Kuaishou Technology

HKEX:1024

Earnings Call Transcript 2023-Q2

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology Second Quarter and Interim 2023 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for the management's prepared remarks. [Operator Instructions]. The English line will be in a listen-only mode.

And now I will turn the call over to Mr. Matthew Zhao, VP of Capital Markets and Investor Relations at Kuaishou Technology.

[Matthew Zhao, VP of Capital Markets, Investor Relations]

Thank you, operator. Good evening and good morning to everyone. Welcome to our second quarter and interim 2023 financial results conference call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Executive Director, and CEO; and Mr. Jin Bing, Chief Financial Officer.

Before we start, we would like to remind you 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 this discussion. The company does not undertake any obligation to update any forward-looking information, except as required by law. For any information that is important and forward-looking statements, please refer to the public information and also the information probably on the IR website as of the end of June of 2023.

During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. 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 three and six months ended June 30, 2023, issued earlier today.

For today's call management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. And also, otherwise required and stated all the currencies in this call is Renminbi.

Please turn the call over to Yixiao.

[Cheng Yixiao]

Hello everyone. Welcome to Kuaishou second quarter 2023 earnings conference call. For the second quarter of 2023, we're proud to announce another key profitability milestone brought upon the positive adjusted net profit we attained in the first quarter. We achieved our first ever group level net profit of price since our listing total in RMB1.48 billion, while adjusted net profit contribute -- continue to rose quarter-by-quarter reaching RMB2.69 billion. These reflects our ongoing efforts to scale our vibrant user and content ecosystem, optimize our monetization models and enhance our operating efficiency.

With the average DAUs and MAUs on a Kuaishou app hitting another set of record highs in the second quarter. Our total revenue grew by 27.9% year-over-year to RMB27.7 billion. This growth highlights the effectiveness of our thriving commercialization ecosystem. Revenues from e-commerce, online marketing, and live broadcasting also experienced strong growth, outperforming the market even outside the peak seasons.

Furthermore, upper sea of new business avenues continues in the second quarter. We made rapid progress in our overseas and local service businesses through exploring brand-new scenarios and products we aim to offer users in-house content consumption experiences, and high-quality services.

Next, I'll discuss our key business developments in the second quarter. First, I'd like to talk about the user growth and ecosystem construction. In the second quarter of 2023, average DAUs and MAUs on a Kuaishou app reaching 376 million and 673.3 million representing year-over-year increases of 8.3% and 14.8% respectively. Taking the scale of our user community to a new record high, every daily time span per DAU on a Kuaishou app was 117.2 minutes.

Despite the slight year-over-year decreased average daily time span per DAU due to the shifting user time allocation online and offline and post pandemic. Our total user time span continues to grow year-over-year, mainly driven by the rapid DAU growth.

This reinforces the fact that short video apps remain one of the most compelling and captivating mobile products in the post pandemic era. To propel these improvements, we are fine our user growth strategies during the second quarter of 2023. In addition to lowering our user acquisition retention costs on both quarter-over-quarter and year-over-year basis through technological and operation means.

We also leverage a high-quality original content for user growth and upgraded one stop smart targeting platform while improving our content production efficient and quality through AI capabilities such as multimedia understanding. This in turn, helped to increase our user acquisition efficiency. We are also actively exploring new channels for user growth.

In the second quarter of 2023, we approved to the feasibility of user growth through promotion related content placement by acquiring new users through advertisements related e-commerce and local services. We have always been committed to building an inclusive, highly interactive and engaged community for users by of second quarter of 2023 pair of mutual followers and Kuaishou App exceeded 31.1 billion community, representing growth of nearly 50% year over year industry. In the second quarter of 2023, average daily interactions including likes, comments, and reposts on the Kuaishou App reached 8 billion.

With respect to content operations, we constantly operate events in the ways that we appeal to public and create native sports programs that public enjoys. The focus on sports categories with the solid existing fan base, we support a group of influential sports -- and create original sports IPs with quite characteristics.

One example was Kuaishou Village Basketball Association in June this year, while a drafted 300 million total live streaming viewers and 2.38 million peak co current viewers. In the second quarter, we also introduced several Buster Summary Entertainment IP such as Summer Star Wish Party Entertainment Havens and Summer Short Play series. These IPs cover diverse content format include celebrity themes, variety shows in short place in edition entertainment industry celebrity sites. J Joe actively engaged with fans on platform provides users with rich content to consume and enjoyable social experiences.

For our search business, we continue to improve user satisfaction and retention through our optimized search experience and personalized strategy. Meanwhile, we'll continue to increase the penetration rate of search users through small recommendations with word generation based on large language models. In the second quarter of 2023, quite sure searches average monthly users exceeded 440 million, and the number of average daily searches increased by over 30% year over year.

