At the end of third quarter, the number of cumulative video uploads on Kuaishou App exceeded 550 billion and during the quarter, our short videos sparked more than four billion interactions on a daily basis, up 40% year-over-year. Meanwhile, strengthened by our supported policies, the commercial value of our creators’ content continued to grow.
Over the past year, more than six million creators have received traffic support on a scale of RMB 100 million and in addition, we have 20 million creators earned revenue every year for three consecutive years.
In July, we hosted our Annual Photosynthetic Creators Conference and going forward, we will continue to upgrade our services, resources, and products for creators. We will also subsidize outstanding creators through attractive incentives and revenue opportunities to maximize the flywheel efforts in the creator ecosystem.
We have also been actively expanding sort video content supply in various verticals. In the third quarter of 2022, we continue to tap into the potential of short plays and explore more diversified themes such as benevolence, a portrait of the professional lives of medical staff, which has ramped in more than 170 million streams since its launch.
Our sports vertical has been growing in its diversity. For example, the collaboration with NBA, we launched a unique IP in September, the Village, Basketball Championship Cup of the Village Basketball Association, which registered 120 million live-streaming viewers and 244 million total streams. By organizing Village Basketball content, we connected gross KOLs with top-tier competition events, promoting basketball in rural Chinese areas.
At variety show vertical, our self-produced generational interactive experience reality show, Let’s go Mom, our users more diverse video companies through a narrative and dissemination format that combines non-video, short video and live-streaming. When the show ended September 25, committed video views on our platform surpassed 524 million, now generating 94.34 million cumulative interactions.
In addition, our ability to constantly optimize and iterate our content algorithms is a key to enhance user experience and satisfaction. In the third quarter, we optimized user retention and long-term content consumption satisfaction rates by moderating users’ long-term interest. We also used reinforced tools, combined with the on-device interaction technology.
Meanwhile, we sought to motivate users to break through their information cocoons and further improve the experience by leveraging methods that foster diverse interest and also promote exploration.
Second, our progress in commercialization at each of our business lines. In the third quarter of 2022, revenue from online marketing services was RMB 11.6 billion, up 6.2% year-over-year. Macroeconomic headwinds compounded by various external factors have challenged the online advertising industry as a whole and we are no exception.
Due to the muted rebound in the advertising market, year-over-year revenue grew from the online marketing services decelerated with third-party advertising particularly impacting in the third quarter. As customers slash their marketing budgets, we sought to unlock users’ commercial intent by constantly improving our product commercialization and utilizing content and user labels.
The users’ commercial intent then feedbacks to our content recommendations, thereby establishing a virtuous cycle of user content and commercial ecosystem. With these efforts, our monthly active advertisers increased by more than 65% year-over-year in the third quarter. We also continue to improve advertising ROI on our platform through algorithm optimizations.
And as such, the advertiser retention rates continued to increase. As our e-commerce business expands, the advertising services that we have provided on native e-commerce merchants have maintained healthy growth momentum. Thanks to our platform’s massive traffic and high conversion efficiency of our closed –loop ecosystem, we encourage advertisers who were leading live-streaming consumption, but below average in short video consumption to increase the short video usage and vice versa.
By doing so, we promoted major advertising merchants, combined usage of short video and live-streaming as a brand advertising. We capitalized on customized promotion projects such as over Older 28 Car Shopping Super Festival and the Blooming Chinese Ingredients Beauty and Skin Care promotion events.
These promotional projects served to explore brand advertising tailored to advertisers’ specific needs and to open more possibilities for advertisers to increase their marketing effectiveness. Our product integration and enhancements advantage in traffic, content and KOL ecosystem were key assets in efforts resonate with service team for various industry verticals, with deeper insights into industry characteristics and more data analytics along the value chain, we aim to meet the precise needs of advertisers in different industries.
We also aim to improve our overall service capabilities and drive higher ROI for advertisers ultimately, boosting our overall commercialization efficiencies. In the third quarter of 2022, our e-commerce business grew at a faster pace than the market and continued to gain market share.
Our e-commerce GMV reached RMB 222.5 billion, up by RMB 26.6 billion year-over-year – 26.6% percent year-over-year. On the supply side, we attracted more merchants by leveraging our traffic advantage, conversion efficiency and our constantly improving promotional policies.