Meanwhile, benefiting from our growing search traffic product upgrades and improved matching efficiency brought by advertising algorithm iterations, we continue to make progress in a commercialization of our search function, evidenced by doubling of search and advertising revenue over year industry in the second quarter when turning testing our smart question answer product of quite search improvement intelligence of searches that we leverage the -- capabilities of large language models.

Second, online marketing services. As advertising market widely recovered, we further increased the monetization efficiency of our online marketing services by enhancing our product capabilities and infrastructure market in the value of high traffic. In the second quarter of 2023, our revenue from online marketing services reached RMB14.3 billion growing by 30.4% year over year, outperforming the market and continued 51.7% upright total revenue.

Meanwhile, the number of active advertisers on our platform almost doubled in the second quarter of 2023 compared with the same period of last year. Advertising services provided by our native e-commerce merchants maintained robust growth momentum continued to outpace GMV growth in the second quarter 2023.

This was partially driven by increased amount of for ad placement during the e-commerce promotional season, as was the merchant stronger willingness to place that our platform as a result of higher ROI driven by strengthening native e-commerce and advertising product capabilities. We introduced our platform-wide advertising product upgrade of the storewide ROI aiming to help enable their prices relying omni-channel operation through the alignment of the pricing, e-commerce, and travel distribution.

This also allowed advertisers to more scientific aggressively review and evaluate their overall business performance on our platform. In the second quarter of 2023, we launched advertising placement at scale for optimized processes, mechanism tailored for brand merchants and clients achieving primary progress in driving our client GMV growth.

Furthermore, to enhance our product efficiency through a high level of intelligence with our smarter hosting service for small medium-sized e-commerce merchants based on platform automatic placement abilities. This increases convenience by added placement for advertising, lowering their labor costs, while improving their placement – ROI.

During year-over-year and quarter-on-quarter increases and among the small medium-sized e-commerce merchants attracting terms, acquisition in terms of building e-commerce, related advertising ecosystem, we develop a tiered approach for distribution mechanism and support policies, and as a product availability is intended for structure optimizations, targeting emerging different stages of operations with diversity, by line development, of advertising and e-commerce services, these initiatives also fostering the healthy growth and prosperity across the native e-commerce advertising ecosystem.

Our internal -- our external advisor services show clear signs of recovery and company recorded year-over-year growth in the second quarter of 2023 with quarter-over-quarter growth from industry such e-commerce platform, information service, and healthcare, as well as education and training, with a steady fast commitment to improving our advertising performances, we continue to fortify our product capabilities.

First, we improve the quality of our advertiser content, especially through native advertising, which has, considerably higher click through rates and user conversion rates than the wholesale advertising into higher ROI for advertisers, that's what I think enhance user experience.

And resulting in second quarter of 2023, our native advertising penetration rate rose continuously and constantly quarter-over-quarter. Second, we launched optimized spending model, focusing on optimized conversion through deep links and retention metrics further down the funnel, for some industries as a result ad spending from these industries gradually increase.

Our revenue from brand advertising increased by over 30% year-over-year in the second quarter of 2023. As the third largest app in China partial brand promotion value has been increasing recognition from a growing number of brand advertisers as we steady expand our brand advertising resources, optimize our branded product capabilities, further iterate our product development road map, and increased demand from brand advertisers during promotional events.

In June 2023, we launched a Quite Show Index, platform for our brand advertisers, providing them with willing sites into the ecosystems on an end created. This platform, more for them effective strategic guidance ranging from pre-placement analysis to assessment upon-and post-placement based on multi-dimensional data. This platform seems to help brand advertisers continuously improve their quite brand value in a quiet show.

In addition, we continue to reinforce the brand advertising infrastructure, facilitating precise user asset accumulation and construction of a complete brand marketing matrix to provide advertisers with scenarios specific industrial solutions. With this, we aim to empower brands to upgrade on quiet show effectively on a longer horizon.

Third, our e-commerce message. In the second quarter of 2023, we made solid progress in our e-commerce business groups in a generic effect beating the supply-demand infrastructure along with the major promotions. As a result, our GMV increased by 38.9% year-over-year to reach RMB265.5 billion, far outpacing the industry and further boosting our market share.

In terms of infrastructure, we comprehensively popularized and applied a scoring system for merchandise, merchant experience, and QR reputation. This is the application of such indicators for identifying high-quality merchant service and content help to funnel the traffic on a platform to premium merchants thereby continuously enhancing supply quality.