In the third quarter, new merchants joining our platform increased by nearly 80% year-over-year. We also enhanced our merchant empowerment system through strengthened merchant services and governance, which in turn improved the operational capabilities. Meanwhile, more efficient traffic allocation strategies and more precise buyer/seller and product matching allow us to actually increase conversion efficiency and the operational environment of our platform.
As a result, the number of active merchants on our platform grew at a high-double-digit rate year-over-year in the third quarter of 2022.
In addition, we made progress in helping the new merchants with co-starts by establishing a dedicated traffic pool for the startup merchants, which have enhancing efficiency quarter-over-quarter. We also consolidated service provider resources to facilitate rapid merchant growth and sales ramp up.
Furthermore, we have been identifying new efforts and brand e-commerce. We continued to post a distinctive acquired brand to bolster their operational service capability through dedicated and also supported policies providing customers with products and services with a high value experience ratio. Powered by these initiatives, the number of acquired brands grew by double-digit growth over – quarter-over-quarter in the third quarter of 2022, accounting for an increasing loss share of e-commerce GMV.
In addition, we have brought in more well-known brands and teamed up with established brands to launch Super Brand Day during the August 18 brand promotions. Our brand merchants GMV increased by 192% year-over-year. On the consumption side, we are constantly emphasizing the trust-based community advantage to elevate users’ shopping experience with trust as our cornerstone of our e-commerce ecosystem.
We upgrade our user review system to improve feedback collections, monitoring, and handling and more effective by identifying users and scenarios with superb experiences. These allow us to build up the positive and proactive service capabilities, corrugating user mindsets and recognizing of the utmost user protection on our platform.
We also integrated our shop experience, scoring system in the third quarter to help us discover high-coverage merchants with a widened coverage of our user system, including trusted purchase, we effectively improved out the sales service fulfillment on our platform and increased our repeated purchase rate by 1.1 percentage point in the third quarter of 2022.
Furthermore, our e-commerce proposition and also penetration and coverage and conversion deepened further, driven by continuous upgrades in our merchant supply, content, and merchandize user matching.
In the third quarter, we focused on expanding users’ consumption that was beyond our traditional live-stream and to short videos to boost the user activity. Meanwhile, we offered the payer shopping guidance across the different merchandize categories, as well as more refined subsidy processes. Initiatives drove a number of monthly e-commerce paying users to over RMB 100 million in the third quarter along with the continuous expanding our book quarter-over-quarter.
Regarding traffic use and matching, we have also strengthening our public domain traffic efficiency to create a dual-engine model driven by both public and private domains to increase accuracy of merchant users measured by Data Exploration of the user experience. And also thanks to Zapote GBV of the public domain e-commerce live streaming and short video maybe doubled in September compared with that of the June.
In the third quarter of 2022, our live-streaming business discovered – delivered a stronger performance that exceeded our expectation. Our revenue increased by 15.8% year-over-year to RMB 8.95 billion, driven by contributed refinements to our live-streaming operation, we further increased diversity and also entertainment value of our interactive features in live-streaming and fulfill user social needs.
Meanwhile, we’ve got to user life cycle management mechanism to improve lasting paying ratio. In the third quarter of 2022, monthly paying ratio continued to expand year-over-year on average MPUs for the live-streaming rose by 29.3% year-over-year to RMB 59.6 million on acquired apps. And also on the supply side, our collaborative strategy with the talent agencies created to evolve by become more diverse.
Through joint operations and onboarding external streamers, talent agencies that become more deeply involved in our live-streaming ecosystem, increasing the number of monthly active streamers that managed by more than 200% year-over-year in the third quarter empowered by talent agencies, the live-streaming frequency and average daily income of the streamers in joint operations increased by about 10%, relatively preparing the growth in both scale and total income for streamers managed by talent agencies.
In addition, we further expanded the contextualized live-streaming user scenarios such as Kwai Hire, Ideal Housing and Kwai Date providing users with a richer live-streaming content and meeting their service needs in more scenarios.
Finally, an update on our overseas business, building a solid foundation with every penny well spent that remains our deciding principle. Built by our customer adherence to ROI-based growth strategy and disciplined spending, we achieved effective and healthy user growth and our user retention continued to improve in the third quarter of 2022.