On this basis, we synergize user content consumption behavior via algorithm, refine and enrich the structures to merchandise information, optimize algorithm models to improve real-time interest, match, and accuracy and enhance the conversion efficiency of the e-commerce content through a more logical and intelligent practice sorting mechanisms.

On supply side, we are delighted to see an increased number of merchants and brands inquired Quite Show as one of the main home bases. During the second quarter of 2023, we focus our efforts on 10 major industry, including apparel, 3C and other categories. We amplifying our platforms influenced through, activities such as inviting merchants in One Hundred cities and merchandise selection meetings while building benchmarking cases for brand new merchants. As a result, we achieved high double-digit year-over-year growth in the number of newly onboarded the business merchants during the second quarter.

Regarding merchant empowerment, we offer the preferential traffic allocation and other supportive policies to our targeted high-potential merchants, while improving the merchant training systems altogether driving a high double-digit year-over-year growth in GMV for small medium-sized merchants reported quarter. In the second quarter, while brand e-commerce considered deliver impressive results GMV from brands including quite brands, continue to increase quarter-over-quarter account for 30% for total GMV for e-commerce, brands south operated livestreaming continues to gain momentum and branded GMV increased by about 80% year-over-year.

That course actually go to several factors, but our promotions of track brands have been progressing smoothly, leveraging leverage quality of the platform influence, and also the deep insights for user's needs to implement target promotions on our onboarding brands, leading to our point life and year-over-year increase in number of newly added brands in the second quarter of 2023, second operation front, we achieved a major breakthrough in the stream initiative.

Specifically, we upgrade our traffic strategy in the second quarter, empowering the more merchants to achieve from a traffic. We also leveraged a Kuaishou KOL ecosystem, unique advantages to our brand and identify consumer, the various operating stages, including during the initial operations and following the launch of new products, thereby enhancing via conversion efficiency. For example, well-known out branded brand experienced a 30-foot increase in average monthly GMV office, self-operated live streaming, thanks to support of our streaming ship, which is significantly growth further promote prompter to scale up the advertising placement on a platform by of magnitude and part stream initiative.

KOLs have been gaining the access to a broader selection of high-quality products for distribution by efficient matching products and platform will continue to improve the supply quality prior to KOLs participation. The stream shift will be corresponding traffic support.

This falls by virtuous cycle of the vitreous cycle on platform KOLs and brand merchants resulting the continuing increase of brand attention investment on platform. In addition to a stream initiative, we launched a traffic support, a plan for brands that are co-star station on how to second the -- itself operate livestream capabilities and content quality to daily marketing and promotion events, helping them to explore the distinctive develop result.

Number of the branded merchants with the scale exceeding RMB100 million increased by 90%. During the June 18th shopping festiva, a number of major brands achieved closed-loop conversion on making the recommendations and funneling traffic through show video and the transaction to transaction via livestreaming.

Furthermore, they innovate the marketing content and collaborated with KOLs for distributed, but to create a blockbuster merchant increasing to 200% year-over-year growth and branded value during the period and further user asset accumulation, laying a solid foundation for sustainable operations. On the demand side, the number of monthly active paying users will exceed 110 million in the second quarter, remain the main driver for GMV growth as their penetration rate rose to high teens.

The solid performance with primary attributable to the more refined approach of the tier user operational platform, as well as the smart subsidies than the product future iterations for expand the premium paying users consumption price and increase the sickness, as well operating our supply with our users of better products and services while enhancing their experience, both average order price and monthly purchase frequency achieve year-over-year growth in the second quarter of 2023.

In the second quarter, we continue to make efforts in shelf-based realm of the complement content eCommerce and better meet the intent driven shopping needs of highly active paying users. We achieved a good or progress by promoting a new shopping mall by entering the product on quite a brand landing page to diversify the supplier merchandise cost and exploring the cost situation with content. Additionally, we further optimize our product search function to better identify the intention through algorithm. We improve the product relevance of services are leading to 90% year-over-year growth in GMV in second quarter.

Next, regarding our livestreaming business. In the second quarter of 2023, livestream revenue grew by 16.4% year-over-year to approximately RMB10 billion as we achieved double-digit year-over-year growth in monthly ARPPU. This increase will attribute to our content network in enriching our live streaming offerings, optimizing the live streaming ecosystem, exploring user preferences and needs. On the supply side, we further enhanced the professionalism of live streamers by fostering close collaborations with talent agencies. We implemented differentiated policies to cater to talent agencies diverse operating models, offering the more intensive to new and small side agencies and empowers them to enhance their operational value.

In the second quarter of 2023, the monthly number of tenant agencies, we partner with a group by over 40% year over year, while the number of active streamers managed by agencies increased by over 70% year over year reaching to record rapid high in terms of penetration of our percentage of our total active streamers, we will continue our policy support for high quality content, providing high quality talent agencies, while with the greater flexibility and assistance in nurturing streamers to empower both talent agencies and streamers to achieve operational growth.