And the average time spent per DAU in all these markets remain a high level of over 60 minutes drastically, the key markets that’s been focusing on the Brazil and Middle East and Indonesia. In Brazil, cultivating user mindset through a differentiated content strategy that diversify internal results and initial results to build on this success, we are expanding the number of content verticals to further enrich the content ecosystem as well as enforcing the virtuous cycle between content generation, consumption and creator monetization.
With respect to monetization capabilities, thanks to our commercialization team’s continuous optimization of products and service capabilities and our efforts to promote acquired brands, awareness among the advertisers, our revenue from advertising services grew rapidly. For live-streaming, we have constructed a more comprehensive set of ecosystem infrastructure enabling collaboration with talent agencies to further diversify content supply and enhance the content quality and hosted diverse operating activities across various regions, all of which have driven a continuous increase on live-streaming revenue.
Going forward, we will also actively explore cooperation opportunities for local e-commerce partners. By simultaneously increased revenue and control expenses, we seek to further enhance the operational efficiency of our overseas business and gradually reduce negative impacts on our Group’s overall financial performance.
In conclusion, looking back to our performance, and looking forward, we have and will always uphold and practice our core belief at Kuaishou being customer-obsessed despite the many internal and external challenges faced creating value for creators and to customers at the starting point and end point for everything that we do.
We firmly believe that we started to improve our commercial ecosystem through unremitting efforts. We will undoubtedly create sustainable value for our users, partners, employees and shareholders.
This concludes my prepared remarks. Thank you. Next, our CFO, Mr. Jin Bing will discuss the company’s financial performance.
Jin Bing
[Interpreted] Thank you, Yixiao, and hello, everyone. We will have a closer look at our financial performance for the third quarter of 2022.
Despite the ongoing macro headwinds, we continue to drive healthy traffic and top-line growth while sustaining the upward trend in profitability. Our domestic business delivered operating profit for the second consecutive quarter, which reached RMB 375 million with a quarter-over-quarter increase of nearly three times.
Meanwhile, enhancements to our monetization capabilities in our overseas markets and our ROI-based approach to user acquisition and retention spend narrowed our operating loss margin with our international business.
Our revenues for the third quarter grew by 12.9% year-over-year to RMB 23.1 billion. This increase was mainly driven by revenue growth in our online marketing services, e-commerce business and live-streaming business.
Revenue from online marketing services reached RMB 11.6 billion in the third quarter of 2020, up 6.2% year-over-year, which was largely driven by the growing advertisers on our platform. We are constantly working to improve the effectiveness of our App products and services, as such, drive ROI for advertisers’ partners.
This allow us to achieve positive growth in an uncertain macro environment. In particular, as the e-commerce business on our platform expands, the advantage of our closed-loop system and the conversion efficiency and traffic has become even more evident underpinning the resilience and healthy growth of our online marketing services provided to our e-commerce merchants.
Other services revenue for the third quarter of 2022 increased by 39.4% year-over-year to RMB 2.6 billion, mainly due to the strong growth in e-commerce revenues. Through leveraging our unique trust-based e-commerce models to attract and empower more merchants including both well-known brands and acquired brands and expanding user consumption scenarios beyond traditional live-streaming to short video and more, we gained further market share in e-commerce and our e-commerce GMV increased by 26.6% year-over-year to RMB 222.5 billion.
In the third quarter of 2022, revenue from live-streaming grew by 15.8% year-over-year to RMB 8.9 billion. This was primarily attributed to the continuous improvement in both our live-streaming, content quality and user content management efficiency, which boosted the average live-streaming MPUs by 29.3% year-over-year to RMB 59.6 million.
Our cost of revenues for the third quarter of 2022 increased by 3.7% year-over-year to RMB 12.4 billion, representing 53.7% of our total revenues. The year-over-year increase was mainly due to the increase in revenue sharing costs and relative taxes, which were in line with our revenue growth. We particularly – we partially offset this by optimizing the efficiency of our bandwidth usage and reduction of bandwidth expenses and server custody costs.
Gross profit for the third quarter of 2022 reached RMB 10.7 billion, growing 28.5% year-over-year. Gross profit margin in the third quarter of 2022 was 46.3% improving 4.8 percentage points year-over-year and 1.3 percentage points quarter-over-quarter.
Our year-over-year increase in gross profit margin was primarily a result of further optimization of bandwidth and server efficiency, which drove a decrease in the ratio of bandwidth and depreciation to revenue. The quarter-over-quarter improvement in gross profit margin was mainly due to the reduction in other costs.