As we place the significant emphasis on fostering a healthy and sustainable live stream and ecosystem, we remain dedicated on investing in popular content of verticals and nurturing the streamers, principally driven by our pursuit of high-quality content.

For example, in the traditional Chinese cultural vertical, we identify promising streamers by factors such as content quality, growth potential follower base and revenue generating capabilities and adjusted traffic support to the content vertical accordingly. We also increased traditional cultural content in the overall distribution on platform. Furthermore, we actively developed a more interactive live streaming tools to similar user engagement, incubating the fresh categories that combine interactive activities and with live streaming.

Furthermore, our live streaming plus services empowering the traditional industries also continues to progress. A benchmark case of this -- exploration was Kwai Hire, which experienced a 290% year over year increase in daily average resume submissions during second quarter of 2023 with daily average number of users submitting resumes, also more than double year-over-year. Moreover, by the end of June 23, ideal housing expanded its reach in over 90 different cities nationwide achieving commission growth transaction value of more than RMB10 billion in second quarter of 2023.

Also, in second quarter of 2023, the data average views are quite big. Live streaming reached over 25 million showing a steady penetration increase finding in terms of overseas business progress. In the second quarter of 2023, we further deepen up the presence and assets in Kuaishou market, find our content ecosystem for creators, refining monetization strategies, and continuously optimizing operation efficiency here, use and user time span and core overseas markets when issue grow year-over-year. Total revenue of growth overseas business reached a RMB447 million in second quarter 2023 recording year over year growth for over 300%.

Meanwhile, we remain committed to cost reduction efficiency improvement leading to a 51.4% year-over-year, decrease in overall operating loss of services in second quarter 2023, which also further narrow quarter by quarter.

On the advertising front, we focus on key advertisers’ industries, improving product features and optimize their performance, while in enhancing product infrastructure and expanding brand advertising resources by stressing low corporation capabilities. Moreover, right, for new monetization models, we aim to boost our traffic monetization efficiency and drive revenue multiplication.

As for live streaming services, we maintain, our efforts in expanding collaboration with tenant agencies, enriching content supply and offering enhanced interactive experiences hated by the introduction of new monetization features and activities. Our revenue generation efficiency also improves along with the optimization of live streaming, traffic distribution as we pay ratio and a core region constantly experience continued growth.

Looking ahead, we will remain committed to building a vibrant community with a fair inclusive traffic distribution mechanism as the foundation. We will also further develop online marketing, e-commerce and live streaming businesses by threatening infrastructure technologies to better engage our users and business partners, while capturing incremental growth opportunities with new initiatives such as local services.

With these advancements, alongside the tremendous trap and deeply embedded trust across our ecosystem, we are confident that we will continue to expand our business with brand awareness across the complementary business segment. Meanwhile, with a key focus on operational excellence, we look forward to further our goal of sustainable development. This concludes my prepared remarks. Thank you.

And next, our CFO, Mr. Jin Bing, will discuss the company's financial performance for the second quarter of 2023.

[Jin Bing, Chief Financial Officer]

Thank you, Yixiao, and hello, everyone. As Yixiao mentioned in the beginning, we made another profitability breakthrough during the second quarter of 2023, achieving our first quarterly IFRS net profit of RMB1.48 billion at the Group level. Our adjusted net profit continued to rise quarter-over-quarter reaching RMB2.69 billion.

This progress was driven by the healthy and continuous expansion of our ecosystem, our reinforced monetizing capabilities across our business line, our unremitting efforts to strengthen our operation efficiency. Thanks to our continuous refined user experience and community operations, as well as premium content and services supported by our constantly iterated infrastructure construction and algorithm, our user community continues to flourish during the second quarter, evidenced by record highs in average DAUs and average MAUs.

We also strive to unlock the potential of high-quality, traffic and create additional value for users merchandise, as well focusing on business plan that extends management and sustainable development with quality improvement and efficiency enhancements. And as a result, we delivered a turnaround of our Group's bottom-line.

Now, let's have a look, closer look at the financial performance for the second quarter of 2023. In the second quarter of 2023, our Group's revenues grew by 27.9% year-over-year to RMB27.7 billion, accelerating 19.7% in first quarter of 2023. This acceleration was driven by significantly higher quarter-over-quarter growth rate in our online marketing services and other services, in particular, our e-commerce business.

Revenue from our online marketing services increased by 30.4% year-over-year to RMB14.3 billion in the second quarter. This growth was driven by our merchants, continuous investments in user assets, as well as the robust growth momentum of advertising services via our native e-commerce merchants, which continued to outpace GMV growth.