Selling and marketing expenses decreased by 17.1% year-over-year to RMB 9.1 billion for the third quarter of 2022 or 39.5% of total revenues. This marks a significant improvement from the prior year period in which sales and marketing expenses were RMB 11 billion or 53.8% of the revenues as we adopted more disciplined and efficient user acquisition retention methods, while sustaining strong traffic growth.
Research and development expenses for the third quarter of 2022 were RMB 3.5 billion, decreased by 16.2% year-over-year, primarily due to the decrease in employee benefit expenses, including the related share-based compensation expenses.
Administrative expenses for the third quarter of 2022 were RMB 1.1 billion, increasing by 16% year-over-year, primarily due to the increase in employee benefit expenses, including share-based compensation expenses.
Our operating loss for the third quarter of 2022 continued to narrow, improving to RMB 2.6 billion from RMB 7.4 billion in the third quarter of 2021 and RMB 3.1 billion in the second quarter of 2022. As a result, our operating margin expanded by 24.8 percentage points year-over-year and 2.8 percentage points quarter-over-quarter, improving from negative 36.1% in the third quarter of 2021 and a negative 14% in the second quarter of 2022 to negative 11.3% in the current reporting quarter.
Adjusted net loss for the third quarter of 2022 was RMB 0.67 billion, narrowing substantially from RMB 1.3 billion in the second quarter of 2022 and RMB 4.6 billion in the third quarter of 2021. This resulted in the adjusted net margin improvement from negative 22.5% in the third quarter of 2021 and negative 6% in the second quarter of 2022 to negative 2.9% in the third quarter of 2022, representing an increase of 19.6 percentage points year-over-year and 3.1 percentage points quarter-over-quarter.
We maintain a healthy balance sheet with cash and cash equivalents, time deposits, restricted cash and wealth management products of RMB 43.5 billion as of September 30th of 2022.
In conclusion, we will further monetize our massive user traffic that is continuing to grow by promoting a tighter integration between our user content and commercial ecosystems and providing expanded opportunities for advertisers and merchants.
We will also continue to focus on the cost control and operating efficiency to advance our domestic businesses operating profit and close the gap on our loss in the overseas businesses which will further enhance our resilience and brings us closer to our goal of long-term sustainable profitability.
This concludes our prepared remarks. We will now open for questions. Operator, please go ahead.
Question-And-Answer Session
Operator
[Foreign Language] [Operator Instructions]
The first question comes from Kenneth Fong from Credit Suisse. Thank you and please ask your question.
Kenneth Fong
[Foreign Language] [Interpreted]
Thank you management for taking my questions and congrats on the solid quarter. I have a question on advertising monetization. What has management seen so far from advertisers in form of the budget and sentiment? How should we think about the advertising market outlook for the next six to 12 months amid the challenging macro, any active measures that we are doing? Thank you.
Jin Bing
[Foreign Language] [Interpreted]
Thank you for your question. As we move through the second half of the year, the recovery in the advertising market has been relatively weak. According to the third-party forecast, online advertising growth rate will be around mid-single-digit in 2022. The declaration in the year-over-year revenue growth of our online marketing services in the third quarter reflected this dynamic.
But as I mentioned previously, we will better respond to the market environment and make breakthroughs by improving our commercial products and infrastructure capabilities, as well as refining our management and services based on industry verticals.
Cheng Yixiao
[Foreign Language] [Interpreted]
Advertising from our e-commerce merchants maintained healthy growth due to our traffic advantage and the strong conversion rate in our closed-loop ecosystem. We have continuously encouraged native advertisers to adopt short video plus live-streaming formats for merchandize promotions.
In addition, we have upgraded our product strategy and optimized our advertising performance by iterating our recommendation algorithms and driving traffic acquisition through short videos, among other strategies.
[Foreign Language] [Interpreted]
In terms of advertising services for external advertisers, the key industries in which we used to focus such as online services, e-commerce and games were all impacted by the macroeconomic environment in the third quarter. Since the beginning of this year, many customers in these industries have been controlling costs and improving efficiency and as a result, their ad budgets declined fairly significantly in the third quarter.
At the same time, industries such as FMCG, food & beverage and transportation have recovered more quickly on a relative basis. And these industries, we will continue to intensify our efforts however, given the industry-wide slowdown in growth, we believe that we can only gain more opportunities and budget allocations in this foreseeable future when the market improves and consumption recovers by continuing to cultivate our strength from within and solidifying our underlying commercialization capabilities.