These were propelled by e-commerce promotions during second quarter. This was also driven by efforts of further strengthening our data infrastructure, optimize the product capabilities leading to a resumption of positive year-over-year growth of our external advertised service during the quarter. Our other services revenues reached RMB3.4 billion in the second quarter, representing a robust growth of 61.4% year-over-year growth, primarily build on our e-commerce business strong growth momentum with e-commerce GMV or up nearly 40% year-over-year.

During the quarter, we continue to optimize our e-commerce algorithm operating strategy, focusing on enhancing infrastructure and then providing our platform share of voice while empowering brands and merchants with our adverse trends and e-commerce capabilities. As a result, in most number of active merchants and monthly active buyers increased year-over-year.

Revenue from live streaming business grew by 16.4% year-over-year to RMB10 billion in the second quarter. This increase were primarily propelled by our sustained year-over-year monthly ARPPU growth as we remain committed to exploring user needs and making continuous experience by enriching content offerings and optimizing our live streaming ecosystem. For the second quarter of 2023, our cost of revenues increased by 15.8% year-over-year to RMB13.8 billion, representing 49.8% total revenue. This increase was due to the increase in revenue sharing costs and related taxes, in line with our revenue growth.

Gross profit for the second quarter of 2023 grew by 42.6% year-over-year and 19% quarter-over-quarter to RMB13.9 billion. Gross profit margin reached 50.2% this quarter, expanding 5.2 percentage points, 3.8 percentage points year-over-year and quarter-over-quarter, respectively, benefiting from our top-line trend of effective cost control measures.

Moving to expenses. Selling and marketing expenses for the second quarter of 2023 decreased by 1.4% year-over-year to RMB8.6 billion, accounting for 31.1% of total revenues in this quarter down from 48.4% in the second quarter of 2022, largely due to our more efficient and disciplined spending of user acquisition on retention. Research and development expenses were RMB3.2 billion for the second quarter, decreasing by 3.9% year-over-year, and accounting for 11.4% of total revenues in this quarter, dropping from 15.1% in the second quarter of 2022, primarily due to the decrease in employee benefit expenses, including related share-based compensation expenses.

Administrative expenses decreased by 1.1% year-over-year to RMB900 million for the second quarter, accounting for 3.4% of total revenues down from 4.4% in the second quarter of 2022. In the second quarter of 2023, we achieved a net profit of RMB1.5 billion at the group level, marking our group's first IFRS net profit since listing and a single turnaround from a net loss of RMB900 million in the first quarter of 2023, and a net loss of RMB3.2 billion in the second quarter of 2022.

Our balance sheet remains strong with cash and cash equivalent time deposits, restricted cash and wealth management products of 50.4 -- RMB 50.5 billion as of June 30th, 2023. Owing to our enhanced monetization capabilities and working capital management efficiency, we generated a positive operating net cash flow of RMB6.4 billion for the second quarter of 2023.

In conclusion, our trust-based ecosystem vibrant development and our sustainably improve the profitability demonstrated effectiveness of our business strategies. Going forward, we will continue to enhance our platforms, appeal to users, advertisers, and merchants by honoring our infrastructure, offering premium content optimizing user experience for leveraging our enhanced for suite of online marketing and e-commerce capabilities to empower advertisers and merchants.

Meanwhile, we will remain focused on bolstering our monetization efficiency and operation efficiency. We are confident that these measures will drive further operation efficiency enhancements and reinforce our competitive market positions for the rest of 2023 and years to come. This concludes our prepared remarks, and now we open for questions.

Operator, please go ahead.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from Lincoln Kong of Goldman Sachs.

[Lincoln Kong, Goldman Sachs]

Thank you for taking my question. So, congrats on the very strong second-quarter result. So, my question is about the e-commerce business. We have seen the second quarter, a very strong GMV and revenue growth. How should we think about the second half of the e-commerce outlook, especially good management elaborate a bit on the shelf-based e-commerce or shopping more is development and progress? Thank you.

[Cheng Yixiao]

Thanks for your question. Our shopping mall has attracted broad attention as we emphasize to our merchant at this year's Kuaishou e-commerce gravity conference shelf-based e-commerce is an expansion of our content and an important aspect of Christ's omni-domain e-commerce business strategy, although the more is still in the testing and ramp-up stage, shelf-based GMV still achieved high double-digit year over year growth in the second quarter.

Specifically, search has always been a critical component of our shelf-based e-commerce business. As Kuaishou user's e-commerce mindset matures, their intent-driven shopping needs can be better satisfied through the search function. In the first half of this year, we further optimized our e-commerce infrastructure to empower the search function.

First, we optimized the landing page display for e-commerce content by strengthening the post-view search feature and adding more entry points. During the promotion period in the second quarter, we also increased the exposure of e-commerce-related keywords and enhanced search retrievals, which drove a constantly higher share of e-commerce search users as a proportion of overall search users. Meanwhile, we strengthen the search intent recognition, optimize merchandise display, and improve end-to-end purchase part efficiency.

In the second quarter, search GMV maintains rapid growth increasing by 90% year over year. In the second half of the year, we will continue to improve the accuracy of intent recognition and relevance of display products aiming to unlock more demand and strengthen the sales conversion and strengthening the sales conversion through more accurate merchant and more refined operations.

In terms of stores, we will focus on content shelf sales conversion improvements and mindshare building. To that end, we will strive to capitalize on how many domain traffic, while optimizing user experience through trust-building improved store decoration, and on-shop products. In the second quarter, stores continue to contribute to the increase in the shop-based GMV. In the third quarter, we will further optimize the store infrastructure and traffic distribution mechanism and foster user demand through various channels.

In the second quarter, we also made good progress in our shopping mall. Notably, we promoted merchandise cards on the new shopping mall interface section of buyers' home pages. This in addition to our construction and authorization of merchandise scores has deepened our understanding of products and the laid foundation for shelf-based e-commerce.

On the supply side, merchandising infrastructure such as on-shop items in stores, merchandising information optimization, and improved playback continues to empower the shopping mall. In terms of resource aggregation, we have seen that this year, more and more merchants have chosen shelf-based e-commerce operations as their main focus during the CoStar stage, and the shopping mall's penetration, by means of potential need to be further tapped. In the second half of the year, we will implement the grayscale testing of the shopping mall's primary entrance and utilize the test results along with user feedback to continuously optimize our shopping mall.

In the longer term, we will integrate shelf-based e-commerce with live streaming and capitalize on repeat purchases and other strong shopping mentalities from the shopping more features and other shelf-based fields, while strengthening the key merchandise operations and marketing capabilities to make the shelf-based e-commerce a new growth engine for the only domain operations of Kwai Shop e-commerce.

[Matthew Zhao, VP of Capital Markets, Investor Relations]

Thank you, Operator. Next question, please.

[Operator]

Your next question comes from Kenneth Fong, Credit Suisse.

[Kenneth Fong, Credit Suisse]

Thank you, management for taking my questions, and congrats on the very strong set of results. As the overall traffic growth gradually slow. What is the future growth driver for our platform monetization going forward? Can management also share with us, what we have seen in external ads performance and the key opportunities for the second half? Thank you.

[Cheng Yixiao]

Thank you for your questions. From the traffic point of view, either from the total user time span or the total number of video views, each scene is sufficient at present. This -- the primary driver of future monetization growth mainly comes from the ad load upside potential as well as the CPM improvement.

Looking back at the past two years, our ad load has been steadily improving at a controllable pace under the premise of a limited negative impact on the user experience. First, on the product and research side, we continue to explore traffic education and its sales mechanisms aiming to improve ad load within high-value users and enhanced advertising matching. Second, through native advertising, is one of the key projects this year. We further ensured user experience and time span by elevating the supply of high-quality ad materials and designing advertising with user sensitivity among other strategies.

Taking these efforts into consideration, we believe that ad loads still have upside potential provided that user experience is preserved. On the other hand, with respect to CPM, we expect it to gradually increase alongside the gradual recovery of advertising on the supply side. We also anticipate improvement as we continue to promote matching efficiency optimization while upgrading the CPM-related product and research.

Specifically, we will focus more on model optimization, user cohort explorations, and other measures to enhance the user conversion rate. We'll also continue to upgrade placement mechanisms for native advertising materials as I just mentioned. We expect these to drive the advertising conversion rate for advertisers, thereby further improving our CPM.

Regarding your second question, as we entered the summer holiday and implemented our support policies for certain key industries, we have seen continuous sequential growth of advertising placement from top industries, including gaming and information services. Due to the recent lack of large-scale promotion events, advertising placements from e-commerce platforms experienced a sequential decline.

However, advertising expenditures from other industries such as education and finance also improved, but sequentially as they entered a peak period during the summer holiday. As such, full of July ad expenditures for external advertising services reached the highest levels since April of last year.

As for opportunities on external advertising services in the second half of this year, first in the gaming industry, we noticed the dark horse's emergence of many program games last year. And in 2023, the market size of the industry segment will reach RMB35 billion. In addition, in developers have launched a large number of new releases recently, and they have a clear advertising need for summer traffic.