[Foreign Language] [Interpreted]
Specifically, our initiatives are as following: first, we have continued to promote the growth of our advertiser base and attract local customers through location-based traffic support and customer acquisition channels.
Second, we have constantly optimized our ad products, performance and infrastructure. Our initiatives include strengthening our user commercial label systems, improving our algorithm model and enhancing the accuracy of our ad recommendations, all aimed at enhancing conversion efficiency.
Third, we will continue to expand our traffic resources and promote native advertising for external advertisers. Native advertising can attract more traffic to external advertisers, which will in turn, drive an increase in both exposure and ECPM.
We will also continue to optimize our traffic strategy to improve our sales funnel conversion rate, as well as our ad exposure and performance. For example, we changed the order of users’ browsing contacts to re-caliberize the advertising exposure, click-through and the conversion forecasts, thereby improving our model’s accuracy and conversion efficiency.
We also improved the funnel conversion efficiency through leveraging our closed-loop data and advantage in user experience.
[Foreign Language] [Interpreted]
In short, we continue to monitor the recovery pace of the overall online market or I mean, advertising market and also hold a strong confidence in the long-term market development. No matter how the short-term market fluctuates, through honoring our team and strengthening our foundational and fundamental capabilities, we firmly believe that our share in online advertising market will continue to increase in the long run.
Operator
[Foreign Language] [Interpreted]
The next question will come from the line of Lincoln Kong of Goldman Sachs. Please proceed.
Lincoln Kong
[Foreign Language] [Interpreted]
My question is about the e-commerce. So I want to understand more about the third quarter trend in terms of monthly active customer, purchase frequency and average ticket price. As we enter the fourth quarter, how is the singles day performance and any change in terms of the annual GMV targets? Can management also share the rationale for opening our Taobao JD external links and what’s the implication for our closed-loop e-commerce ecosystem? Thank you.
Cheng Yixiao
[Foreign Language] [Interpreted]
Thanks for your question. First, regarding our e-commerce data on the consumption side in the third quarter, the number of monthly e-commerce paying users surpassed the 100 million milestone with a paying user penetration rate of over 15% thereby sustaining year-over-year and quarter-over-quarter growth momentum.
The main growth drivers were; first, a focus on increasing multi-scenario penetration by expanding short video scenarios beyond traditional live-streaming and strengthening our infrastructure, such as Kwai Shop and the Guess What You Like feature to boost user activity.
Second, implementing a more precise and granular subsidy strategy; and third, continuing to reinforce our energy channel strategy for active e-commerce paying users, enhancing the user review and feedback system, optimizing user experience and actively identifying users with subpar experience or targeted reactivation and user care.
[Foreign Language] [Interpreted]
Our users’ monthly order frequency maintained an upward trend on the quarter-over-quarter basis and average order value on our platform continued to grow both year-over-year and quarter-over-quarter. Although users’ purchasing power has been somewhat impacted by short-term weaknesses due to the COVID-19 pandemic and the macro economy, users shopping mindset has been gradually strengthening.
This improvement has been driven by our effort to continuously enrich supply, cultivate Kwai brand, strengthen our e-commerce ecosystem, further optimize mention and conversion efficiency and continuously convert users to high-quality buyers.
[Foreign Language] [Interpreted]
Second, on our double level performance, during the Kuaishou 116 E-Commerce Festival, we continue to unlock the potential of short video e-commerce. We increased short video e-commerce orders by over 500%, the number of buyers buying more than 40% and the number of orders resulting from searches by more than 70%, all compared with the same period last year.
In addition, we have been accelerating the growth of Kwai brand merchants and improving their service capabilities through policy and traffic support. Kwai brands produced outstanding performance with year-over-year GMV growth of more than 80% during the 116 Festival.
Furthermore, brands are building a strong foundation on our platform for their long-term operations through in-store live-streaming. This will serve to effectively attract and retain private domain traffic.
During this year’s 116 Super Brand Day Event, many brands fostered deep connections with users through various marketing strategies such as creative gameplay in live-streaming rooms, short video recommendations and customized competitions. GMV generated by brand self-operated live-streaming increased by 238% quarter-over-quarter.