Kuaishou has a large young user base in tier-three and tier-four cities who have not yet been reached via traditional channels. But currently, our advertising share in the mini-program game industry is relatively low. This year, we built a dedicated team to provide these advertisers with an integrated solution to optimize game effects. We also ramp up our incentives and support policies for ad agents in an effort to gain additional market share.

Second, in the information services industry, short players and certain social tools will provide better opportunities on the stimulation of bonus summer traffic, leveraging Kuaishou's -- massive user base of 260 million DAUs. Bayshore Place is one of the fastest-growing tracks of Kuaishou. In the first half of the year, we further optimized the existing purchase path for mini-programs and short plays. In July, we launched our native mini-program advertising services, closing the loop for paid short plays within the Kuaishou platform.

This can not only drive more organic traffic for page short plays but also improve their ROIs. Thus, we expect to gain additional advertising placements from paid short plays. Additionally, for our native advertising project, incremental, and spending historically came mainly from the gaming and information services industries. We are further expanding the scope of native materials in industries such as finance and education, which we believe that will drive incremental ad spend growth.

Finally, with many e-commerce industry promotional events coming up in the second half of the year and considering the impact at the end of last year, we expect e-commerce platforms and advertising placements will rebound and recover in the second half.

[Matthew Zhao, VP of Capital Markets, Investor Relations]

Thank you, operator. Next question, please.

[Operator]

Your next question comes from Alex Poon of Morgan Stanley.

[Alex Poon, Morgan Stanley]

My question is related to our new businesses such as local services and blue-collar recruitment, et cetera. Can management share the latest update of these new businesses? Thank you so much.

[Cheng Yixiao]

Thank you for your question. The local service market is becoming increasingly competitive, but competition translates to more possibilities. As a short video platform with high-quality traffic, we are ready to see the opportunities that come with the industry advancements, and the reshaping of the competitive landscape to grow up the market share. Currently, our local service business is in the early rapid growth stage with a quarter-over-quarter GMV increase of about -- of around 200% in the second quarter.

In the second quarter, we accelerated the establishment of MVP leveraging a high-quality CTA rollout strategy and onboarded more local merchants and merchandise. Also, added operations in core cities like Beijing in key cities. We built our own BD team and match merchants with local KOLs to enrich supply. And this led to an approximately 200% quarter-over-quarter increase in both the number of high-quality KOLs as well as the number of high-quality products with high merchandise scores. In terms of supply, we continued to strengthen our in-store dining supply to expand our share voice.

Meanwhile, we capitalized on the trend of offline travel recovery to create blockbuster hotel and travel products in core cities fortifying our mind share among users. In this quarter, we also leveraged live streaming on top of the show videos, offering richer content formats to increase user participation and interaction, while providing more detailed information on products and mechanisms.

We also enhanced content ecosystem governance 40 utilized our traffic advantages, optimized our traffic distribution systems, facilitated high-quality supply, and improved transaction and settlement path in live streaming, plus short videos, and search with the goal of improving transaction efficiency.

This not only significantly improved the user NPS, but also increase the overall local service buyer base by nearly fivefold from January to June.

Looking forward to the second half of the year, we'll continue to cultivate our presence in key cities in which supply builds a trusted KOL ecosystem and optimize our traffic mix based on a broad public domain and a stable private domain. While continuing to increase GMV, we will refine our subsidy strategy to achieve more efficient user conversions. Recently, we launched the Flying Birds project, which will provide more support in the forms of traffic, high-quality local products, training sessions, cash incentives, et cetera. The cot quite shows the local service ecosystem with KOLs.

A quite higher business also made good progress in the second quarter with the average number of daily resume submissions increasing by 290% year over year. In July, the average number of daily resume submissions are stabilized at more than 500,000 on the supply side. Our jobs have covered more than 200 cities across the country with over 200 secondary position categories.

This business's progress, it's mainly due to our continuous upgrading of quite the highest product capabilities and our ongoing optimization of traffic strategies. In terms of building product capabilities, we focus on three areas, including content consultation, and our aggregation hub, which holistically simulates our users' job-hunting needs.

To optimize traffic strategy, we have developed quite a higher sub-proprietary recommendation model to distribute its content traffic, and this has improved matching accuracy among quite the highest content and users while allowing businesses with better service capabilities to obtain greater traffic support.

[Operator]

Your next question comes from Wei Fang of Mizuho Securities.

[Wei Fang, Mizuho Securities]

Thanks for taking my questions and congrats on achieving a positive IFRS net profit. Can you help update us on your four-year breakeven hour as breakeven outlook as well as the trajectory for gross margin and OpEx? Thank you.