[Foreign Language] [Interpreted]
And we recently resumed affiliated links or external links to Taobao and JD. This main – the main backdrop for this decision is that as our e-commerce ecosystem matures, we hope to further enrich its supply and fulfill our users’ diverse consumption demands during the e-commerce promotion season by enabling these links.
In the short-term, the external links’ contribution to overall GMV will be very limited and it will not be the primary driver for GMV growth. In the long run, we will make further evaluations based on the users’ experiences and maintain flexibility with respect to future cooperation.
Operator
Thank you. [Foreign Language] [Interpreted]
The next question comes from the line of Alex Poon of Morgan Stanley. Please proceed.
Alex Poon
[Foreign Language] [Interpreted]
My question is regarding our financial margin performance. Can management share with us our progress on cost efficiency so far this year? And whether we will continue to proceed these efforts into next year? And the time table for Group breakeven for the overall Group? Thanks very much.
Jin Bing
[Foreign Language] [Interpreted]
Thank you for your question. Looking back on the first nine months of this year, our cost reductions and efficiency enhancements produced positive results. Our domestic business became profitable at the operational level two quarters ahead of schedule with constantly improving operating profit sequentially. This was primarily a result of our optimized cost structure and improved operational efficiency.
Meanwhile, revenue from our overseas business grew steadily and its operating loss narrowed significantly year-over-year.
As Yixiao discussed, we recently made organizational and personnel adjustments. I believe the Commercial Ecosystem Committee’s leadership will further facilitate ecosystem developments and integration within our monetization avenues, including e-commerce, online marketing and live-streaming. This will enhance our businesses resource utilization efficiency allowing us to better match our spending with various businesses’ development needs.
As to the timetable for us to reach profitable at the Group level, we are in the middle of making our 2023 annual budgets. We will have more details to share next March when we release our fourth quarter and full year results.
Operator
Thank you. [Foreign Language] The next question will come from Thomas Chong of Jefferies. Please proceed.
Thomas Chong
[Foreign Language] [Interpreted]
Thanks management for taking my questions. My question is about our new business initiatives, for example, online equipment and local service strategies. Thank you.
Cheng Yixiao
[Foreign Language] [Interpreted]
Thanks for the question. Having upgraded our local services unit to an independent business department, we are focusing on our following areas for its development: first of all, we are still in a validation phase for this business following our recent organizational adjustments.
Second, we will improve our local services operational efficiency through continuously optimizing our transaction progress – or process, our recommendation algorithms and our users’ transaction experience.
Third, we will focus on regions with rich merchant resources where Kuaishou already has an advantage and where we can further satisfy users’ needs. In short, we will build local services and VP cities.
Fourth, we will tightly manage the magnitude of our investments. Currently, our investments for local services primarily include personnel costs, user subsidies in the early stage of local services development and revenue sharing with service providers. In the future, we plan to continuously and dynamically adjust the investment scale for local services according to its business progress.
[Foreign Language] [Interpreted]
We upgraded Kwai Recruitment to Kwai Hire in the third quarter, aiming to enhance its brand influence among users and merchants. We also enriched diversity of our job postings, improved our applicant resume quality and sought to better match applicants and positions, raising the number of active positions for which users submitted resumes by over 30% quarter-over-quarter.
In addition to manufacturing workers, active positions in the catering services, housekeeping and cleaning, and supermarket and retail categories grew by more than 70% each in the third quarter versus the second quarter.
Job promotions via short video also achieved good results in the third quarter with the percentage of resumes submitted through the short video channel rising to about one-third in the third quarter from about 10% in the second quarter.
As for monetization, since we are still in the process of building our data infrastructure, refining our content and validating our business model, we have yet to engage in large-scale monetization.
[Foreign Language] [Interpreted]
In summary, short video and live streaming are still in a higher dimensional position in a content and social networking field of the overall Internet industry. They have very strong penetration capability and could generate more diverse social interactions and scalable user case scenarios.
In addition to local services and recruitment services, we will continue to provide users with richer short videos and live-streaming contents by exploring platforms such as real estate brokerage services and dating services to fulfill users’ needs in a more different types of scenarios.
Operator
[Foreign Language]
Cheng Yixiao
Thank you, operator. [Foreign Language] [Interpreted]
Thank you once again for joining us today. If you do have any further questions, please contact our Capital Market and Investor Relations team at any time. Thank you.
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