[Jin Bing, Chief Financial Officer]

Thank you for the question. With the joint efforts of all Kuaishou's departments, we made another breakthrough in our cost reduction and efficiency enhancement endeavors and hit another major profitability milestone, achieving the first-ever Group level of quarterly IFRS net profit since our listing on a stock exchange in 2021.

Our net profit reached RMB1.48 billion and adjusted net profit reached RMB2.69 billion. These achievements benefited from the healthy and continued expansion of our ecosystem, strength, and monetization capabilities across the business lines and our unremitting efforts to enhance our operation efficiency.

Looking ahead, over the full year, we expect our revenues for each business line will remain solid growth momentum which -- with further improvement in our operation efficiency. We expect our gross profit margin for the full year to be close to 50%, representing a significant increase compared to the prior year.

As mentioned in previous quarters, the factors driving the continuous growth profit margin expansion include: first, the change in our revenue mix, advertising, and e-commerce businesses with higher gross profit margins contribute a larger share of the revenue. And second, our effectively controlled and optimized revenue-sharing costs. And third, we continue to leverage technological innovations and to improve the server and bandwidth usage efficiency.

In terms of selling and marketing expenses, we expect the absolute number for the full year to remain stable compared to last year, while DAUs will achieve a mid-single-digit increase for this year. While ensuring the realization of our user growth and user time spent targets, we will refine our operation to further optimize acquisition cost per user and retention cost per DAU through technological and operational means. In summary, we believe that, with continuous implementation of measures to improve quality and enhance efficiency. We could study and improve our group's profitability.

[Matthew Zhao, VP of Capital Markets, Investor Relations]

Thank you. Operator, next question, please?

[Operator]

Your next question comes from Thomas Chong of Jefferies.

[Thomas Chong, Jefferies]

Thanks, management for taking my questions, and congratulations on a very strong set of results. My question is about our AI strategies. Can management comment about the latest progress on mass language models and thought about the future? Thank you.

[Cheng Yixiao]

Thanks for your question. We disclosed some of our progress with respect to the LLMs at the recent annual Photosynthetic Creators conference. Currently, our R&D team is making progress in LLM development and training as planned. We have currently developed and trained multiple LLMs with tens of billions of parameters at the same time.

Our self-developed LLM called Kwai is undergoing internal testing, providing business to teams with standard APIs and customized product collaboration solutions. As indicated through testing the various LLMs at the of the same scale in our industry. Several of our LLMs indicators are at the industrial leading level.

Yet, we think that it is more important to continue building our LLMs foundation and strive to benchmark the world's most advanced models. And when the time is right, we will disclose further details publicly of the progress of our LLMs.

Leveraging our accumulated technical expertise on LLMs, we have successfully developed several application scenarios. First, in terms of search, we conducted internal testing of our intelligent Q&A product on July 8 and launched internal testing of AI dialogue on August 8th. On August 18th, we officially launched the Kuaishou AI dialogue feature in the Android version of the Kuaishou app with four internal testing.

And this is the first LLMs-based intelligent Q&A product put into application in the short video and live streaming industries. I can provide users with new functions like intelligent Q&A and tax creations in search scenarios.

And second, in terms of AIGC, we created a full model LLM AIGC solution based on our self-developed foundation LMS, we can provide users with multiple technical capabilities, including text, image, 3D, audio, and video generation, covering the whole creation process from inspiration to idea generation from a multifaceted provision of creative materials to intelligent production.

In the vision, four scenarios such as live streaming, e-commerce, local services, and quite higher, we also launched a digital human product Kuaishou Smart Host, which empowers the host to quickly create their own digital twin and use digital humans to start hosting live streaming events and creating short videos.

Lastly, regarding recommendation algorithms, we have accumulated substantial experience in modeling user behavior sequences. Over the past few years, we've self-developed a user behavior modeling solution, which has led to significant business benefits. The success of LLMs in natural language modeling has provided us with new insights leading us to believe that user behavior sequences can be modeled similarly to the modeling of large of language sequences within LLMs.

This can thereby enhance our understanding of short video and live streaming behaviors, enabling better matching through recommendation algorithms and improving the ROI of content recommendations. We firmly believe that Kuaishou video platforms can greatly benefit from the advances in AI technology.

As such, Kuaishou will persistently drive LLM development and training while ensuring the development and training while ensuring the irrational and efficient allocation of manpower and other resources. We will also actively seek opportunities to integrate LLM into diverse business scenarios.

[Matthew Zhao, VP of Capital Markets, Investor Relations]

Thank you, operator. That's the conclusion of our Q&A session.

[Operator]

Thank you once again for joining us today. If you have any further questions, please contact our Capital Markets and Investor Relations team at any time. Thank you.